Italian and German financial papers report about GATA


Watch the Fed for clues to rise
in gold sector: Rest is just 'noise'

Financial Post, Canada
February 15, 2002

Gold has broken out and there is no shortage of
theories as to why and where it's going from here.
But, according to Chad Williams, investors should
pay no attention to outlooks based on supply and
demand, hedging, central bank sales or even flight
to safety issues.

In particular, the TD Newcrest analyst says it isn't
much help to sort through stock picks based solely
on share prices in relation to the firms' net asset
values, as many analysts have been scrambling
to do in recent weeks as the stocks ran up in value.

Mr. Williams says the real driver for gold is the
Federal Reserve's interest rate cycle. What's
more, he is confident that driver is about to serve
up even larger gains in gold shares and investors
should get ready to buy in on any pullbacks in the

"We reiterate our belief that the greatest upside in
gold and gold stocks, related to the end of the most
recent Fed easing cycle, is yet to come," he
concluded in a note to clients earlier this week.

With widespread jitters shaking global stock
markets, the gold price has jumped US$25 an
ounce since the start of the year to the US$300
level, sending gold stocks up more than 20
percent, making them the market's top performers.

The laundry list of rationales given for spiking
gold prices span the globe.

Pundits have visited Houston, where the Enron
debacle has sent faith in corporate accounting to
perhaps its lowest point ever, Tokyo, where fears
about bank failures have caused a spike in
demand for bullion, and Afghanistan, where war
provides the very definition of uncertainty.

While relevant, these "physical shocks" only
have a short-lived influence on gold and should
be "viewed as noise," Mr. Williams said. Instead,
he says investors should keep their eyes on the

"Over the past 20 years, every time that the Fed
has ended its easing cycle [this has happened
six times] and the U.S. economy began its
recovery, gold and gold stocks have risen
significantly. End-of-easing rallies have the
highest predictability, greatest duration and
most amplitude of any type of gold rally."

The Fed, which has cut the key lending rate by
an unprecedented 475 basis points in the last
year, historically doesn't start tightening rates
until more than 10 months after the last easing.

With gold prices moving into the US$300 range,
after being largely dormant for more than two
years, analysts have had their hands full updating
valuations and either upgrading or downgrading
recommendations based on quickly changing
bullion price estimates.

The typical valuation measure used by analysts
to value gold stocks is to apply a multiple to a
firm's net asset value.

However, problems arise when gold stocks run
higher without a commensurate rise in the
underlying bullion price. As share prices move
through price targets, analysts are forced to either
change their metrics or change their

Barry Cooper, an analyst at CIBC World Markets,
figures he has a better way to help investors
understand the sector.

Rather than worry about using an arbitrary multiple
to NAV, Mr. Cooper establishes a value for gold
stocks by adding a firm's option value -- calculated
using the Black and Scholes options pricing
formula -- to its NAV.

Using the methodology he figures some gold
stocks still have 15 to 20 percent upside, even if the
price of bullion remains static. Using the
methodology his top pick is Goldcorp Inc.