Finally, investments in gold are glittering

Andrew Leckey

April 23, 1993|By Andrew Leckey | Andrew Leckey,Tribune Media Services

Some lost glitter has returned to gold investing.

The precious metal itself has shown long-awaited price improvement, but the stocks of many gold-mining companies and mutual funds that invest in them have been truly dramatic performers.

Greater worldwide demand for gold, fears of renewed inflation, the possibility of South African supply disruptions and increased activity in the futures market are behind this perceived rejuvenation of gold's prospects.

Before getting carried away, keep in mind that gold and gold-related investments have been investment losers for a long time. They should be viewed primarily as an investment hedge, and an unpredictable one. No more than 10 percent of an individual's portfolio should be in gold.

While the current $340 an ounce is an attractive level for gold relative to its recent $326 low, no one's talking about a return to the $850-an-ounce record set in 1980.

"The upward movement in gold prices should continue, reaching $380 to $400 an ounce by year-end," predicted Bette Raptopoulos, senior metals analyst for Prudential Securities. "That price movement should be slow, unless some event occurs that may cause a sudden surge, which I think could indeed happen."

With volatility still likely, buy gold investments gradually, in set amounts, to avoid price volatility.

"I don't see any major movement in gold prices during the course of the year, but expect they'll be in the range of $350 to $365 an ounce by year-end," said Alan Posnick, senior vice president with MTB Bank in New York. "It is a good time to start buying, for, if the bottom hasn't passed in this cycle, we're probably within 10 percent of that bottom."

The most popular way to buy gold, Posnick pointed out, is through coins such as the American Eagle and Canadian Maple Leaf. Others prefer gold-mining stocks over bullion or coins.

"While I believe bullion prices will be moving higher, I see much, much higher prices for gold-mining stocks," said James Dines, editor of The Dines Letter, P.O. Box 22, Belvedere, Calif. 94920 ($195 annual subscription for 24 issues). "Very frequently, the stock will move ahead of the actual commodities because stocks are more leveraged."

After several disastrous years, mutual funds that invest in gold-mining stocks have been solid gold.

According to the Morningstar Mutual Funds investment advisory, the top funds in 1993 have been:

The $18 million Lexington Strategic Investments (100 percent invested in South Africa), Saddlebrook, N.J., up 88.31 percent; the $176 million United Services Gold Shares, San Antonio, Texas, up 38.93 percent; and the $450 million Van Eck International Investors, New York, up 32.78 percent.

In individual gold-mining stocks, there are many choices:

* American Barrick Resources Corp., a North American gold producer with interests in mines in Nevada, Utah, Ontario and Quebec, is a stock recommended by Dines and Warren Myers, && analyst with Merrill Lynch & Co. This company is adept at providing full disclosure to shareholders and the investment community. A good choice for growth, it is expanding its gold production and has designed its own clever hedging program to blunt the risks associated with gold price moves.

* Placer Dome Inc., formed in 1987 through a union of Placer Development, Dome Mines and Campbell Red Lake, is another Dines stock pick. Mining gold and silver in North America, Australia, Chile and New Guinea, this blue-chip company has an interesting property coming on-stream in South America.

* Agnico Eagle Mines, a gold producer whose stock price has dropped drastically, is considered a speculative pick by Dines.

* ASA Ltd., a closed-end investment trust that buys high-dividend mining stocks to provide capital appreciation, is a Dines selection.

As always, not everyone expects gold to strut its stuff this year.

"Gold should average $330 to $340 an ounce this year, with a rising trend toward year-end as jewelry manufacturers buy gold for the holiday season," Myers said. "While I can see inflation picking up, it's unlikely to be of sufficient magnitude to drive gold prices sharply higher."

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