-Caveat Lector- Gold Again Has a Day In the Sun
Some Stock-Market Diehards Are Turning to Precious Metal By PETER A. MCKAY Staff Reporter of THE WALL STREET JOURNAL About a year ago, investor Ken Anderson gave up on stocks and turned to gold. Mr. Anderson, a building inspector from Toms River, N.J., had built a surging stock portfolio during the late 1990s, only to see it wiped out during the bust. So, as something of a last resort, early last year, he started dabbling in gold. Now, his entire portfolio of about $200,000 is either in gold or gold-related stocks, and he's dubious about returning to the stock market. "For three years, the so-called pundits have been predicting a stock-market rally, and we haven't seen it," said Mr. Anderson, who has a 14-year-old daughter who wants to attend Princeton University in a few years. "I need the money in a few years, so I don't have time to keep waiting for a rally that I really don't think is going to happen anyway." An unexpected breed of investor is buoying the gold market. Once the domain of true-believing gold "bugs" -- and recently a refuge for investors wary of terrorism and war -- gold is starting to attract a much wider following, including a number of people who, like Mr. Anderson, have never invested in the precious metal before. The revived investor interest in the metal reflects a skepticism about the stock market, which is still shaking off one of the most wrenching boom-and-bust periods in its history. "I'm probably a touch paranoid, but I've lost faith in the official, mainstream viewpoints of what to invest in," said retired pharmaceuticals saleswoman Betty Gray, of Amarillo, Texas, who estimates she has moved about two-thirds of her portfolio into gold bullion and mining shares since 1999. "When you're afraid, you try to be conservative." Much of gold's gain has come since the September 2001 terrorist attacks, when many mainstream investors first turned to the metal as an alternative to a shaky market. But the momentum also has carried into this year, with gold up 2.7% for the year while every major stock-market index is down. Gold prices are up 40% from the lows of 1999. Not that it has been an entirely smooth ride. Partly because of the surge in new investors, gold has been unusually volatile lately, including a $9-a-troy-ounce tumble on Wednesday. And many analysts say that given the force of the recent rise, gold prices could very well cool. On Thursday, gold prices rose, with the benchmark futures gaining $4.80, or 1.4%, to $357.40 a troy ounce at the Comex division of the New York Mercantile Exchange. While the revival of gold is admittedly a minor factor in the overall stock market's continued slump, analysts say it is a good barometer of the mood of small investors. Bigger, institutional players, meantime, see gold as a useful hedge against a jittery stock market and an alternative investment to the sagging dollar. While gold's momentum has been building for months, war and terrorism clearly have been the most important recent catalysts. In fact, some analysts believe investor nervousness has had so much time to work into the gold price as war rhetoric has heightened that prices could fall once fighting begins. Joe Foster, manager of Van Eck International Investor Gold Fund, says he is convinced there is a war premium of about $25 built in the gold price, but notes that, by one key measure, gold and gold stocks still could be undervalued. He said the gold price rose 6% in January, while the Philadelphia Stock Exchange's Gold & Silver Sector Index, which tracks mining-company shares, a mining industry standard, rose only 0.3%. Usually, the index moves at twice the rate of the bullion price. Considering that mining shares are the way many small investors bet on gold -- so they don't have to pay to store bullion in a vault somewhere -- Mr. Foster said that sector could be poised to go higher, regardless of what happens in Iraq. The general belief among gold boosters is that even after any war with Iraq ends, fundamental weaknesses in the economy will remain, keeping gold prices up. "There are people out there using the war as a crutch for why the economy is bad right now," said analyst Dave Meger, of Alaron Trading Corp., in Chicago. "I disagree with that thought process." Fred McLeran, who owns a refrigeration repair business in Fruitland, Idaho, echoed that view, saying he would "move everything" into gold, if he could, because of his nervousness about the economy and the government. During the past six months, he says he has bought more than $25,000 worth of gold and silver coins, which are his first precious-metals holdings. He also has about $1 million tied up in a family real-estate trust, which he hopes to invest in gold eventually. "I don't follow what's going on in the stock market," Mr. McLeran said. "I prefer to have my hands on a tangible investment, particularly the way things are going right now." Broker Peter Schiff, president of Euro Pacific Capital Inc., said he has been advising clients to move money into gold and various foreign investments for several years because of his concern that the U.S. economy is too dependent upon government and consumer debt. "If investors are worried about the war, it's not necessarily the physical aspects of it," said Mr. Schiff, who believes gold would continue rising right through any conflict in Iraq. "What they're worried abut is that war is going to be expensive and how the government is going to finance it. 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