Once Again, Stocks Not as Good as Gold

"The shares are saying 'you can have your party [on war fears] but we don't see much of a sustainable rally on the other side,'" Pring said. "When hostilities break out or something unexpected happens to solve this thing, people are going to have to unwind the positions and you could see a dramatic decline" in gold and oil.

Piling On, Gold Style

I ran much of the above by John Hathaway, manager of the (TGLDX)Tocqueville Gold fund, which I am long.

Hathaway agreed that recent action in commodity-related stocks is both a "sign of skepticism on somebody's part" and supports the idea that money has come into oil and gold because of war fears. Gold and oil surged in 1990 prior to the Gulf War in 1991 and "everyone remembers that was it" for commodities after Desert Storm began, he recalled. "You went into hibernation for quite a while."

To Hathaway, the relative sluggishness of gold- and oil-related stocks suggests fear of a repeat if the presumptive war with Iraq goes as smoothly as expected. "I remember 1990 and I'm a little defensive, psychologically because of that," the fund manager said. "People buying gold on a spike like today are desperate or are just momentum guys."

However, the fund manager remains fully invested. Being defensive translates into not "chasing stocks" and trying to be "judicious and careful," rather than outright selling to raise cash, Hathaway explained. "This is not what you'd call a classic buying opportunity but I'm not going to bet we're going to have a top."

Currently, he is focused on smaller- and mid-cap names such as Wheaton River Minerals (WHT). Hathaway applauded the firm's recent purchase of some mining assets from Rio Tinto (RTP), which should more than double Wheaton's gold output. The fund manager wasn't worried about dilution from Wheaton River's planned $150 million private placement of common shares to pay for the deal.

Back on the broader question, Hathaway expressed frustration that reasons for his "extremely bullish" long-term posture on gold have been usurped by all the chatter about Iraq.

Even assuming the coming war is quick and relatively painless -- a big assumption -- "you still have an overvalued stock market, a sputtering economy, the dollar losing ground, and a crisis of morality in U.S.," he said. "There are plenty of things that have nothing to do with Iraq" fueling gold's ascent.

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