Posted on 04/25/2002 8:42:14 AM PDT by Cuttnhorse
SAN FRANCISCO (CBS.MW) -- Gold's spot price approached $310 Thursday for the first time since Oct. 22, 1999, confirming what observers say is a sustained rally for the precious metal.
The metal's rise, up $4.20 to $308 an ounce, came as the euro gained to almost 90 cents on the dollar and the yen rose almost 1 percent against the greenback. The metal, which traded around $270 in January, is reflecting Middle Eastern turmoil, a visit by the Saudi king to Texas and the U.S. stock market's decline below what technicians say are support levels.
"We're in the second stage of a raging market for gold, and eventually silver and palladium will follow," said James Dines, editor of The Dines Letter, an advisory service that covers mining companies.
Investors' shift to gold and other mining companies comes as the stock market whips once-mighty issues like Tyco International (TYC: news, chart, profile), IBM (IBM: news, chart, profile) , AOL Time Warner and General Electric. On Thursday morning, Tyco saw $9 billion of market capitalization vanish after the ailing conglomerate abandoned its break-up plan. The reversal by Tyco led one market trader, whose name will stay safely anonymous, to label the company "psycho Tyco."
Robert Bishop, longtime editor of The Gold Mining Stock Report, said spot gold's price of $305 was a so-called resistance level for wary American investors who prefer to believe their beloved NYSE and Nasdaq stocks, tainted by the collapse of Tyco, Cisco Systems and others, would stage a comeback. If gold holds its gains above $305, Bishop expects the metal's price to rise another $50 to $60 an ounce in the coming year, and perhaps more.
At the same time, he says, gold-related equities are trading at prices that suggest far higher levels for the metal. "Gold's persistent stay north of $300 suggests that the next stage of the gold market is fast coming into view," Bishop says. Most Main Street and Wall Street investors, he says, are still "much more interested in seeing their Dow and Nasdaq-heavy portfolios restored to some measure of their former selves."
That won't happen anytime soon. Most Americans are sitting on 50 percent and greater losses in their stock-market retirement accounts.
Pravin Banker said gold will continue to benefit from a growing disgust with mainstream securities and sloppy interest-rate guidance by the Federal Reserve. Banker, principal of LDC Bond Watch and The Financial Network Inc in Connecticut, accurately forecast Tyco's debt woes, IBM's accounting snafus and other red flares among blue-chip companies. More on Banker's Tyco view.
"For 6 years now, lured by the Rubin-inspired strong dollar policy, foreigners have forsaken gold for the safety of dollars and faith in that Der Alte Greenspan, its guardian," Banker said Thursday about Robert Rubin and Alan Greenspan. "Enron has revealed the ugly side of manipulation and collusion, and the risks inherent in unserviceable debt burdens, Tyco the last straw. Asian faith is shaken. They are reverting back to their age old haven, and tempting U.S. institutions to follow in their wake, and buy gold." More on the gold story.
For investors, gold's latest rally has lifted gold equity indexes across the globe, none more so than in South Africa. With a market cap of $6 billion, Gold Fields Ltd. (GOLD: news, chart, profile) is that nation's most richly valued bullion miner, surpassing longtime heavyweight Anglogold (AU: news, chart, profile). Gold Fields, its production entirely unhedged against the possibility of the metal's decline, has built its 85 million ounces of gold reserves through the rapid -- and cheap -- purchase of mines in Africa and Australia.
Gold's rally leaves many large and small investors searching for mining companies whose shares look reasonably valued. Trouble is, as newsletter editor Bishop points out, many established gold names trade at levels that almost demand a gold price that is at least 15 percent greater that the current price. In this year's first quarter, gold-based mutual funds, many of them up 40-plus percent, made up 18 of the top 20 spots for domestic funds in the three-month span.
Bishop recommends buying the stocks he has backed for years, unhedged miners such as South Africa's Harmony Gold (HGMCY: news, chart, profile), Gold Fields, Goldcorp (GG: news, chart, profile) and others represented by the Amex Gold Bugs Index (HUI: news, chart, profile).
Dines, who tracks low-priced mining stocks, says America's brokerage and research houses "are still sniffing in the empty mouse holes of Microsoft and AT&T. Meanwhile, this is the biggest gold rally of the past 20 years."
Dines, whose model stock portfolio was one of the first quarter's top 10 performers for the 165 newsletters tracked by Hulbert Financial Digest, says investors would do well to buy silver miners at this stage.
"You cannot get a raging bull market in gold without dragging the silvers higher," Dines said Thursday. "Silver is the poor man's gold; it is not just an industrial metal. Silver will be dragged higher from $4.60 an ounce as people look for the cheap stocks to buy."
Doesn't matter, Barrick's hedge contracts can be rolled forward and half of production is not hedged. Hedging was great for Barrick when the rest of the mining companies were getting market prices for gold, Barrick was making over $300 million a year just from their hedge premium.
All things considered I'll take unhedged. (with the exception of DROOY)
DROOY? Got me on that one.
Amen!!
The gold bug's stock du jour; it's had a good run over the last few months.
There are still many undervalued gold equities; DROOY may be one of them.
(Barry Cooper at CIBC World Markets in Toronto on 4/23)
Investors, says Cooper, are voting with their dollars, preferring to buy shares of the world's largest unhedged producers, Denver's Newmont Mining and South Africa's Gold Fields, as opposed to their hedged counterparts.
"Investors just don't want to be stuck with a hedged position if gold rallies strongly," he said.
Indeed, shares of unhedged producers have outpaced by a wide margin those that hedge by forward-selling their gold. Shares of Gold Fields, South Africa's second largest gold miner, are up 145 percent. The company has no hedge book. In contrast, shares of hedger Placer Dome have risen 13 percent and Barrick Gold is up just 16 percent.
I think they're only going to get more interesting.
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