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Gold soars in classic investment 'squeeze'

By Allan Robinson
Mining Reporter
The Globe and Mail, Toronto
http://www.theglobeandmail.com
Saturday, May 19, 2001

The price of gold soared $13.80 (U.S.) an ounce in a
surge of afternoon trading yesterday to close the day
at $287.80.

The upward swing came abruptly after lacklustre trading
throughout the morning, traders said.

One analyst said there was a classic investment
"squeeze" going on in the market, forcing gold higher
and causing the shares of gold mining companies to take
off.

Around noon, buying started to come into the market,
said George Parrill, director of precious metals at
ScotiaMocatta, the metals trading arm of Bank of Nova
Scotia. The buying could be the New York commodity
funds covering their short positions or possibly
establishing long positions, he said.

"We haven't seen this since September, 1999," he said.
Gold prices took off then when the European central
banks said they would restrict their gold lending
activities.

In a matter of days from Sept. 21 to Oct. 6, 1999, gold
went from $260 an ounce to $324.50.

"It's a shock," said John Ing, the president of Toronto
investment dealer Maison Placements Inc. "There's
definitely a squeeze going on."

A squeeze occurs when traders who have been short in
anticipation that gold prices would drop reverse course
and buy gold to stem their losses, pushing prices
higher.

Mr. Ing said selling from one bank dried up yesterday
and gold shot ahead. "That was the only thing keeping
gold down," he said.

Mr. Ing also said that lower interest rates are
reducing the profitability of gold hedging. Some
traders borrow gold and raise cash by selling it in
order to reinvest the proceeds in interest-bearing
securities.

Douglas Pollitt, a mining analyst with Pollitt & Co.,
said a steady rise in the price of gold during the past
25 days to about $274 an ounce from $260 has given
traders confidence to hold gold.

The price of bullion is at its highest level since mid-
2000, but analysts said no specific news event could
account for its dramatic move yesterday.

"It's a very constructive pattern that is bound to
attract additional interest," Mr. Pollitt said. "A
little bit of money in the gold market goes an awfully
long way."

The Toronto Stock Exchange's gold and precious minerals
index rose 5.04 per cent or 260.16 points yesterday to
close at 5,417.85 points. The shares of Barrick Gold
Corp. gained $1.35 (Canadian) to $29.20 each. The
shares of Placer Dome Inc. climbed 78 cents to $18.70,
and the shares of Franco-Nevada Mining Corp. increased
$1.20 to $21.85 each.

Gold has dramatically outperformed every other sector
on the TSE during the past three months. The TSE gold
and precious minerals index is up 36.68 percent during
the past three months with the TSE metals and minerals
index coming in as the next strongest subindex, up 26.2
percent.

"The funds are tripping over themselves to buy gold,"
Donald Eckert, head of precious metals trading at J.P.
Morgan Chase & Co. in New York, told Bloomberg News.

Analysts said gold has broken through several technical
barriers such as its average 40-week and 65-week price
levels.

Traders follow these technical levels closely.