GATA Chairman Bill Murphy''s address to New Orleans Investment Conference

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By Thom Calandra
www.CBSMarketWatch.com
November 26, 2001

SAN FRANCISCO (CBS.MW) -- Another Bank of England
gold auction is in the cards this week, making believers
in the precious metal as rare a find as a Nasdaq bear.

The central bank's auction of 20 tons of the metal Tuesday
is part of a dogged sale program. In the previous auction,
the bank got $280 an ounce, one week after the Sept. 11
terrorism pushed gold prices as high as $294 an ounce.
The misguided Bank of England, seeking to trim official
reserves to about 300 tons, is staging its 19th auction in
a multiyear program of sales.

Gold since the September terrorist attacks has faded,
selling for about $272 an ounce. Silver, regarded as both
a precious and industrial metal, sits at eight-year lows of
about $4.07, or the price of a tuna-fish sandwich in most
of the world's major cities.

A MarketWatch.com survey of North American investors
found just 28 people who believed gold would stage a
rally in the current century. Gold's dwindling crowd of
believers is finding good news hard to come by.

Bad news? Plenty of it. The Comex exchange in New
York, for instance, says its net long position is down
sharply to 16.9 tons.

Gold's latest mega-merger, a three-way, $4.4 billion
deal that would combine Newmont Mining

Franco-Nevada and Normandy Mining earlier this
month elicited yawns from most investors, who have
pummeled Newmont's U.S.-traded shares. Newmont's
shares Monday hit a post-bid low of $18.80 each.

Ennui is spreading. Credit Suisse First Boston, one of
the five members of London's gold-fixing panel that
meets twice a day to set gold's official price, announced
in October it would resign the spot. The firm is also winding
down its contracts as one of the 11 market-making
members of the London Bullion Market Association,
according to www.theminingweb.com. Investment demand
for the metal is waning, according to official figures.
Hedging of the metal by miners such as Anglogold, who
forward-sell production in a bid to lock in slightly higher
prices, continues to depress the metal's price. Such
forward sales increase the amount of metal lent by
central banks and commercial bullion banks.

Plus, the folks who market gold, the World Gold
Council, backed as they are by giant gold companies
that choose to hedge their production, seem to think
the answer to all of the gold industry's problems is
drumming up jewelry sales.

"Mind you, this is the same industry that curtailed
promotion of gold jewelry in 1997, in response to low
gold prices, and thus missed the most frenzied period
of wretched consumer excess that many of us are likely
to see in our lifetimes," says Robert Bishop of Gold
Mining Stock Report.

Bishop, who has been covering major and minor gold
companies for more than 20 years, pointed to a quote
from Franco-Nevada Chairman Seymour Schulich: "To
hedge gold and try to market gold is the equivalent of
sucking and blowing at the same time."

Are you yawning yet, Nasdaq investors? After all, why
chase an old fart like gold when you can speculate
about fun stuff -- for example, Topps Co. and its right
to market Lord of the Rings playing cards -- and make
money at the same time?

So far, the miners who are both sucking and blowing,
led by hedgers such as South Africa's Anglogold and
North America's Barrick Gold, have managed to squeeze
out slightly higher gold prices through the use of their
derivatives-loaded hedge books. But the drag on gold's
actual spot price has been heavy.

Gold posted a 19-year low in July 1999, then came
within hailing distance of the low again this past April.
"What we have here is a 19-year low that was re-tested
two years later; one needn't be a gold bug to infer that
it's quite possible that gold has posted a major long-term
bottom," says Bishop, who has his fingers crossed and
was attending a mining conference in San Francisco.

Andy Smith, an influential Mitsui & Co. metals analyst
who turned positive on gold this autumn for the first time
in 10 years, says gold prices just aren't responding to
the forces of supply, demand and industry consolidation.
"I just sit and watch the chairman of the World Gold
Council say one thing and his merry men say the
opposite, and ponder on the damage to gold's image
as a place for serious money," Smith says.

The gold optimists seem to agree on at least two
things: One, for gold prices to rise above $300 an
ounce, serious investors, not jewelry buyers, must
accept the metal as an alternative to the high-octane
Nasdaq Stock Market. Two, the industry must keep
shrinking, with nonhedging producers such as Newmont
and Franco-Nevada usurping monstrous hedger
Anglogold, world's largest gold miner.

Anglogold, hoping to spread its spades outside South
Africa, intends to contend with Denver-based Newmont
or the right to buy Normandy, Australia's largest gold
miner. The battle easily will go into next year. Another
merger, Barrick Gold's purchase of Homestake Mining,
could close in mid-December.

"I really do believe that the battle for Normandy will
represent a major turning point in the gold market, and
that Newmont and Franco-Nevada will prevail," says
Bishop.

Frank Holmes, chairman and CEO of U.S. Global
Investors, a manager of $1.2 billion of assets, including
several gold-related mutual funds, sees institutional
brokers showing greater interest in gold mining stocks.

"Remember, the XAU has outperformed Nasdaq this
year," Holmes says about the Philadelphia Gold and
Silver Index of North American mining companies. "I'm
seeing large investors take an interest in gold-mining
companies."

Holmes, in San Francisco for the mining investment
show, says the U.S. dollar is the ultimate compass for
gold prices. The relentlessly strong dollar makes gold
less attractive as an investment for some overseas
investors. "Once we get this massive fiscal stimulus,
which is in the U.S. Senate right now and adds up to a
$100 billion package, the dollar will start to fall," he
says. "China is buying euros, and the Treasury bond
market's weakness could be a sign that some nations
no longer want to hold our currency."

Holmes says his $42 million World Gold Fund's largest
holding is Goldcorp, which is listed on the New York
Stock Exchange. "It's like a growth stock. Their cash
cost for mining gold is $70 an ounce, and they pull out
2 ounces of gold for every ton of dirt." The North
American average is closer to one-tenth that rate, or
0.2 ounces per ton, he said.

Holmes owns 22 percent of Texas-based U.S. Global
Investors, whose Nasdaq-listed stock has shrunk along
with gold and now sells for less than a dollar. Total
market capitalization: $7 million. Holmes says he has
been accumulating shares in the company, which has
several large investors, including and Paul Stephen's
hedge vehicle The Orphan Fund.

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Thom Calandra is Editor-in-Chief of CBS MarketWatch. He