Gold stocks in for period of volatility, analyst says

Troubled times do funny things to precious metals prices and major currencies. The price of gold, hovering in the $440-$450(US) range only a few weeks ago, crept up to the $470-$480 level this week before falling back. And the American dollar, having taken a beating for most of the year, this week climbed to its highest level since January in large part, analysts say, because of tensions in the Persian Gulf.

The Middle East problems and worries about increasing inflation seem to relate directly to the higher gold price and high-flying gold stocks where, according to Randy Reynolds of Burgess Graham Securities, volatility has become the order of the day.

“There’s not going to be a let-up; the volatility is going to get higher,” he told The Northern Miner in reference to the price movements of some of the more heavily traded gold stocks. The wise investor, he said, might be advised to buy real bullion, and leave the buying and selling of gold stocks to the professional trader.

For Vay Jonynas of Moss, Lawson & Co., the key factor in determining whether or not the price of gold rises or falls is inflation, although he recognizes the temporary effect such events as the Persian Gulf conflict, where the drawn-out war between Iran and Iraq continues and Iran and the United States have locked horns over the shipment of oil by tankers, have on precious metals prices. As quickly as the price jumps up, it falls just as fast, he said.

“If you want a sustainable rally, it has to be slow and easy,” Mr Jonynas said. Not optimistic governments and other regulatory agencies will be able to keep inflation in check, he is forecasting a price of gold by the end of the year of $500-$525. The price of gold last seemed on its way to the $500 l evel in May, but stalled in the $475 range. Then, as now, silver and platinum reacted positively. Silver, which had been trading in the $7-$8 range, topped $8.70 this week before retreating, while platinum, which was trading in the $550-$590 range, ran up to $644 before pulling back.

One further influence soon to be felt on the price of gold is possible strike action by South African mine workers. That country in 1986 was responsible for half of the non-Communist world’s gold output.