TORONTO (CP) -- Once deemed an ''old fashioned asset,'' gold is back in vogue, according to ScotiaMocatta's director of precious metals.
''The world has apparently got gold fever again and believes that it is a sound asset,'' Andy Montano said in an interview.
The price of gold bullion hit an all-time high this week, surging above $880 per ounce for the first time on Tuesday and rising steadily throughout the week. On Thursday, gold prices rose to more than $893 on the markets.
''Nine-hundred dollars is a blink away from where we are now. One thousand becomes a fascinating target,'' Montano said.
Barry Cooper, a mining and metals analyst for CIBC World Markets, increased his 2008 gold price forecast from $800 to $875 an ounce. By 2009 he expects gold to be worth $1,000 an ounce.
''We expect gold prices to continue to climb to new heights,'' Cooper wrote in a note.
''However, we foresee a reasonably high probability of a price correction in the first quarter based on historical patterns of supply and demand along with what we believe are some short-term drivers that could subside,'' Cooper wrote in a report, recommending that investors snap up gold when it hits its temporary low point.
Historically, gold prices have been a harbinger of tough economic times. The metal's previous record of $875, worth at least $2,115 in inflation-adjusted terms, was set in 1980.
That year saw intensifying geopolitical tensions such as the Soviet Union's war in Afghanistan and the Iranian U.S. hostage crisis, 14% U.S. inflation and soaring oil prices.
The landscape nearly three decades later looks similar, with terrorism worries, fallout from the U.S. subprime housing crisis, another war in Afghanistan and $100 a barrel oil all supporting gold prices.
''It's often seen as a good hedge against weak economic conditions or inflation and also against a weakening U.S. dollar,'' Merrill Lynch economist Carolyn Kwan said in an interview.
''People view it as a store of value and it can keep value when you have other assets declining.''
There are a few ways investors can take advantage of this golden opportunity.
A surefire way to reap the benefits of high gold prices is to purchase bullion bars through an exchange trading fund or mutual fund, Nick Barisheff, president of the Bullion Management Group, said in an interview.
But people need to be able to distinguish between owning the actual precious metal and investing by way of certificate, which is ''basically an IOU to deliver bullion in the future should you ask for it.''
''The problem with that is that it defeats the very essence of investing in bullion. You're trying to have something that's outside of paper IOUs and where you actually own the physical bullion,'' he said.
''You don't want to get involved in what are basically scams where people purport to sell you precious metals and they provide financing and all that and never really disclose whether there's any precious metals behind it and you could end up with a significant liability and no precious metals.''
Some investors choose to buy into precious metals through coins. But Barisheff said there are risks with that, too.
''Depending on the type of coin, you could pay a very significant premium over the slot price for the coin,'' he said.
''Just like any collections, if you're very knowledgeable with what you're doing, that could be a perfectly fine investment. But it's not an investment for the uninitiated.''
Investors can also put their money in gold mining stocks - a sector many analysts expect to benefit greatly from the increased price of gold.
Cooper said he expects fourth quarter earnings for most gold companies to improve by upwards of 39% over the previous one. His top picks include Kruger Capital Corp. [TSX-V:KGC], Centerra Gold Inc. [TSX:CG] and High River Gold Mines Inc. [TSX:HRG].
Many gold stocks in recent years have risen more slowly than gold prices, in part because operating costs at gold mines have soared because of rising prices for everything from steel and concrete to drilling services and labour. The rising costs have eaten into profits generated from higher production and rising prices, lowering net earnings and keeping share prices lower than expected.
In addition, some gold companies have hedged their production, with contracts to sell gold into the future at lower than current spot prices. However, producers such as Barrick Gold [NYSE:ABX; TSX:ABX] and Newmont Mining [NYSE:NEM] are getting rid of their hedge contracts and taking large non-cash charges on their books so they can benefit in future from rising spot prices.
''With gold prices now rising much faster than the cost curve, we believe this will set the stage for a new influx of investors who will see the earnings power of the industry take hold while at the same time providing some degree of safety from general market mayhem,'' he wrote.
Merrill Lynch's Kwan recommended investors increase their exposure to gold companies as opposed to base metal miners.
Her firm put ''buy'' ratings on Goldcorp Inc. [NYSE:GG; TSX:G], Iamgold Corp. [NYSE:IAG; TSX:IMG], Royal Gold Inc. [TSX:RGL] and Yamana Gold Inc. [NYSE:AUY; TSX:YRI].
''We think that the base metal prices will tend to underperform over time, leaving gold to look very, very positive at this point,'' she said.
But Barisheff of the Bullion Management Group said gold stocks still don't compare to investing in physical bullion.
''One of the misconceptions is that mining stocks go in the same direction as bullion and they outperform bullion. Neither one of those is true,'' he said.
''It's not to say you shouldn't invest in mining stocks. You need a certain core holding in actual bullion.''
(c) The Canadian Press 2008
