Wall Street senses funny business with gold


Strategists counter market optimists
They advise watching yields, gold, Brazil, and banks

By Thom Calandra
November 6, 2002

"If you don't know who you are," Wall Street author and
trader George Goodman once said, "the stock market is
an expensive place to find out."

Not everyone has an identity crisis. Some strategists,
fund managers and investors know exactly who they are
and where they think financial markets are headed. Their
views counter the widespread belief that the U.S. economy,
and with it the stock market, is on solid ground.

John Hathaway, manager of gold fund Tocqueville Asset
Management (TGLDX): "The worst bear market in 25 years,
corporate scandals, accounting heresy, and all too evident
geopolitical risks have caused only a modest rise in the gold
price. This sort of skepticism is reassuring and supports our
expectation that significantly higher gold prices lie ahead.
The core safety nets that have absorbed the tide of risk-averse
capital instead of gold are government bonds, real estate
mortgages, and credit derivatives. Pay careful attention to
yield spreads, the share prices of money-center banks,
particularly large derivative players such as J.P. Morgan
Chase, the trade-weighted dollar index, the share prices of
Fannie Mae and Freddie Mac, the share prices of mortgage
insurers ... and the shape of the yield curve."

Tom Taulli, author of "StreetSmart Guide to Short Selling"
(McGraw Hill): "I couldn't believe my eyes. A money-losing
tech IPO was filed today." Earlier this week, InPhonic, a
provider of wireless voice and data communication software,
filed to raise $90 million. The company lost $496,000 on
revenue of $41.1 million in the first six months of the year.

Bill Murphy, chairman of the Gold Antitrust Action Committee:
"Central bank gold loans and swaps are around 14,000 tons,
mine supply is 2,500 tons and headed lower, and a yearly
supply/demand deficit is running approximately at 14,000 tons.
Pile a mountain of gold derivatives on top of that and you a
gold price explosion that is just waiting to happen. The
$330-an-ounce gold price is the key. Take that out and gold
will erupt like a volcano."

Jim Dines, editor of The Dines Letter: "The economic news
has been dreadful, the real-estate bubble remains unresolved,
the economies of Germany and Japan continue to deteriorate,
counter-trend golds are in uptrends, Turkey has elected an
Islamist government while Brazil is now governed by a leftist,

Israel's deep split in its electorate has finally resulted in a
break-up and a combination of hardliners Sharon with Netanyahu
guaranteeing more terrorism. On top of all that, the market is
extremely overbought. Despite this, the surprise victory for
Microsoft in its anti-trust case triggered a buying stampede.
The crucial question is whether or not this is an ordinary
year-end rally or the beginning of a new bull market. We need
to see more."

Robert Bishop of Gold Mining Stock Report: "I continue to be
amazed at the lack of conviction that some have about where
we stand in the current gold cycle. Despite closing in on the
third year in a row with gold having advanced, while virtually
everything else has declined, there exists a tentativeness
that does not lend itself to the reflexive embrace of lower
prices. Two decades of decline will understandably lead to
such a loss of confidence, and it's clear that only much
higher gold prices will make certain buyers of today's
uncertain fence-sitters."

James Tu, director of investment research at Gerstein
Fisher & Associates: "Inflation is a sure phenomenon in
a paper currency system. So commodities should be part
of a diversified portfolio. The optimal allocation to commodities
is between 10 percent and 15 percent, but it is too bold an
idea for many people to accept. Goldman Sachs now keeps
5 percent in commodities in its overall allocation. We continue
to advocate the merits of commodities and precious metals.
In our model, we separate them into two classes because of
some distinct, monetary properties gold and silver possess.
We have done extensive research and data mining and found
that the Goldman Sachs Commodity Index returned over 3
percent better than the S&P 500 Index in the past 30 years,
which was one of the best periods in stock market history."

Steve Hochberg, chief market analyst at Elliott Wave
International: "I don't know off the top of my head of any
instance of a lasting market turn without new leadership.
The one thing we are highly confident about is that what is
occurring now (the October-November stock-market rally) is
not a lasting market turn. It is a bear market rally, like so
many that we have experienced since the March 2000 peak."

Steve Hochberg, Robert Bishop, Bill Murphy, and 40 other
counter-trend strategists will speak this week at the
New Orleans Investment Conference.