GOLD -- QUESTIONS AND ANSWERS

November 13, 2000

1.

Q:

What is important about the gold market right now?

 

A:

Certain information is bubbling to the surface that could cause the price of Gold to rise sharply, beginning the next few months.

First, the annual supply of Gold from all countries is 2500 tons and production is decreasing. The current annual demand for gold is 4000 tons and increasing.

Second, the recent reported size of Gold derivatives is 26,000 tons and increasing. These derivatives are mostly hedged short positions that cannot be unwound or covered in an orderly way in the market.

Any surprise move in Gold to the upside could easily cause panic in the gold markets.

 

 2.

Q:

If demand exceeds supply, why has the price of Gold not been going up?

 

A:

In addition to the normal supply from the mines, there have been central bank Gold sales and forward sales against future production from the Gold mining companies.

 

 3.

Q:

If central banks stop selling, and gold mines stop selling forward, would the price of Gold go up?

 

A:

Basically, it would have to. Without this selling, demand exceeds supply by 1500 tons per year.

 4.

Q:

If there has been a lot of central bank selling, who has been doing the selling?

 

A:

Over the past few years, Western country central banks have been sellers of their gold reserves. The central banks of Great Britain and Switzerland are in the middle of major gold sell programs. In the past couple of years, Canada, Australia, The Netherlands, and other European Central Banks have been heavy sellers of gold. Actually, even the U.S. has been a large seller of gold through its Gold Eagle coin program.

 

 5.

Q:

Who have been the buyers of gold?

 

A:

Taiwan has been a big and steady buyer of gold over recent years. Plus China, Japan, Thailand, Turkey, Singapore, and others. Mostly patient Far East people and their governments. Citizens of the U.S. have purchased more gold recently than they have in the past.

 

 6.

Q:

Is there any significance as to who is buying gold and who is selling?

 

A:

Over the past 2000 years, those who have owned gold have had the economic and political power. Those countries whose paper money was backed by gold were the most able to trade and carry on commerce. They could also buy arms when others couldn't and were, therefore, the conquerors.

Today, Gold is going from West to East. The question is, how much political, economic and military power goes with it? Our guess is, quite a lot.

 

 7.

Q:

Over the past 5 years, the price of Gold has declined. How has this affected your work?

 

A:

In a time when others have been hurt by the decline in the price of gold and the gold stocks, we have been fortunate. Our gold buy and sell signals have generated profits of +259.01% per year over the past 13 years.

 

 8.

Q:

Per year?                                                                                       

 

A:

Per year.

 9.

Q:

How about the past three years vs. Gold?                                    

 

A:

 

Our Trading

Gold

1997

+433.95%

-21.47%

 

1998

+84.40

-00.24

1999

+229.33

+00.13

10.

Q:

If someone had traded your signals recently, how would their investment have done?

 

A:

If someone had traded each one of our signals over the past 5 years: $10,000 would have grown to $574,980. We've been doing this for over 13 years. The 13-year figure goes sky high.

 

11.

Q:

So what about this year -- Year 2000?

 

A:

Through the end of October 27, 2000, trading Gold, we are up +66.89% vs. Gold down -8.18%.

12.

Q:

What is happening in today's markets to make you think the recent downtrend in the price of gold is about to change?

 

A:

There are two factors at work from our perspective: The first is fundamental: not only is the annual demand for gold exceeding supply, but the central banks and the bullion banks have created a huge short position in Gold, using derivatives.

 

13.

Q:

What is a derivative?

 

A:

A derivative is a financial instrument that relies, for its value, on the value of another financial instrument. For instance, put and call options are derivatives.

 

14.

Q:

So --

 

A:

So according to the Bank for International Settlements, the size of the derivative positions in Gold at the end of the year 1999 were 26,000 tons.

15.

Q:

Why do we care about this?

 

A:

The problem here is that the derivatives represent a basic short position in Gold that will someday have to be covered. The gold short position is over 10 times the annual gold production.

If there was a large price rise in Gold it could cause panic in those short positions. If that happened, the price of Gold could skyrocket, hurting all sorts of people.

Basically, a short position in any commodity exceeding even one times the annual production is unheard of. Here we have, minimally, a short equal to 10 years of gold production. There is no way this short position can be covered in an orderly way.

 

16.

Q:

If someone wanted more detailed information about this situation, where do they go?

 

A:

Reginald Howe has written an in depth essay covering all aspects of the current Gold situation. Your readers should go on the Internet site to www.goldensextant.com and read the article: Gold or Dross? Political Derivatives in Campaign 2000. It is a little lengthy but a superb review of the Gold situation.

 

17.

Q:

How does this problem get resolved?

 

A:

Either some central bank will have to step in and sell its Gold, or the price will have to rise until the shorts are covered.

18.

Q:

You said there is a second reason why things will change for Gold.

 

A:

All of the work that has given us our good trading record is based on cyclic analysis. There is a major monthly cycle bottom in Gold projected for the March -- April time period in 2001. A major price bottom could take place between now and then.

 

19.

Q:

You also write a weekly newsletter called The Goldstock Letter at www.goldstock.com. What are you telling people in the letter?

 

A:

We currently are close to a short term buy signal in the 10 stocks in our Goldstock trading Portfolio.

We think there may be a trade here. It is possible there is another downside move in Gold to the 240-250 level. If so, this could take us into the expected price and time bottom area projected for the spring of 2001.

 

20.

Q:

Is it possible that this anticipated price bottom for Gold is already in place?

 

A:

It is possible, but not probable, from a cyclic analysis standpoint. If it is in place, we will go with it from the buy side where we are now.

21.

Q:

When was the last time you had a significant monthly cycle bottom in Gold ?

 

A:

In late 1992 and early 1993, Gold and the gold stocks bottomed.

22.

Q:

What happened to you at the bottom?

 

A:

Our trading signals caught the bottom almost to the day. In 1993, our Gold Futures trading showed profits of +710.00%. Our model portfolio of 10 gold mining stocks was up +137.20%.

This is our model portfolio that was started in 1974. $100,000 since that time has grown to $10,780,152 as of year end 1999.

 

23.

Q:

Do you think a monthly cycle bottom like 1993 will happen again?

 

A:

I think this time it will be even better.

24.

Q:

Why?

 

A:

In 1992-1993, we had a monthly cycle bottom on the 10-20 and 40 month cycles and at the same time an 80 month cycle top. This time, in the spring of 2001, we have a 10-20-40 and an 80 month cycle bottom. Since the top in 1993, the 80 month cycle has been coming down. From a cyclic analysis standpoint, this downward cycle has been responsible for the price decline in Gold and gold mining stocks since 1993.

 

25.

Q:

So sometime between now and March-April 2001, you expect a major cycle bottom in Gold that will give great trading returns from the buy side?

 

A:

Yes! For instance, in that 1993 time period, Homestake Mining went from 9 5/16 to 24 7/8. This well-known stock rose +15 9/16 points or +167.11%. Call option gains during this time period were between +600 and +700%.

The XAU, the Gold/Silver sector index, went from 64.38 to 115.03 in a matter of 25 weeks. Call options on the XAU went from less then $2.00 to $40.00.

At this coming price bottom, the 80 month cycle has pushed the price of Gold and gold stocks so low that I expect we'll see 2 or 3 times the percent gains we saw in 1993. After all, today Homestake Mining is a $5.00 stock and the XAU is at 50.

I'm telling my subscribers to be wary near term, but to get ready as we beam in on what should be the bottom of the 21 year bear market in gold buy signal.

 
 

November 13, 2000

David Marantette is the publisher of the weekly Goldstock Letter.
He can be reached at e-mail: gold@goldstock.com or at 1-877-465-3873.

The volume of all the gold ever mined can occupy a cube 63 feet on each side.

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