Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

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

To: goldworldnet who wrote (70911)	5/31/2001 5:24:10 PM
From: Eclectus	Read Replies (2) \| Respond to of 116791

goldworldnet CNBC article... CNBC Gold: Why you should run the other way This year's soaring gold stocks look like last year's techs, and with tame inflation and soft demand, there's every bit as much reason to avoid them. By Alan M. Gayle Gold stocks are a bright spot this year in an otherwise lackluster market, thanks to the yellow metal’s surging price. But before the gold bug stings your portfolio, keep in mind that benign inflation forecasts and generally soft demand for gold could make precious-metals stocks a flash in the pan. Seasoned investors know the recent history of gold. The decision to end the $35-an-ounce fixed convertibility rate in 1973 unleashed a gold tsunami, and the mania surrounding gold in the high-inflation days of the late 1970s and early 1980s propelled gold prices as high as $800 an ounce. But a significant decline quickly followed, and during the past 15 years, periods of stability and even modest appreciation always yielded to further drops. Stellar returns in a dull market More recently, gold has traded at about $285 an ounce, up from a 52-week low of $255 at the beginning of April. With most other sectors of the stock and bond markets languishing, the relative appeal of gold stocks is obvious. There are four gold- or precious metals-mining companies in the Standard & Poor’s 500 ($INX) index: Barrick Gold (ABX, news, msgs), Newmont Mining (NEM, news, msgs), Placer Dome (PDG, news, msgs) and Homestake Mining (HM, news, msgs). While the four companies combined represent a very modest 0.16% of the index’s total market capitalization, their market performance this year has shined. On average, each of these four is up more than 36% year to date, compared with a 1% loss in the S&P 500. With gold stocks now performing like the tech stocks we used to know and love, the temptation to jump on the trend only grows. Don’t yield any investment dollars until you understand a little gold history and the current economic environment. Why you shouldn't bite The demand for gold as a central-bank reserve asset has declined since the last days of the Bretton Woods accord of 1973. In fact, in recent years, European central banks have been working off their gold reserves in order to raise cash. This diminishing use of gold as a monetary-policy support tool has weakened overall demand. Further, the fear of inflation has gradually diminished since its peak in the late 1970s and early 1980s. As a result, demand spikes that might otherwise push gold higher have quickly petered out. Few gold advances have been sustained long enough to raise gold producers’ profit margins significantly. In the current economic cycle, inflation, as measured by the consumer price index, appears to have peaked at about 3.5%, compared with nearly 15% in 1980 and more than 7% in 1990. We forecast inflation to ease gradually in the second half of this year and into 2002. This limits the need for an inflation “hedge,” the classic reason investors buy gold. Demand for gold is questionable, at best, and it is likely in decline except for narrow industrial uses. Combine that fact with the gold industry’s trouble bolstering productivity or profit margins, and you might imagine the slim chances that gold miners have entered a new wave of prosperity. Investors who own stocks in this industry should consider cashing in some of the gains to offset losses in other stocks. And investors who may be tempted by the glitter and glamour of gold stocks may do well to remember how past flashes of strength have flickered and faded. Alan M. Gayle analyzes global economic and financial conditions and their potential impact on the stock and bond markets. He is managing director at Trusco Capital Management in Richmond, Va. Gayle has been with the Trusco / SunTrust organization for 25 years in several investment-oriented positions. Eclectus Got God? Got Gold?