Special offer for GATA supporters from Struthers'' Resource Stock Report


Tuesday, September 24, 2002


Would an electronic substitute for physically
owning gold boost demand for the metal in
times of fiscal turmoil?

The World Gold Council, a bullion trade
group, acknowledges it's working on a new
investment vehicle for gold but offers few
details. Experts at a New York bullion
conference say they expect such a security,
probably in the form of an exchange-traded
fund that is listed on the New York Stock
Exchange, in coming months.

"I think Chris Thompson's product will make a
big difference," said Rick Rule, chief
executive of Global Resource Investments.
Thompson is the new chairman of the gold
council, whose charter is to increase
investment demand for gold. "If it's backed
by the gold council and there is a big,
recognizable gold depository involved, it
will be a big success."

Thompson, the executive who helped turn South
Africa's Gold Fields Ltd. (GFI) into one of
the world's largest gold producers, this
summer brought on James E. Burton, former
chief executive of the California Public
Employees Retirement System, as its new CEO.

For now, individual investors worried about a
financial meltdown have few alternatives to
buying bullion bars, coins and jewelry. They
can buy a closed-end fund, Central Fund of
Canada (CEF) that holds gold and silver in
storage. There also are some small, preferred
company stocks that act as loose proxies for
gold and silver.

In addition, hedge funds and mutual funds can
buy structured finance notes that represent
gold, with a minimum commitment of $5
million. A number of banks, including HSBC,
Deutsche Bank, and others, also offer gold-
denominated bonds sponsored by the World Gold

"Anything that creates demand for gold is
good," John C. Doody, editor of Gold Stock
Analyst, said at the New York Institutional
Gold Conference on Tuesday. The spot price of
gold rose $4 an ounce Tuesday morning,
surpassing the $325 level seen as a critical
area of resistance.

Doody said he expects gold, which has
benefited from the relentless decline of
equities, and war fears, to reach $450 an
ounce in the next two years, in part because
of investment demand for the metal. Miners'
output of the metal is seen falling about 3
percent this year, the largest drop since
1976 and a bullish sign for gold.

Gold enthusiasts long have floated the notion
of an exchange-traded fund for gold, a bulky
commodity that requires insurance and storage
fees. Exchange-traded funds, such as the
Nasdaq 100 Trust (QQQ), have swelled in
popularity because of minimal fees and the
flexibility to trade baskets of stocks real
time on an exchange.

Exchange-traded funds now are available for
fixed-income products, via Barclays Global
Investors, the creator of iShare funds
(http://www.ishares.com/) that track baskets
of securities. The bond exchange-traded funds
(TLT), representing U.S. Treasury bonds, have
risen sharply since their July debut as
investors flock to the safety to government

Treasury bonds and gold are among the best
investment classes this year and for the past
12 months, along with certain other
commodities, including soybeans, corn, and
wheat. Gold's price is up 18 percent this
year, as is platinum, another precious metal.

In the gold industry, there is growing
anticipation of the day when gold is
available as a tradeable stock. No commodity
is yet represented by an exchange-traded fund
in the United States. The Securities Exchange
Commission and possibly the Commodity Futures
Trading Commission would have to approve such
an exchange-traded fund, which almost
certainly will require real-time arbitrage of
prices and day-end storage of gold in audited

"Let's face it: Safe-deposit boxes aren't
cheap when you are talking about 400-ounce
bars," said James Turk, chief executive of
GoldMoney.com. Via the Internet,
www.goldmoney.com (http://www.goldmoney.com/)
gives depositors electronic accounts and a
secure payment system based on physical grams
of gold deposited in an actual vault.

Turk and others in the gold industry say they
expect gold prices to rise sharply as
investors begin to consider the metal as a
substitute for currencies. Several gold
miners are considering issuing their
dividends in gold grams, among them Iamgold
(IMG), a small, profitable Canadian producer.

"At the end of the day, investors will find
they need to own physical gold, which is
extraordinarily difficult to do," said Eric
Sprott of $1.2 billion (Canadian) Sprott
Asset Management in Toronto. Sprott said his
clients have a strong desire to own gold. He
owns 19 percent of Central Fund, which holds
about $140 million worth of gold and silver
and trades at a premium to bullion prices.

"The world's faith in managed currencies is a
source of amazement," said James Grant,
editor of Grant's Interest Rate Observer.
"Gold will have its day as people confront
the immense over-investment of faith they
have in dollars, yen and so on."