One of the supposed great lessons investors learned in the 1990s was that gold is the antithesis of equities, and vice versa. As gold languished last decade amid a prolonged period of disinflation, the dollar rallied and equities soared, fueling such perceptions. By the end of the 1990s, those bullish on gold and related stocks were unassailably bearish on stocks while those upbeat on shares, especially growth stocks, were dismissive of the yellow metal.

Yet a funny thing happened in the past year: While equities have recovered from their three-year bear market, gold has continued its upward thrust, albeit with more volatility vs. the prior two years. The idea that gold and stocks can't rise together doesn't hold anymore.

Factors attributed to gold's continued rise include the dollar's weakness -- spurred by the

Federal Reserve's

highly accommodative policies and the Bush administration's deficit-inducing tax cuts, as well as investors' desire to own so-called alternative assets following the three-year bear market and an uncertain geopolitical climate.

After rising 2% to a three-week high of $382 per ounce Tuesday, gold is now up 22.9% in the past 12 months while the Philadelphia Stock Exchange Gold & Silver Index is up over 61%, after rising 4.9% to $96.65 Tuesday. Those returns compare favorably with the more than 16% rise by the

S&P 500

and the over 40% gains posted by the

Nasdaq Composite

and Russell 2000 in the past year. (On Tuesday, major averages continued to either -- depending on one's perspective -- digest or express disappointment over corporate earnings, ending mixed amid relatively modest point moves.)

Heady gains by tech stocks in the past year have made some traders forget about gold and related shares. But these seemingly strange bedfellows should continue to rally in tandem in the coming months, Bernie Schaeffer, senior editor of Schaeffer's Investment Research in Cincinnati, predicted during his keynote address at the San Francisco Money Show last week.

Other presenters at the confab echoed Schaeffer's view. Unlike past years, those bullish on gold weren't necessarily (or automatically) bearish on equities in general. This notion that gold and equities can't work together is another truism of the 1990's -- like "buy and hold" -- that investors ought to re-evaluate.

Dollar Decline Makes Strange Bedfellows

Both the Comp and Amex Gold Bugs Index are in "solid bull markets" and share "a sentiment backdrop

being one of disbelief," Schaeffer said. Wall Street remains in the "disbelief stage" regarding gold, he continued, noting the predominance of hold and sell ratings on gold shares at major brokerages. In addition, the entire market cap of the Gold Bugs Index is less than that of tech giants such as


(MSFT) - Get Report



(DELL) - Get Report

. "We're a far distance from euphoria" regarding gold, he said.

Of course, there have been examples of euphoria and/or wild speculation in some small-cap tech shares (and arguably in gold as well, according to the Commitment of Traders' Report). But "put open interest and short interest on tech remains at extremely high levels," Schaeffer noted in a recent report. Additionally, the common labeling of tech as being in a new bubble or "echo bubble" indicates disbelief in the sector, he argued, noting the Comp would have to rally by an additional 45%-plus just to retrace 50% of its loss from its March 2000 peak to its October 2002 trough.

Schaeffer maintains a bullish stance on the Comp and small-cap tech, especially compared to the big-cap

Dow Jones Industrial Average

, a position he's advocated since late 2002. He maintains a target of 2200 for the Comp, which would be roughly double its October 2003 low, and an area where there's technical resistance around the 80-month moving average.

Regarding gold, he continues to recommend investors keep 15% to 20% of their assets in gold shares, predicting a move above resistance in the $380-to-$400-per-ounce range would likely be followed by an "extremely sharp and extremely rapid rally."

However, Schaffer cautioned that gold shares appear extended vs. the metal itself and are subject to "gut-wrenching pullbacks." He suggested investors "don't chase rallies" and look to establish or add to gold stocks on pullbacks.

Frank Holmes, chairman and CEO of U.S. Global Advisors, a San Antonio, Texas-based money manager with over $1.1 billion in assets, offered a similarly upbeat view of tech and gold during his presentation at the Money Show. He suggested $360 per ounce would be a good point for investors to re-enter or establish positions in gold/related shares. That forecast was based on an assessment the dollar was set up for a near-term technical rally, perhaps coinciding with President Bush's trip to Asia.

While the dollar stabilized late last week and Monday, the greenback slumped Tuesday after the Asia Pacific Economic Cooperation summit concluded without comment on currencies. The greenback fell to 109.59 yen vs. 110.27 late Monday, the euro rose to $1.1654 vs. $1.1639 while the Dollar Index dipped 0.1% to 92.34.

Expectations of long-term dollar weakness underlie Holmes' bullish view on gold; there's a 65% inverse correlation between the two assets, he noted. (As an aside,

contributor Howard Simons has demonstrated there's a

lack of correlation between returns on the dollar and stocks over the long term. Problems can arise near term if the dollar moves sharply and/or is manipulated by governments, but that's different than simply equating dollar weakness with equity weakness.)

The dollar is also a big factor in Holmes' bullishness on tech, noting the sector generates 48% of revenues overseas. Dollar weakness aids the competitiveness of U.S. products vs. overseas rivals while currency translations provide a top-line boost. For example, second-quarter results at


(IBM) - Get Report



(INTC) - Get Report

were each greatly enhanced by overseas revenues.

Regarding his optimism about gold, Holmes also cited rising demand from India and (especially) China, decreasing mine supply, a reduction of hedging by gold producers and renewed investor interest in the metal, which he said the much-anticipated Gold ETF should crystallize -- especially among U.S. pension funds.

The $61 million

(USERX) - Get Report

U.S. Global Gold Shares fund has core holdings in

Newmont Mining

(NEM) - Get Report




, and Holmes is currently bullish on smaller exploration names, including

Northgate Exploration



Apollo Gold

(AGT) - Get Report


Apollo Gold is the fund's single-largest holding, according to Morningstar. The fund is up 34.4% year to date and 43% in the past three years.

Aaron L. Task writes daily for In keeping with TSC's editorial policy, he doesn't own or short individual stocks, although he owns stock in He also doesn't invest in hedge funds or other private investment partnerships. He invites you to send your feedback to

Aaron L. Task.