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Gold loses some luster as dollar rallies

December 16, 2007|Tom Petruno | Times Staff Writer

In retrospect, gold was a good buy at $350, $500 and $650.

But since reaching a 27-year high of $835.20 an ounce Nov. 8, the metal has struggled. It closed Friday at $793.30 in New York futures trading.

One concern weighing on gold is the dollar's sudden strength.

The weak dollar for the last two years had been a boon for gold. The metal often gains respect when paper currencies wither. And because gold is priced in dollars worldwide, the dollar's slide in effect made gold less expensive for foreign investors whose currencies were strengthening.

But the greenback has been rallying in recent weeks, and that is driving some investors out of gold, analysts say.

Surging oil prices also have helped push gold up in recent years by fanning inflation fears. Gold is considered a natural inflation hedge. But oil has stalled out in its run for $100 a barrel.

Even if inflation pressures continue to rise, investors who want to add an inflation hedge to their portfolios have options besides gold, said Russ Kinnel, director of mutual fund research at Morningstar Inc.

"I think there are better ways to go," he said.

One idea is inflation-adjusted U.S. Treasury bonds or mutual funds that own the bonds. The returns on the securities are guaranteed to rise with U.S. consumer price inflation.

Investors also can buy into a broad portfolio of commodities rather than rely solely on gold. A popular commodity-linked fund is the Pimco Commodity RealReturn Strategy fund, which is up about 18% this year.

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tom.petruno@latimes.com

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