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

To: Square_Dealings who wrote (79395)	11/18/2001 6:33:35 PM
From: Secret_Agent_Man	Read Replies (1) \| Respond to of 116741

Gold Is Hot Again but Is It for Everyone? Story Filed: Sunday, November 18, 2001 11:10 AM EST BOSTON (Reuters) - Remember when gold was hot, trading at $850 an ounce? Not to worry if those glory days are long forgotten -- after all, it was more than two decades ago. Since peaking in 1980, the price of gold has declined by about two-thirds. While some investors are buying shares in gold funds again, the question is, should you join them? Funds that invest in gold bullion and precious metals mining stocks rose 29.9 percent in the 12 months through October. That compared to a 23.2 percent decline for the typical stock fund. The big gold gains in part reflect the falling stock market, which has sent investors scurrying for alternatives to traditional stock funds. In addition, the Federal Reserve has made 10 interest rate cuts since January to stimulate the sagging economy. Trouble is, too many rate cuts could create inflationary pressures -- and gold has performed well during past periods of high inflation. Gold also has been seen as an investment of last resort during times of political crisis. When the September terror attacks raised the specter of war and further domestic disturbances, some investors turned to gold as a potential safe harbor. More recently, Newmont Mining Corp. raised interest in gold with its bid for Australia's largest gold miner, Normandy Mining. Ltd. Newmont is also offering to buy Canada's Franco-Nevada Mining Corp. Ltd., which owns 19.9 percent of the Australian company. The combined group would command an annual output of more than 8 million ounces of gold from its mines spread across five continents on property the size of Great Britain. Some investors are drawn to gold on the simple ground that it has become so much cheaper over the past 20 years, figuring that markets tend to move in cycles. True, gold funds have lost 15 percent annually during the last five years, but that's because low inflation, low interest rates, surging stock prices and a strong economy made stocks and bonds attractive alternatives to gold. Now those other investments are looking shaky and gold is poised to make up for its long period of wandering in the financial wilderness -- or so the new goldbugs hope. They could be right, but don't bet the farm on it. For starters, the economy should see improvement in the coming year, leading to a surge in corporate profits and big gains for many battered stocks across a range of industries. That alone could dampen enthusiasm for gold funds. An economic rebound probably will fuel mild inflationary pressures. But few economists predict the kind of sustained surge in prices that might kick off a long-term bull market in gold. Reason: Technology has greatly increased worker productivity during the past decade, and most countries have plenty of labor and factories to meet demand during the next economic rebound. What's more, gold rarely hangs on to the gains it picks up during a crisis. Gold's 20 percent or so surge after the Sept. 11 attacks began to evaporate almost immediately. The metal recently traded 5.2 percent lower since the September gains, and precious metal funds have declined 0.41 percent. Finally, remember this fact: Gold's price ultimately reflects simple supply and demand. It costs most mining companies $250 or so to produce an ounce of gold -- which is why mines don't supply enough of it to meet demands for jewelry. That shortage would boost the price of gold, except that most central banks have excessive reserves, which they use to meet extra demand. Finally, remember that while gold funds are known as a safe harbor during hard times, they also carry their own risks. The average gold fund plummeted 42 percent in 1997, as a strong economic low inflation environment caused investors to pile into blue chips and technology stocks. That said, gold funds march to a different drummer. That means they can supply important diversification benefits -- as they did during the past year or so. If you decide to invest a modest sum in gold funds, one solid pure-play offering is American Century Global Gold (800-345-2021; $2,500 minimum investment; no load). The fund favors gold-related shares and largely shuns other metals such as platinum and palladium. That has helped the fund post a 51 percent return during the past year -- a period when the price of gold surged ahead that of other metals. What's more, the fund boasts a low expense ratio of 0.67 percent. library.northernlight.com