Falling prices add a tinge of green to gold
The world's gold bugs are being swatted by a sharp decline in the price of their favorite yellow metal. Gold slipped below $400 an ounce Monday in the New York market for the first time in 20 months. On Tuesday, the price recovered a little to $405.00 at the afternoon fixing in London.
And where is the price going now?
Well, pay your advisory fee, and take your choice.
James Sinclair, of Sinclair Securities & Co., New York, figures the price will "remain in a downtrend to the end of this year or mid-1982." It could go as low as $250, a price, he says, mentioned by President Reagan. He's telling his clients not to buy.
In contrast, James U. Blanchard, chairman of the National Committee for Monetary Reform, New Orleans, says, "Gold is a very favorable buy at this time." He admits that no one can predict the price of gold in the short term, and that it could slip to $380. But he expects a price of $1,500 to $2,000 as early as 1984.
Similarly, R. Leslie Deak, executive vice-president of Deak-Perera, which claims to be the nation's largest retailer of gold, forecasts: "Over the next six months to a year, the price of gold will have reached its bottom and recovered nicely."
The problem for the gold bugs is that the price of gold is highly influenced by world events. Says Mr. Sinclair: "Gold has no intrinsic value. It's a barometer. It measures world anxiety -- political, social, and economic. Its price is purely psychological in nature."
Or, as Mr. Deak put it: "Gold is basically an emotional metal."
Gold soared to its peak, $875 an ounce on Jan. 21, 1980, not long after the Soviet Union invaded Afghanistan. The world was nervous about the prospects for peace. Since gold is regarded as an insurance policy against political and economic turmoil -- a precious metal that can store value when currencies fail -- its price soared.
"People were buying gold like there was no tomorrow," recalled Deak. "We told them it was not a good time to buy. But you couldn't beat them off with a stick."
Now gold sales in the US are way down. "People won't touch it," he says.
One reason is that political fears have calmed. Not even the continued touchy situation in Poland seems to bother investors.
Further, there is growing recognition that high inflation -- one factor encouraging gold purchases -- is coming down in the United States. Notes Mr. Sinclair: "There is at least a revaluation of the 'New Dealism' which has defined United States policy for the last five decades."
Mr. Blanchard also sees some prospect of moderate reductions in the growth of inflation and government spending in the US into 1982. But then he anticipates another round of rapid inflation, with the gold markets anticipating this some time in the fall.
Besides psychological factors, the gold market has been hit by other more concrete demand and supply elements:
Current high interest rates make it expensive to hold noninterest-bearing gold, particularly if it is bought with borrowed money.
* The high price of gold has reduced demand by the jewelry industry. Noted Deak: "People always had assumed sales of jewelry were immune to price. The events of 1980 proved this is not true."
* South Africa, because of balance-of- payments needs, is said to be selling most of its production nowadays. The Soviet Union is also believed to be unloading gold.
On the other hand, the United States government and the International Monetary Fund have stopped selling gold from their reserves.
Leon C. Brand, an analyst with Merrill Lynch, Pierce, Fenner & Smith Inc., suspects gold is now completing a 17-month "corrective cycle." Such cycles, he says, have usually lasted 18 to 21 months.
Other positive signs for an upturn in the price of gold he mentions include the possibility of more buying by central banks, a modest increase in purchases of Krugerrand by the public, a slight decline in South African gold production ( 4 percent in the first three months of this year, a possible increase in industrial use, and the potential of a sharp drop in interest rates.
But there are a lot of "if's" in such analyses, prompting such warnings as that of Mr. Blanchard: "This is a buying opportunity -- but you shouldn't go overboard. . . . Gold should be only a small portion of your portfolio."