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To: re3 who wrote (142790)	6/6/2002 7:13:17 PM
From: H James Morris	Respond to of 164684

WRAPUP 1-US stocks hit 8-month lows; bonds, gold up Reuters, Jun 06, 2002 18:23 PM

To: re3 who wrote (142790)	6/7/2002 1:42:38 PM
From: H James Morris	Respond to of 164684

Financial Times; Jun 06, 2002 Gold bugs are finally being rewarded for their patience, as the price of the precious metal rises to four-and-a-half year highs, underpinning a rally in gold companies' shares and healthy returns for gold mutual funds. Gold or precious metals funds, including Gabelli Gold Fund, American Century, Oppenheimer Gold and Vanguard Precious Metals, have returned 72.1 per cent in the five months to May, a handsome reward for anyone who invested at the start of the year. The returns - up 19.6 per cent in May alone, the highest one-month return for any fund category since February 2000, according to fund tracker Lipper - has sparked a gold investment rush. Investment in gold funds, which do not hold the actual metal but do hold stocks, surged 5 per cent in April alone. However, fund managers and analysts have warned that gold's rally may not last and that the poor investing environment elsewhere is causing an excess of enthusiasm for gold and gold funds. A spokesman for Vanguard, the US's second largest mutual fund company, said one client caught up in the gold rush wanted to take his investment in gold-oriented funds to 100 per cent. "It was alarming," he said. Vanguard, which holds $700m in gold stocks, increased its exposure to gold from 0.1 per cent of total assets 18 months ago to its current holding of just less than 0.5 per cent. Graham French, a fund manager at Vanguard, said investors were turning to gold as a safe haven "to avoid corporate excesses in the equity markets like Tyco, WorldCom and Enron". "Gold is a good diversification tool but history would suggest it is not the best return in asset class," he said. Kamal Naqvi, an analyst at Macquarie, the Australian investment bank, said gold prices may stay higher in the next two months after futures rocketed above $330 an ounce this week. "There may be upside, to $340 to $350 an ounce levels but we are not super-bullish." Gold's rally is being driven by several factors. Producers are unwinding their hedges and gold companies are being rewarded with higher share prices. Geopolitical risk after the September 11 attacks and broader economic uncertainty, including a weakening US dollar and lacklustre equities, have also helped the precious metal.

To: re3 who wrote (142790)	6/9/2002 9:13:06 AM
From: H James Morris	Read Replies (2) \| Respond to of 164684

Ike, where are the gold bugs? >>NEW YORK — Where are all the gold bugs? Gold prices are up 18 percent over last year, year to date, producing the best returns since 1987. Gold stocks are the best-performing group in the Standard & Poor's 500 index. The Philadelphia Stock Exchange Gold and Silver Index is up 63 percent in 2002. Yet we've heard nary a peep from the gold bugs, that exclusive club of folks that ties every wiggle in the price of gold — even if it's purely the result of decisions by central banks to buy or sell — to a change in inflation or inflation expectations. Theoretically, there are only two situations in which it makes sense to own gold: when inflation is on the rise or when real interest rates — everywhere in the world — are low. The first condition hardly seems applicable at the moment. Inflation is at the bottom of everyone's list of concerns. It's been declared dead by the Federal Reserve; some policy-makers are even opining that a little inflation might not be such a bad thing in a world where the gap between nominal overnight rates and zero is small. "Higher metals prices have always presaged inflation," says Chris Low, chief economist at First Tennessee Capital Markets. "Everyone says it's different this time, including many of the renowned gold bugs." It was different this time, too, with the inverted yield curve for the better part of 2000 and early 2001, Low says. "Everyone assumed that curve inversion was caused by the surplus and didn't presage a recession, until suddenly the recession was upon us," he says. Gold is expensive to hold. Since bullion pays no interest, there's an opportunity cost in owning it: Holders forgo what they could earn elsewhere, such as the interest on a Treasury bill, note or bond. Real overnight rates are pretty low in the industrialized world. In the U.S., the overnight federal-funds rate stands at 1.75 percent while the annual inflation rate, using the good ol' consumer price index, is 1.6 percent. The difference between the two — 0.15 percent — is close enough to zero for government work. (Long-term interest rates offer a more generous real return, but bond buyers incur market risk.) In Japan, interest rates are virtually at zero and prices are falling. Japan's CPI is dropping at a 1.1 percent rate, producing a positive real return of 1.1 percent for investors. All the stories about the Japanese buying gold make no sense since cash gains value in a deflationary environment. Japanese investors would be well advised to go out and buy a safe to hold their money if stuffing it under the mattress is unappealing. Putting money into gold would hold some appeal to Middle East investors, who might fear a freezing of their assets in the event of another terrorist attack. Low real rates seem to provide a plausible explanation for holding gold, although it doesn't explain the recent surge of enthusiasm that took gold prices to a 2 1/2-year high of $330 recently. At least it's preferable to the idea that gold represents a safe haven from the stock market, which fails to explain why investors would incur the cost. Whatever the microeconomic forces causing a shift in investor preferences from financial to hard assets, "a new macroeconomic assessment may be the motive force," says Neal Soss, chief economist at Credit Suisse First Boston. "The trends in globalization and deregulation have been blunted, if not partially reversed, by recent developments." A world where terrorism is directed against the U.S. on U.S. soil has shifted society's priorities from freedom to security. War "is an inherently collective enterprise," Soss notes, countering the 1990s tide of open markets. The bursting of the stock-market bubble exposed its share of scandals and frauds, leading to calls for increased regulation. Add to that the fact that "wartime central banks tend to try to hold real short-term interest rates lower than they might prefer in peacetime," and gold's rise starts to make sense. Perhaps Soss' analysis is an elegant explanation of the gut-level reaction to buy gold on news of terrorist threats. Traders may think they're buying a safe haven, but what they're really doing is acknowledging that a New World requires new asset preferences.<< seattletimes.nwsource.com