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Gold: Glitter in the gloom?
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January 29, 1998: 7:52 p.m. ET
As fear of instability lingers, speculators say a return to gold may be coming
From Correspondent Charles Molineaux
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NEW YORK (CNNfn) - In financial circles, gold is still regarded as a commodity of last resort, with investors turning to the metal and its long-term value as a means of preserving wealth against an uncertain future.
Now, omens of potential market uncertainty -- ongoing worries about the economies of Asia, accusations of a sexual cover-up in the White House, and increasing threat of military action in the Persian Gulf, among others -- are leading some cautious speculators to return to gold.
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"What we've seen in the last two weeks is that the problems in Iraq may escalate into some kind of a war," said Jacques Luben, an analyst for Platinum Guild International. "The president's honesty has been impugned, and that would create a very positive environment for gold, because gold is one of the assets that people flee to in a period of uncertainty."
Sentiments like Luben's mark a drastic shift for the metals market. After falling steadily for years, gold prices hit an 18-year low of $277 an ounce in January before bouncing back 10 percent in two weeks.
Many suspect that part of gold's sudden rally was fueled by speculators who'd been betting on continued drops and are now buying to cover their exposure in the market.
However, traders also say that gold has been bolstered by shaken investor confidence in the political climate.
Speculators hope that gold has recovered from 1997's wave of selling from the world's central reserve banks, a phenomenon often blamed at least in part for the gold market's decline.
"If you take out the panic response to real or imagined central bank selling -- [which] I think is beginning to dissipate -- I find prospects for this year rather encouraging," said World Gold Council analyst George Milling-Stanley.
Some gold watchers predict that the long decline could start to correct itself where the market began: at the mine. Approximately half of all the world's gold mines have been operating at a loss - some for years -- resulting in an industry which, analysts say, is ripe for weeding out.
"When you have the price depressed long enough, the mining executives will make the harsh decisions to make some closures," explained McCarthy, Crisanti, Maffei analyst Bruce Kamich. "And the cumulative effect of that will be to reduce mine production. Eventually, prices will come back."
However, that recovery might be a long time coming. Forecasts still call for a volatile 1998 for gold, with the metal possibly reaching new lows of $250 an ounce, and analysts say that as investors find a growing number of alternative places to put their money when instability threatens, gold's ancient role as king of the commodities might no longer be as necessary as it once was. 
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