Rep. Paul warns Congress of causes of dollar''s decline

BETTER ON WEATHER THAN GOLD'S PRICE

By Thom Calandra, Editor
CBS.MarketWatch.com
Tuesday, June 11, 2002

On the subject of timing, delegates at the London Bullion
Market Association's precious metals conference in San
Francisco got the weather right this week -- but not the
gold rally.

Some 350 gold industry types are meeting to suss out
the gold price and other issues for their industry, such
as project financing, central bank sales of the metal, and
just how to get ordinary folks interested in buying bullion.
The gathering coincides with a rise in San Francisco-area
temperatures -- 90 degrees and higher -- and a collapse
in the gold price.

Since economists, executives, miners, and bankers began
arriving at the conference on Friday, from as far away as
China, India, and Kazakhstan, the price of spot gold has fallen
to $316 an ounce from as high as $327. Shares of gold
miners, some of the stock market's best performers this
year, have fallen sharply.

Yet with only several exceptions, the gold industry's
keenest minds all expect the nascent gold rally to continue.
As at many of the bullion industry's conferences, mining
executives such as Barrick Gold's Jack Thompson and
Newmont Mining's Wayne Murdy are pointing to ordinary
consumers and investors as the metal's next great hope.

quot;We need to make gold simpler to invest in to have an
impact,quot; says Murdy, Newmont's chairman and chief
executive. In the past six months, high-ranking mining
executives from Newmont, Barrick, and Gold Fields Ltd.
have emphasized the need for easy investing avenues
on Main Street. Gold in many countries is difficult to buy
in large quantities, and expensive to store and insure.

The executives claim the interest of ordinary folks to
increase the amount of physical gold, or an electronic
proxy for it, in portfolios is growing. quot;There is definitely
broader investor interest there,quot; says Martin Stokes, a
vice president at JP Morgan Chase Bank and chairman
of the London Bullion Market Association, a trade group
for miners, fabricators, bullion banks, and investors.

Stokes refers to GoldAvenue.com, a three-way venture
among JP Morgan, South Africa's Anglogold (AU), and
Swiss refiner PAMP, to provide consumers with
one-ounce bullion bars, gold coins, and jewelry using the
Internet as its main shop.

On Wall Street, mining executives say they see a greater
interest on the part of the people who manage mutual
funds, which represent individual investors, to own gold
stocks but not necessarily gold itself.

quot;Fund managers are interested in different asset classes,quot;
said Murdy, whose Newmont is the world's largest gold
miner. Yet he and others warned that unlike the Internet
boom, any lasting gold rally must produce companies
that increase their operating earnings steadily, with efficient
use of capital.

quot;Investors are looking for real profits (and) the industry
has destroyed shareholder value,quot; Murdy said. quot;Just
because we see a gold price above $300, it is not time
to finance questionable projects.quot;

Still, most of the evidence that Nasdaq-battered investors
are turning to actual gold, and gold mining shares, is
anecdotal. To be sure, the open interest of speculators
on the Comex futures exchange in New York is soaring.
In addition, the International Energy Agency's monthly
report says speculative interest from those expecting
nuclear attacks or political unrest in the Middle East is
moving to gold and silver from crude oil.

Yet there are few hard numbers when it comes to the
interest of ordinary investors, who last may have been
truly excited by gold some 22 years ago, when the
metal's price peaked at $825 in January 1980. Chris
Johnson, a technical analyst at Schaeffers' Investment
Research, says of the $1.057 billion growth seen in 10
gold mutual funds from June 2001 through April 2002,
approximately $308 million came from new assets, while
the rest came from increasing fund share prices due to
their positions in gold.

In other words: Most folks on Main Street are still waiting
to board the gold bandwagon. Other dangers to gold
investing include gold mining shares themselves, which
until this week were trading at extreme multiples, as much
as 20 times operating cash flow and hundreds of times
net income for the past four quarters. In the past three
days, gold stocks have been hit hard, falling 15 percent
and more as a group in North American, South African,
and Australian stock markets.

Newmont's executives in Denver and Canada say they
can achieve $750 million of operating cash flow (about
$1.93 a share) this year, based on current gold prices.
That makes Newmont's $28 stock look expensive --
trading at 15 times cash flow. Yet Newmont, like several
other large gold producers, has a chance of almost
doubling current cash flow if the gold price, up 16 percent
this year, rises another 20 percent by year-end.

That quot;another 20 percentquot; (to $370 an ounce) is a stretch of
the imagination for some. The price of the metal is trying to
keep its head above $300 for the first sustained span since
1997. Back then, the price of gold was declining.

quot;I think gold will play a role in the future. I don't think we
should look at gold as a recovery to $400,quot; said Robert A.
Mundell, Columbia University professor and winner of the
1999 Nobel Memorial Prize in Economic Science.

Timing is almost everything. At the very least, the gold
(and silver) delegates are sure to enjoy continued hot, dry
San Francisco weather.