When gold comes to town

I do not have gold fillings and certainly no huge golden pinky ring of the sort sported by Valletta football fans at The Stadium, though I do own a plain wedding band, two pairs of golden cufflinks and a chain. Trussed up, courtesy of my wife! What I would like to own right now, though, is a precious metals mutual fund.

A friend of mine bought one about seven years ago because he was uh... stupid... but I've been in a forgiving mood lately.

You see, back in 1996, gold prices were slowing down after a huge run-up which put the price of an ounce of gold (an ounce!) at $415. Gold prices had declined to about $360 and my friend thought that, given a year or so, the price would rise once again, break through the $415 mark, hit $500 with ease and begin to target $1,000, which it hit in 1979.

However, like unrequited love, gold never responded to the attention he gave it. Gold ignored him, in fact, and went away, leaving him empty and hollow. Prices sank below $250.

My friend had almost forgotten his mutual fund when he heard that she - I mean gold - was coming back to town. He began to feel funny inside as gold hit $290 and wondered what life would be like at $300.

Now it is spring and gold is in the air. It has hit $380 and people are as giddy as sleep-deprived "Star Wars" junkies. Should I too invest in gold? Well, it is best to learn the fundamentals.

There are none.

Fred Sturm, fund manager of Mackenzie's precious metals fund, recently wrote that gold investments get flung faster and further around the world in one day than a physical ounce does in its entire life.

Gold is different. An ounce of copper gets mined and processed and wound into a piece of wire where it spends a useful life conveying currents to electric toothbrushes or Gameboys.

Gold is mined, processed and goes into the vault. It stays there. Only a very tiny and very unlucky percentage ever gets to adorn rap stars.

Physical gold sleeps the big sleep while its investment spirit parties around the globe 24-7. Gold is sold forward by gold miners, hedged by arbitrageurs, bought high by currency investors who play the American dollar and bought low by cunning coin dealers.

Some gold has limited industrial use but, unlike zinc and potash and nickel, it does not have to transform into something else to increase its value. Gold is its most valuable by staying gold.

In times of political panic, folks buy it in case their currency becomes just so much worthless paper. People buy it because it is the one investment they can trust, the only one that would not break their heart, or so my wife tells me while she breaks my purse.

I heard a tale the last time gold hit $300. An elderly woman went to the gold counter of a major bank in London and asked that all her assets be converted into gold bars. Golden years, indeed!

Why does gold go up in price? Why do fools fall in love? Gold can rise because the American dollar goes down in value or because South African mines have declining production. Gold rises when the Indian wedding season begins or when interest rates are low or when the stock market is moribund.

Gold may as well rise during caterpillar season, when Pluto and Neptune align, while Milan are in the quarter-finals of the Uefa Cup.

For centuries gold and silver have been a haven for investors in times of economic uncertainty. In today's economic climate, the prudent investor will consider converting at least part of his or her paper assets into precious metals. Right now, with metal prices, not just gold, at a fraction of their all-time highs, this may be an ideal time to invest in precious metals.

The recent moves in the gold price are a continuation of the pattern that has prevailed for the past two years. Simply put: The fundamentals of the gold market are very bullish, providing a lot of comfort that the gold price will continue to trend higher over time. However, gold is not likely to go up in a straight line. The reason is that, while investor interest in bullion is growing steadily, investors still only account for about 10 per cent of the physical market for gold. The other 90 per cent of the market (jewellery and industrial) is quite price sensitive. When investors push the gold price up, the other side of the market steps aside so that the price tends to pull back a little and consolidate at a higher level before the next upward step.

Gold has kept up with inflation during the past 200 years. In other words, the value of gold - what it can buy in real goods and services - has remained remarkably stable over time. For example, a man's suit in 16th century England at the time of King Henry VIII cost the equivalent of one ounce of gold, roughly the same as a suit would cost today.

A table I saw recently in the book A Random Walk Down Wall Street shows the performance of various selected investment classes from 1968-1979. The time frame is significant. 1968 was the very end of the last great stock market bubble... which is in third place in the history of modern US stock market bubbles, behind the bubble of 1929 and that of 2000.

I found this table incredibly interesting. Stocks and bonds were the worst performing asset classes - they could not even keep up with inflation!

But how should I go about owning precious metals? Perhaps I could start with membership of the Gold Prospectors Association of America (GPAA). Since 1982, the GPAA has been escorting its members north to mining camps on the Seward Peninsula of Alaska; providing them with food, shelter, transportation, mining equipment, fuel and the expertise to bring home gold!

This could be a once-in-a-lifetime trip for those who dream of prospecting, mining and exploring the vast wilderness. Trip participants have the chance to prospect and mine the famous gold beaches of Nome and the gold-bearing gravels of the Cripple River, experience first hand the entire prospecting/mining spectrum and learn mining techniques in classes and seminars conducted by experts. And, best of all, all the gold one finds one can keep! No questions asked, no limits!

If you do not read me next Tuesday, I might be out of town.