Jay Taylor defends those who see conspiracy to suppress gold price

By Thom Calandra, Editor
CBS.Marketwatch.com
Monday, September 30, 2002

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DENVER -- As global stock markets sink toward six-year
lows, several hundred fund managers and executives meet
today for a three-day forum on gold.

Fund managers fortunate enough to have invested in the
tiny world of gold-mining shares are up 40 percent and more
since Jan. 2 vs. a 20 percent-plus decline in major equity
indexes. The profitable fund managers, a rarity this year
and last, are keeping one eye on the general stock market
and the economy.

quot;We have a credit contraction that could last many years,quot;
says John Hathaway, manager of the Tocqueville Gold
Fund (TGLDX), a $140 million portfolio that is up 60
percent this year.

Hathaway sees the overall stock market as quot;hardly a
starting point for good returns.quot; The yield on the Samp;P 500
Index is less than 2 percent. The yield spread between the
highest-rated corporate bonds and those several notches
down is 1.2 percent, a gap twice as great as a year ago
and a sign of a looming fiscal meltdown, the fund manager
says.

At the Denver Gold Forum, gold money managers, and
the executives who run the world's bullion miners, are
bound to continue repeating a theme they have spread
since equity markets turned south almost three years ago:
quot;The stock market bubble continues, and it will deliver a
lot more downside,quot; says Robert Bishop, an active bullion
investor and editor of Gold Mining Stock Report.

What is bad for the Dow, the FTSE-100 and the Nikkei
225 is good for gold. If only life were that simple for
mining executives.

The world's largest gold miners are grappling with issues
that sweep across the financial and human landscape.
Companies that were hedging their gold production --
by selling some of their ounces forward for short-term
profits -- see the writing on the wall, and it's higher gold
prices.

Gold hedging, a practice both embraced and
condemned by the mining industry, fell 11.7 million
ounces to 86 million ounces at the end of the second
quarter in June, points out John C. Doody of Gold Stock
Analyst. That amounts to about one year of total mine
production.

If the decline in hedging continues, the global gold market
will have less bullion floating around in swaps, loans, and
other arrangements that contribute to supply and weaken
the metal's price. The hedged companies, chief among
them under-performing Barrick Gold (ABX), one of the
world's largest miners, are rushing to reduce their
so-called hedge books as gold prices, up 17 percent
this year, rise.

Miners are also grappling with environmental regulations,
political risk in some countries, and social issues such as
rampant AIDS among South Africa workers. Across the
entire landscape is a stubborn gold price that can't seem
to cross $330 an ounce and an investing public that would
rather buy losing shares of Dow Jones Industrial
companies than gold miners.

The gold price is of paramount concern to executives
at gold miners that are highly leveraged to a rising price.
With their shares having tripled and more in the space of
a year, small and mid-sized producers are being held
hostage to the gold price more than they ever have been.
These include stock market winners such as Durban
Deep of South Africa (DROOY), Harmony Gold Mining
of South Africa (HGMCY), and Meridian Gold of Nevada
(MDG).

quot;Make no mistake: The gold price must go higher for the
shares to keep performing,quot; says Bishop, who has been
following gold companies for more than 30 years.

One way to get gold prices higher, short of all-out war,
famine, drought, or a fiscal meltdown, is by increasing
investment demand for the metal. Several projects are
under way that could enable individual investors to buy
actual gold in the form of a stock-market issue. An
electronic means for buying gold is seen as the holy
grail in an industry where more than three-quarters of
all demand for its main product is in the form of jewelry
and ornaments.

Industry experts estimate investors could absorb 20
percent of global gold mining output if just 1 percent of
the 100 million investing Americans sink funds into
gold. Global gold output is seen falling 3 percent this
year, its biggest drop since 1976.

quot;Easing the transaction process is something we all
should be working on,quot; says James Turk of
GoldMoney.com. Turk hopes to sell the industry on his
service, a payment service that uses electronic gold
grams backed by physical gold held in a London
depository. Turk also is teaming with fabricator and
retailer Kitco to help investors buy large gold bars via
the Internet, with low transaction and storage fees and
real-time executions.

For investors, it may be the smallest gold companies
-- exploration companies that sink scores of test drills
into the ground and producers of less than 200,000
ounces a year -- that are best positioned to deliver
stock market profits. The junior miners, some with
market values of less than $50 million, are the
subject of intense speculation about mergers and
new mines.

Of the 45 or so companies presenting in Denver this
week, about half are considered small or intermediate.
Investors on Monday will be waiting for further details
from Crystallex International (KRY), a small Canadian
company that has been pursuing a vast gold field in
Venezuela.

quot;They are willing to commit capital and talent to the
country,quot; says Rick Rule of Global Resource
Investments, a California asset manager. Crystallex
says it has the all-clear sign to pursue the Las
Cristinas region, which could offer the tiny company a
resource of 15 million ounces of gold.

Doody of Gold Stock Analyst says Crystallex shares,
which trade on the American Stock Exchange, are very
attractive. He says investors want to see more proof of
the Venezuela pact, including an operating agreement
that could be passed around to executives and fund
managers in Denver.

quot;The market needs to be convinced the award is real,quot;
says Doody, who adds Crystallex is raising $15 million
for the rights to drill-test results from Las Cristinas. The
Venezuela government has those results in its possession.

Other small producers to present in Denver include Rio
Narcea Gold Mines (RNG), a company that mines across
Spain. quot;At least they don't have that many environmental
hurdles to clear in Spain, and that's a plus,quot; said K. Brent
Cook, a mining analyst at Global Resource Investments
who is also a geologist.

Rio Narcea and many of the small producers presenting
in Denver trade in Canada.