Reg Howe''s presentation to the Association of Mining Analysts in London


By Thom Calandra
Friday, May 31, 2002

As Nasdaq fends off its September lows, economists, analysts,
and technicians are pointing to the storm signals of rising gold
prices and the falling dollar.

The dollar's fall -- down about 7 percent this year against the
currencies of America's biggest trading partners -- is increasingly
linked with gold's relentless gains.

Barry Cooper, a gold equities analyst at CIBC World Markets
in Toronto, just raised his gold price forecast to $350 an ounce
for 2003. Cooper's higher price guess comes about a day
after an analyst at Goldman Sachs Group said gold's price
would be challenged to stage gains above $324, given weak
jewelry demand in Asia. See the CBS MarketWatch story.

It takes two to make a market," says Cooper, who signs off his
reports and his voice mails with "Have a golden day." "The
beauty is one of us will be proven right," he told me Friday

Cooper uses the dollar as the driver for gold, which Friday
morning was rising $2 to $326.80 an ounce. In a fresh report
Friday, he says each 1 percent move higher for the euro
against the dollar will translate into a 1 percent move higher
for gold. If the euro, at 94 cents for the first time in 16 months,
reaches $1, gold, reflecting a worldwide retreat from
American assets, will move to $345 an ounce. And that
will lead to a 25 percent gain in the prices of gold mining
stocks, one of the few strong gainers in the stock market
this year.

The euro has gained 8 percent vs. the dollar since April 1
while gold has risen 7.5 percent in the same span. "The
fundamentals are in place for sustained rally in bullion,"
Cooper says. "Included in these positive factors are
weakness in the U.S. dollar, reduced hedging, a
terrorism premium, investment demand increasing,
market uncertainty, lower mine production, and poor
reserve-replacement capabilities following a five-year
culling of exploration."

Mainstream economists, those on Wall Street, are
becoming resigned to a fall for the dollar, but few are
linking a dollar fall directly with gold's rise. Stephen
Roach at Morgan Stanley, for example, was one of the
first to point to the growing red ink in the current account,
which could surpass 4 percent of America's gross
domestic product in coming quarters and scare
overseas investors. Roach said the implications for
returns on U.S. assets, like stocks and bonds, is

Just this week, Bill Dudley at Goldman Sachs Group
told the firm's clients, "A sharp dollar slide appears
almost inevitable at some point. The imbalances are
too large and are growing too fast to be unwound
smoothly." Dudley gave the textbook approach to a
dollar decline: inflation for American consumers as
overseas goods become more expensive, rising
government bond market yields, and a nasty spiral
for the stock market.

Dudley estimates the current account deficit, which is
basically America's real-time ledger of trade and
money flows with the rest of the world, will reach 4
percent of economic output by December and 5
percent toward the end of next year.

"The 1985-87 experience is a case in point," Dudley
wrote this week. "Although the dollar peaked in 1985,
the nominal trade balance did not begin to narrow
until the summer of 1987, more than two years later.
Bond yields rose very sharply in the days leading up
to the Oct. 19 stock market crash. The dollar decline
was, in fact, the proximate cause for that stock market

As for gold, bullion prices are generally seen as a
leading indicator of accelerating inflation, especially
in basic commodities. So far this year, that seems to
be holding up. The Commodity Research
Bureau/Bridge Index of 18 commodities (agriculture,
energy, metals) is up about 5 percent since Jan. 2 vs.
a 21 percent gain for gold. Silver prices -- the poor
man's gold -- are up about 12 percent this year.

John Hathaway at Tocqueville Gold Fund in New York
says besides the weak dollar contributing to further
gold gains, the metal also will benefit from less selling
by gold producers that during gold's bad years tried
to squeeze extra income through derivative-based
forward sales of bullion. These practices, advocated
by Barrick Gold (ABX), Placer Dome (PDG), Anglogold
(AU), and others essentially added to the supply of
gold sales and lending in the world of big banks.

In addition, Hathaway says central banks around the
world almost certainly are looking over their shoulder
at the falling dollar, and America's weak stock market.
Central banks have liquidated hundreds of tons of the
metal in recent years as they strove to put more paper
in their vaults and less bullion.

"Central bankers are only human," Hathaway told his
Tocqueville shareholders this week. "Once, they were
only to happy to pile on to the downtrend in the dollar
gold price by outright selling and lending of gold reserves
in order to accumulate more paper assets. Now, they find
themselves in the position where their principal reserve
asset, the U.S. dollar, representing 76 percent of world
central bank reserves, is declining in value against the
gold they were dumping as well as their holdings of
other paper currencies. What they are loaded with is
their worst asset."

Sounds like gold may be a worst nightmare for central
banks, hedged gold miners, and the stock market.
Hathaway's shareholders, meanwhile, are happy. His
$88 million Tocqueville fund (TGLDX) is up 88 percent
this year.