Co-sponsors of Monetary Reform and Accountability Act are easily re-elected


Gold's gains linked to dropping dollar;
Bullion bounces as elections, interest rates take toll

By Thom Calandra, Editor
Tuesday, November 5, 2002

What's wrong with this picture? Gold -- along with the
shares of the companies that mine it -- is rising even
as the overall stock market stages an autumn rally.

More often than not, gold-related investments fall when
the broader market shines because they represent
low confidence in the financial system. This time, a
sliding dollar is assisting gold in its gains, against
the improbable backdrop of rallying U.S. stocks.

In the past five days, the Philadelphia Gold & Silver
Index (XAU) has gained 6 percent vs. a 3 percent gain
for the Standard & Poor's 500 Index (SPX), which
represents the overall market.

Gold's underlying spot price, meanwhile, has risen 2
percent in the past 10 days, flirting with $320 an ounce.
Today, the euro, resuming a 10-month comeback, was
quoted at more than $1, the European currency's first
time at that level since late July.

Gold is nearly always the antithesis of the stock market.
In the almost six-month rough patch for stocks that began
in mid-May and ran through early October, gold's value
held steady as the stock market declined 26 percent.

Gold's role as the market's polar opposite doesn't always
play out.

Andy Smith, precious metals analyst at Mitsui Global
in London, tells me that in the 300 working days that
followed Sept 10, 2001, the Dow Jones Industrial Average
(INDU) has risen 137 days. On those days, the Philly Gold
Index rose 59 days, and the Amex Gold Bugs Index
(HUI) of mining shares gained 57 days. Gold itself, as
measured by the afternoon London fixing price, gained
on 55 of those days.

"So about 40 percent of Wall Street up days since Sept.
10, 2001, saw a rise in gold shares or bullion," says Smith,
one of the most respected precious metal analysts.

James Turk, founder of electronic payments system and a longtime gold analyst and
newsletter editor, sees the seeds of a lasting gold rally
in the works.

"More important is gold's relationship to the dollar," Turk
said today. "Normally a lower dollar means higher gold
prices, which explains what is happening now. It also
explains why the potential for gold looks so bullish here.
The dollar is exceptionally weak."

Turk says the dollar index, an indicator of the greenback's
performance against a basket of other currencies, dropped
14 percent from January to July. He noted that the index has
been unable to recoup more than a third of those losses in
the past three months. "That's worse than a dead-cat bounce
in the dollar. It also portends a major new slide in the dollar.
That is bullish for gold," he says.

The dollar this year is suffering from a record U.S. trade
deficit. The currency's weakness this week reflects a looming
reduction in interest rates. U.S. Federal Reserve policy
makers will meet Wednesday to consider easing rates to
shore up the nation's wavering economy.

Today's U.S. elections are also a factor in the dollar's
early November decline. Many races are too close to call.
An evenly divided House and Senate could produce
legislative gridlock. Gains by Republicans, who largely
favor military action against Iraq, could add to the
government's deficit spending.

Brien Lundin, editor of the 31-year-old Gold Newsletter,
said today he expects gold's spot price to challenge
the $325-an-ounce level soon. Lundin says gold gets
help from concerns about the Israel-Palestinian conflict,
the Russia-Chechnya struggle, a standoff between
nuclear-armed India and Pakistan, and "other hot spots"

"You see that we are living in one of the more frightening
periods since American gold ownership was legalized in
1974," says Lundin, who this week is staging the
gold-related New Orleans Investment Conference

At the heart of the pro-gold arguments is a belief that
U.S. and international stock market investors have
stepped into dangerous territory by sending equity
indexes up 12 percent in the space of a month.

"Gold stocks are moving upwards because the dollar,
which has in recent times moved consistently in tandem
with the U.S. equity markets, failed to do so this time,"
says Frank Giustra, chairman of Endeavour Financial,
a merchant bank that specializes in mining companies.

"Perhaps foreigners are starting to catch on that the
current frenzy to buy stocks, like all the rallies since the
bubble burst in 2000,will have the long-term appeal of a
pet rock," Giustra told me today from his office in

Giustra says dollar investors, in their belief the U.S.
economy can avoid a steep descent in the economy,
have lived in a state of denial for several years.

"The dollar, until now, has held up against incredible
odds, including record current account deficits,
exploding budget deficits, a vicious bear market in
stocks, and an economy poised to double-dip," he said.
"The dollar downward trend is very much in tact, and as
history has shown, when the dollar falls, gold rises."

Barry Cooper, a gold equities analyst at CIBC World
Markets in Toronto, says the relationship between
gold and the dollar is usually one of opposites. "There
is not always an inverse relationship, although I would
argue that lately the movements between bullion and
the dollar have been very strongly correlated on the
negative side," Cooper said today.

The spot price of gold this morning rose as high as
$321.50 from a $317.50 low. The metal started the year
at $278.70 an ounce. The euro was rising 0.5 percent
against the dollar today to $1.0016. U.S. gold mining
shares were little changed.