Bigger money flowing into gold, and GATA''s Murphy gets some credit for it

By Thom Calandra
www.CBS.MarketWatch.com
May 20, 2002

SAN FRANCISCO -- When the saints come marching in, you
want to be in their number.

The gold market, surging Monday, is luring large investors
stymied by low or negative returns in their core stock-market
holdings. Managers of $100 million or more are establishing
hundreds of new positions in Placer Dome Gold, Anglogold,
Gold Fields, and Newmont Mining, the world's largest gold
producer,

As of March 30, 83 investment firms alone had bought shares
of Newmont Mining for the first time, according to Securities
and Exchange Commission filings. The managers bought a
total of 14.2 million shares, or 6 percent of the Newmont total
held by financial institutions and money managers, according
to a survey by 13Fpro. The new Newmont holders include
Oz Management, which runs the Covered Call Fund, a
strategy that benefits by writing call options on stocks that are
rising.

quot;Performance attracts money,quot; said Robert Bishop, editor of
Gold Mining Stock Report. Bishop said large investors, such
as fund managers and pension funds, are finding it hard to
ignore the scorecard: North American gold mining stocks up
30 percent since Jan. 2, bullion itself up 16 percent, Nasdaq
100 down 18 percent.

Bishop, who has been tracking large and small gold, silver,
and diamond miners for more than 25 years at his
California-based service, says he noticed a subtle change
in the way investors treated shares of Newmont Mining when
the company reported a mixed quarter last week.

Newmont of Denver estimated operating profits for the year,
based on the current gold price of $312 or so an ounce, would
amount to between 40 and 50 cents a share. That was 10
percent to 20 percent below what Wall Street and Toronto
analysts were forecasting for the company, which earlier this
year completed a three-way merger with Australia's
Normandy Mining and Canada's Franco-Nevada.

quot;Yet the stock had almost no profit taking,quot; said Bishop, who
acknowledges the company's estimated operating cash
flow for this year, about $2 a share, makes the almost-$30
stock look expensive. quot;I think a lot of folks want to own
Newmont because they believe gold is going far higher.quot;
Some 4.4 million Newmont shares now change hands
each day on the New York Stock Exchange, an average
that is almost double levels from six months ago.

Bishop says the financial world is getting its first
demonstration of a sustained gold rally in an Internet-ready
age. He pointed to a sharp, two-day rally, on record-breaking
share volumes, of Central Fund of Canada, a $110 million
closed-end fund that stores gold and silver in its vaults. The
fund, an electronic proxy for gold, 11 trading days ago
surged in price, bringing its premium to the net asset value
of its holdings to almost 25 percent from 6 percent.

Central Fund shares, traded on the AMEX in New York, still
hold that premium, with the shares closing in on their May 7
high of $4.65 a share. The fund's rise, with spot gold and
silver trading in a steady but narrow price band, shows
quot;people want to own gold as soon as they can,quot; Bishop
said.

Bill Murphy, the publisher of gold magazine
LeMetropoleCafe.com on the Web, deserves credit for
getting the gold story before an online audience, said
Bishop. quot;Murphy stuck with gold through a long bear market
and put it in front of a loyal and growing audience,quot; Bishop
said.

Murphy, a onetime commodities trader and a former
professional football player for the Boston Patriots, runs
subscription LeMetropoleCafe.com from Dallas. Some on
Wall Street dismiss him as a fanatic for the long-languishing
metal. Murphy, who wears a hat as chairman of the Gold
Anti-Trust Action Committee, asserts that central banks, Wall
Street investment banks, and the U.S. Treasury depressed
the price of gold through much of the 1990s in a bid to
moderate commodity inflation and interest rates.

There is no denying Murphy's influence. quot;I know it sounds
extreme, but Bill put gold on the map for a lot of folks out
there,quot; says Bishop.

Murphy's LeMetropoleCafe.com has 3.500 subscribers who
pay $149 per year. Another 7,000 are on his mailing list. In
Murphy's camp, or sharing at least some of his beliefs about
a rigged gold market, are scores of longtime mining investment
newsletter editors and natural-resource fund managers. These
include John Hathaway at Tocqueville Gold Fund (up 65 percent
this year) in Manhattan, Adrian Day at Global Strategic Asset
Management in Maryland, Lawrence Roulston of Resource
Opportunities in Canada, Ian McAvity at Deliberations on World
Markets in Canada, and former Central Intelligence Agency
economist Mark Skousen at Forecasts amp; Strategies in Irvington,
N.Y.

I asked Murphy, who was on his way to a London presentation
before metals analysts, where he is advising his
LeMetropoleCafe.com audience to put their money these days:
actual gold or gold coins, large producers such as Newmont,
gold futures contracts, long-term stock market options on gold
mining companies, silver, or the smallest, most risky gold
producers and exploration companies?

Murphy, who sees $1,000-an-ounce and higher prices for
gold, and a powerful silver rally as well, advocated all of them.
But clearly, he sees the smallest producers providing the
biggest returns in coming months.

quot;My No. 1 gold choice is the smaller gold producer and the
quality exploration companies,quot; Murphy said Monday. quot;As
is normally the case in a gold bull market, many have not
matched the performance of the senior gold producers.quot;

Murphy cited growing demand figures for gold, whose price
has been stirred in perhaps equal parts by a reduction of
producer hedging, Nasdaq's relentless slide, declining miner
production of the metal, the dollar's recent weakness against
the yen and euro, and concerns about terrorist strikes against
the United States.

quot;Very few in the investment/gold world realize the magnitude
of the gold move that is upon us,quot; he said. quot;What a nightmare
for the shorts. They are trapped. There are gold loans and
swaps of around 15,000 tonnes, an annual supply/demand
deficit of 1,700 tonnes, and mine supply at 2,500 tonnes that
is going lower in the years to come, no matter what the gold
price does. There is going to be a mad scramble to find new
gold supply.quot;

Murphy's top pick is Golden Star Rescources (GSRSF), a
small, Denver-based gold company. quot;They just reported
record profits, and have building gold production in Ghana
and superb exploration finds in the Guyana Shield waiting
to be developed. It once traded $21 per share in 1996,quot;
Murphy said. quot;I expect that to be exceeded in the years to
come.quot;

Murphy, Adrian Day, Robert Bishop, and other gold
managers and analysts will speak at the 2002 New Orleans
Investment Conference. The November gathering, in its 29th
year, also will feature Richard Russell, editor of Dow Theory
Letters.

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Thom Calandra is editor of CBSMarketWatch.com.