Bloomberg News

Gold to Outperform Dow Index on ‘Fear Trade,’ SICA Wealth Says

January 08, 2012

Jan. 6 (Bloomberg) -- Gold will outperform the Dow Jones Industrial Average this quarter, after trailing the equity index in late 2011, as Iranian tensions and European debt woes mount, said Jeffrey Sica, the president of SICA Wealth Management.

Gold may jump 10 percent in the three months ending March 31 as the stock gauge drops, Sica, who helps oversee $1 billion, said yesterday in a telephone interview from Morristown, New Jersey. Last quarter, gold fell 3.4 percent, snapping a rally since late 2008, while the Dow index rose 12 percent.

The metal climbed 10 percent last year, the 11th straight annual gain, as investors sought better returns than equities and some currencies offered. The Dow rose 5.5 percent in 2011, and the MSCI All-Country World Index of equities fell 9.4 percent. Iran has threatened to disrupt oil shipments in the Strait of Hormuz if the European Union imposes more sanctions linked to the Persian Gulf country’s nuclear program. Italy’s UniCredit SpA has said that the euro may be abandoned.

“Very soon, there will be an entry point for gold,” Sica said. “The fear trade will come back as people are worried because of the developments in Iran and the contagion risks from the euro area’s debt crisis.”

Gold rose to a record $1,923.70 an ounce on Sept. 6. The metal touched a five-month low of $1,523.90 on Dec. 29. Sica said that he cut his holdings in precious metal to less than 1 percent in September from 20 percent.

Four-Session Rally

Gold futures for February delivery rose 0.5 percent to settle at $1,620.10 yesterday on the Comex in New York. The metal climbed for the fourth straight session, the longest rally in 10 weeks.

The Dow index fell 2.72 to 12,415.7 yesterday. Banks probably will drag stocks lower this quarter as the European debt contagion spreads, Sica said.

Blackstone Group LP’s Byron Wien, who correctly predicted last year’s gain in gold, said the metal will rally 15 percent to $1,800 in 2012, and Citigroup Inc. said the metal will surge to $2,400.

Dennis Gartman, the economist who correctly forecast the commodity slump in 2008, said today in his daily report that he is “officially bullish” on gold.

The bear run “has now officially ended, for the string of lower lows and lower highs is over,” he wrote in the Gartman Letter.

Forecasters at securities firms are more conservative on stocks than any time in seven years, predicting the Standard & Poor’s 500 Index will advance 6.4 percent in 2012 as budget deficits limit gains around the world.

--With assistance from Inyoung Hwang in New York. Editors: Patrick McKiernan, Steve Stroth

To contact the reporter on this story: Debarati Roy in New York at droy5@bloomberg.net

To contact the editor responsible for this story: Steve Stroth at sstroth@bloomberg.net


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