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Gold/Mining/Energy : Gold Price Monitor -- Ignore unavailable to you. Want to Upgrade?

To: Little Joe who wrote (60847)	11/11/2000 5:17:39 AM
From: Alex	Respond to of 116759

Why Gold No Longer Glitters by Peter Di Teresa \| 11-10-2000 \| E-mail Article to a Friend \| Ask the Professor a Question Dear Professor, Why didn’t the precious-metals (gold) sector go up when the Nasdaq recently dropped? Dave J. Let me guess: Dave is one of those investors who still thinks gold is a viable safeguard against inflation and other economic woes. Here’s the short answer to your question, Dave: Because investors know a bad thing when they see it. Instead of fleeing to gold and other precious-metals stocks, nervous investors have (quite prudently, in my opinion) sought refuge with less-volatile, not to mention, better-performing securities such as utilities, energy, and real-estate stocks. When did gold lose it’s luster and why? And how then should you hedge your portfolio against inflation and bear markets? Read on. Whatever Happened to Gold? Historically, gold has played the contrarian to the U.S. economy and the stock market. Gold prices soared during the high-inflation environment of the 1970s, and in 1993, as inflation fears and interest rates rose, the average precious-metals fund returned a whopping 82%, versus 10% for the S&P 500 index. But 1993 is the last time the precious-metals group came anywhere near to beating--or even meeting--the general market. In fact, gold funds have made a miserable showing over the past 10 years--losing almost 7% annually, compared with a 20% annual gain for the S&P 500. Ouch! Why all this misery in the gold sector? The decade-long boom of the stock market, fuelled in part by the technology stocks of the Nasdaq index, is one reason. U.S. stocks, with their strong returns and quantifiable risk, simply look safer and more rewarding than gold. The same rock-bottom interest rates and minimal inflation that has powered strong company profits has also kept investors away from what is often considered a doomsday investment. But more importantly, precious metals have fallen victim to a changing world. Gold reserves were once used to back government currency, but many central banks--particularly in Europe--have sold their reserves in recent years. And with safer investments like U.S. Treasury bonds readily available, no one’s interested in buying those big blocks of gold bullion back. It’s a simple case of too much supply and too little demand. Gold’s Prospects Is this scenario likely to change? Anything’s possible, but the forecast for gold doesn’t look bright. Many gold bugs expected 1999 to be a banner year. They assumed that panicky types who stocked their emergency bunkers in anticipation of a government collapse would hoard all the gold they could find. We all know what happened with those Y2K predictions. While gold prices rose and the gold sector rebounded a bit in late 1999, investors didn’t exactly go hog wild for hard assets. And we won’t see the likes of millennial fever again for another 1,000 years. The rollicking Nasdaq index hasn’t scared investors into gold’s corner, either. Though the tech-laden index has lost 17% this year through October, the gold-funds group is down an astonishing 28%. How to hedge? If you’re seeking an alternate portfolio hedge with infinitely better returns and considerably less risk, consider utilities fund, a natural-resources fund that holds a variety of commodity stocks, or a real-estate investment trust, or REIT. These types of funds usually flourish when higher-growth sectors flounder. Cautious types should also take a look at inflation-adjusted bonds, or TIPS. If you must buy gold, make it a very small percentage of your portfolio--no more than 10% of total assets. Individual gold stocks are extremely risky, so look for a precious-metals fund that has performed well relative to its peer group. For a few ideas, check out Morningstar’s Fund Analyst Picks in the precious-metals category. news.morningstar.com