New Orleans paper examines Blanchard suit against Barrick, Morgan Chase

11:50a ET Sunday, February 16, 2003

Dear Friend of GATA and Gold:

Here's another gold market analyst who says he is
inclined to believe that central banks have been
suppressing the gold price through the mechanisms
identified by GATA but who can't quite bring himself
to credit our work by name. Oh, well -- the word is
still getting around.

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

* * *

Fundamentals are pushing gold into super-bull territory

By Victor Hugo
Sunday Times, South Africa
February 16, 2003

www.sundaytimes.co.za/2003/02/16/business/markets/markets01.asp

Sceptics who don't believe the bull run in gold will last
assume that its price is being driven mainly by war fears
and terrorism dangers.

I say no -- there is a much more fundamental reason.

A shift is happening in global investment patterns -- out of
paper and U.S. assets and into hard assets and other
countries.

The weakening U.S. dollar and Wall Street are illustrating
this shift, telling traders to expect strength out of gold's
technically classic quot;rocket accelerationquot; pattern.

Other macro indicators suggest why money is
moving out of the world's largest economy. The next
bubbles due to burst are U.S. property prices and U.S.
treasury bonds. No country in a declining growth
environment can sustain record-high levels of personal,
corporate and public debt, a huge trade deficit, the cost
of a war on terrorism -- as well as potential for a war in
Iraq and in North Korea.

The action of the dollar in the past two years suggests
the world has decided that the big growth years of the
U.S. are over and it is time to move into something
else. Some of that money is already moving into gold.

Canny traders in China, Dubai, and Malaysia last year
established active gold exchanges to cater for the
demand for gold bullion and coins. Traders on the
bullion and futures desks know where the major
pressure of buying is coming from. They say that in
recent weeks much of it came from China, Japan,
and the Arab world.

Traders don't act without reason. They take into
account that North Korea can now land missiles
with nuclear bombs on the U.S. West Coast. And
they most certainly believe U.S. President George
W Bush. and his British counterpart, Tony Blair,
must know more about the dangers from Iraq and
terrorism than they can say.

Another factor in gold's favour is that there is some
evidence that central bankers the world over have
acted in concert since at least the mid-1990s to
support a stronger dollar and a weaker gold price
-- and to achieve returns from what was seen as a
depreciating asset.

Through complicated short sales, leases, swaps,
and outright sales, a significant portion of reserve
assets in the form of gold has disappeared. In its
place is merely a claim against a financial institution
or bullion dealer for its return.

Yet that institution or bullion dealer -- now also under
pressure in a declining earnings environment -- is
having to buy in physical gold or its equivalent in
futures contracts, very expensively, at a higher gold
price than expected.

A further dumping of the dollar, for whatever reason,
could fuel a rocketing gold price to above $500/oz --
which would, in turn, fuel more short covering and
more demand for the physical metal.

The mines can produce only so much; they need
years to expand production. Since 1996, demand
for the metal has exceeded supply. Central banks
sold their holdings -- and this kept the gold price down
-- but now those banks are no longer sellers. In fact,
they may be sweating about how to buy back the
gold that enabled their profitable swaps and leases.

The fundamentals are in place for one of the biggest
gold price squeezes in history. Technical and
long-term cycle factors are also strongly confirming
this view. An (unlikely) quick war in Iraq won't kill the
gold price.

While the gold price remains above the $332/oz area,
medium- and long-term technical trend profiles indicate
that there is a super-bull trend under way.

The fundamentals and cycles suggest there will be
more upside in coming months but, technically,
there is scope for several days or weeks of consolidation
before the next push. Even sceptics will want to be
aboard when the gold price goes above the $359/oz
or other technical resistance levels again.

When gold shares fell by 40-50 percent between
May and November last year, fuelled by a stronger
rand, it felt like gold bulls had got it all wrong. It was
difficult to buy gold shares during that phase because
most stockbrokers and many commentators were
warning of limited upside.

Nobody has a perfect crystal ball, yet there is lots
of evidence that this is a dip-buying opportunity for
gold shares. A higher gold price is likely on the
technical, cycle, and fundamental supply-demand
factors mentioned above.

Perhaps the biggest risk is that the rand strengthens
in coming months as the global community sees
prospects of good relative growth in South Africa ,
as well as good debt discipline. Our analysis systems
show tentative behavioural evidence for the rand
moving to the R6.50 area, or even stronger, in the
next 18 months.

In that scenario, JSE gold shares may pause and
not do much until the rand price of gold shows
scope to work above R3,300/oz again.

But a stronger rand will be great for long-term growth
and inflation. And gold sales will have their day even
if the rand strengthens beyond consensus
expectations. A gold price of $500 or above -- perhaps
before the middle of next year -- will encourage many
a gold bull.

In conclusion, I believe gold shares are at useful buying
levels. Buy now, and buy more in dips.

---------------------------------

Victor Hugo is an analyst at www.HugoCapital.com
and www.saGOLDS.com

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----------------------------------------------------

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----------------------------------------------------

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