Why Gold Is Talking a Blue Streak

These are happy days for the world’s “gold bugs,” the investment advisers who have long championed the yellow metal as the only truly safe store of value.

To their detractors, the gold bugs are just stopped clocks: bound to be right a couple times a day (or a decade, perhaps).

But James Dines, a well-known gold bug and publisher of the Belvedere, Calif.-based Dines Letter since 1960, offers 10 reasons why gold’s current advance is logical--and could continue:

1 Gold sees higher inflation coming not from commodity price increases but from federal policy changes.

“Higher taxes, government regulations, protectionism, health care and environmental costs will ultimately be passed on to the consumer in the form of higher prices,” Dines says.

2 “The ex-communist masses, forbidden to own gold for many decades, are finally heavy buyers,” led by the Chinese.

3 The Federal Reserve could be forced to raise interest rates to stop the dollar from falling. Any rate rise could cause investors to flee interest-sensitive investments such as bonds.

4 “Government spending and international trade deficits in this country are completely out of control, and the perception is growing that President Clinton is clearly (in) over his head.”

5 Recent major gold investments by world-class speculators such as George Soros have caused other “smart money” investors to look at gold.

6 U.S. Treasury bill yields now are less than the inflation rate, which means short-term investors must look to other “safe” investments for a real return.

7 Money managers who normally own only blue chip industrial or consumer stocks have been burned by many big-name issues this year, and are beginning to chase hot gold stocks instead.

8 Gold’s rise is part of a broad-based return to inflation hedges, as “confirmed” by gains in silver and platinum as well.

9 There is a “flight out of all paper currencies” and into gold as investors lose faith in the ability of governments worldwide to solve social ills.

10 The stock market is topping, and the gold market is simply reflecting that money will soon be pouring out of stocks and into gold and other safe havens.

Dines advises clients to own gold stocks, not bullion.

Among his gold stock picks: ASA Ltd. ($49.875 a share on NYSE as of Friday), Hemlo Gold ($10 on Amex), Anglo-American Gold ($6.50 on NASDAQ) and Placer Dome ($17.875 on NYSE).