To:Mark Kubisz who wrote (262)
From: mikesloan Monday, Jul 7, 1997 8:00 PM
Respond to of 80032
Gold hits new low but no jewelry bargains expected
July 7/97
NEW YORK (AP) - All that's gold does not glitter.
The precious metal's price fell to its lowest level in 12 years Monday,
driven down by surprise Australian central bank selling that piled upon
years of investor disappointment.
Gold fell $6.10 to close at $318.10 US an ounce in New York, down
a stunning 64 percent from its high of $875 in January 1980, when
hoarding bars or coins was considered a shrewd hedge against
runaway inflation and global unrest. It last was at this level in 1985.
The drop also hit Canada's biggest stock market, the Toronto Stock
Exchange. The benchmark TSE 300 index, which is heavily weighted
with gold stocks, lost almost one per cent of its value Monday.
But even with gold's stunning decline from levels above $400 an
ounce as recently as early 1996, shoppers won't see bargains when
searching for necklaces and rings, said Steve Spivack, a jewelry dealer
in Manhattan's diamond district.
"The price is not going to be 20 percent less if gold falls 20 percent,
because you're not paying for the gold alone. There's also labor and
profit margin."
Spivack said the biggest discrepancies are found with intricate designs
or jewelry made in the United States, both of which have higher labor
costs.
Meantime, there have been deserters in the army of investors who had
bet on gold.
"I think people are throwing in the towel on gold," said Robert
Brusca, chief economist at Nikko Securities International Inc.
"Just think, if had invested in gold over the last 10 years instead of the
stock market, it would've been a disaster."
Indeed, that same $875 invested in stocks that make up the Standard
and Poor's 500 Index would be worth about $7,100 now, not
including the dividends those stocks paid.
The latest round of bad news for gold began last Thursday, when
Australia's central bank said it had sold two-thirds of its gold reserves,
more than 180 tonnes, earlier this year for an estimated $1.8 billion.
The announcement meant more gold was on the open market,
reducing the value of existing holdings, and sparked fears that other
countries would follow suit. Gold plunged $7.10 an ounce Thursday,
and did not trade Friday in New York because of the July 4 holiday
weekend.
On Monday, the fallout expanded to other markets. Stocks of big
gold producers fell heavily in active trading in New York. Canadian
company Placer Dome Inc. fell $2.25 to $14 and its Toronto-based
rival Barrick Gold Corp. dropped $1.69 to $20.25.
Prices of other precious metals such as silver, platinum and palladium
were led lower by gold's retreat.
Central banks hold an estimated 25 percent of the world's gold, and
often use the metal to pay their bills to other countries. But many have
been looking for investments with better returns.
Belgium, Canada and the Netherlands were selling gold reserves well
before Australia, according to John Nutley if the Gold Institute, a
Washington-based trade group.
"A number of these central banks started swapping out of gold so
they could earn some interest," he said. "The concern is, who's going
to be next?"
Another concern for gold investors is low inflation. When gold hit its
peak in early 1980, U.S. inflation had just come off a year of rising
13.3 percent and was on its way to adding an additional 12.5 percent.
With world oil prices still on the way up, no one was betting on
inflation cooling off.
So far this year, U.S. consumer prices have risen at just a 1.4 percent annual rate and Canada's have been similarly low.
Without the threat of cash investments being eroded by time,
individuals lost the motivation to buy gold coins and bars.
Gold isn't easy to hang onto, either. It pays holders no interest and often is expensive to store safely.
According to Cole Fields Mineral Services, a London-based research firm, more than 180 tonnes worth of gold coins were in circulation in 1980, compared to about 70 tonnes today.
But some analysts believe gold could provide a good return to
investors if inflation returns.
"The prospects for gold are probably better over the next 10 years," said Brusca of Nikko Securities. "The best of our inflation days are behind us, and that should be better for gold."
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