Russell sees collapse of U.S. equities, dollar, urges heavy investment in gold

Section:

By Kevin Morrison
Financial Times
August 29, 2003
http://news.ft.com/servlet/ContentServer?pagename=FT.com/StoryFT/FullStory&
c=StoryFT&cid=1059479423122&p=1012571727143

The prospect of gold breaking the six-year highs hit
in February increased this week when so-called
"open interest" in US gold futures on Comex in New
York reached a record high, after a large surge in
trading on Wednesday.

Andy Smith, analyst at Mitsui Global Precious
Metals, said the increase in open interest, which
is more than 26 million ounces or more than 40
percent of last year's world gold production,
suggested that there was perhaps new buying
by investors who do not traditionally venture
into the precious metals market. The purchases
were worth about $6.9 billion, relatively small
by equity or bond market values, but very large
for gold.

Silver, platinum, and palladium have also been
enjoying near-record volumes of interest in
recent weeks.

Previous large open interest volumes were
followed by events that rapidly moved gold
prices. In March 1993, George Soros and the late
Sir James Goldsmith announced they were buying
gold; in January 1996, Barrick Gold, one the world's
largest gold producers and major proponent of
gold hedging, announced it was closing up to a
third of its hedge book; and in September 1999
when Wim Duisenberg, president of the European
Central Bank, announced the Central Bank Gold
Agreement.

Rumours about a renewal of the gold agreement
was one of the reasons analysts gave for the
increase in open futures contracts following
confirmation this week that the Bank of Greece
sold 20 tonnes of gold last week, raising 200m.
Greece is the only member of the eurozone not
part of the agreement, which expires in
September and was widely seen as joining the
pact in any renewal.

Mr. Smith said options for about 60 tonnes' worth
of gold were in place at strike prices of between
$400 and $500 a troy ounce.

Spot gold was trading at $373.25/$374.00 a troy
ounce, up more than $10 on the week, but about
$15 below the six-year high of $388.50 reached in
early February.

"This could be enough to make some gold
producers reduce their hedge book, so that they
don't miss out on any price gains," Mr. Smith said.
Gold miners hedge a proportion of their production
at fixed prices for a future delivery, but in recent
years they have reduced their hedging positions
and this has in turn helped lift gold prices.

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