6/10/99 - Decreasing Gold Prices May Present Buying Opportunity
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Jun. 9 (The Sacramento Bee/KRTBN)--Is now the time to buy gold? With prices hitting 20-year lows on the New York and London exchanges Tuesday, some gold advocates said current prices represent an outstanding buying opportunity. But others said prices could keep falling in the weeks ahead.
In any case, experts said, investors need to be particular about where they put their money -- and when. For now, investors should stay with "solid, fundamental" companies, said Merrill Lynch analyst Mike Jalonen, who tracks the gold markets in North America.
"Our view is, you only want to be in (stocks of companies that are) low-cost producers, with strong balance sheets and big production bases -- million-ounce-plus," he said.
Other companies could become attractive when prices reverse a steady decline that dropped gold Tuesday to its lowest level since 1979. On the London exchange, gold fell $2.85 to close at $262.35. The metal dropped $3.40 to close at $263.80 for August contracts on the Commodities Exchange in New York. That"s sharply below the peak of 1980, when inflation pushed the commodity above $800 an ounce.
Prices could drop farther, experts say, as the British Treasury nears its first gold auction on July 8.
Last month, the British Treasury said it would auction off 125 tons, or 17 percent of its total gold reserves, by the end of March 2000.
"We may see further price erosion, because others are trying to get in their sales in advance of that auction ... sensing that that auction may push the price to a new low," said one gold expert.
The British sell-off is just the latest by banking institutions in Europe and elsewhere that see better returns are possible in alternative investments.
"What they are trying to do is convert a reserve asset into a revenue asset," said Turk May, director of marketing for Jefferson Coin & Bullion Inc., a New Orleans trader.
That may not be a bad idea -- for now, experts say. "But if inflation goes up, and the (gold) market goes up, it is going to be a bad thing," said May.
"When all your other investments go (downhill), gold starts rising and covers your losses," he said. "That"s the whole point in owning gold. If you believe that, what you"re looking at right now is the greatest buying opportunity in years."
Gold"s main purpose is as a hedge against inflation, noted Bruce Bartlett, a senior fellow in Washington, D.C., for the National Center for Policy Analysis.
"But the thing is that inflation has been pretty well under control over the last few years," he said, adding that as long as inflation remains low, the price of gold will continue to fall.
"At some point, it will fall low enough that people will want to have it just to have it ... for its beauty or luster," said Bartlett, "But I think that"s below the current price -- although I can"t tell you what the bottom is."
In recent weeks, shares of mining and exploration companies have continued to fall. Barrick Gold fell modestly Tuesday to close at $17.25. Newmont Mining fell to $17.93 3/4. Both stocks were trading above $20 in May.
"If you"re an investor, you have to ask, "Are we at the bottom of the cycle?" " said Paul Bateman, executive vice president for The Gold Institute, an association of gold producers, refiners and traders, "and, "Is this an opportunity for an investor?""
By Loretta Kalb
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(c) 1999, The Sacramento (Calif.) Bee. Distributed by Knight Ridder/Tribune Business News. MER, END!A$2?SA-GOLD |
