History of Stock Market Astrology

FEW groups of investors have been as estatic over the soaring stock market this year as the gold bugs, who normally view any positive economic news as a disaster. Have the investors in gloom and doom suddenly been converted into optimists? Rather, the gold bugs view each record-breaking advance in stock prices as a step closer to the inevitable end of the bull market.

When that happens, the gold bugs expect a mass flight of capital out of ''paper stores of value'' and into such tangible assets as precious metals. Some of this thinking has also gained adherents among institutional stock portfolio managers, who have increasingly been using gold futures as well as options on these contracts this year to hedge, or insure, against a market correction. Many metals market analysts say this is why gold, silver and platinum soared with the stock market in the first quarter; soured when equity prices meandered aimlessly in the second quarter, and then rebounded with the record advances of stocks during the current quarter.

While this theory seemed to be contradicted by yesterday's drop in precious metals prices as the Dow Jones industrial average reached yet another high, brokers said the decline in gold, silver and platinum largely reflected light profit taking by managed commodity funds whose trading strategy is determined by computer. Christian, whose CPM Group Ltd.

Similarly, the fact that precious metals have tended to move in tandem with the stock market does not mean the gold bugs have had any change of heart. Christian said, this year's odd linkage between the stock and precious metals markets ''can be explained by the belief held by an increasing number of stock investors here and abroad that it may be prudent to own some gold as a hedge.

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This view has become more pronounced as the stock market took off into uncharted heights this year. The preferred hedging medium of the institutional portfolio managers has been options on gold futures, while the gold bugs still favor owning physical metal in the form of bullion coins or bars.

Any increase in prices and activity of gold options and futures serves to bolster the physical market in bullion. Another and quite unexpected factor that supported gold in the first quarter was the sudden explosion in silver prices after seven years of decline.

Looking Back to the Crash of | Gold Stock Bull

Aside from the gold bugs who expect a stock market debacle and the institutional portfolio managers who are simply hedging against a more modest correction, precious metals prices have also benefited from strong technical factors.

The strike by South African gold miners, which began last Sunday, has had only a minimal effect on the gold market so far, in part because there is no shortage of gold. The gold chain that someone will buy today may contain metal mined a few months or a few centuries ago.

The strike has not interrupted the flow of gold into the market, or the rate at which the metal is absorbed by industrial users, investors and financial institutions.

Demler, metals analyst at Drexel Burnham Lambert, also noted that the output of gold from new and old mines in North America, Australia and other regions has been rising steadily each year, while South African mine production and ore qualities have been declining. Before the strike, South Africa had been expected to produce about a third of the global mine output of 1, metric tons of 32, ounces each.

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