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.

Pastimes : Clown-Free Zone... sorry, no clowns allowed -- Ignore unavailable to you. Want to Upgrade?

To: Knighty Tin who wrote (235171)	4/12/2003 11:00:29 AM
From: Knighty Tin	Read Replies (2) \| Respond to of 436258

Barbarous relic under $300? View: For Investors, Gold's Vision 20/20 Saturday April 12, 10:00 AM EDT (Pierre Belec is a free-lance journalist. Any opinions expressed are those of Mr. Belec.) By Pierre Belec NEW YORK (Reuters) - Global investors are climbing out of the bomb shelters on a fairly good bet the Iraq war has reached the end game. But the lesson a lot of people learned from the geopolitical script was this: Gold shouldn't have been written off as just a "barbaric relic" of the past -- never to be mentioned in the same breath with the word "investment." Indeed, Wall Street could not help but notice that gold again proved itself as a super-sensitive, forward-looking indicator. It predicted how the Gulf War would go and how long it would last. After being snubbed by investors for more than 10 years, gold surged to a six-year high above $390 an ounce in February from a low of $252 in the summer of 1999. The price now hovers at around $328, not far above a four-month low of about $326 as the end of the war appears to be in sight. "Equity investors should pay attention to the message delivered by gold," says Richard Salsman, chief market strategist for InterMarket Forecasting Inc. "For weeks, it's been predicting a swift and decisive U.S. defeat of Saddam Hussein." GOLD IN THE HEAT OF BATTLE Fast rewind to Feb. 5. The price of gold peaked at around $391 as speculation by arm-chair generals about a long and bloody war sent stock prices in retreat. But then gold reversed course, sliding 11.2 percent to $336 by March 19th, the day U.S.-led forces unleashed the military campaign in Iraq. "Gold was signaling a short and successful war -- even before it began," Salsman says. "While most of the media initially hinted that the U.S. military was getting bogged down, gold was reporting and predicting the opposite." History is full of examples that gold is the best "war correspondent," Salsman says. The precious metal has also been known to accurately predict the direction of the stock market. It signaled the Great Bull Market of the late 1990s as gold prices plunged by 39 percent between February 1996 and July 1999. The stock bubble burst in March 2000. On the war scoreboard, in the early 1970s gold leaped 430 percent during the disastrous Viet Nam war, rising from $35 in 1968 to a high of $185.50 by December 1974. During the first Gulf War, gold climbed nearly 9 percent in early December 1990 before peaking above $400 when the military campaign began on Jan. 16, 1991. "The Gulf War lasted fewer than six weeks, ending on February 27 and the short and successful U.S. campaign was anticipated by gold's 10 percent decline in the month after the war began," Salsman says. THE BUGS WITH THE GOLDEN EYES Gold bugs tend to have an apocalyptic view of financial markets. When everybody else is bearish on stock investing, then it's time to be bullish on gold. After stocks crashed in October 1987, gold shot up to nearly $500. Yes, gold carries a lot of risk, as do all types of narrow investments. A quick shift in sentiment can drain them of their rich liquidity in a New York minute. High-flying Internet stocks are examples of such narrow investments, which boomed in the late 1990s and went bust in early 2000. It's simply a case of when everyone has been buying, the next act is to sell. Going forward, what happens in the Middle East will dictate the price of gold. Once the "all clear" sounds, gold may drop back below $300 an ounce. So far, there hasn't been a wholesale exit from gold. When gold seesawed between $328 and $334 in late March, speculative long positions on New York's COMEX dropped to 24,367 contracts in the week ended April 1, from 29,530 in the earlier week. This would suggest that some investors are still pricing in risk expectations. Underlying the war fear are deeper worries about the health of the world's biggest economy and the weaker dollar. Consumer spending, which generates two-thirds of the nation's growth, could stall and lead the economy back into recession. Americans continued to cut back on borrowing in February. The increase of 3.64 percent in consumer credit from the level of a year earlier was the slowest 12-month rise since 1993, according to the Federal Reserve. It's fair to say the stock market will remain vulnerable to more bad news. So gold may retain some of its recent luster as people continue to hedge their bets. Don't expect investors to jump back with both feet into a premium-priced U.S. stock market. Money managers are not patriotic types. They'll shift to places where their cash will be treated well. For the week, all three major stock indexes lost ground. The blue-chip Dow Jones industrial average shed 0.89 percent to finish at 8,203.41, while the tech-laden Nasdaq composite index lost 1.78 percent to end at 1,358.85, based on the latest available figures. The broad Standard & Poor's 500 index slid 1.2 percent to close at 868.30. (Pierre Belec is a free-lance journalist. Any opinions expressed are those of Mr. Belec.)