Thom Calandra plugs gold and


By Thom Calandra
Aug. 10, 2000

LONDON (FTMW) -- Is there no hope for gold? The
investment has performed so poorly for so long, even
literary New Yorker magazine felt it deserving of a
derisive article.

This latest piece of advice comes from Irwin
Kellner, former chief economist for several New York
City banks. Kellner tells me from his Long Island
office at Hofstra University, "As long as the Fed
has inflation under control, gold will remain out of
favor as an investment for mainstream investors.
Those who have fears for stocks, bonds, the value of
money, our political system, will always like gold
-- but as you can see from its price, these folks
remain in the minority."

Gold's latest decline to $277 an ounce for the
December futures contract in New York comes in the
wake of the bullying U.S. dollar, which makes
dollar-denominated precious metals more expensive to
most of the world's gold buyers. Gold also is
suffering from a decline in the price of sister
metal silver, which sells for less than $5 an ounce
these days.

Techies will want to know this: the lackluster price
of silver has depressed shares of Pan American
Silver (PAAS: news, msgs), a Seattle-area company
with large silver mine holdings. Last time I
checked, Microsoft's Bill Gates owned a personal -
and at this point money-losing -- investment in the

Oh, there are those other things roughing up the
price of gold: central bank selling, for instance.
Too much of the stuff above ground. Forward-hedging
by gold companies. Traditional buyers of the metal,
such as consumers in India and China, turning toward
more useful things, like Palm Pilots and MP3

Even James Dines, a newsletter writer in California
and longtime believer in gold, recently deleted
Placer Dome from his recommended list of gold mining
stocks. Dines swapped in Impala Platinum Holdings,
which is benefiting from Russian distribution
problems. The Johannesburg Platinum Index of
platinum miners is trading at an all-time high. An
ounce of platinum these days goes for $564 an ounce,
an 11-year high. (See charts of HSBC Global Gold
Index, Toronto Stock Exchange Gold Index.)

Most professionals see $280 an ounce as a so-called
support price for gold. The one-month lease rate for
gold is 0.47 percent, far below the 2 percent to 4
percent interest rates that central banks and others
were getting a year ago when they lent their gold to

As for inflation, not everyone believes it's dead.
And not everyone believes inflation must revive in
order for gold to rally. "The key to gold price is
the dollar and the U.S. current account deficit,"
newsletter editor John Doody of "The Gold Stock
Analyst" says. "Gold's last big rally was Feb. 25,
1985, to Dec. 14, 1987, when it ran from $284 to
$500, a gain of 76 percent. During the same period
the dollar fell 54 percent from 263 yen to the
dollar to 121 yen. Over this period inflation was
tame, averaging approximately 4 percent and
including a period when the CPI (consumer price
index in the U.S.) actually was negative in 1986."

When that happens again, says Doody, gold will
rally. "The metal costs less in foreign currency and
some investors will again use gold as a safe haven,"
he told me.

I like to tell investors that only 24 or so people
in the world believe in gold these days. Now that
American workers are their most productive since,
well, the Civil War or something like that that,
inflation, as economist Kellner says, appears to be
slain. The number of investors who truly believe in
gold since those U.S. productivity figures were
published might be closer to a baker's dozen. Doody
is one of them. Dines of "The Dines Letter" may be,

I, for one, don't believe a word of what the
productivity optimists say about the death of
inflation. But then I'm one of the baker's dozen,
and we've been wrong about gold's prospects since,
well, the Civil War.


Thom Calandra is editor-in-chief of and CBS