An exchange about the commodities exchange

11:18p ET Friday, July 5, 2002

Dear Friend of GATA and Gold:

Thanks to Marv Campbell of Rancho Santa Fe,
Calif., for alerting us to the column about
gold by columnist Don Bauder in the San Diego
Union-Tribune on May 29. As Marv writes,
quot;This could have been ghostwritten by GATA.quot;
Bauder's column is appended here.

CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.

* * *

Fear powers gold rally; inflation too

By Don Bauder
San Diego Union-Tribune
May 29, 2002

Proving that the markets are gripped by the
heebie-jeebies (as if any proof were needed),
gold keeps driving upward relentlessly.

Yesterday, gold futures contracts for June
delivery settled above $324, the highest
since March 2000, up $3.40 on the day. Gold
is up 17 percent this year.

quot;Gold is the only bull market driven by mass
fear instead of mass greed,quot; says James Dines
of Belvedere's The Dines Letter.

Richard Russell of La Jolla's Dow Theory
Letters ticks off the reasons gold is rising
steadily. quot;There has been excessive money
supply creation by the Fed (Federal Reserve)
to cover deficits,quot; he says. This will prove
inflationary. Also, quot;there is decreasing
world gold production.quot;

The flow of money out of U.S. markets helps
gold, he says. The process is inflationary,
and inflation is gold's friend.

For years, the world's central banks have
been selling gold to keep its price down.
quot;Their problem is that they sold gold at
lower prices,quot; and hence look foolish, he
says.

There are extremely heavy short positions
(bets on a price decline) in gold. Some
shorting comes from gold producers
themselves, who sell gold in futures
contracts, in effect shorting their own
product. So the rally is in part a short-
covering affair -- that is, the shorts
scurrying to buy to close out their short
positions.

There is a primary bull market in gold, and
it could go a long way, says Russell.

Kennedy Gammage of La Jolla's Richland Report
says, quot;Everybody wonders what the equilibrium
price will be, where the panic buying
starts.quot;

There are plenty of calamities waiting to
happen. The largest banks have $30 trillion
worth of derivatives tied to gold.
(Derivatives are highly complex financial
instruments that derive their value from
another instrument.)

quot;If you get a daisy chain, a tsunami, some
anomaly, you could have another Long-Term
Capital Management (a hedge fund that had to
be rescued by a Fed-arranged bailout in 1998)
on your hands. Central banks are terrified
that an event could bring down the financial
system of the Western world,quot; says Gammage.

Brian MacArthur of UBS Warburg says quot;certain
gold companies have branded themselves as
anti-hedging. Producer hedging has not been a
threat to gold supply for the past two
years.quot;

Also, he believes quot;the threat that central
banks would dump thousands of tons of gold
into the market has receded.quot;

There is a rise in investor interest in gold
from Japan, North America, and Europe, says
MacArthur. He has raised his earnings
forecasts on Barrick, Newmont, and Placer Gold
stocks, and likes Newmont the best.

Should you buy gold bullion, coins, or stocks?
Russell would not buy bullion, because the
metal must be tested rigorously when you sell
it, but he would buy coins. Right now, the
South African krugerrand is most favorably
priced.

He also likes gold/silver stocks such as
Newmont, Agnico-Eagle, Gold Fields, and Durban
Deep.

Gammage would not buy the companies that are
hedging the metal, or effectively shorting
it, such as Newmont, Barrick, Anglogold, and
Placer Dome. Newmont got into hedging through
an acquisition, and Gammage would buy the
stock as soon as it gets rid of its hedge
book.

He likes Goldcorp, Durban Deep, Kinross Gold,
Harmony Gold, Pan American Silver, and Central
Fund of Canada, a trust that has 99 percent
of its assets in gold and silver.

quot;Gold stocks have outperformed all other
groups so far this year, and nearly every
gold is in an uptrend,quot; says Dines. He likes
Placer Dome in particular, saying that it has
lagged other golds in the run-up for no
cogent reason. He thinks the company might be
bought.

He also likes the convertible bond of Battle
Mountain.

Alan M. Newman, editor of the Great Neck,
N.Y.-based Crosscurrents newsletter, says the
rise in gold, gold shares, and other
commodities is an indication the Federal
Reserve is pumping up money to avoid
deflation.

Newman is quot;still enthusiastic about the
prospect for gold shares,quot; but he thinks the
move has come too far, too fast. So he would
close out half his recommended positions in
Meridian Gold and Goldcorp.