THE SHINE IS DEFINITELY OFF GOLD, both bullion and gold-related stocks.

The price of bullion tends to rise when investors are worried about rising inflation, deep recession or geopolitical risks. But inflation is not a threat in the industrialized world and the global economy is recovering; for now, most see little need for bullion.

Most portfolio managers expect the price of bullion to remain where it is or even drift lower. For example, Drummond Brodeur, vice president of portfolio management and global investment strategist for Signature Global Advisors, a unit of CI Financial Corp. in Toronto, thinks the price will sink to US$900 an ounce in the next few years.

One question is where the price’s breaking points – levels below which many more investors suddenly start selling – are. Stephen Way, senior vice president and portfolio manager with AGF Management Ltd. in Toronto, thinks the recent level of US$1,200 an ounce is a breaking points. He thinks the price could hold there; but if it drops further, he warns, it could retreat significantly.

That, of course, could provide a buying opportunity. Jurrien Timmer, director of global macro and portfolio manager with FMR LLC in Boston, for one, says that if the price gets down to US$1,000 an ounce, he will consider buying bullion.

There’s also a minority that expects bullion prices to rise. Nandu Narayanan, chief investment officer (CIO) at Trident Investment Management LLC in New York and manager of a number of funds sponsored by CI Investments Inc., thinks the price will rise to US$2,000 or even US$3,000 an ounce. He is very pessimistic about the global economic outlook, mostly because of the high levels of government debt weighing on so much of the world.

Equally pessimistic is Ross Healy, chairman of Strategic Analysis Corp. in Toronto. He considers the U.S. to be insolvent and expects the price of gold bullion to rise.

Most portfolio managers still shy away from gold stocks, preferring to invest directly in bullion. They argue that gold-mining companies are very bad custodians of investment dollars. Says Benoît Gervais, vice president, investments, at Mackenzie Financial Corp. in Toronto: “I don’t like the business because they don’t pay dividends or make good investment decisions.”

However, Craig Basinger, CIO at Richardson GMP Ltd. in Toronto, says gold companies are starting to behave better. That includes Barrick Gold Corp., which is reducing the power of its chairman and bringing in independent directors.

Few gold stocks are favoured. Gervais suggests Randgold Resources Ltd., which is making money and which he believes will reinvest rationally.

For clients looking to stay in precious metals but with better returns, Darren Lekkerkerker, portfolio manager with Pyramis Global Advisors, a unit of FMR, suggests silver miner Tahoe Resources Inc., which is just starting production at an extremely high-grade deposit with much lower costs.

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