USA Today discovers the gold rush

Section:

11:22p ET Friday, May 10, 2002

Dear Friend of GATA and Gold:

The story below, published today in USA Today,
was accompanied by a chart showing the phenomenal
year-to-date performance of a dozen gold mining
company stocks.

CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.

* * *

Gold rush could signal trouble

By Matt Krantz
USA Today
May 10, 2002

Investors fed up with the gloomy stock market
may be missing a bull market that's
glittering right in front of their faces:
gold.

Even while blue chips and tech stocks are in
the dumps, the price of gold is on a tear.
Stocks of companies that mine gold, which are
closely tied to the price of gold, even hit
two-year highs this week.

But unless you're invested in gold, this
rally may actually be a reason for concern.
It could be a clue the stock market is in
more trouble than many realize, say analysts
who study the metal.

"The gold market senses a continuation of the
bear market in stocks and rising inflation,"
says John Hathaway, portfolio manager at
Tocqueville Asset Management. "Nothing else
is working."

When investors start buying gold, they're
bracing for trouble. They're essentially
turning away from the stock market and saying
they'd rather protect the assets they have
than risk losing more.

Unfortunately for non-gold investors,
everything that's propelling gold is likely
to be bad for non-gold stocks, says Mark
Johnson, manager of the USAA Precious Metals
and Minerals fund. Rising oil prices, fears
of inflation, and concerns about Middle East
unrest all go into a stew of things that
boost gold, he says.

Most important, the weakening U.S. dollar is
causing nervous investors to buy gold for
safety.

Whatever the reason, the gold rally is
getting harder to ignore. Gold stocks have
risen 44% this year and 88% from the bottom
on Nov. 17, 2000, as measured by the
Philadelphia Stock Exchange Gold and Silver
index. Compare that with the Standard &
Poor's 500, which is down 7% this year and
down 22% since Nov. 17, 2000.

If the dollar continues to struggle, gold
could run more, Johnson says. Also, if the
Federal Reserve overstimulates the economy by
keeping interest rates too low, too long,
"gold will like that," says Bill Martin,
manager of the American Century Global Gold
fund.

Gold experts say that the revival of bullion
has deeper meanings for all investors because
it shows anxiety about the U.S. economy and
stock market is rising. Investors buying gold
are betting that problems such as rising oil
prices and terrorism are being
underestimated, Johnson says.

Others say gold is climbing as investors get
more skeptical that the economy will recover
this year as has been expected. James Dines,
a longtime gold bull and editor of The Dines
Letter, even calls reports of an economic
recovery in the first quarter "a complete
fraud."

Gold's performance is a warning that the
market is not safe yet, says Bernie Schaeffer
of Schaeffer's Investment Research. "A
prudent investor would look for ways to
survive if the world remains an unfriendly
place," he says.

Questions remain about how weak the dollar
will become. Typically, gold does best when
investors are worried about the dollar losing
value. This occurs when the Federal Reserve
tries too hard to jump-start the economy by
keeping interest rates low or by boosting the
money supply.

So far there are few signs of inflation. But
gold bugs think that could quickly change,
and they'd rather lock their money into a
hard asset like gold, Hathaway says.

Investors are fed up with losing money by
trying to make money. That's why being
defensive is paying off, Dines says. "People
who were overinvested in the market are
seeing their portfolios melt away," he says.

Both Dines and Schaeffer say gold could
continue to rally until investors completely
give up on big-cap and tech stocks that were
the craze during the '90s boom.

So should you buy gold? Not necessarily. For
one thing, if the dollar stabilizes, the gold
rally could peter out, Johnson says. Also, if
gold continues to soar, companies can tap new
mines and flood gold onto the market, which
could bring prices back down.

Some of the factors that propelled gold, such
as a rush of Japanese investors to buy the
metal because their government is reducing
insurance on savings accounts, could be
short-lived.

But gold has suckered investors before. Gold
and gold stocks cratered during 2000, for
instance, because of foreign banks
rejiggering their reserves.

Gold fans, though, say this time is
different. "People have never seen a bear
market," Dines says. "It's a bull market for
gold."