Tocqueville''s Hathaway sees a "slow-motion short squeeze"


By Thom Calandra
May 29, 2002

Gold and silver backers see an accelerating decline in
the dollar contributing to further strong gains for their

"It is my view that the demand for dollars will decline. As
this demand continues to decline, the flight from the dollar
will accelerate, regardless whether or not the Federal Reserve
reduces the supply of dollars," says James Turk, editor of
Free Market Gold & Money Report in New Hampshire and
founder of electronic payment system GoldMoney. Turk
says gold's price will surpass $325 an ounce before the
end of June, confirming a long and strong rally in the metal.

On Wednesday, the euro rose to 93.33 cents on the dollar,
its highest point since Sept. 17, 2001. Spot gold's price
rose above $326 an ounce, and silver prices rose strongly,
to almost $5 an ounce by early Wednesday morning. The
continued rise of the metals this year has sparked a manic
rush into gold and silver mining companies, sending their
stocks to multi-year highs.

Gold's most ardent believers see a fiscal crisis, rather than
a war or other militant attacks, fueling the gold rally. The
crisis, say economists, including Morgan Stanley's Stephen
Roach, will be marked by a steady retreat from the dollar
and dollar-based assets as the red ink in America's current
account approaches 5 percent of gross domestic product.

"Gold is the hitching post of the universe, and when the
system breaks down they will go into gold," newsletter
editor James Dines of The Dines Letter said about
traditional investors. "All the national currencies are
fluctuating against one another, but against gold they are
all down." Indeed, the price of dollar gold is up 21 percent
this year, while gold priced in weak currencies against the
dollar, like the Canadian dollar, South African rand, and
Australian dollar, is up far more.

Dines compiles both a silver mining average for stocks
and a low-priced gold stock average. Both baskets have
more than doubled this year. Dines, who first started tracking
gold and mining companies in 1961, sees the stock market's
decline contributing to a shift to gold assets. Gold mutual
funds this year have gained as much as 95 percent, like the
$60 million Gabelli Gold Fund (GOLDX). The gains place
gold-based mutual funds at the top of the stock-market
performers list in the United States.

The size of the gains for gold mining companies, especially
those that are small and speculative, is astonishing. Dines
last week recommended Randgold & Exploration Ltd.
(RANGY), a tiny South African company that benefits from
the weak rand against the dollar. The shares, which trade
on Nasdaq and in Johannesburg (RNG), have risen to
$8 from $5 in seven trading days. Since Jan. 2, Randgold's
shares have almost tripled in value, boosting its market
worth to more than $100 million.

The dollar part of the gold story, say gold's backers, is
more important than basic supply and demand issues,
such as gold jewelry demand, which traditionally wanes
when gold's price rises rapidly. The backlash against the
dollar will come from overseas investors disenchanted
not only with soaring government and consumer debt levels,
but also with the relentless decline of corporate America,
as measured by Nasdaq, the Dow and the S&P 500 Index.

"The dollar is key to the continuation of gold's rally," says
Adrian Day, president of fund manager Global Strategic
Asset Management in Maryland. "Now the dollar has
clearly peaked, gold is gathering strength."

Day, who invests in gold and gold mining companies on
behalf of clients, says the falling dollar (down about 7
percent against a trade-weighted basket of currencies
since Jan. 2), will add to the losses sustained by overseas
investors in America. "A weaker dollar will subdue some
of the massive foreign investment that's been built up in
the U.S. markets. Most of that money will flow home, to
investors' domestic markets. No other major currency
looks strong -- other than gold," says Day, who has been
following the gold market for more than 20 years.

There are caveats. Bill Bonner of the e-mail newsletter
Daily Reckoning points out that in the 750 trading days
when gold's price went to $875 from $103, 1976 to1980,
the metal set new highs only one day in five, on average.
Another newsletter editor, Ian McAvity of Deliberations
on World Markets in Toronto, showed in a series of
charts that in the final two years of that gold rally, prices
of gold mining stocks barely budged and in many cases
fell. "The mining companies had had their day in the sun,
rising hundreds and hundreds of percent," McAvity says.

On Wednesday, with gold's spot price at a fresh 30-month
high, many gold mining stocks were on pause. Of the five
largest gold mining companies, only Canada's Placer
Dome Gold (PDG), which just announced a $2.5 billion
offer for Australia's AurionGold (AOR), was up before
midday Wednesday. The rest, including the world's
largest miner, Newmont of Denver (NEM), were falling
1 percent.

If Placer Dome wins its bid for the Australian gold miner,
the merger would create the world's fifth-largest gold
miner with an output of 3.5 million ounces a year. Last
year was the most active for gold mergers and
acquisitions, $10 billion worth, since the $13 billion of
1987, according to Thomson Financial. Yet there is
little enthusiasm on Wall Street for the consolidation of
the gold mining companies.

A disbelieving gold analyst, Daniel McConvey of
Goldman Sachs in New York, said many of the largest
mining stocks' strong price gains had the group too far
ahead of profit expectations. The analyst downgraded
his ratings on a number of miners, including Anglogold
of South Africa (AU) and Barrick Gold of Canada (ABX).
Weak jewelry demand will likely subdue gold's gains
for the next year, said McConvey, who did not mention
Placer Dome shares.

Still, there are signs large investors are moving into the
big gold mining companies as their market capitalizations
surpass the $5 billion and $10 billion marks. One study by showed hundreds of new positions
in the major miners' equities by fund managers as of the
March quarter.

Chris Johnson, senior quantitative analyst at Schaeffer's
Investment Research, looked at 10 gold mutual funds for
signs of net money inflow from individuals. He found the
sector is still waiting for a large shift of interest away from
ailing tech stocks and the traditional stock market.

"A big deal has been made about the current run in gold
and other precious metals," says Johnson in Cincinnati.
"As a result, there has been a huge surge in the assets
of mutual funds that focus their efforts on profiting from
such moves. According to a brief study conducted last
week, however, the mania in gold fund assets has been
due mostly to the appreciating net asset values of these
funds, not investors rushing their assets into the safe
haven they offer."

Johnson said of the $1.057 billion growth seen in 10 gold
funds from June 2001 through April 2002, approximately
$308 million came from new assets, while the rest came
from increasing fund share prices due to their positions
in gold. "The bottom line here? The mania has not been
a mania at all, which leads us to conclude that there
continues to be room for these funds to run," Johnson