Fundamental headwinds due to the government shutdown along with technical weakness, a break of risin...
Thom's Golden Opportunity
05/23/2003 12:00 am EST
Thom Calandra is founding editor
of CBS MarketWatch. He has been covering
financial markets for more than 20 years. He has had a particular focus on
gold. In addition to StockWatch, his daily
column, Thom has recently launched a subscription newsletter,
The Calandra Report. We wish him the best of luck with his
new service. Here are his comments from The Las Vegas Money
"We talk a lot these days about the economy and how weak it is. But the US is not the only economy that’s weak. In Germany unemployment is almost 11%. In Japan, the banking sector is almost bankrupt and the economy is in a long, drawn-out deflationary recession. Venezuela and parts of South America are facing what could be a default crisis on their sovereign debt; and a lot of that debt is beholden to American banks. Meanwhile, back at home, we have almost no inflation, the lowest interest rates in 41 years, and just a terrible job market, and now consumers who are unwilling to spend. Meanwhile, our president has yet to veto a spending bill. Our deficits will exceed at least $300 billion. The investment world is not the place it used to be. The red ink in the American current account is eclipsing 5% of GDP. It takes about $1½ billion a day of foreigners' money to keep our government going. That’s a lot of Treasury bonds and bills."
"The US has nearly 60% of its foreign reserves in gold. And European countries also have a high percentage of their reserves in gold. But the Asian nations that run the biggest trade surpluses in the world are all very low in terms of gold reserves. Taiwan has 3.3%. Japan has 1.7%. China, the most formidable trade country for the 21st century, has just 2% in gold. And the fact is that all of these countries are feverishly buying gold. China recently opened its gold trade market for consumers for the first time since 1949. Who would have believed two years ago that commodities would have beaten the pants off the S&P 500. The average main street investor has less than 1% of their portfolios in commodities, yet those same average investors have lost half the value of their stock market holdings since 2000. I believe the commodity picture will become more and more important in the next several years. In terms of the gold price, I think what we’re seeing right now will be a repeat of February 1985 to December 1987, when we saw gold run from $284 to $500 – a 76% gain. At the same time, the dollar fell 40% against the mark and the yen."
One of Thom’s main reasons for bullishness is the new exchange-traded fund for gold. In his column in CBSMarketWatch.com , Thom Calandra’s Stockwatch, he explains, "I expect that once Gold Equity Trust (GLD NYSE), the first exchange-traded gold vehicle, begins trading on the NYSE, with the blessing of federal regulators, daily money flows into gold purchases will rise by 100% in the course of several weeks. Already, there are those who say the presence of a gold ETF (exchange-traded fund) in New York, with its actual gold stored in London, will send not just small investors, but also hedge funds and mutual funds, into the once forbidding world of gold ownership. As John Hathaway, manager at Tocqueville Gold Fund notes, natural-resource mutual funds will jump at the chance to sidestep the labyrinthine rules that limit physical gold ownership in their portfolios. An SEC-sanctioned trading vehicle for gold – one that eliminates concerns about insurance and storage fees – easily will send gold past its $390 high for this year. When all is said and done, I expect the tiny world of gold mining stocks to rise sharply as well on the heels of the new gold ETF. There are some who say the XAU index of gold mining shares could rise to 100 this summer from its current level of 73. I have even higher expectations. I envision the XAU at some point testing its February 1996 highs of 155. Helping gold's case, of course, will be the sliding dollar, which is sending investors worldwide into currency alternative of bullion. I see no reason why gold cannot rise to $600 or more an ounce."
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