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Gold's tiny nuggets are thriving
Believers battle naysayers; Greenspan talkin' oxen

By Thom Calandra
www.CBS.MarketWatch.com
Friday, March 1, 2002

SAN FRANCISCO (CBS.MW) -- The price of gold is trying
to keep its head above $300, with little success. Yet shares of
the riskiest gold mining companies, the so-called junior
exploration companies, are at their highest points since late 1999.

Some, like Francisco Gold Corp., which trades on the manic
Vancouver Stock Exchnage, have gained 30 percent since the
start of the year. Iamgold International, a Canadian company
whose main asset is a 38 percent share of a gold mine in Mali,
West Africa, is up 35 percent this year in Toronto trading,
hoisting along with it the New York-based Gabelli Gold Fund
and other mutual funds that hold the stock.

"Gold stocks had a very good year last year, and they remain
the top-performing sector this year," notes Robert Bishop,
editor of the longstanding Gold Mining Stock Report. "Despite
this, gold funds are not reporting new inflows of cash, and I
sense there is a significant amount of disbelief associated with
gold's recent flirtations with the $300 level."

Indeed, in the past three months, gold mining stocks in Canada,
the United States, South Africa and Australia all have notched
25 percent and greater gains in the past three months. In the
United States, precious metals companies are the third best
three-month group in terms of price performance, up 24 percent.
Only home construction and home furnishing companies have
done better.

Year to date, gold mining companies in the U.S. stock market
top the best performers list. Surprise: they're not the biggies,
like top gold producer Newmont Mining. Many of the companies are
small outfits that trade on Nasdaq but are located in South Africa
or Canada. See year-to-date top performers.

With gold trading several dollars below the psychological $300
level, investors have placed their faith in companies such as
Durban Roodepoort, an old-time South African company that has
had its share of troubles but now trades with the verve of a
technology stock. Durban's shares have quadrupled since last
summer. The amazing part is that Durban's Nasdaq shares
(the stock is also listed in Johannesburg) now trade as many
as 9 million shares a day vs. the several hundred thousand
shares of a year ago.

Veteran gold investors, like Bishop at Gold Mining Stock
Report, acknowledge the price of gold needs to notch more
gains to keep the high-fliers, well, flying. "Almost nothing
in the gold stock sector is cheap at this time," he is telling
clients. Yet Bishop is very optimistic that bullion will
continue its slow march across the $300 level and beyond.
"My expectation is that the days of gold trading below $300
are severely limited."

Investors will be watching the price fetched at Tuesday's
auction of 20 metric tons of gold by the Bank of England.
This is the final auction in the bank's three-year selling
program. Other central banks in Europe are said to be
considering selling significant parts of their gold reserves
in the coming year.

Technical analysts are split on where gold prices go from
here. The metal touched $307 an ounce in early February,
after evidence Japanese households were accumulating the
precious metal instead of placing their savings in the
nation's debt-swamped banks.

Andy Smith, a Mitsui Precious Metals analyst in London,
says "gold's ambitions as a contender (have been) left on the
ropes." Smith points to recent testimony by Alan Greenspan,
who chronicles the recuperative powers of the American
economy. The strength of the dollar and a steadily recovering
U.S. economy could force gold to "sink at least to one knee,"
says Smith, who predicts gold years from now will trade
below $100 an ounce.

The Fed chairman, speaking in January at the American
Numismatic Society Exhibition, discussed how citizens of
the world, in long-ago times, "adhered to the intrinsic value
of gold, silver, or any other commodity that had general
acceptability. Historians, digging deep into the earliest
evidence of human practice, link such commodities' broad
acceptability to peoples' desire for ostentatious gold and
silver ornaments."

Smith, in his just published report from London, adds a
caveat to the Greenspan myth of the perpetual greenback:
"What if, defying decades of honed performance, the perpetual
progress machine of fiat money took a step backwards? Then,
as Mr. Greenspan told the numismatists: 'We may have to go
back to seashells or oxen as our medium of exchange.'"
(Richard Nixon severed the price link between gold prices
and the U.S. dollar 30 years ago.) The Fed chief added, "In
that unlikely event, I trust, the discount window of the Federal
Reserve Bank of New York will have an adequate inventory
of oxen."

Greenspan, in congressional testimony this week, clarified
his oxen talk, saying the system by which the world's
currencies trade against one another appears to have been
successful, but he was not about to predict how long that
would last. Smith, the analyst, is pessimistic about gold's
role in the electronic economy yet still thinks there is room
for gold prices to go higher this year.

Spot gold's price in New York Friday morning was $295.35,
down 95 cents. Belief in Greenspan, as measured by the Dow
Jones Industrial Average, was up more than 100 points this
morning to 10,207.