Court denies motion to clarify judgment in Howe case

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By Thom Calandra
cbs.marketwatch.com
Thursday, April 18, 2002

SAN FRANCISCO (CBS.MW) - Owners of high-flying gold
stocks look to a slipping dollar for evidence of fiscal turmoil,
and in turn more gains for bullion miners.

Gold shares are piling on the gains, turning the group into
one of the best performing industries in most of the world's
stock markets this year. Gold mutual funds such as the
Gabelli Gold Fund have gained 50 percent since Jan. 2.

John Doody of newsletter Gold Stock Analyst notes his
top 10 gold stocks rose 21 percent last year. Through
March this year, the list is up 51 percent.

The gains for most bullion believers are the nail-biting
kind. There has been no explosive rise in the price of the
metal. Spot gold prices since Jan. 2 have gained just 9
percent, to $304 an ounce Thursday. An old rule of thumb,
that gold equities outperform the metal by a factor of 3
and sometimes 4-to-1 may need revising.

The dollar, says one of Wall Street's biggest believers
in gold, may lend gold the ammunition it needs to notch
further gains. John Hathaway, manager of the Tocqueville
Gold Fund, said Thursday morning the dollar's little-noticed
drop against the euro this week bodes poorly for financial
markets.

"The dollar is in the process of breaking down against the
euro, yen, Australian dollar, Canadian dollar," Hathaway
warns. "The investment implications are higher interest
rates, higher inflation, lower equity market valuations,
higher gold prices."

Hathaway points to a missive Thursday from Stephen
Roach of Morgan Stanley. Roach is concerned America's
surge in imports, up almost 8 percent in January and
February, will permanently damage the country's economy.

"America's gaping current-account deficit could well define
the dark side of any recovery in the U.S. economy," writes
Roach, an economist for the Wall Street investment firm.
"The $31.5 billion trade deficit just reported for February
hammers that point home. It was more than 25 percent
larger than the gap in December 2001 and the widest
trade shortfall in 10 months. And the risk is that this deficit
can only get larger in the months and years ahead. All
this," says Roach, spells trouble for a U.S.-centric global
economy and for the high-flying dollar."

Gold prices tend to rise when the dollar falls. The dollar
this week fell to 89 euros for the first time since early
January. Hathaway, who has forecast gold prices above
$1,000 an ounce in coming years, and other gold
believers see the metal as a replacement for the elite
dollar.

As for gold stocks, gold shares on a daily basis often
lead the price of the metal, as they did earlier this week
when gold stocks as measured by the XAU rose 5 percent
in a day and the metal gained a mere 1 percent. The
TSE gold index in Toronto is that stock market's best
performing industry thus far this year. The experts point
out that's because many investors, individual and
institutional, find it easier to buy the mining stocks than
gold futures contracts, gold bars, or gold coins.

Gold share prices, as measured by indexes in North
America, South Africa, and Australia, are at their highest
points since October 1999, when hopes were high central
banks would stop dumping the metal. In some cases,
individual gold shares have turned into nearly
unstoppable express trains.

Among the $1-plus crowd, shares of South Africa's
Durban Roodepoort are up 190 percent since Jan. 2.
Gold Fields, the second largest South African producer,
is up 127 percent and on Thursday surpassed $11 for
the first time since March 1997, when spot gold was selling
for $350 an ounce.

In the world of tiny Canadian, Australian, and even American
gold mining exploration companies, stock prices have
tripled and quadrupled in the space of a year. Dozens of
companies, hard-pressed for the cash they need to test
sites in Africa, South America, and Indonesia, are finding
it easier to do private placements of stock and warrants.

"Exploration is very risky; we know that. The odds are
not quite as bad as the Big Game Lottery, but not far off,"
says Adrian Day of Global Strategic Management, a
Virginia money manager that has been investing in gold
mining companies for more than 20 years.

Mainstream investors will wonder whether the world's
largest gold mining companies, led by Newmont Mining,
Anglogold, Gold Fields, and Barrick Gold can continue to
rack up gains. In the case of Newmont, the world's largest
gold producer, the New York Stock Exchange shares sell
for as much as 12 times pre-tax cash flow. That's an
expensive price to pay, but one that gold investors call
an "option premium," where shareholders are banking on
further gains for the millions of ounces of gold a large
mining company still has in the ground.

Christopher Johnson, a quantitative analyst who has
correctly forecast rising stock prices for Newmont Mining
and the XAU index of leading gold and silver companies,
sees more gains ahead. The gold index gained 5 percent
Wednesday and was up another 1.5 percent Thursday
morning to 73.46. "As for technicals, the XAU has long
seen support/resistance at the 70 level," says Johnson
of Schaeffers Investment Research. "April '92 saw staunch
support at 70 as did January '93 (with a brief interlude
below 70 in November '92). November '97 was the last
time that 70 lent support to the XAU before turning into
a resistance level."

Johnson, whose favorite mining stocks are Newmont
and Freeport McMoRan Copper & Gold, sees disgusted
Nasdaq investors at the root of further gold gains. "During
the bull stock market in the late 90's there were a number
of short breaks above 70," he said Thursday from
Cincinnati. "Now with strong fundamentals and technicals,
the XAU looks as though it will break 70 and likely have it
turn into support. The stock market continues to unwind
and investors are rethinking their positions in many of the
stocks that continue to be overbought in the current weak
market."

At Gold Stock Analyst, Doody's top picks include fallen
angel Ashanti Goldfields, an African producer whose
stock has gained 20 percent since January. Doody's
newsletter is available at www.goldstockanalyst.com.