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

To: goldsnow who wrote (19892)	9/27/1998 1:16:00 PM
From: Sergio R. Mejia	Read Replies (3) \| Respond to of 116759

big money looking for a safe haven (Gold Stocks) Gold stocks finally react to bad news [Getting Technical - By Bill Carrigan] September 27, 1998 Las week, Placer Dome Inc. hit a new 1998 high. Barrick Gold Inc. was up 50 per cent from the Sept. 1 close of $20.50. You can't ignore moves like that. Think of the money it takes to move the shares of these big companies. Over the past five days, about $500 million alone poured into Barrick Gold. I don't think the motive for all this buying is pending inflation. I think it is big money looking for a safe haven. This could be exciting for the holders of gold stocks. There is not a lot of investment-grade gold stocks to go around, and we could see lots of dollars chasing too few gold shares. In the 1990s, gold hadn't reacted to wars and currency devaluations - to the frustration of the gold bugs. But with the latest sudden surge, could it be that something has finally got money running into gold? Well, there may be clue in last Thursday's stock markets, which sold off amid mounting worries over the damage done by financial derivatives on U.S. banks and brokerage firms. The news of the near-collapse of a major hedge fund and an admission of steep market-related losses by Europe's biggest bank sent the gold stocks higher for the third day in a row. A hedge fund is like a private mutual fund and, as such, is not subject to the restrictions of a fund offered for public sale. In many cases the owners of a hedge fund, which can have participants such as banks, want above-average returns and so they take risky positions in futures contracts. These fund managers do make trading errors. If the fund is big, the errors are big. (Remember Nick Leeson, whose derivatives deals in Singapore brought down Britain's oldest merchant bank, Barings.) The fund Long-Term Capital Management L.P. admitted losing $2.5 billion (U.S.), or 52 per cent of its net assets. There was speculation that the hedge fund is carrying a huge short position in gold. If so, the fund would eventually would have to buy back gold to cover its short position, thus driving gold prices higher. Many of the world's biggest banks and brokerage firms met at the New York Federal Reserve Bank to put together a rescue plan worth in excess of $3.5 billion (U.S.). Under the terms of the plan, more than 12 firms will each pitch in $300 million and take an ownership position in the fund. Financial stocks in Toronto and New York sold off on the possibility other leveraged players with huge losses in futures and options positions may step forward. Hard assets like gold and oil look good at a time like this. I think every portfolio should have a gold component, perhaps at least 10 per cent. Placer Dome is one of our market leaders in the gold stock complex. We have charted it along with the smaller producer, Kinross Gold, and the tiny Eldorado Gold Corp. Gold stocks tend to move in an orderly sequence. The leaders like Barrick and Placer get underway first. They are then followed by the intermediate producers like Kinross, and then by the small producers like Eldorado. Placer has broken up over its trend line and should now lead the smaller producers higher over the next few weeks. As the gold price advances over several months (or years), the exploration plays get active and then the speculative blow-off is just around the corner. All full-service brokers follow the gold stocks. Ask for their research material. Watch the leaders, trade in active, producing gold mining stocks and don't invest all in one stock. ------------------- Bill Carrigan is an independent stock market analyst. His Getting Technical appears Sundays. He can be reached by E-mail at carrigan@vaxxine.com Contents copyright © 1996-1998, The Toronto Star.