A few more of this kind of article and we just might get some good stink bids!
(Bolding is mine)
Gold stocks are high, but beware of wild ride
Posted on Mon, Apr. 22, 2002
BY SUSAN TOMPOR
FREE PRESS COLUMNIST
The most precious spot to make money this year has been a place where most people haven't invested any of their money.
Talk to anybody lately who owns gold?
Well, gold funds are soaring. Gold-oriented mutual funds gained 37.54 percent so far this year through April 18.
Compare that to the beating elsewhere. On average, large-company growth funds were down 5.25 percent. Science and technology funds were down an average of 11.97 percent this year through April 18, according to Lipper Inc. , a mutual fund tracking firm in New York.
Yet when you look at all the assets in stock funds, only a tiny fraction of the dollars are in gold.
About $2.57 billion was invested in gold funds as of the end of February. But that represents less than one-tenth of 1 percent of the money in stock funds, says Don Cassidy, senior research analyst for Lipper in Denver.
"I have not had a single request to look into a gold fund or gold stock in years," said Larry Moss, senior vice president for Raymond James & Associates in Birmingham.
With good reason. Gold has a wild history of short-lived run-ups and long, painful downturns.
You have to go back to 1993 to find the last big, blowout year. The average gold fund was up 81 percent in 1993.
Losers? Gold was down 42 percent in 1997, down 10 percent in 1998 and down 17 percent in 2000.
Last year, gold funds were up an average 19 percent.
"It certainly hasn't paid off for the long haul," said Christopher Davis, a mutual fund analyst for Morningstar Inc. , a fund tracker in Chicago.
For five years, gold funds were down 3.53 percent on average on an annualized basis. Diversified U.S. stock funds were up on average 9.43 percent, Lipper said.
But gold has made a Cinderella comeback for several reasons.
Japanese investors are loading up on gold, given the severe banking crisis in Japan.
"What's new in Japan is that there are an increasing number of banks going bankrupt," said Charles de Vaulx, comanager of the First Eagle SoGen Gold Fund in New York. The SoGen gold fund was up 53.4 percent this year through April 18. It gained 37.3 percent in 2001. But it was down 17.9 percent in 2000. How well a gold fund does is influenced by two basics -- the price of gold itself and the price of gold-mining stocks.
Most gold funds do not actually own the metal. They own stocks in gold-mining companies. The higher the price of gold climbs, the higher the mining stocks go. Gold has climbed from about $277 an ounce at the end of 2001 to about $300 an ounce in April -- up about 8 percent.
It also has helped that gold-mining companies are gobbling up each other. And that's made mining stocks more valuable. Will gold fever grow?
Some, including investment bank Goldman Sachs & Co. , maintain that the price of gold will continue to climb this year, thanks to Japanese buyers and intensified violence in the Middle East.
De Vaulx says he can see gold prices rising from $300 an ounce to $350 an ounce. "We remain very bullish on gold," he said.
No doubt, there are risks. If the U.S. economy posts a strong recovery, gold won't be as strong.
"Gold funds tend to do their best when the economy is at its worst," Davis said.
Another major risk: If gold prices don't continue climbing, de Vaulx said, stocks of gold mining companies will likely fall.
But even if the prospects for gold remain strong, most market watchers do not see the day when U.S. investors go for the gold.
Yes, investors have a nasty habit of chasing the latest winners. But it's hard to ignore that gold was a stupid bet for most of the past decade.
At best, gold funds can be used as a hedge. Some investors might want gold to be 5 percent of their assets -- or less.
"People view gold as an inflation hedge and I don't think serious investors out there see inflation as a big issue," Moss said.
"Today, cash is the alternative. They want the ultimate safety."
And if you're looking for a safe spot, gold isn't it.
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Contact SUSAN TOMPOR at 313-222-8876 or tompor@freepress.com.
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