Published on Gold Anti-Trust Action Committee (http://www.gata.org)

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By cpowell
Created 2001-06-29 07:00

11:41a ET Wednesday, June 27, 2001

Dear Friend of GATA and Gold:

Here's excellent gold market commentary and analysis
of Barrick's acquisition of Homestake from Michael
Kosares, proprietor of www.USAGold.com [1], posted there
this morning.

CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.

* * *

Market Commentary for June 27, 2001

By Michael Kosares
www.USAGold.com [2]

Gold retraced some of its recent gains in the early going. Gold
has been rallying quietly, almost imperceptibly in the
background over the past week or so. At one point yesterday,
the yellow had advanced over $5 before the paper sellers
came in and pushed it back down to close about $2.50 higher
leaving many to wonder what was the real cause for gold's
stubborn strength of late. Some attributed it solely to the
Barrick/Homestake merger since that event seems to be
dominating the gold news -- a symbolic event representing
the end of gold's bear market.

I believe the causes are more structural than that. The merger
and the stubbornly strong gold price along with stagnant
equities all come from the same sources: Flagging real
returns on dollar based securities (due to interest rate cuts),
the increased cost of living (both for consumers and mining
companies) and the ominous build-up of long positions on
the COMEX.

Reading the handwriting on the wall, Barrick looked to the
Homestake acquisition as nothing more than a facile form
of short covering -- short covering that I am sure pleases the
bullion bankers (on both sides of the merger). Barrick's
got cash. Homestake has debt. Barrick needs Homestake's
strong reserves. Homestake needs Barrick's capital. Wallah!!
A golden shot-gun wedding - 'til death, or dissolution of
debt (whichever comes first), do they part....

The bottom line is that a higher structural interest rate on
gold loans coupled with reduced dollar based interest
interest rates are forcing all sorts of things to happen in
the gold business. This isn't the last merger we are going
to see, nor would we be surprised to see anything other
than hedgers and non-hedgers tying the knot for the
foreseeable future for the same reasons Barrick and
Homestake tied the knot this past week (assuming this
thing moves to the closing table.)

Many asked why non-hedger Homestake merged with
Barrick instead of another non-hedger like Newmont.
The answer is now relatively clear. The world has
changed since the Washington Agreement was signed
in September, 1999 and the gold lending business is in
the workout phase. Mergers between the hedged and
the unhedged will be part of that, and if that isn't a
major signal to gold investors I don't know what is. If
I am reading this right (and I think I am) a sea-change
seems to be occurring in the gold market. The major
players appear to be covering their positions. They are
doing so out of necessity and for good reason: It is the
only rational choice at the moment. This is all part of
the new gold market we've been talking about at USAGOLD
for quite some time now.

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