The Gold Moonshot

Widely Held Producers
	Symbol	From	To	Change
Goldcorp Inc.	GG	$6.0625	$11.01	+81.61%
Agnico Eagle Mines Ltd.	AEM	$6.375	$9.13	+43.22%
Barrick Gold Corp.	ABX	$17.12	$16.80	-1.87%
Homestake Mining Co.	HM	$4.25	$8.71	+104.94%
Newmont Mining Corp.	NEM	$17.9375	$21.48	+19.75%
Durban Roodepoort Deep Ltd.	DROOY	$0.6562	$1.06	+61.54%
Harmony Gold Mining Ltd.	HGMCY	$4.5312	$5.18	+14.32%
AngloGold Ltd.	AU	$14.50	$17.96	+23.86%
Placer Dome Inc.	PDG	$9.75	$11.22	+15.08%

With the exception of super-hedger Barrick, all these producers have shown a decent return this year to date. Some of them have shown a meteoric rise. If this rally is sustainable what's the landscape going to look like in six months, or a year?

Does anyone remember Mark Barton? A monument should be erected to his memory. He was one of the earliest to be claimed by the dot.com Bubble. Mr. Barton lost his entire life savings Day Trading. Despondent, he shot up the Atlanta brokerage where he traded, killing 12 people on July 30, 1999 before turning the gun on himself. This tragedy was quickly lost in sound bite cynicism, but for a brief moment Barton brought to the fore the uncomfortable and politically-incorrect reality that some people were losing money in the market, despite the spin.

The Bubble, like all before it, would eventually run its course. The media denied that it would ever end, but denial too was programmed in. (For a fascinating look at historical valuation bubbles read "Extraordinary Popular Delusions and the Madness of Crowds" and "Confusión de Confusiones" in the double volume published by John Wiley & Sons). Janet Reno and the June 10th, 2000 court-ordered break up of Microsoft may have been the trigger that precipitated the inevitable slide. Others blame President Bush. The truth: it was bound to happen anyway. The steep rise in electricity prices in the western USA was a harbinger of dot.com doom, since all those internet servers in Silicon Valley rack up huge electricity bills. Anyone with a brain could have seen that power price hikes in America's largest economy - California, would have serious repercussions. Bubblemania though had spread like a cancer through the whole of society, promising a new paradigm where the laws of economics were suspended. Its lifeblood was access to cheap money. Like the aftermath of a great party, we all now have to clear away the bottles, empty the ashtrays and try to survive through our hangovers.

Wow! And what hangovers! According to credit card tracker CardWeb.com, the average American household owed US$8,123 on credit cards last year, up from US$3,223 in 1991. Consumer debt hit a staggering US$7.2 trillion by the end of the first quarter. Don't count on the US Consumer bringing this baby back, despite tax rebates - they're all max'd out. They have already been turning to home equity loans to preserve the "lifestyles to which they have become accustomed to". On any given day you can see dozens of ads for home mortgages geared to consolidate debt, on CNN and CNBC. There's been lots of talk about the quality of sub-par loans since Superior Bank in Chicago went bust a few weeks ago. Bank of America stopped doing car leases last week. No less than the Wall Street Journal ran an editorial last week about the shakiness of Fannie Mae and Freddie Mac. The US housing market will probably be the last prop of the economy to be kicked out.

On top of all of this we have a declining US stock market, mounting industry layoffs, big problems with Argentina and Brazil debt, the Japanese stock market at a 16 year low, and a rapidly declining US dollar.

No surprise, investors are looking for a safe harbour - not just for wealth creation but wealth preservation, hence the steady rise in gold stocks, anticipating an increase in metal prices. If the Fed continues to drop interest rates there will be a flight of capital out of US equities and into ??? gold of course. Gold as an investment with minimal downside risk has been a no-brainer for years because ounces can't be replaced at $US250-270 prices, at least not by most of the industry. Producers have been cushioned by the few low cost mines out there, and in South Africa, by a depreciating Rand. The simple law of supply and demand would dictate that if new mine supply starts to get severely crunched, prices have to go up. This despite Central Bank sales, which have capped gold rises, but can't do so indefinitely, especially if there is a huge surge in investment demand.

How will it all unfold? From looking at trading volumes it would seem that most investors caught in the tech wreck are still holding their tech shares. I know that my friends who got caught out still have all their holdings, hoping for some Las Vegas style last-throw-of-the-dice bailout. All of them are hoping against hope that the US economy will turn around and that Bubblemania will live again. It may take the bankruptcy of some former high flyer, such as Lucent or Amazon to give everyone a wake-up call that their share certificates could end up expensive wallpaper. However, should the broad investment community discover the gold market, particularly gold shares, we could see a boom that would dwarf the speculative 1994-97 mania in junior golds. How so? Remember, that the entire gold market is small. I believe I saw a figure of $US20 billion for the whole lot recently. A lot of people in the market actually got out at the right time and made money from tech and are sidelined, looking for the "Next Big Thing"; others are looking to recoup their investment losses. Even accounting for the equity that has been vaporised, a small shift into the gold market could go a long way.

This market may really get rolling after the American Labour Day holiday in early September, when everyone gets back to work from summer holidays. Circle Tuesday, October 9th on your calendar. That's the day Reg Howe's lawsuit goes back to court. No doubt there will be a lot of media interest in gold that week, and it will be "crash season"......

So with this great conjunction of bullish forces, what will happen if indeed the price of gold shoots to $600 and stays there? Obviously, many people are already anticipating some price rise, hence the movement in gold shares over the last few months displayed at the beginning of this essay. The phenomenon is now gaining momentum and gold shares were mentioned pretty well every day on CNBC last week as the price broke through $US380. The impact of television should not be discounted, since most American households were originally beguiled into stock market investment by "investing as entertainment" on the telly. If gold is portrayed as an alternative to techs on Bubblevision it will catch on fast. Also many networks and wire services have consolidated with other media and now share reporting staff. The other comparatively recent phenomenon is the medium you are staring into now - the Internet. A large number of the investing public get their information on the internet; many more so than in the 1994-97 junior gold mining boom. The internet sites LeMetropolecafe.com, Kitco.com, the MiningWeb.com and GOLD-EAGLE.com are getting increasing numbers of "hits". How fast will junior gold penny stocks move if they get the same buzz on RagingBull.com and SiliconInvestor.com chat rooms that the techs got?

The legacy of the last few years for the junior miners can be summed up in one word - carnage. Large numbers of companies have been delisted, as the speculative bubble deflated, post-Bre-X. We weren't however looking at a sudden drop from $600 gold that busted the junior market. Gold prices were fairly steady in the $380-$400 range through '94, '95 and '96 as the junior market took off. What would a steady or even steep price rise do now? When investors switched allegiance to techs and dot.coms (at that time "the next BEST thing"), venture capital dried up. Those companies that survived often lost their best assets, because they were unable to pay mounting option fees for properties. Many turned to homegrown projects and hunkered down to weather out the storm. Now, there are lots of junior companies out there with near valueless prospects, and a sad history of having to abandon promising projects, or joint venturing them at discounts to the majors. The majors have taken advantage of the situation to invest in the best of the junior companies; tantamount in large degree to a switch to exploration by proxy. Often this is not a vote of confidence in the junior's exploration staff, but may be a strategic move into a new country, new gold camp, or because the major likes the area geology.

All is not bleak however. A tongue-in-cheek editorial cartoon in the Northern Miner newspaper recently had the caption: "Somewhere out there, a fabulously rich deposit waits to ignite the market. Hopefully, the two people still out there looking, will stumble across it." Imagine, the investing public mobilised behind the NEXT big thing! Imagine what would happen if the gold market became the only game in town! Imagine the profits to be made in the next penny stock company to make a colossal gold find! There are junior companies out there beginning to explore again. There are new opportunities. All we need is the proverbial spark to make this market catch fire. With share prices of gold producers on the rise, it is only a matter of time before we see new junior companies sprouting up everywhere and a healthy exploration scene restored.

Dr. Barron is a practising geologist with 17 years gold and diamond exploration experience in 10 countries. He will soon be providing a free E-Newsletter, "Straight Talk on Mining" which will aid investors as they negotiate their way through the shark-infested waters of jargon-filled industry press releases and annual reports. Please send an E-mail to be placed on the mailing list. Dr. Barron is also available to provide desktop assessments of companies to investors on a consultancy basis as well as performing field appraisals.