SuperModels Community
Join the discussion in the MSN Money SuperModels Community.
SuperModels
Recent articles:
• Get ready for another late rally, 9/28/2005
• Hate Big Oil? Hate home-builders, too, 9/21/2005
• Who's really to blame for $3-a-gallon gas?, 9/7/2005
More...
| | SuperModels
Why gold is gleaming again
With gold at 17-year highs, patient investors will be rewarded by buying on the next big dip. Here's how to go prospecting in the modern marketplace.
By Jon D. Markman
The price of gold has risen to 17-year highs lately, conjuring giddy dreams among the bunker-and-canned-beans crowd that Armageddon is just around the corner.
Yet among most investors, the ascent of gold to levels not seen since the Reagan administration has been a big yawn. The ore is widely considered an artifact of another era, a crock at the end of their grandpas rainbow. Lets just say the radio talk shows arent exactly lit up with angry callers calling for a tax on the windfall profits of gold miners.
If gold goes much higher, though, its going to start making the nightly news, and maybe even the cover of a news magazine. Then it will begin to dawn on equity investors that something really important is happening, and that it might just be worth the effort to branch out from the straightforward earnings-and-economics world of stocks and into the supply-and-monetary policy world of precious-metals trading.
By the time most arrive, it will be time for gold to reverse, of course, by as much as 15%, in step with higher U.S. interest rates and the dollar. Over the next 12 to 36 months, though, after the Federal Reserve is done raising rates, it could go much, much higher. With so much rootless capital roaming the world in search of the next big trade, in fact, it wouldnt take much a spark of love from the worlds new legion of momentum-oriented hedge funds to push this thinly traded market to levels well beyond the $800 bogey of the early 80s if inflation, sentiment and consumer-demand harmonize.
In gold we (sometimes) trust
Gold is as much about investors state of mind as it as about the status of mines. It is a set of beliefs and a world view as much as it is a shiny, malleable metal to wear around your neck, or pound into coins, or stow away in a safe-deposit box. When the stock market and real estate are performing well, gold seems too abstract to bother with. It is only when sentiment for equities and the dollar turn more bearish that precious metals begin to shine.
Related news and commentary on MSN Money
Since the intrinsic value of gold is a real mystery to most people -- it doesnt have a P/E multiple, and doesnt seem essential to everyday life -- it goes through historical cycles of lust and indifference. In recent months, it has decoupled from its inverse relationship with the dollar -- moving higher even as the dollar has advanced due to improvements in the demand-supply balance. My guess is that while now is not the time to chase it, patient investors will be rewarded by buying the next big dip either via the futures market or through the shares of gold-mining companies.
Ill have a few suggestions along those lines in a moment, but first a little background.
What does set gold apart from everything else you can sink your hard-earned money into?
For one thing, while gold is not particularly rare, its supply is finite. For another, unlike stocks and bonds, it has been considered a store of value for more than 2,000 years. The gold bugs will tell you that an ounce has bought a mans suit since the loincloth era. (Depending on where you shop, of course.) But the point is that regardless of whether a countrys currency is priced in dollars, lira, Reichmarks or cockleshells, during frightful moments of value destruction -- such as periods of hyperinflation, war or natural catastrophe -- gold has been acknowledged as a medium of exchange.
The theory is that if terrorists knock out the global ATM network, it would be easier to trade a gold coin for five sacks of flour than, say, a personal check decorated with a sailboat silhouette.
Like oil and gas, gold is hard to find, hard to coax out of the ground, and harder still to refine into usable form. Moreover, it is not exactly located out in the open in some Kansas cornfield. Through quirks of geology, most of it happens to be concealed deep in the earth in places as remote, and sometimes unstable, as the jungles of Ghana and Brazil, the deserts of Nevada and Mongolia, and the mountains of Kyrgyzstan, Turkey and South Africa.
|
