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FROM TODAY'S PRESS - 16 March 1999

GOLDBUGS MAY HAVE THEIR DAY
by Jonathan Chevreau
The Financial Post (www.canoe.ca/FP/chevreau)

With global deflation threatening and financial markets euphoric but
jittery, goldbugs are creeping out of the woodwork. Given the battering
the yellow metal's enthusiasts have been subjected to in recent years,
any view that bullion or precious metals mutual funds are set to leave
the bear lair would seem the triumph of hope over experience.

Gold and silver prices are at 20-year lows, according to Nick Barisheff,
president of Toronto-based Bullion Management Services Inc., which is
setting up a fund to hold gold and silver bullion.

Gold is trading at less than half its peak of $800 (US) reached in 1980.
A historically unprecedented short position exists.

While the celebration over the Dow Jones passing 10,000 has been
deferred a day or two, gold yesterday plummeted $5.80 (US).

While a vulnerable asset class, these conditions also present a unique
buying opportunity, according to several observers. (Note: I own some
precious metals mutual funds, and a modest holding in Barrick Gold Corp.
stock).

It's worth noting the striking contrast between the high level of North
American stocks and the low price of gold.

"Regardless of whether you are a bull or a bear, the mere threat of a
severe correction should alert you to consider the advantages of the
gold sector," investment advisor Hans Merkelbach writes in a recent
advisory (see www.strategicsector.com). "I believe it prudent for
contrarian investors to accumulate gold investments through
participation in gold-sector mutual funds, and that gold investments are
due to start rising considerably during the next two years."

Mr. Merkelbach, who is based in Vancouver, figures the beginning of a
surge of as much as 25% in the Philadelphia Gold Index commenced this
month.

While gold passed the $420 level in 1989, 1990, and 1991, it failed to
break through $425 an ounce in those years. (Gold and silver are priced
in U.S. dollars.) Once it breaks that barrier, an "upside breakout"
could accelerate it quickly to the $500 level, Mr. Merkelbach predicts.

Similar breakouts happened in 1997 in palladium, platinum, and, finally,
silver.

Mr. Barisheff argues the news media has exaggerated the magnitude of
recent central bank gold bullion sales. They have been under pressure to
obtain interest on their holdings and gold bullion does not provide a
source of earnings. Therefore they have adopted the tactic of loaning
gold reserves out -- not necessarily selling it -- thereby switching
their gold reserves into interest bearing assets.

Mr. Barisheff argues the gold price is being artificially depressed, as
the central bankers worry that a sudden increase would "send the message
that there is a crisis of confidence in the paper money system."

Central banks are leasing gold and by doing so are creating an
artificial supply. If removed, the gold price, in order to eliminate the
demand, would have to go up.

Annual mine supply is 2,300 tons a year, worldwide. Demand is 4,000
tons. Part of the difference is made up by net central bank sales, which
was about 400 tons in 1998. The rest is made up by leasing. The
equilibrium price would be $700 if the artificial leasing factor were
removed.

If the price of bullion goes up, leasing it could become expensive,
since it would have to be replaced at a higher price. If lenders get
concerned about the credit worthiness of the repayment, they'll stop
leasing or increase the lease rate, Mr. Barisheff says. There was a
close call with Long-Term Capital Management, which had 400 tons of gold
leased.

The cumulative short position is about 8,000 tons at the end of 1996 and
it may be as high as 14,000 tons now, Mr. Barisheff says. There is a
huge potential for a squeeze: If the gold price goes up, the borrowers
have to scramble to buy it to repay loans. Also, if gold rose close to
the price at which big miners like Barrick sold forward, they would
likely go to the market and buy back those positions, thereby becoming
buyers and putting more upward pressure on the price.

Traditionally, gold has been seen as a small part of a diversified
portfolio and a hedge against inflation or economic chaos. Under normal
economic conditions, a small 5% weighting might be the typical
allocation in a well-balanced portfolio, and 10% would be be considered
aggressive. Given the unique fin de cycle Mr. Barisheff suggests a far
bigger bet for aggressive investors.

Despite the recent "all-clear" issued by Year 2000 experts including
Canadian Peter de Jager, Mr. Barisheff continues to view Y2K as the
trigger to an "end of millennium financial upheaval," during which
precious metals will emerge as the safe haven for wealth preservation.
"A number of investors have cited the Y2K problem as a reason for
increasing their holding of bullion. Bullion is an effective hedge
against uncertainty. And Y2K-driven uncertainty abounds."

A wide range of current market players, from Warren Buffett, Nicky
Oppenheimer, and George Soros to coin holders and mining-company
insiders, have shown through their actions that they, too, believe a
reversal in the price of gold and silver is imminent, Mr. Barisheff
argues.

If gold were to return to its average value over the past 200 years, its
price would need to double from current levels. Such a doubling is well
within reach, given the global monetary problems and the unsustainable
short position in the market.

In his 1998 Gold Book Annual, Frank Veneroso said the equilibrium price
for gold could approach $700 as early as 1999 if the artificial supply
created by lending were removed. By the middle part of the next decade,
gold could reach $1,100 to $1,400 as a reflection of the imbalance
between annual demand and supply.

Even removing Y2K from the equation, Mr. Barisheff expects gold to rise
because of the precarious and overvalued stock market, the default
problems in Russia and other debtor nations, the U.S. debt, and what he
terms "bubbles on top of bubbles," which will eventually impact the
still vibrant U.S. economy.

Gold mutual fund managers also see some upside, but nothing as explosive
as the superbugs. Bill Belovay of Jones Heward Investment Counsel, which
manages First Canadian Precious Metals Fund, believes the price of gold
could strengthen because of stronger demand as the year end approaches.
He suggests sticking to gold mining companies with strong balance sheets
and those that can produce free cash flow at the current gold price,
examples of which are "few and far between."

Mr. Belovay notes demand for gold and silver coins is at record levels,
not so much fuelled by Y2K hoarding as by individual investors who
believe we have seen the lows in precious metals.

So far, the demand of a few million ounces has not translated in a big
way to higher bullion prices. If Y2K panic sets in, it could raise
gold-stock prices -- but, he stresses, "only if panic sets in. It will
be a short term phenomenon. If everything works on Jan. 1, then people
will be selling [again]."

Demand for silver coins is exceeding the speed at which manufacturers
can stamp them, he said. The two Canadian pure silver plays are Pan
American Resources Inc. (PAN/ME) and First Silver Reserve Inc.
(FSR/TSE).

There also are several mixed producers of both silver and gold. With
silver bullion trading at $5.30 an ounce, a move to $6 would result in
considerable appreciation in the pure silver stock prices, Mr. Belovay
says.

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REUTERS SPREADS GOLDMAN SACHS' PLAN TO GO PUBLIC

Wide coverage has been given to a Reuters' report of Goldman Sachs'
plans to end its 130-year-old private partnership and become a public
company through a $3.45 billion offering of common stock.

GOLDMAN SACHS IS WALL STREET'S LARGEST INVESTMENT BANK AND LEADER OF THE
"Counterparty Risk Management Group" THAT GATA BELIEVES IS BREAKING
ANTI-TRUST LAWS.

Today's Reuters' story comes alongside a 16 percent increase in
Goldman's pre-tax profits in the first quarter to $1.19 billion.

Goldman Sachs has applied to the New York Stock Exchange to trade under
the symbol GS. Of the 60 million shares offered to the public, Goldman
will sell 42 million common shares and existing shareholders Sumitomo
Bank Capital Markets Inc. and Kamehameha Activities Association will
offer 18 million shares, the filing showed.

SEE ALSO OUR POSTING OF 8 MARCH
(Five SUPPORT INITIATIVES and one VIEWPOINT)
in which we quote from
http://nt.excite.com/news/u/990304/06/business-goldmansachs
how "a sure sign of a pending market disaster may be precisely when
Goldman Sachs decides to unload its shares to the public. . .
In Kenneth Galbraith's Great Crash 1929, (see pages 64 and 65) we hear
about the organization of the Goldman Sachs Trading Corporation, which
went public on 12/4/28, and about which at a later date a Mr Sachs
testified before a committee of the United States Senate that the firms
sold 90% of the stock to the public at a price of $104. After the 1929
Wall Street Crash (including a 2:1 stock split), the price of the stock
ultimately fell to approximately $1.75. This represented a capital loss
of about 98%. It probably did not drop to zero value, because the buck
75 was the souvenir value of the worthless GS stock certificate."

THE SAME COULD HAPPEN AGAIN

GO GATA, Go Gold
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