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Gold-Backed Shares Considered for U.S., South Africa

By Tom Locke
Dow Jones Business News
Wednesday April 16, 3:57 pm ET
http://biz.yahoo.com/djus/030416/1557001272_1.html

DENVER -- The World Gold Council, which helped launch trading
in shares backed by gold bullion in Australia last month, is
now exploring the possibility of trading in similar gold-backed
shares in the United States and possibly in South Africa.

Chris Thompson, chairman of the council and of South African
gold producer Gold Fields Ltd. , wouldn't discuss the proposal
or what entity is involved, but he said that the idea is "under
review" by the Securities and Exchange Commission.

Trading of gold-backed shares in additional countries could
broaden the group of investors interested in gold, raise
demand, and help the gold price, observers said. The
bullion-based shares are designed to make it easier to
invest in gold, which may be especially appealing to
those who see gold as a portfolio risk- stabilizer, since
it tends to move contrary to equities.

The council, a London-based trade and promotional
organization for gold producers, supported the launch
of the Australian shares, which are listed by Gold
Bullion Ltd. (A.GOLD). But there is no formal registration
with the SEC on behalf of the World Gold Council, said
George Milling-Stanley, a director for the Americas with
the World Gold Council. In addition, there have been no
formal SEC filings by companies connected to the
council, Milling-Stanley said.

The words "under review" are typically used after a
document has been formally filed and made publicly
available, with the SEC staff looking at both the narrative
and the financials to see if it complies with SEC rules,
said SEC spokesman John Heine.

But there are instances in which a company may
provide a description of what it is trying to do and how
it might fit within SEC rules, in which case the SEC
might issue a "no-action letter" regarding the proposal.
And there can be informal letters to the staff. In those
scenarios, Mr. Heine said, there is no way of checking
on what might be in progress.

The mining industry online publication, Mineweb.com,
reported that a submission tied to the gold council
was made with the SEC in November.

Australian Gold Bullion Could Be Model for U.S.

Any U.S. push would be part of a broad effort by the
council to enable gold- bullion-backed shares to be
traded throughout the world on a 24-hour basis.

"We are considering something in South Africa," said
Mr. Thompson. "Whether that takes root or not, we'll
know in the next couple of weeks."

Gold Bullion Chief Executive Graham Tuckwell wouldn't
comment specifically on prospects for share listings in
the United States or South Africa, but he said the council
wants trading on enough exchanges to ensure 24-hour
availability.

Mr. Tuckwell expects Gold Bullion Ltd. to eventually be
listed on stock exchanges in other countries besides
Australia -- he is considering a proposal for a listing in
Europe -- but he doesn't foresee his company being
listed in the United States.

"The best way to tap the U.S. market would be to have
a U.S. vehicle," he said.

Mr. Tuckwell expects more than one vehicle for trading,
with each vehicle probably listed on more than one
exchange.

"I believe that it will be the World Gold Council vehicle,
or vehicles, that will be the cornerstone of the investments,"
he said, "but how that's done over time, I don't know."

One bullion-backed security not tied to the World Gold
Council is expected to be launched by Gold Corp., the
operator of the Perth Mint, on the Australian Stock
Exchange later this month. Each Perth Mint call warrant
entitles the owner to acquire one-hundredth of an ounce
of gold prior to 2013.

But that Perth Mint development appears to be more local
in scope than the World Gold Council's efforts.

Gold Bullion's activity in Australia will serve as a test for
other markets, said Mr. Thompson.

About $500,000 worth of Gold Bullion shares are trading
each day, Mr. Tuckwell said. That amount is building,
but still doesn't reflect the potential trading volume, he
said. The trading so far is all from retail investors, he said,
because of the way the product was launched.

The company had a press conference March 27 and its
bullion shares started trading on the Australian exchange
March 28. Gold Bullion didn't have the typical four- to
six-week selling period to institutions that is typical before
shares are listed, he said. So it is now going through
that selling period.

Mr. Tuckwell said he is already had unsolicited inquiries
about investments of $10 million to $30 million from
institutions, and the company has received thousands of
hits from the U.S. to its Web site. U.S. retail investors
aren't allowed to buy the shares, but U.S. qualified
investment buyers may be permitted to do so.

Share Represents Tenth Of An Ounce Of Gold

Gold Bullion shares can be bought through the Australian
Stock Exchange or outside the exchange, directly through
Gold Bullion and the trustee, Gold Bullion Nominees Pty.
Ltd. The holder of a share holds both a Gold Bullion
security and a beneficial interest in one-tenth of an ounce
of gold, held by custodian bank HSBC Bank USA in
London vaults.

"This is basically an ETF (exchange-traded fund) in gold,"
Mr. Tuckwell said, with open-ended creation or redemption
of shares.

An investor could buy $50 million in shares straight from
the company and trustee, and could also sell his position
outside the exchange. He would simply present the shares
for redemption and, depending on what he wants, receive
either gold from the vaults in London or cash. If he wants
cash, the trustee would sell the gold on the London
over-the-counter gold market to get it, Mr. Tuckwell said.
So the liquidity of the gold-bullion shares is far greater
than the trading volume on the Australian exchange
would indicate.

"I'm absolutely certain that there will be at least a billion
dollars in this thing within 12 months of the listing," Mr.
Tuckwell said. That compares with $3 million to $4 million
in the trust today, he said.

Big institutions "can create huge demand that would
obviously have a price impact" on gold," said Mr. Tuckwell.

Doug Hock, spokesman for gold-producing behemoth
Newmont Mining Corp. (NEM), said of the bullion shares,
"It's something we see as very positive. Anything that
helps promote investment in gold is something we see
as very positive for Newmont and for our product."

"I think it'll broaden investment," Mr. Hock said.