News Column

Gold Gets Tempting as It Loses Luster

June 21, 2013

Tim Grant

gold

At a time when the general sentiment towards gold as an investment is about as bad as it has been in recent memory, the creator of a precious metals mutual fund sees the drop in price as a buying opportunity.

"People who follow gold see the price drop as a terrific gift of a 30 percent off sale," said Nick Barisheff, president and CEO of Bullion Management Group Inc., based in Toronto. "There is huge demand for gold all over the world."

The price has been spiraling down since hitting a historic high price of $1,920 an ounce nearly two years ago. Contrary to Mr. Barisheff's opinion, many investment professionals are predicting that gold -- which currently sells for about $1,280 an ounce -- is headed for even lower prices by the end of the year.

Both gold and silver fell to their lowest prices in 52 weeks after Federal Reserve Chairman Ben S. Bernanke said Wednesday that stimulus may be reduced later this year as the economy recovers.

Bullion slid 23 percent this year, heading for the biggest annual drop since 1981. Investors sold 520.7 metric tons, valued at $21.6 billion, from gold-backed exchange-traded products this year.

"The markets are definitely not prepared to wait until the tapering actually begins," said Ole Hansen, the head of commodity strategy at Saxo Bank A/S in Copenhagen. "The combination of Fed tapering, a spike in nominal yields and a stronger dollar has put gold under some considerable pressure."

Mike Blehar, principal at Fort Pitt Capital in Green Tree, said he and other financial advisers at the firm have received many calls and visits from clients in recent months asking about gold investments. He warns them that they risk losing money on gold just as they could lose money on any other asset.

"We are not in favor of buying gold at this time," he said. "We would rather own a productive asset. We do not see hyperinflation in the near-term, and gold does not pay a dividend."

Mr. Blehar's point of view is fairly common in the financial services industry.

Gold prices may fall another $50 in the next few days and will probably drop to about $1,100 in a year, according to Ric Deverell, head of commodities research at Credit Suisse Group AG. Nouriel Roubini, professor of economics and international business at New York University, has forecast a decline toward $1,000 by 2015.

Gold may drop to $1,250 in a month, down from a previous forecast of $1,425, Joni Teves, an analyst at UBS AG in London, wrote Thursday in a report. The bank cut its three-month outlook to $1,350 from $1,500, and lowered its 2013 estimate to $1,440 from $1,600. Prices will average $1,325 next year and $1,200 in 2015, it said.

Mr. Barisheff, author of "$10,000 Gold: Why Gold's Inevitable Rise Is the Investor's Safe Haven" (Wiley, $39.95), says there is a propaganda campaign that has effectively discouraged the general public from buying the metal, especially if it means selling stocks and bonds they already own to do it.

But he's a believer. "Gold will likely climb in value for many years as currencies fall," he writes. "The climb will be interrupted by pullbacks, and this is natural and healthy."

According to Mr. Barisheff, the 12-year period from December 1999 to April 2013 delivered a 390 percent return for gold investors while the Dow Jones industrial average posted a return of 28 percent.

Mr. Barisheff, who cut his teeth in commercial real estate and software development, made a name for himself in the gold business by having the foresight to start a precious metals mutual fund in January 2002 when gold, in the infancy stages of a 12-year bull market run, was selling for $284 an ounce. Today his fund -- BMG Bullion Fund -- has about $500 million in assets under management.

The premise of his book is straightforward: Gold is not a simple commodity like lead, copper or zinc. Gold is money and everything else, including the U.S. dollar, is a debt-based currency. As national debt increases for countries around the world, central banks print more currency, which becomes even more devalued against gold and other commodities.

"The title of this book, '$10,000 Gold,' is a response to the blatant demonstration of the U.S. government's lack of political will to make the necessary changes to avoid catastrophe," he wrote. "The fiat model [currency not backed by a gold standard] is flawed. It is a house built on sand, and rather than rebuilding on the more stable foundation of gold, governments will continue adding to the weakened structure until it collapses.

"The example of an avalanche being caused by that one final snowflake is apt. No one knows what the breaking point will be. No one knows what black swan event, what final card on this house of cards will cause the entire structure to crumble, but without a solid foundation it will eventually give way."

Bloomberg News contributed to this report. Tim Grant: tgrant@post-gazette.com or 412-263-1591.

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