'From this morning's WSJ.
Robert Folsom
=======================
January 21, 1999
Commodities
Year 2000 Prompts a Shift
To Gold by Some Investors
By TERZAH EWING
Staff Reporter of THE WALL STREET JOURNAL
Robert McKeeman isn't a typical gun-and-bunker kind of guy.
But the 44-year-old Harvard Business School graduate has one thing in common
with hard-core survivalists: He recently upped his investment in precious
metals because of the year 2000 problem.
Mr. McKeeman is entirely reasonable when he discusses the shift in his
investments: It is a hedge, says the Santa Rosa Beach, Fla., resident,
something to protect his investments in case there are problems in the
financial markets. Specifically, he has increased the proportion of his
portfolio allocated to gold and gold-mining stocks to 20% from 5%.
"The rest of the world isn't taking the issue seriously," he says, noting
that he arrived at that conclusion after observing some other firms' Y2K
preparations through his job. And while a spate of recent publicity for the
problem has heartened him, he says, "It's not going to be the end of the
world, but it won't have zero effects either."
Joining the More Paranoid
That is a far cry from the sentiments of the people in 999, when the
still-scattered peoples of Europe awaited 1000 in genuine fear of an
apocalypse. But the old concern has an echo in the new, technological worry.
And faced with Y2K, ordinary people, many of whom work in high-tech
industries, are joining the more paranoid in turning part of their
portfolios over to gold and other precious metals.
The year 2000 problem occurs when older computers that are programmed for
dates with two digits representing the year malfunction or shut down. While
they now read "99" as 1999, for example, they could interpret Jan. 1, 2000,
as the year 1900.
There aren't any statistics available on how many investors are taking this
tack, but perhaps it isn't just coincidence that the U.S. Mint, which makes
bullion coins from gold, silver and platinum, had a record year in 1998,
selling more than 1.8 million ounces of gold American Eagle coins, the most
since the program's frenzied launch in 1986. And gold isn't the only coin
selling well. The mint temporarily has had to stop making its one-ounce
silver coin because the unusual level of demand has overwhelmed
manufacturing capacity at the firms that supply the mint with blank coins.
Precious-Metals Prices
Officials at Blanchard & Co., the country's biggest seller of
investment-grade coins, say their business, too, is benefiting. Christopher
Holton, director of marketing, estimates between 20% and 25% of the New
Orleans firm's 112,000 individual-investor clients expressed concerns about
Y2K last year. Since the beginning of January, which brought many
year-2000-related stories on television and in newspapers, he says,
Blanchard account executives report that 80% of the clients they talk to are
worried about the computer problem. The company recommends clients put 10%
of total assets in gold, rare gold coins and other hard assets.
None of this has done much for precious-metals prices. In the past two years
alone, the price of gold has fallen more than $120 an ounce to historically
low levels. The February futures price at the New York Mercantile Exchange's
Comex division settled at $287.50 an ounce Wednesday, near its lowest level
in decades.
Gold buying related to the year 2000 is largely an American phenomenon, says
Philip Klapwijk, managing director at Gold Fields Mineral Services Ltd.,
London. Most global gold traders are concerned instead with the market's
large issues, such as central-bank sales and lending of gold. Meanwhile,
silver and platinum prices, while not as weak as gold, haven't enjoyed any
Y2K-related spikes either. Some analysts, aware of year-2000-related gold
buying, say Y2K investors, ironically, could spark further precious-metals
bear markets if and when the problem is averted and investors turn around
and sell.
"What we may find is that if you get into the end of January or February
2000 and nothing happens, you're going to get a lot of that [Y2K] gold sold
back into the market," says James Steel, a commodity analyst with Refco Inc.
in New York. But Mr. Steel says he knows a lot of year-2000-related gold
buyers in Silicon Valley. "That's like when all the doctors quit smoking.
You knew it was really bad," he says.
Open Interest
He also points to the relatively high open interest, or number of open
trading positions, in December 1999 call options on gold at the Nymex. (Call
options give their owners the right to buy the underlying commodity at a
specified price.) Exchange statistics show total open interest in the
December calls at 99,512 contracts as of Jan. 15, compared with 64,633
contracts for June 1999 calls and 31,856 contracts for June 2000 calls. Mr.
Steel says, "In a large measure, that's attributable to Y2K buying."
Options players aside, many of the Y2K precious-metals investors are part of
the group that is buying generators and stockpiling food. They say precious
metals could serve as a stop-gap currency if networks fail and people can't
draw on their bank accounts with checks or ATM cards.
Julie Ehlers, a 31-year-old West Orange, N.J., housewife and former
investment adviser, says she has bought krugerrands, South Africa's gold
bullion coins, and shifted most of her 401(k) plan into short-term Treasury
bills and a precious-metals fund. Gold is actually more attractive because
it is at a historic low, she says. If the investment proves unnecessary, she
says, "all I'll have lost will be some interest at a bank, at most. In some
of the really ridiculous [Y2K] scenarios, this could save my life. That
would be bizarre and unlikely." But, she adds, "I'm spending less on this
than on fire insurance."
In other commodity markets:
LUMBER: A surprisingly strong U.S. housing report helped to send Chicago
Mercantile Exchange futures to their highest level in 16 months, analysts
and traders said. U.S. housing starts hit an 11-year high in December,
rising 3.5% in the month to an annual rate of 1.72 million units, the
Commerce Department reported. Economists had expected a more modest rise of
about 1%. The feverish pace of the U.S. housing market points to continued
strong demand in a rapidly tightening lumber market, analysts said.
The CME's front-month March contract surged $10, its exchange-imposed daily
limit, at the opening Wednesday in response to the housing report and held
those gains to close at $348.70 per thousand board feet, its highest level
ever and the highest close for a nearby contract since September 1997. The
May contract rose its $10 limit, closing at $334 per thousand board feet.
In addition to the housing data, the market got a lift from a rallying cash
market. Random Lengths, a Eugene, Ore., newsletter considered the industry's
bible for cash pricing, printed a benchmark cash price of $316 per thousand
board feet in its midweek report, up $8 from Friday and up $13 from a week
ago. But by the day's end, cash lumber sold for about $325 at the mill
level, with some producers asking as much as $338, traders said.
Wednesday was the second straight day in which March futures closed up their
daily limit, as supply worries intensify. "There's a whiff of panic in the
air," said Graham Dallimore, vice president at Global Futures Corp. in
Vancouver, British Columbia.
SUGAR: World raw sugar futures on the Coffee, Sugar & Cocoa Exchange unit of
the New York Board of Trade fell, as speculative commodity funds continued
the selling they began during Tuesday's fall. The March contract dropped
0.17 cent to 7.52 cents a pound. Continued uncertainty about the latest
economic upheaval in Brazil, speculation that Russia won't be as big a buyer
as hoped, and weakening premiums for Thai raw sugar are contributing to the
market's gloomy tone, said Anthony Compagnino, a trader with East Coast
Options Services Inc. in New York.
HOGS: Lean hog futures and pork belly futures rose by their limit on the
Chicago Mercantile Exchange due to talk of export business that couldn't be
confirmed. The February hog contract rose two cents to 40.82 cents a pound.
"The hogs and the bellies traded on more rumor than fact," said Chuck
Levitt, analyst with Alaron Trading Corp. in Chicago. "The trade looked at
stories indicating that Japan might be in the market for some less expensive
pork cuts, like bellies."
___
from c.s.y2k
|
