1. The sickly Canadian dollar plunged deeper into unfamiliar territory, setting yet another historic low as currency watchers hollered for interest rate relief that never came. It left analysts wondering why the Bank of Canada, which has historically bolstered a weak dollar by boosting interest rates, is letting it drift into uncharted waters. Warned Nesbitt Burns' chief economist Sherry Cooper, "We are now in uncharted territory. We have our lowest dollar in history and a Bank of Canada that's telling the world it's unconcerned. "Said Johan Petersen, who runs the international division of importer AM May, "The predictions of last fall never were that we would be where we are today. It's caught everyone by surprise because you can only hedge so far. Not only that, there's no light at the end of the tunnel. "James McCarten, VANCOUVER SUN, 29 Jan 98

2. Precious-metal mutual funds have struggled the past few years, but they had their day in the sun in January. Six gold funds pulled down the top spots in performance last month, according to IBD's survey of sector funds. Leo Fasciocco, INVESTOR'S BUSINESS DAILY, 6 Feb 98

Jonathan Swift said that, "He was a bold man that first ate an oyster." To which Andrew Carnegie added, "The first man gets the oyster, the second man gets the shell." Unfortunately, it is not easy being first, but that is usually the way to help people avoid what might be coming. With all eyes finally focused on Asian markets, we know of nobody else warning of a possible crash in Canada, but the Canadian dollar is in a dismaying Downtrend into new all-time low ground. While this has received no coverage in the United States press or media, even Canadians are remarkably reserved; the above excerpt #1 is just about the only mention that we noticed, with the preposterous remedy demanding higher interest rates that would hurt business and which our northern neighbors need like a moose needs a hat rack. Instead, the quacks running Canada's central bank should link the paper currency to gold, which would immediately halt the erosion, but that would also prevent the central bankers from running the printing presses without restraint. So they refuse.

Our prediction of "The Coming Competing Currency Devaluations" is presently indulged in by America's three largest-trading partners: Canada, Japan and Mexico, which will have serious repercussions later. But Canada mines gold sold in US dollars, while expenses are in their devaluing currency, and the price of gold has been rising in terms of the Canadian dollar. It is difficult for Americans to grasp this, since gold has been dropping in US dollar terms and everybody is so pessimistic on it (as will be shown in the excerpts at the end of this feature), but a Canadian-dollar crash is bullish for the Canadian golds and that is why our recent Interim Warning Bulletins flashed the exciting news that they had finally begun breaking their Downtrendlines. For example, see chart of Laramide, and the chart of the Canadian dollar.

Many Canadian investors with whom we communicate are simply not used to thinking in terms of currencies, even though their coastal timber industry has already been devastated by the Asian crash. Yet we sense an unease as they at least wonder whether or not their Florida and California vacations were becoming atrociously overpriced in terms of the Canadian dollar. Some even saw a positive, that it would boost Canadian exports to the US, and there would be more tourism north. But what if a Thailand-type crash of Mass Fear erupted, a question every serious investor should consider? The Canadian Government limits the amount of money Canadians are allowed to move out of the country, so Canadians are in a sense already trapped into holding a rapidly-depreciating paper money. So what should Canadians do next?

Study Asia for what might visit North America, where debt was the enemy, and mutual funds were unable to sell into plummeting markets. Get out of Canadian dollars to the extent possible, preferably into the US dollar, which we think will break down last. Canadian TDLrs should prepay their US expenses to the maximum possible. Make sure that all portfolios contain gold-mining shares with mines in different countries, because we don't trust any government. Most conservative investors should stick with favored blue-chips Franco-Nevada, American Barrick, Newmont, and others in Supervised List #3. Of the portion of portfolios allocated to gold, perhaps "spice" it up with some low-priced selections from List #5. Since the central bankers are destined to keep raising interest rates until the Canadian dollar stabilizes, prepare for a recession, begin edging out of debt and commercial real estate, reduce margin accounts if possible, and avoid being an importer try to get into a business related to exports to the US.

Gold ownership transcends profit seeking, and should be viewed as "fire insurance," your hedge in the event of a currency upheaval. Hopefully, the world will stumble past Asia's currency crisis, affording more time to straighten out everybody's currencies. However, sooner or later, as our prediction has been for years, currency crises will occur with increasing frequency and intensity until "The Coming Gold Crisis."

3. The yellow metal has been on the slide since February '96, when it traded at $417 an ounce. No wonder. Inflation is virtually nil in the US, and is much reduced even in developing countries, where economies have traditionally had price-spiral problems. Without a need to hedge that inflation risk, who needs gold? Gold suffered from another problem. Central banks around the world have been selling their gold reserves, preferring interest-bearing assets. Central banks in Europe had another reason to sell gold. The entry requirements for the Economic and Monetary Union include a call for aspirants to clean up their financial postures. One way to meet those goals is by selling gold for cash and paying down those debts. Donald H Gold, INVESTOR'S BUSINESS DAILY, 2 Jan 98 Ed: This is the majority view, with which we do not agree.

4. Gold markets reacted to the falling US dollar and President Clinton's latest scandal. The same problems that plagued gold in 1997 are likely to dog it during 1998's first half. These include: central bank disposals, poor demand from financially worn Asia and a sound low-inflation economic outlook that bodes better for financial than physical assets. "Prices are expected to decline toward the $265 area for the next three to four months," says Felix Freeman, Scotia McLeod's gold analyst. This is not a good sign for gold companies. Trizec's gold-savvy chief executive, Peter Munk, doesn't expect prices to revive soon. While gold stocks have been battered, they're still generally overvalued. The average stock trades at a 70% premium to its underlying net asset value. "There is only one possible recommendation sell the lot" asserts Freeman. Freeman expects the stocks to skid by another 30%-34%. And analysts estimate that the industry can't sustain more than about six months of the current conditions without setting back future growth by several years, owing to the need to rebuild financial strength. Could any of these companies become takeover targets? The experts don't think that will happen soon. Says Hinrichs: "Many of these companies' chance of survival is next to nil." Cheryl Strauss Einhorn, BARRON'S, 26 Jan 98 Ed: Buy when everybody -- especially Peter Munk -- is bearish. Everybody was also negative on silver a few weeks ago.

5. Gold's dwindling sheen as store of value. At $300 an ounce, 60% of the world's gold mines are uneconomic. If the price stays down, a big share of the world's gold-mining capacity will close down, temporarily at least, until all the bullion in the hands of willing sellers has been exhausted. For the South Africans the uncertainty over the central banks' intentions has helped push the price down to levels that threaten the livelihood of hundreds of thousands of mineworkers. The central question is whether the Great Inflation of the past half-century is over. Answering yes to that question means that gold's role as a store of value has permanently dwindled in importance, at least in countries with well-developed financial systems.

From time to time, as speculative pressures ease or political tensions rise, gold will enjoy a brief glittering moment. But until the fear of generalized inflation returns, gold's glory days are over. Peter Martin, FINANCIAL TIMES (London), 2 Feb 98 Ed: Inflation is defined as "an increase in the money supply," usually but not always followed immediately by higher prices, and it is rampant worldwide. Watch for soaring prices in Asia in 1998, and we don't care if anybody in the world agrees with us because truth transcends need for agreement.

(The Dines Letter (TDL) offers regular features such as TDL's Latest on Gold, and the following is our Latest on Gold feature excerpted from our latest Letter dated 13 Feb 98. In addition to other features covered regularly: TDL'S Latest on Silver, TDL'S Current Market Analysis, TDL'S Seasonalities, TDL'S Latest on Currencies, TDL'S Newly Recommended, TDL'S Supervised Investment Lists -- The Dines Letter also offers timely articles and special writeups as market conditions warrant)

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