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The temptations of gold
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December 11, 1997: 1:34 p.m. ET
Although prices are low, analysts say you should stay away -- for now
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NEW YORK (CNNfn) - You don't need the Midas touch to get into the gold market these days, with the price rising slightly higher off recent near 18-year lows -- helped by gains in silver.
But while the sagging price of the precious metal may be a temptation for bargain-hunters, analysts say this is no time to be rushing in.
Gold was quoted firmer at $286.30/$286.80 an ounce early Thursday versus $285.10/$285.60 at the London close on Wednesday.
Some analysts are showing mild optimism for gold in the short-term, but for the most part, the forecasts are for a continued decline overall.
Stephen Langan, chief investment officer at Nichols, Safina, and Lerner, thinks gold may get a short "bounce" back up to the $300 level, but predicts it will reverse course and settle as low as $240.
A variety of factors are behind the sell-off of gold -- which began early this year -- but only in recent weeks has the drop started to accelerate.
Market troubles in Asia, a big consumer of gold, have emerged amid reports that some of the world's major banks are looking to sell off their holdings.
In addition, mining companies are sitting upon known, but as yet untapped, gold finds that could increase the supply.
Add in the fact that a strong dollar is pulling away attention from gold as a safe haven, and the balance tips out of gold's favor.
"I think gold is not the right place to be right now," said Joseph Battipaglia, a strategist with Gruntal. "The dollar and U.S. Treasuries are now the safety valves."
Unless mining companies are willing staunch the flow, gold could drop as low as $260 an ounce, he said.
"I'd have to see some significant production cuts and some pain from the producers before I would even take a nibble at it," Battipaglia said.
But Jim Dines, author of The Dines Letter which tracks metals and mining, said that "pain" is on the way in the form of mine closings. And the impending closings have him bullish about gold, especially as a tool to hedge against the chance that currency turmoil in Asia hits the United States.
"That's the $64 question, whether the calamity in Asia will spread to the U.S. dollar," he said. The central bank "stampede" out of gold is the primary force driving the drop in prices, he added.
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