Glitter of gold beckons again

Andrew Leckey

July 22, 1992|By Andrew Leckey | Andrew Leckey,Tribune Media Services

Sooner or later, it had to happen: The prospects of most investments are so awful that gold is actually starting to look good again.

After reaching $455 an ounce in the fall of 1990, gold hit a low of $336 last spring. It's been gaining steam around the mid-$300s, and experts who wouldn't give gold the time of day a few months ago are taking it seriously.

"With interest rates so low, an investor might well buy gold based on the logic that even if it goes up only $10 an ounce, it will equal the return of bank instruments and short-term Treasury bills," said Alan Posnick, senior vice president with MTB Banking Corp.

"We've seen the first upward movement in gold, meaning that the light at the end of the tunnel is closer than it has been in a long time." Gold has the potential to reach $360 an ounce or more, he believes.

"I am bullish in the belief that gold will slowly move higher in a somewhat unpredictable fashion, the extent to which it does depending on variables such as the U.S. election and the economy," said Bette Raptopoulos, analyst with Prudential Securities. "It still can be a hedge."

"Ever since the cut in the Federal Reserve's discount rate, investors have been looking elsewhere and precious metals are looking attractive," said Robert Schenosky, analyst with Kemper Securities Corp. "Furthermore, if there's a general strike in South Africa on Aug. 3, it would affect supply and serve to boost the price of gold and platinum."

Gold should move to $380 an ounce near-term, before hitting $425 a year from now, Mr. Schenosky predicted.

Of course, any investor must keep in mind the fact that virtually no one has made any money off of gold in years. Some hedge. It's been a stinker not only for those who hold the actual metal, but for those who invested in gold-mining stocks and mutual funds. Now the hope is that it has been beaten down so far that the only way to go is up.

Many Americans own gold coins minted by various nations and the value of those investments has languished right along with gold prices. Most popular gold coin in the world is the Australian Kangaroo, while in the United States the U.S. Eagle and Canadian Maple Leaf hold sway. As a rule of thumb, investors shouldn't pay more than a 5 percent markup for a coin over the actual price of gold.

Mutual funds investing in stocks of gold-mining companies may be another opportunity. The world's largest fund investing in gold is the $500 million Van Eck International Investors Fund of New York, which has a hefty 8.5 percent load, or initial sales charge. It invests primarily in the stock of South African mining companies.

Some funds don't invest in South African stocks. Among these, the $150 million Fidelity Select American Gold Fund has a 3 percent load and the $125 million Van Eck Gold/Resources Fund has a 6.75 percent load.

Stocks of gold-mining companies are another possibility. While they generally follow the movement of actual precious metals prices, remember that they're subject to movements in the overall stock market as well. Kemper Securities Corp. recommends these gold-mining stocks:

* Newmont Mining, a large-capitalization U.S.-based company that is a premier gold miner and actively engaged in worldwide exploration. The company has restructured, ridding itself of its non-gold investments.

* Pegasus Gold, a U.S.-based middle-capitalization firm, has considerable growth potential. It produces 315,000 ounces of gold annually, which should reach 500,000 in 1994.

* Agnico-Eagle Mines, a Canadian small-capitalization company, is turning the corner after considerable financial difficulties.

Other stocks worthy of purchase, though not as aggressively, are Homestake Mining and Placer Dome Inc., two U.S.-based mining companies, according to Kemper.

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