To:long-gone who wrote (307)
From: mikesloan Tuesday, Jul 8, 1997 7:35 AM
Respond to of 80032
Gold hits new low
NEW YORK - All that's gold does not glitter.
Calgary Herald July 8/97
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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