Financial Post says gold can''t possibly sustain rally

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By Craig Tolliver
CBS.MarketWatch.com
May 11, 2001

NEW YORK -- Like a phoenix rising from the ashes, gold
funds have flown to the top of this year's performance
charts, returning 15 percent so far in 2001, Lipper
Inc. said Friday.

After several years in the doldrums, mutual funds
investing in gold producers were ahead of both small-
cap value funds, up 9.2 percent, and mid-cap value, up
5.8 percent, as the top-performing category through
Thursday.

Indeed, gold funds are seeing their best performance
since 1993, when they spiked up more than 81 percent --
but don't look for a repeat over the balance of the
year.

Over the long haul, gold funds have been abysmal
producers, down 16 percent annually over the last five
years, according to Lipper.

"I suspect that since gold has sort of come into favor
after being out of favor for so long, there's a big
question mark over whether this can really be
sustained," Lipper research analyst Mary Cho.

Ironically, one of the factors driving performance
could be the Federal Reserve's recent interest-rate
cuts.

While some investors view cuts as a necessary catalyst
for reentering the market, others take them as a sign
that inflation is looming. For this latter group, gold
is the traditional hedge, Cho said.

A recent upward move by the Philadelphia Stock Exchange
Gold & Silver Index illustrates how gold has caught
on in some investment quarters.

Against this backdrop, gold funds spiraled up in the
latest week, adding 5.5 percent over the five days
ended Thursday, as gold bugs anticipate a crush in gold
supply.

Investors in gold funds are also benefiting from
attractive profits generated by gold producers early
this year.

Anglogold, the world's largest gold producer, posted
favorable first-quarter results, as did Barrick Gold
and Placer Dome, two of Canada's largest mining
companies.

The supply pinch anticipated in recent days reflects
how troubled Australian miner Centaur may be forced to
cover a short position on 1.6 million ounces, Cho said.
This could substantially tighten supply and boost
demand over the short term, she said.