Rise in Gold Prices Not Likely to Last
Prices for precious metals have climbed sharply in recent months. Gold has been getting most of the attention. But investors are snapping up silver and copper, too. Despite the current bull market in metals, historically they have been a poor bet. Jack Speer reports.
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Investors are paying record prices for gold. You can't eat it, it's hard to store, you can't buy things with it--at least not directly--but none of that is stopping gold prices, as well as the prices of some other precious metals, from reaching levels not seen in decades.
It's also raising questions among some analysts as to how long the current run-up can last.
NPR's Jack Speer reports.
JACK SPEER reporting:
Gold prices haven't been this high in 25 years. Gold this week briefly topped $600 dollars an ounce before falling back. Silver is at 20-year highs. Even copper is up 40 percent since the beginning of the year.
Analysts say there are a number of things moving the metals markets.
Mr. JEFFREY CHRISTIAN (managing director, CPM Group): The primary factor driving all commodity prices higher at this point, is investment demand and speculative buying.
SPEER: Jeffrey Christian is managing director of CPM Group, a precious metals and commodities research firm. He says, certainly the run-up in price has been a big draw for investors.
Mr. CHRISTIAN: In addition to that, other asset classes have not been doing so well. So the stock market's been moving, sort of sideways in a volatile fashion. There is a lot of long-term concerns as higher oil prices and slower economic growth could reduce corporate earnings.
SPEER: Add to that growing worries about rising interest rates, a falling dollar, and global instability--including the war in Iraq--and analysts say you have more than enough incentive for investors, including large institutional investors, to buy gold and other precious metals as a hedge against uncertain times.
Peter Schiff runs the brokerage firm Euro Pacific Capital.
Mr. PETER SCHIFF (CEO and Chief Global Strategist, Euro Pacific Capital): I'd say we're selling, you know, anywhere from two to five million dollars worth of gold bullion, physical gold bullion, to our clients every month.
SPEER: That can be in the form of gold bars, stored in a bank or an individual's safe deposit box. Some investors buy gold coins or jewelry. And, individuals in institutions, can now also invest in what are known as exchange traded funds--where someone else holds the gold and investors' profit or loss depends on how well those holdings do.
For the past six years, Schiff has been buying gold, and he isn't planning on stopping anytime soon.
Do you actually have physical gold holdings yourself?
Mr. SCHIFF: Sure. And I've got some over at the Perth Mint, in Australia. And I own a lot of gold mining shares.
My personal gold positions are concentrating in mining stocks. Because I'm so bullish, I want to get rich off of this gold market.
SPEER: Schiff sees no reason why gold won't hit $850.00 an ounce--perhaps even rising to a thousand or two thousand dollars. But hold on a minute, we've been here before.
After topping $800 dollars an ounce in 1980, a period of high inflation, gold began falling over the next two decades, and kept falling. By 1999, it was below $300 dollars.
While there have certainly been times gold bugs have profited, Jeffrey Christian, at CPM Group, thinks in some ways, history may be repeating itself.
Mr. CHRISTIAN: Clearly we're into a spiky-type of market for gold, and for a number of other commodities. How high it goes before it peaks? Anybody's guess, pick a number. But I can tell you that, from a long-term prospective, say between now and the next five years, probably the price at $600 dollars is too high.
SPEER: Analysts say until the recent rise in prices many companies have had little economic incentive to spend the millions, if not billions, required to open new mines. They say with the latest rise in prices that may be changing, with companies looking for gold even in some unlikely places.
Jack Speer, NPR News.
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