4:31 PM
They expected its price to continue drifting lower because of the mild inflation outlook and growing bullion production.
``Everybody assumed it would just keep going down and down and down. But it didn't,'' said Frederic S. Bogart, head of precious metals for the Republic National Bank of New York.
Instead, gold bullion has rallied strongly since bottoming out at $360 an ounce in September, sending volatile mining stocks soaring.
The group is up about 35 percent since this summer and should advance further, according to Vahid Fathi, an analyst with Prescott, Ball & Turben Inc.
``If gold is in a bull market, as we believe it is for the first time in several years, the reward in these stocks could be subtantially higher,'' he said.
Market participants sa a key test of the rally's strength began last week as gold passed $400 an ounce, a level it previously saw in January on the way down from its recent high of just over $500 in 1987.
If the rally propels gold well above $400, buyers' enthusiasm is expected to swell.
``There are a lot of people who invest in this area who are still on the sidelines,'' said Marc J. Loew, manager of Shearson Lehman Hutton Inc.'s SLH Precious Metals Portfolio. ``Breaking the psychological barrier of $400 gold is what's going to bring them in.''
What is the best way to participate in the rally?
For investors who can tolerate risk, mining stocks carry the biggest potential gains. Their earnings and share prices are highly sensitive to gold prices.
``For example,'' said Fathi, ``if bullion goes up 10 percent, you shouldn't be surprised to see a 20 percent move in the price of gold mining shares.''
Fathi recommends shares in large, efficient mining companies with high production growth. One of his favorites, the American Barrick Resources Corp., has expanded production by about 40 percent this year.
The company's bottom line has also benefited from forward sales of gold that locked in an average price of more than $400 an ounce for its 1989 production.
But Fathi still questions whether the gains in gold shares have been sufficient to compensate for the volatility and risks.
To reduce risks, mutual funds provide diversification. Laurie Kaplan, an analyst for Morningstar Inc., a mutual fund rating service, said the three dozen gold-oriented funds offer a wide range of risk levels.
``The first thing the investors have to figure out is what kind of exposure they want, how aggressive they want to be,'' Kaplan said.
Most volatile, she said, are the ``pure play'' funds that stay fully invested in gold shares whatever the outlook for bullion prices.
The higher their concentration in small mining company stocks, the greater their volatility, Kaplan said.
``Everybody assumed it would just keep going down and down and down. But it didn't,'' said Frederic S. Bogart, head of precious metals for the Republic National Bank of New York.
Instead, gold bullion has rallied strongly since bottoming out at $360 an ounce in September, sending volatile mining stocks soaring.
The group is up about 35 percent since this summer and should advance further, according to Vahid Fathi, an analyst with Prescott, Ball & Turben Inc.
``If gold is in a bull market, as we believe it is for the first time in several years, the reward in these stocks could be subtantially higher,'' he said.
Market participants sa a key test of the rally's strength began last week as gold passed $400 an ounce, a level it previously saw in January on the way down from its recent high of just over $500 in 1987.
If the rally propels gold well above $400, buyers' enthusiasm is expected to swell.
``There are a lot of people who invest in this area who are still on the sidelines,'' said Marc J. Loew, manager of Shearson Lehman Hutton Inc.'s SLH Precious Metals Portfolio. ``Breaking the psychological barrier of $400 gold is what's going to bring them in.''
What is the best way to participate in the rally?
For investors who can tolerate risk, mining stocks carry the biggest potential gains. Their earnings and share prices are highly sensitive to gold prices.
``For example,'' said Fathi, ``if bullion goes up 10 percent, you shouldn't be surprised to see a 20 percent move in the price of gold mining shares.''
Fathi recommends shares in large, efficient mining companies with high production growth. One of his favorites, the American Barrick Resources Corp., has expanded production by about 40 percent this year.
The company's bottom line has also benefited from forward sales of gold that locked in an average price of more than $400 an ounce for its 1989 production.
But Fathi still questions whether the gains in gold shares have been sufficient to compensate for the volatility and risks.
To reduce risks, mutual funds provide diversification. Laurie Kaplan, an analyst for Morningstar Inc., a mutual fund rating service, said the three dozen gold-oriented funds offer a wide range of risk levels.
``The first thing the investors have to figure out is what kind of exposure they want, how aggressive they want to be,'' Kaplan said.
Most volatile, she said, are the ``pure play'' funds that stay fully invested in gold shares whatever the outlook for bullion prices.
The higher their concentration in small mining company stocks, the greater their volatility, Kaplan said.
0 التعليقات:
Post a Comment