Kinross to merge with Echo Bay and TVX Gold


Bugged by gold: A simmering debate on the
economics of gold has taken a turn

Miami Herald
June 9, 2002

As Gold Fields Ltd. moved up in the world
last month -- debuting on the Big Board --
the South African mining company tapped anti-
apartheid crusader Nelson Mandela to help
ring in what they hope is a new era in the
world of gold.

Once the source of the riches of kings, in
recent years gold had ceded its spot as a
financial hedge in troubled times to the
mighty dollar and bubbling Nasdaq. Those
championing gold were not the go-go traders
on Wall Street but more like Mandela,
partisans fighting a long, uphill battle to
shine the spotlight on the precious metal.

Enter the Gold Anti-Trust Action Committee, a
group of financial advisors and gold market
participants, who have waged a three-year
effort to prove that the unusually low gold
prices since 1995 were not the result of
market forces, but instead the product of
price rigging that included governments and
big commercial banks.

The charges are hotly denied by those
involved and dismissed by other analysts as
the stuff of conspiracy theorists.

GATA, as the group is known, lost a round
when a lawsuit against the Bank of
International Settlements -- the central bank
of central banks -- several Treasury and
Federal Reserve officials, and a number of
commercial banks was dismissed in late March
by U.S. District Judge Reginald Lindsay in

"This case involves allegations of `an unholy
alliance of high public officials' and 'large
bullion banks,'" Lindsay wrote. But he
dismissed the suit on the grounds that
Reginald H. Howe, the attorney who filed the
GATA-supported complaint in December 2000,
lacked antitrust standing and that Treasury
and Fed officials had qualified immunity.

GATA has gained supporters and exposure on
the Internet as well as mining, monetary and
investment circles, where its chairman,
former Miami entrepreneur turned financial
analyst Bill Murphy, gives speeches.

Suddenly gold and the falling dollar have
become hot issues -- talk for Main Street and
not just Wall Street.

To the delight of gold partisans, gold prices
are on the rise. The precious metal, which
hit a low of $252 an ounce in July 1999, has
risen by 20 percent since Jan. 2, closing at
$325.40 on Friday. Share prices in mining
companies and gold funds have soared: an 81
percent jump in the Tocqueville Gold Fund and
a fivefold increase in Durban Rooderpoort
Deep's share price so far this year.

As a corollary to the rise in gold, the
dollar has fallen, losing 7 percent against
the currencies of its major trading partners
this year. The dollar index closed at 111.58
on Friday, still overvalued against other
major currencies since 100 is considered par,
but down from former highs of 120.

Chief among those celebrating are companies
like Gold Fields, which brought the 83-year-
old Mandela to New York to ring the opening
bell on May 9, the day the stock moved from
the Nasdaq to the New York Stock Exchange.

"We believe the gold price was very
undervalued. The dollar is overvalued," said
Cheryl Martin, vice president of North
American investor relations for Gold Fields,
which has headquarters in Johannesburg, South

Martin said the company does not comment on
"the conspiracy theories" in the market.

Unusual behavior

But few dispute that the gold market has
behaved abnormally for several years.
Historically gold rises when interest rates
go down, and vice versa. For seven years or
so, it has dropped along with the Fed rates.

The explanation given by many Wall Street
analysts is that gold is a monetary relic and
simply stopped being the haven worried
investors ran to as protection against price
inflation and political and economic

The listless gold price became a tenet of the
New Economy, which said that inflation was a
problem of the past, and the strong dollar
and rising stock market offered higher
returns than a piece of metal better suited
to jewelry.

The Howe lawsuit claims the low gold price
stemmed from the practice by some central
banks of leasing gold to commercial banks at
low rates (around 1 percent), which then sold
the borrowed gold and invested the proceeds.

Mining companies, faced with declining
prices, sold future gold production on the
forward market to hedge against a price drop.
They used leased gold to make up the short
fall, flooding the market and driving down
the price further.

But such hedging becomes risky when the
market turns, as it appears to have now, and
companies or banks are forced to buy gold at
a higher price to fill contracts -- cover
their shorts -- at a lower price. The Office
of the Comptroller of the Currency reports
that commercial banks and trusts held $63.3
billion in gold derivatives on their books as
of Dec. 31, with two-thirds of this amount on
the books at JP Morgan Chase.

The big banks deny there is evidence of such
a pricing scheme.

"There is no basis to infer the existence of
a conspiracy to fix gold prices from the
simplified statistics alleged by the
complaint," said a court filing by
Citigroup, one of the banks named in the

The lawsuit alleged the gold price was
manipulated to keep interest rates low and
the dollar strong.

Attracted to stocks

This attracted international funds to the
United States, where the money poured into
the stock market, not only fueling the boom
but also financing the ever widening trade
deficit and allowing Americans to live beyond
their means.

"We're saying part of the strong dollar
policy was to rig the gold price," said
Murphy, who lived in Miami from 1993 to 1996.

"They (government officials) wanted to have
a strong dollar to get people to invest in
the United States, to keep Wall Street strong
and to keep the interest rates here lower
than they would be," Murphy said.

Many on Wall Street disagree that gold prices
are unusually low. Analyst Daniel McConvey of
Goldman Sachs issued a report to clients last
week predicting gold prices would not rise
over $324 levels because the demand for gold
jewelry was weak.

Some financial experts say they are intrigued
by the lawsuit, but not totally convinced.

"It's undeniable that gold had strange price
movements during its period of sub-$275
weakness," said Walker Todd, a monetary
expert who formerly served with the Federal
Reserve Bank of Cleveland.

"Every time during that period when gold
seemed to make a move above $275 along came
massive moves with selling into the market to
bring down the price," Todd said.

"Did the government intervene in the market
along the way?" Todd said. "It has not been
proven to a certainty but the plaintiffs have
some interesting evidence."

GATA argues that governments admitted they
regulate the gold market with the
"Washington Agreement" in September 1999,
when central bankers announced they would
limit the amount of gold leased to 400 tons a

The Federal Reserve and the Treasury have
insisted that the United States does not
lease or sell its gold reserves, the largest
in the world, and this has been one of the
government's chief defenses against the

But Murphy insisted that the gold industry is
finding it harder to dismiss their charges as
wild claims.

"Over three years, not one person in the
gold industry has analyzed our evidence and
said we are wrong," Murphy said. "Yes, they
say that `it is conspiracy' and `you are
nuts.' But one of the big gold companies
donated $70,000 to GATA. You don't donate
that kind of money to conspiracy nuts."



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Centennial Precious Metals
3033 East 1st Ave.
Suite 403
Denver, Colorado 80206
Michael Kosares, Proprietor
US (800) 869-5115
Canada 1-800-294-9462
European Union 00-800-2760-2760
Australia 0011-800-2760-2760

Colorado Gold
222 South 5th St.
Montrose, Colorado 81401
Don Stott, Proprietor

Investment Rarities Inc.
7850 Metro Parkway
Minneapolis, Minnesota 55425
Greg Westgaard, Sales Manager
1-800-328-1860, Ext. 8889

Lee Certified Coins
P.O. Box 1045
454 Daniel Webster Highway
Merrimack, New Hampshire 03054
Ed Lee, Proprietor

Miles Frankl Ltd.
3601 Park Center Building
Suite 120
St. Louis Park, Minn. 55416
1-800-822-8080 / 952-929-1129
fax: 952-925-0143
Contacts: David Schectman,
Andy Schectman, and Bob Sichel

Resource Consultants Inc.
6139 South Rural Road
Suite 103
Tempe, Arizona 85283-2929
Pat Gorman, Proprietor
1-800-494-4149, 480-820-5877

Swiss America Trading Corp.
15018 North Tatum Blvd.
Phoenix, Arizona 85032
Dr. Fred I. Goldstein, Senior Broker



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