Gold is boomeranging on George, Greenspan, and the other central bankers


8:42p ET Wednesday, August 27, 2003

Dear Friend of GATA and Gold:

John Embry, president of Sprott Asset Management
in Toronto, today gave an interview to Investor
Canada and again publicized the essence of GATA's
findings about the gold market. The interview is

CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.

* * *


Investor Canada: Welcome to I'm
Donna Guzik. John Embry has been watching the gold
market for many years. He of course made a name for
himself garnering stellar returns for the Royal Precious
Metals Fund. He's now president and portfolio manager
of Sprott Asset Management. He manages the Sprott
Gold and Previous Metal Fund there.

John, last time we spoke it was January. You said the
price of gold would be moving higher as a result not of
Iraq or any of those issues, but as a result of a weaker
U.S. dollar and the United States getting more aggressive
about monetary printing to stave off any deflation. Do
you still feel that that is the case?

Embry: Well, absolutely. I think basically that, sure,
we're having some economic recovery here, but they've
been throwing everything but the kitchen sink at it.

I think the deflationary pressure still exists. I mean, the
combination of China exports, the Internet, there's far
too much debt in the system that there's a lot of
deflationary pressure.

The United States cannot take deflation, so they will
err on the side of ease. They will print a lot of money
and they are so doing. If you look at the M3 growth
recently, it's staggering. So, yes, I think this is a real
underpinning for gold.

Investor Canada: Well, let's talk about some of the
other factors that are affecting the price of gold. You
had said previously that mine supply will contract over
the next few years. Where is the supply of gold going to
come from? Where is the demand going to come from?

Embry: Well, the demand is going to, in my opinion, is
going to come from people trying to sort of diversify
away from paper money as it becomes more apparent
that all governments are printing money in a
beggar-thy-neighbor type policy, to keep their exports
competitive. I think that more people around the world
will feel the need to have a little more gold in their portfolio.
So I'm not the least bit concerned about the demand
side. The supply side is another issue. I mean, the fact
is I don't think gold mine output will improve.

I think it will fall the next three to four years as a result
of the dearth of exploration in the post-BreX period.

When gold prices were low for an extended time, the
producing mines high-graded considerably and didn't
do a lot of the sustaining capital development. And it's
just a natural exhaustion of mines.

With all those combinations, in the next two or three
years gold production is going to fall irrespective of what
prices do.

Then if prices do what I think they're going to do, which
is go up materially, there will be lots of exploration, lots
of gold mines found, but they won't be put in production
until the latter part of this decade.

So in the near term, I think the supply/demand equation
for gold is excellent.

Investor Canada: So are you looking for the juniors to do
the exploration work and the larger companies to buy them

Embry: Yes, I think that sort of will be the new. It's ongoing,
really. The seniors have pulled back in their exploration and
they're more content to let the juniors raise money, find the
stuff and then cherry-pick the ones they like.

Investor Canada: How important is the role of central banks
that hold gold and may sell gold? Recently one of the
European central banks that was not a member of the
Washington Gold Agreement of 1999 sold about 20 tonnes.
Does that have much of an impact on the supply?

Embry: Well, it's had a huge impact and the central banks,
in conjunction with their associates, the bullion banks, have
been controlling the gold price for years. The problem is that
they're running out of ammunition. They allegedly own
31,000 tonnes. In reality they've probably lent half of that,
which has already been sent into the market and sold. So
I think they're going to become less and less a factor.

And more importantly, I think that the Asian central banks
-- the Chinese, the Taiwanese, the Japanese, et al. -- are
getting more and more dollars. They're carrying these
enormous current account surpluses. They're just getting
stuffed with dollars.

I think they're the natural buyer for any central bank gold
that's going to come for sale out of the European central
banks. So I don't see this as a big factor going forward at all.

Investor Canada: Well, this Washington Gold Agreement,
as I understand, is expected to be reviewed.

Embry: It comes to an end a year from now, in September
2004. And you know, right now they're selling 400 only
tons a year. Given the deficit in the market between mine
supply and what I think the demand is going to look like,
they could easily sell twice that and not come anywhere
close to filling the gap. So I don't see this thing as a factor
at all.

Investor Canada: Let's talk a little bit about some of the
gold companies you're looking at. Who do you like right

Embry: I've got some smaller ones that I've gotten really
interested in, and I've had quite good success in to date.
One that I'm very keen on is one called Queenstake, which
bought the Jarod Canyon Mine from AngloGold and
Meridian. And it's a 300,000-ounce producer. It's in
production and they've got all the environmental things
bonded, so that's all covered.

Investor Canada: Where is that based?

Embry: It's in Nevada. The real key to the story is that
when they bought it, it had only two years of obvious
reserves available for production. They believe that they
can convert resources that are already identified for at
least another four years, and they see tremendous
exploration potential beyond that.

If this is the case, this is an extremely cheap stock and
it's trading around 63 cents. There's a lot of shares out,
about 300 million. But this is very inexpensive, given the
production they're going to have. I see it as a terrific
levered play on higher gold prices.

Investor Canada: Do you have a target price on this stock?

Embry: Oh yes, I'd say at least a buck and a quarter in the
short run, over the next six months.

Investor Canada: And which other companies do you like
right now?

Embry: I continue to like Southwestern Resources, which
has this enormous mineralised zone in China, which I think
could contain well in excess of 10 million ounces of
economic grade. They're going to get more and more drilling
results from there, but it's slow going because it's a hard core
to drill. But I think that as people get more confidence in this
thing, the valuation is going to move up significantly.

Investor Canada: Are there any companies do you think
investors should really be staying away from right now?

Embry: Well, there's one that's been stinking it up pretty
good lately, and this is this Apollo Gold, which I unfortunately
have a small position in, which I inherited incidentally. They
were mining two of the old Pegasus Mines in Montana and
Nevada. I think they're poor-quality mines and now they're
sort of running out of money. So that's one that I'm not
terribly enthused about at this point.

Investor Canada: If investors aren't currently in gold stocks,
why should they be?

Embry: I firmly believe that everyone who has any significant
assets should have a minimum of 10 percent in gold or gold
shares or a combination thereof. I like gold bullion as well.
I think it's actually a safer way to play it, because there's
always things that could go wrong with gold companies.

Investor Canada: Where do investors get bullion?

Embry: I'm glad you asked because there's a new vehicle
called Central Gold Trust. You can buy it on the TSX
(CGT.UN) and it's a pure gold play. All it owns is gold. It's
very vanilla. There's no bells and whistles. It's straight
and it's a very simple way to buy gold.

Investor Canada: Well, I'm glad I asked.

Embry: I'm glad you did too because I think it's a heck of a