Bullion banks'' bets against gold are getting noticed


By Thom Calandra
Friday, May 24, 2002

SAN FRANCISCO -- As gold -- and silver -- prices keep
steamrolling higher, the bandwagon for metal investment
vehicles is getting larger.

The audience of individual investors learning about metals
investing for the first time, or for the first time in a
long time, is growing rapidly. Conference directors report
swelling interest in gold-oriented shows such as the 2002
New Orleans Investment Conference
(www.neworleansinvestment.com), launched by the man who
championed Americans' right to own bullion, James Blanchard
III, in 1974.

The steady gains in gold this year, about 20 percent, and
silver, about 10 percent, come as commodity prices creep
higher. The CRB/Bridge Index of 17 commodities, from
energy to agricultural, is up 4 percent this year. Some
economists say gold and silver prices traditionally precede
accelerating inflation in natural resources of all types --
grains, energy, farm products, the industrial and metal

Commodity prices are tied in large part to the global
economy. The Silver Institute this week forecast a "strong"
recovery in silver fabrication demand for this year as the
global economy picks up steam. Demand for silver, an
industrial and precious metal, fell almost 5 percent in 2001.

It is the investment side of the equation that moves precious
metals. In gold's case, just a rise in investment demand of
several percentage points can be enough to send the metal
to price points not visited since the early and mid-1990s.

Mitsui Global Precious Metals analyst Andy Smith, speaking
at the London Association of Mining Analysts conference,
says "time is going backwards after Sept. 11." That's Sept. 11,
2001. Indeed, more than one gold executive in recent months
has pointed out how precious metals suffered during the
12-year stretch of peace and prosperity following the opening
of Hungary's border with Austria on Sept. 11, 1989, sending
East Germans flooding to the west and hastening the collapse
of the Berlin Wall.

As Smith puts it, a world of "freer markets, lower inflation,
progressively smaller governments, and more political
stability" led to "the road to hell for gold." He sees
"revulsion against the high-tech bubble."

That revulsion is coming from many quarters. Individual
investors are just now realizing they probably will never
regain the 60 percent and greater losses in their Nasdaq
retirement portfolios. "It boggles my mind that so many
traders still want to try and trade the busted balloon for
rebounds or the big turn, when history suggests Nasdaq
won't see anything like the old highs for the rest of the
decade," says Ian McAvity, editor of the newsletter
Deliberations on World Markets in Toronto.

On Wall Street too the absurd brokerage research that
is fed to individual and institutional investors is getting
pounded -- by regulators, law enforcement officials, and
even those on Wall Street itself. On Friday morning, Kevin
Lane, who heads the independent analysts at
Technimentals Research, observed, "I see investors still
react to big-shop analysts' moves as futures are weak
this morning based in part on a Goldman Sachs cut on
Sun Micro. Nice job, guys. Where was the advice when
Sun Microsystems was at $50, $40, $30 etc."

Sun Micro (SUNW) shares Friday morning fell 6 percent
to $6.95, yet the company's common shares are still worth
$22 billion on Nasdaq. "It is pretty pathetic when entities
and analysts can move markets even after having been
horrendous in making the initial calls. Hopefully, someday
investors will learn," said Lane.

Smith, in London, says precious metals in the short term
also will benefit from the politics of economies.
"Anti-globalization gets a second wind ...
trade wars/protectionism, plus Enron- ised move toward
regulation," says Smith. China, for example, is countering
the White House imposition of steel tariffs with its own, at
rates of between 7 percent and 26 percent. Plus, Japan,
South Korea, the European Union, and other nations are
putting their protests of the American steel tariffs in writing.

Smith has a $355 price target for gold this year but sees
the possibility that gold will decline sharply when the world
gets its act together later in this decade. Until then, he sees
the possibility that large speculators on gold futures markets
will continue to boost the metal's price. Large-account
speculators who are "long" gold futures on the Comex in
New York have surpassed 90 in number. In 1993, when gold
futures were rising sharply, the number was 77.

The price of spot gold was little changed Friday morning
at $321.40 an ounce. The active silver futures contract in
New York was falling 2.2 cents to $4.89 an ounce. Yet some
silver mining stocks continued their blistering rally. Shares
of silver miner Coeur d'Alene (CDE) were up 8 percent to
their highest point since May 2001. Shares of Pan American
Silver (PAAS) were gaining 1 percent before midday Friday.


Thom Calandra is editor of CBSMarketWatch.com.