No liftoff for gold and high-technology stocks
Gold and the stocks of the high-technology industry often sparkle. But for now, the glow has gone out of them both. Their woes underscore the uncertainties and ambivalence embracing Wall Street.
Before Thursday's 33.78-point jump in the Dow Jones industrial average, analysts continued to note the stubborn stolidity of the market, with the Dow apparently locked into the 2,080-to-2,100 range and barely moving in any particular direction for any length of time.
``It looks like we'll be in for a boring market for a long time,'' says Valery Craane, a retail broker with Merrill Lynch, Pierce, Fenner & Smith Inc. The market, she adds, has ``slowly been climbing a wall of worries'' since last year's October market plunge, starting with concerns about a recession, and then, this year, climbing inflation.
To date, there has been neither recession nor unusually high inflation, which under more normal conditions should spur the market upward. What has happened to prevent that, at least in the short run, says Ms. Craane, is that the market drop last Oct. 19 scared off a lot of institutional and individual investors. Sitting on the sidelines and flush with cash, they are returning ``very slowly,'' she says, despite much good news on the economic front, including the apparent easing of inflation, or the slide in gold prices.
Late last month, gold fell below $400 an ounce on the New York Commodity Exchange, the first time it has done so in 19 months.
``There is now a perception that inflation is not going to be a major problem,'' says Bette Raptopoulos, a commodities expert with Prudential-Bache Securities. That view, she says, was given a boost by falling oil prices. Gold, she notes, is traditionally sought out by investors as a hedge against soaring inflation. And with the United States economy in an apparent trough of stability - or stolidity - gold is down.
The only place where investor demand for gold has been heavy the last year or so has been Japan, says David Groves, a consultant with the Gold Institute in Washington. Perhaps because of their nation's turbulent political and economic history during much of this century, Japanese investors tend to be very cautious, putting as many assets into safe investments as possible.
Mr. Groves, who is based in Winter Springs, Fla., says Japanese investors ``have been buying gold like mad'' over the past year or so. In 1987, he says, ``Japan bought 40 percent of all gold produced.'' And most of the gold purchased by the Japanese was for investment purposes, rather than industrial or jewelry, he says.
In the US, by contrast, says Groves, only about 30 percent of the gold purchased in 1987 was for investment purposes. Most of the gold used in the US was for industrial, jewelry, or dental purposes.
Ms. Raptopoulos of Prudential-Bache notes that most investment advisers continue to recommend that at least a small percentage of one's assets be placed in precious metals, such as gold, for hedging purposes. Pru-Bache, for example, recommends several gold-mining stocks, including Battle Mountain and Echo Bay. And of course, less affluent investors can buy gold bullion or gold coins, although they usually have to pay a surcharge.
Still, the larger point is that gold has been on a deflationary course of late. Whether gold prices have hit bottom is yet to be seen, says Raptopoulos.
Gold's recent decline comes, ironically, at the same time as another somewhat speculative type of investment has been posting declines, namely, high-technology stocks. A number of high-tech issues were down and then up last week, including International Business Machines, which announced it would buy back some $2 billion worth of its shares. Ashton-Tate and Compaq Computer were also mixed last week.
For the week ending Sept. 30, the Dow industrials closed up 22.23 points, at 2,112.91.
Precisely because they are at the cutting edge of research and development, high-tech stocks tend to carry more risk and volatility, says Charles E. Taylor Jr., an analyst with Pru-Bache. Yet in terms of long-run performance, he says, they can also be rewarding. High-tech issues in general, Mr. Taylor says, have been hurt recently by several ``well publicized'' disappointing second-quarter earnings reports, including Seagate Technology and Silicon Graphics. Software companies, which did very well last year, have been particularly hard hit as a group this year, he says.
But Taylor believes that the overall level of ``negativism'' within the market may be gradually lifting. That would help high-technology stocks, he says. Moreover, ``some third-quarter earnings reports should be encouraging,'' especially in the software group.