title: “Going For The Gold” ShowToc: true date: “2022-12-05” author: “Bertha Fossett”
When the bubble burst, embarrassment set in and interest in gold hoarding died. Even today, investors blush at the thought of the Krugerrands stashed in their safe-deposit boxes.
But the contra-Newtonian law of money says that whatever goes down must come up. From $326 an ounce in February 1993, gold has twice sashayed to $400 before dropping off (to $385 last week). The price hit some air pockets this year but never came close to last year’s lows.
Other zesty commodities have caught the ’90s investor’s New Age eye, including nickel, copper, lumber and aluminum. They’re perceived as bargains compared with stocks, and a hedge against the risk of accelerating consumer price inflation.
Ironically, inflation is the least of the reasons for putting hard assets into your portfolio. Just because raw-materials prices jump doesn’t mean that retail prices will, too, according to studies by the CPM Group in New York City, specialists in precious-metals and commodities research. Commodities account for less than a third of economic activity in the United States. Furthermore, gold has generally failed to protect Americans from inflation’s tooth.
The best case for buying commodities and gold is entirely opportunistic. Eric Kobren, editor of the newsletter FundsNet Insight, calls it a play on the dynamic gains of the world’s emerging economies. Salomon Brothers’ David Shulman predicts that in this decade, real growth in non-Japan Asia alone will almost equal the growth in all the industrialized countries combined. These newly prosperous populations are snapping up basic consumer goods. That’s putting pressure on raw materials and gradually driving their prices up.
New supplies will come online as producers invest in plants and equipment. China, for one, is adding ethylene capacity to meet its ballooning need for plastics. New sources of copper might match current demand as early as mid-1995, says Salomon’s Leanne Baker, which would undercut today’s speculative price. Salomon analysts do foresee a lasting boom in many materials, but not until later in the decade, when it starts getting harder to feed the rapid pace of growth.
Gold may happen sooner. Baker believes it’s at the lip of a rally that will last for years. New demand for new gold jewelry – especially in booming Asian countries – greatly exceeds gold-mine production. Gold also seems undervalued when compared with the long run-up in stocks. Armies of investors probably will emerge from the woodwork if the price settles at higher than $400 an ounce. Baker’s target for 1995 is currently $425 an ounce. Like most analysts, she picks gold-mining stocks over bullion coins because mines turn big profits from small increases in the price of the gold they sell. When the price drops, however, the stocks come down hard, so buyers should brace for a scary ride. The mutual funds committed to South African stocks are even more volatile than those that stick with North American mines.
The story on silver also sounds strong. At $5.33 an ounce last week, it’s up 51 percent in just 19 months – yet adjusted for inflation, silver still costs less than it did in the early 1950s. As for black gold, Charles Maxwell, senior energy strategist for C.J. Lawrence in New York, sees faster world growth pushing oil prices higher in 1995 and 1996 – especially if the export embargo continues to restrain Iraq. With higher prices would come greater ardor for drilling and enhancing wells. For this reason, Maxwell’s top-rated investments are companies that service oilfields around the world.
Today’s top mutual funds for natural resources include T. Rowe Price New Era, Eaton Vance Natural Resources and Merrill Lynch Global Resources. The first index fund in this growing sector – Benham Global Natural Resources Fund – will attempt to track the materials and energy portion of the Dow Jones World Stock Index. The gold funds with the best current records all rode the recent South African boom: Lexington Strategic Investments, Fidelity Select Precious Metals, United Services Gold Shares and Van Eck International Investors Gold. For the less volatile North American mining stocks, consider Benham’s Gold Equity Index Fund.
But before springing for a hard-asset investment, see if your current diversified funds have already purchased this sector for you. ““Every equity manager knows that if we reflate, stocks are going lower,’’ says Michael Stolper of Stolper & Co. in San Diego, Calif., who picks money managers for clients. ““One way funds can respond is by buying commodity producers.’’ Among the many funds that have:
Vanguard/Windsor II – 17 percent in energy, 4 percent in basic materials.
Fidelity Capital Appreciation – 20 percent in metals, mining, paper, forest products and energy.
Warburg Pincus Growth and Income – 11 percent in metals and mining, and a growing appetite for gold and energy stocks.
The young Robertson Stephens Contrarian Fund – 25 percent in gold, 11 percent in metals, 14 percent in oil and gas.
The Berwyn Fund – 6.4 percent in metals and mining, 9.3 percent in oil and gas, 8.5 percent in steel.
Columbia Special – 12.6 percent in energy and energy services, 10.9 percent in machinery and capital spending, 5 percent in metals, mining and steel.
Your own fund’s holdings are listed, by industry, in your shareholder reports. If the stock market falls, the natural-resource stocks will fall, too, but not as fast, says Ibbotson Associates in Chicago. Gold stocks can behave differently; sometimes they rise when the market falls (although not dependably).
Caveat: Gold prices may erode unless long-term interest rates decline, says Warren Smith, managing editor of the Bank Credit Analyst in Montreal. There’s no point in risking a metals play if government bonds can be had for a comfortable 8 percent.
