My thoughts on this are summarized as follows

• The junior mining sector was oversold due to massive amounts of private placement stock becoming free trading in the last 6 months and much of this may be absorbed.



• Goldman Sachs had favorable comments on the gold share sector by analysts.



• Phelps Dodge broke out to new 10 year highs and woke up the establishment money manager universe to the resource sector and naturally the gold shares.



• The announcement by the Argentinian Central Bank that they had accumulated 42 tonnes of gold and then recently added to this position to 55.1 tonnes added to some official credibility for gold. The fact that Argentina usually has owed money to Chase, Goldman and Morgan makes this an intriguing development. Do these powerful world class investment banks know something we don't that could be positive for gold's reserve status in the future and have advised such a move?



• Institutional Investor Magazine last month had one of the most intriguing articles on the top 25 most highly paid hedge fund managers. Reading the first 12 segments on the top 12 multi-billion dollar funds, I was pleasantly surprised to read that half of the top managers said they did well in 2003 and mentioned either gold, resources, precious metals, shorting the dollar, owning foreign currencies and mining stocks. What this tells me is that the smartest and strongest players in the world know what goldbugs and hard money investors know. A good portion of the hedge fund industry invests in exotic, leveraged, arbitrage transactions, but there are plenty that can and will buy gold mining stocks. I believe this group is now coming back to the gold stocks. A few months ago I was in the office of one of the most famous hedge fund managers in the world and met a few of his traders. They know what we know.



• There are rumors that the U.S. may attempt to design a revaluation downward of the dollar in an organized way for trade purposes to alleviate the huge U.S. trade deficits. An article from Dow Jones News Service U.K. stating such a proposal was presented to George Bush before the coming IMF meeting makes this a bit more credible. Positioning the dollar devaluation as a simple trade mechanism as opposed to a depreciation of the currency might make it more palatable for the average citizen.



• There are always momentum players on Wall Street. The key to being successful is to find a big move that has already started and wait for the pullback that always occurs....i.e. wait for the second and more powerful leg. Well, the 2003 gold stock bull market woke up a lot of these guys but most of them missed the boat. But they know all major trends will take a big breather and eventually resume. They have been alerted and are waiting. When it looks like it is starting all over again they will pile in with huge amounts of capital. I believe these players have just now started to join the gold mining bandwagon.



• Almost the entire financial establishment, and that includes tens of thousands of money managers, understands deficits and trade imbalances and expensive wars and that super low interest rates are artificial. Most of them know sooner or later something bad might happen. Some of them are probably buying gold mining stocks.



• And last but not least, the gold stocks have had their correction. They have based out for the better part of six months. It would seem logical for a resumption of the uptrend.

For more articles on gold and the stock market please visit our website.

Kenneth J. Gerbino
29 September 2004

Kenneth J. Gerbino & Company
Investment Management
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Beverly Hills, California 90212
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