Toronto Globe Mail cites gold price suppression issue

Press masks world's fiscal distress;
Nikkei tumbles, gold gains, short-sellers stage left

By Thom Calandra
www.CBS.MarketWatch.com
Monday, Feb. 4, 2002

SAN FRANCISCO (CBS.MW) -- You've got to hand it to the
financial press, doing everything it can to take the world's
eyes off real fiscal woes.

Raise your hand, for instance, if you know Ken Lay's
home address, the amount of Enron stock he sold and
the name of his lawyer but you didn't know Japan's
Nikkei stocks average fell below the Dow Jones
Industrial Average Monday for the first time since 1957.

Raise your hand if you read the press summaries of
each proxy filed in the Hewlett-Packard/Walter B.
Hewlett battle but don't have a clue about the price of
the euro, at 86 cents its lowest point against the dollar
since July.

Stick you hand up high if you know all about the stock
market's Super Bowl indicator but you couldn't locate
Argentina on a map. Raise your hand if still follow the
prices of Nasdaq and the glamorous QQQs but
couldn't care less about the price of gold, or any
basket of natural resources for that matter.

Stand proud if you know the technical support
levels of the Standard amp; Poor's 500 Index but didn't
know that stocks in the index are their most expensive,
graded against expected profits, since the March 2000
stock market peak.

quot;The World Economic Forum delegates, over
oysters and champagne (in New York), did not seem
as optimistic over a U.S.-led global recovery in the
second half as Wall Street seems to be,quot; notes Pravin
Banker, a specialist in distressed securities at small
investment bank The Financial Network Inc. in
Connecticut. quot;We continue to believe in a double dip.quot;

Banker is talking about the economy, not
Baskin-Robbins. Microsoft's Bill Gates, whose
opinions about everything are brutally honest, realist
that he is, told the forum's high-powered delegates he
sees no U.S.-led economic recovery this year. Those
debt-ridden telecom companies are mostly to blame,
Gates said.

quot;If you want to talk to negative people, talk to CEOs,quot;
said Treasury Secretary Paul O'Neill, quoted in The
New York Times. Gates is chairman and a
co-founder of Microsoft.

Banker, who also edits LDC Bond Watch, told me
today he sees quot;bankruptcies ahead galore -- a mountain
of debt is weighing on corparates globally, not just the
U.S.A., and banks like JPM Chase and Deutsche
Bank are being weighed down. Watch JP Morgan
Chase,quot; he says ominously.

Banker says Japanese banks, mired in bankruptcies
and bad loans, haven't done any serious lending in
five years. quot;If the Fed thinks the Japanese bad bank
problem is a purely Japanese phenomenon, they
are blind.quot;

Raise your hand, again, if you know the names of
America's headliner Chapter 11s but not those
around the globe. quot;The heralded bankruptcy filings
of Enron, Kmart, and Global Crossing in the U.S. has
been followed by (cable company) NTL and (railway)
Railtrack in the U.K.,quot; says Banker, just back from
London. quot;The entire country of Argentina. Rising
bankruptcies in Japan. Corporates cannot afford to
grow,quot; Banker says.

Not that the financial press gets all red marks for its
financial pages these days. Thanks to the influence
of skeptical business writers such as Herb Greenberg
at RealMoney.com, who has single-handedly raised
red flags on scores of shady accounting practices,
major newspapers The Wall Street Journal and
The New York Times are writing aggressively about
looming disasters like Tyco International and Elan
Corp. Plc.

The Wall Street Journal's revelation that Tyco
declined to document to shareholders some $8
billion in acquisitions follows by three days
Greenberg's analysis that Tyco did not disclose
$4 billion of cash purchases in 2001. Such reports
have a decidedly negative impact on companies'
shares. Tyco shares were down 8 percent this
morning for a market-capitalization shave of $6
billion.

quot;I don't think it's the short story that is getting more
mainstream, in the wake of Enron,quot; Greenberg told
me Monday. quot;I still don't think the mainstream knows
what short-sellers are or what they do. But I do believe
that investors suddenly realize in a big way that they
can't always trust management -- especially
management of companies that have complicated
business structures.quot;

In New York this morning, the price of gold, which is
slowly starting to reflect the stock market's fiscal
distress, moved a couple of dollars closer to $290 an
ounce. The metal has posted strong gains against the
yen, the euro and the dollar in the past 12 months.

quot;The rise in the price of gold tells me that investors, on
balance, are less willing to hold cash or cash
equivalents,quot; Deutsche Banc currencies analyst Kenneth
Landon told me Monday from Tokyo. quot;A portion of that
cash is finding its way into the gold market. The rising
dollar price of gold indicates that there is declining
confidence in the monetary policy of the U.S.quot;

In the past 12 months, the yen has fallen 21 percent
against gold. The euro has lost 15 percent of its value
against gold. The dollar is off by 6 percent.

Landon, like Banker, is skeptical of the Federal
Reserve's ability to manage the American economy
through a trying 2002. quot;In such an environment of declining
confidence in the Fed, the U.S. stock market should not
perform very well,quot; he says. quot;I would add that the
yen-price and the euro-price of gold has risen by an
even greater amount than the dollar price of gold over
the past 12 months, which means that there is a much
worse problem in Japan and Europe in regards to
confidence in monetary policy.quot;

Thank goodness for small victories.

quot;It's quite fun to be in the gold business these days,quot;
Chris Thompson, chairman and chief executive of
South Africa's Gold Fields Ltd., said today in an earnings
conference call from Johannesburg. Gold Fields,
benefiting from a plunging rand currency, said
quarterly profits tripled from its previous three-month
period to $67 million. The Gold Fields conference
call, for the first time in recent memory, was swamped
by New York and London money managers asking
dozens of questions.

Thompson has kept Gold Fields, which produces
more than 4.5 million of ounces of gold each year,
totally free of derivatives contracts and other
forward-sale hedging of the metal. The company's
shares, which trade in Johannesburg and on
Nasdaq, today hit their highest point since
October 1998.

North American gold company shares, meanwhile,
this morning rose 2.5 percent to their highest point
since May 22, 2001.