Inflation, other skittishness put new luster in precious metals

Suddenly, investors around the world are gaga over gold and platinum again. Prices of these metals have soared in recent weeks. On Tuesday, gold broke through $400 an ounce, closing in New York at $405, up more than $18. Platinum, too, was at a near-term high of $640 an ounce, up its $25 limit Tuesday. On European and North American markets, gold shot up strongly again on Wednesday.

These metals are still quite a distance from their all-time highs of 1980 ($852 an ounce for gold, $1,000 an ounce for platinum), but they have risen in value 20 to 30 percent in the last few months.

Key factors spurring the rally, according to economic analysts:

Explosive growth of the United States money supply and signs of a pickup in the US economy have rekindled worries about inflation. That drives some speculators out of paper investments such as stocks and bonds and into hard assets such as precious metals.

Exchange-rate fluctuations over the past year finally appear to be having an impact on precious metals.

International instability, especially in South Africa and the Persian Gulf, has driven some investors to buy metals as a disaster hedge.

New gold coins are absorbing a large portion of the gold supply, and industrial users are buying increasing amounts of platinum and gold.

``It's a cumulative thing,'' says Al Posnick, vice-president of Manfra, Tordella & Brookes, a New York bullion and coin dealer. ``There are sound fundamental reasons that the market is moving.''

Mr. Posnick sees gold as being back in a ``bull cycle'' after bottoming at $285 an ounce two years ago.

While these factors may have been enough to raise prices for gold, platinum, and, to a lesser extent, silver, analysts say there has been quite a bit of speculation already and warn that a quick reversal of the trend is possible.

Arnold X. Moskowitz, a Dean Witter Reynolds economist, sees the rise in these precious metals as largely a ``diversification away from the dollar'' by investors thoughout the world. Gold, he says, has not risen as much as the yen or the deutsche mark against the dollar in the past year, and now that is being corrected. By his reckoning, gold was due for a 35 to 50 percent rise in price.

As always, assorted international developments play a part in the gold-bug pyschology.

An oil production agreement by the Organization of Petroleum Exporting Countries, for instance, has taken some of the deflationary fear out of the world economy, analysts say. That could be buoying gold prices. An imminent military offensive by Iran in the Gulf war, moreover, could exacerbate inflationary pressures and cause skittish Middle Eastern investors to buy gold as a disaster hedge.

End use is a reason as well. For gold that means coins; for platinum it means industrial use.

Of late, the Japanese government has been one of the biggest gold buyers. It has purchased an estimated 220 tons of gold since the first of the year to strike coins commemorating Emperor Hirohito's 60th anniversary on the throne.

There is now a veritable flood of gold coins on the market, from the largely boycotted Krugerrand to the popular Canadian Maple Leaf to the Chinese Panda. On Oct. 1, the US Treasury will begin selling gold coins in $5, $10, $25, and $50 denominations -- the first time since 1933 that the US has been issuing new gold legal tender.

While this might prompt new gold buying on the part of Americans and others, the presence of all these gold coins on the market could begin to dampen prices.

As for platinum, it began rising earlier this summer because of the threat of South African retaliation for Western economic sanctions. South African mines produce some 80 percent of the world's platinum. About 30 percent of the output is used in jewelry; another 30 percent goes into catalytic converters for automobiles. Platinum is also important in some high-tech equipment and in chemicals and pharmaceuticals.

But Pretoria has denied it is considering an export cutoff of these metals. And with good reason: Revenues from them are essential to keep the South African economy afloat.

Thus there are many reasons for the surge in gold and platinum prices, but some analysts say that taken together the reasons do not add up to a completely convincing case.

At Smith Barney, Harris Upham, precious-metals analyst Craig V. Sloane says he is concerned that the market ``doesn't have much of a leg to stand on.'' He considers the market supply driven rather than demand driven and says much of the boost in prices has occurred because of speculation over supply curtailments. If these do not materialize, prices could plunge again.

Because he sees the dollar as near its bottom relative to the yen and mark, Mr. Moskowitz at Dean Witter Reynolds does not expect the rally in precious metals to last past the end of the year. A Thursday column