Does gold really glitter for all investors?

NEW YORK – There is nothing like a bull market to fuel a bull market. Just look at the interest in gold, which has soared to 25-year highs in recent weeks, and in gold-mining stocks.

It has been hard to miss bullion’s steep bounce, and that’s spurring chatter among some investors about getting in on that action before they miss more of the rally.

But is it really a good time to buy? That probably depends on what one hopes to get out of such an investment.

Gold prices have been moving higher for nearly five years, but a big acceleration has come in recent months. Earlier this week, prices shot above $540 an ounce during the day’s trading, the highest level since 1981. Because of some profit taking, gold is now trading around $500 an ounce, still up around 20 percent for the year.

That run-up has also given a big lift to gold-related stocks, including producers Newmont Mining Corp. and Placer Dome Inc. Both have seen double-digit gains this year.

Contrast that with what the stock market has done since the start of 2005: The Dow Jones industrial average has gained just shy of 1 percent, while the Standard & Poor’s 500 stock index is up about 5 percent since early January.

A confluence of factors seem to be feeding gold’s gains. Concerns about rising inflation tied to higher energy costs have contributed to the rally. Gold is also considered a “safe-haven” investment during uncertain economic or political times.

Gold supplies also appear to be dwindling. Output from three of the largest producing nations – South Africa, Australia and the United States – fell 20 percent from 2000 to 2004, according to Credit Suisse First Boston.

At the same time, demand for gold is also clearly accelerating. While central banks have been net sellers of gold for much of the last two decades, there are indications that some, including those in Russia, Argentina and South Africa, plan to increase the gold portion of their reserves.

Also up sharply this year is demand for gold jewelry, which accounts for about three-quarters of global gold demand. In fact, global jewelry consumption – led by big gains in India and China thanks to their rapidly expanding economies – increased nearly 12 percent for the first nine months of 2005, according to the World Gold Council.

Gold prices have also gotten a big jolt from the sharp increase in investment and speculative demand. Not only are investors buying gold outright – bars of gold and coins – but there also has been a surge in interest in gold mutual, exchange-traded and commodities funds.

With such factors bolstering the bullion, it’s not surprising that many investors are considering joining this gold rush. But it might not be the right move for everyone now.

Prices are already ahead of the estimates coming from many economists and Wall Street analysts. For instance, CSFB increased its fourth-quarter gold price assumption last week from $450 an ounce to $486, and its forecasts are for gold to be priced between $430 and $469 per ounce in 2006.

But for most investors, gold might not have much to offer. Edward Keon, Prudential Equity Group’s chief investment officer, notes that gold does not generate cash and requires payment to have it stored and guarded.

In addition, even after its recent run, gold sells for about the same price today as it did in the late 1970s, and from the beginning of 1982 to today, gold has risen in price by an average of about 2 percent a year, with long periods of it being underwater, Keon said.

“Ignoring the cost of storage and security, gold prices have lagged inflation by more than 1 percent per year from early 1982 through today,” Keon said. “Gold might be a good hedge against unexpected surges in inflation or against global calamities, but it has been a poor long-term store of value.”