Gold

December 13, 1999

We assume all you readers are well aware of the September actions of the European Central bankers in regard to future gold sales, leasing, futures or options. Some gold mines are on the brink of bankruptcy and a move in gold to $340 to $350 an ounce could put them under. Others can't participate if gold trades higher than their future sales or application of puts. Thus with minor exceptions, which we listed in the last issue, most mines can't participate if gold goes over $320 an ounce. They have for the most part sold at that level or lower from 2 to 8 years production. There is little reason to buy their shares. Mines can avoid this by buying in their positions, but so far few have done so. Those mine management continue to work against their shareholders. We think they'll eventually become casualties as all currencies, including the dollar, head into the tank and the only real money is gold. This is why the euro was designated with 15% gold backing, although at the time and presently, we think 25% would have been more appropriate. We do know they have 15% backing. The question is are the British selling because they eventually want to sell all their gold reserve? Does the U.S. really have any gold reserve? There hasn't been an audit since 1956. Perhaps Europe realizes the U.S. has no gold and that the UK will sell all of theirs. If that is the case the euro could end up the only major gold backed currency in the world.

The denizens of the stock market are so busy chasing tech and internet stocks that they are clueless to the implications of what the central banks have done regarding gold. If central banks were continuing to make up the gold supply deficit and are not going to continue, where will the supply come from to keep the gold price in check? It won't come until prices are substantially higher and some holders want to take profits. Equilibrium certainly won't occur in the low $300's.

We still guess that over half the shorts haven't covered. That includes all forms. The virtual risk-free ride is over. If shareholders care about their gold share investments they should be filing lawsuits against management that hedged over 15%. Speculators, banks and producers are in shock. A group of rabbits caught in the headlight of an oncoming train.

The fundamentals for gold are strong. A 1,000 ton shortfall, massive short and derivative positions yet to be unwound, higher base metals prices, rising interest rates, oncoming inflation and Y2K, a stock market held up by a handful of stocks, which is poised to correct. Gold is going higher. Don't forget next June new FASB standards on the treatment of derivatives and hedging will appear on financial statements. As positions are marked to the market and the public discovers what producers, banks, brokerage houses, insurance companies and hedge funds have done all hell will break loose.

You must start buying gold shares, or add to current positions. Gold's central bank mandated price controls are history.

For information on mining companies you can access: infomine.com, mineoneline.com and geophysicsonline.com.

The world's largest gold mining company Anglo Gold bought $88 million almost 44% of the UK's third largest gold sale. The second sale had an 8 to 1 cover. This 3rd sale had a 2 to 1 cover. A 2-1 cover is considered ample. Anglo bought 300,000 ounces to unwind part of its hedge book. Their book has forward sales of nearly 14 million ounce, including 1.6 ounces due before the end of 1999. The UK gold will be used to meet some of Anglo Gold's 1999 obligations. Gold Fields bought 100,000 at the last auction and has closed down most all of its hedge positions, because it thinks the gold price is going higher.

The U.S. Appeals Court has dismissed a lawsuit against Freeport MacMoRan, the copper and gold mining group, by indigenous people living in the area surrounding its huge Grasburg mining operation in Indonesia's Irian Jaya province. This means investing in companies with operations in Indonesia is safer than had been thought. We recommend purchase of FCX.

The facts now show that the BofE was behind the bailout of Ashanti Gold bailing out Goldman Sachs, 17 other banks and Ashanti. Goldman was in a conflict of interest, as advisor, seller of OTC financial derivatives and trader and market maker for Ashanti. Had BofE not used its financial backing in the crisis, the banks would have been badly hurt financially. Ashanti would have gone under, but more important hedge positions would have to have been sold taking gold to $350 to $375 an ounce. Ashanti was not primarily using hedges for insurance, they were a source of profit and cash. The lenders decided not to make margin calls based on guidance and secret guarantees made by the BofE. Goldman and other banks see no financial malfeasance selling toxic waste to Ashanti in spite of its heavy indebtedness. What ever happened to suitability which the banks are responsible for. Their greed got in the way of their morality.

Personnel changes continue to take place at Placer Dome. Quayle C. Lusty, previously in charge of development at the Las Cristinas project, has joined Orvana Minerals as VP in charge of development.

China is poised to become world's biggest gold consumer.