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Merrill has taste for Australian gold stocks

Section: Daily Dispatches

By Jan de Lange
Sake, South Africa
March 13, 2001

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Gold's bull run of the past few days could easily turn
into a stampede, says Fedsure's highly regarded analyst
Nick Goodwin.

The gold price rose jumped to US$274/oz on Monday
morning and was trading at around $272/oz at the close
of trade in New York. The contradiction that the gold
price has remained depressed for years despite physical
demand exceeding supply, is coming to an end, says

The phenomenon resulted from banks lending gold to
speculators at a 1 percent lending rate. The lenders
then sell the gold and invest the proceeds at 5 percent
above the lending rate to secure a quick profit. They
then return the gold to the banks when prices fall,
often cashing in further.

quot;Banks do, however, have less gold available to lend,quot;
says Goodwin. That's why the official lending rate of
European banks shot up again by 6 percent last week. On
the back of this development, the gold price surged
from $261/oz to $271/oz on Friday.

The lending rate for a month's contract is already
three times as high as a year ago, the highest level
since September 1999 when the price suddenly surged to
over $340/oz. The physical demand is starting to exert
pressure and speculators are being caught short. This
is the underlying reason for the sudden price increase
recently despite an auction of 25 tons of gold to be
held by the Bank of England this week.

Goodwin says the court case against U.S. Federal
Reserve chairman Alan Greenspan and several banks
brought by the Gold Anti-Trust Action Committee has
caused jitters in the market.

Merrill Lynch analyst Johan Odendaal says there is a
large degree of short-covering in the gold market.
quot;Everything is poised for the gold price to move.
Conditions are similar to what they were in September
1999 when lending rates rose sharply,quot; he says.