Much more than a bull market in gold


11:15a Saturday, October 23, 1999

Dear Friend of GATA and Gold:

Here's a Bloomberg dispatch about the Denver Gold
Group conference, elaborating on what I conveyed to
you last night.

Please post this as seems useful.

Gold Anti-Trust Action Committee Inc.

* * *

Gold Conference Sounds Cautious Note
as Hedging Draws Scrutiny

DENVER, Oct. 23 (Bloomberg) -- Investors at this week's
annual gold conference in Denver weren't as euphoric as
the metal's recent price surge would suggest.

Instead of celebrating the past month's 13 percent
gain, gold executives and their shareholders were
nervously fixated on hedging contracts, which companies
use to try to protect themselves against erratic price

Hedging programs were called into question this month
after rising gold prices -- usually good news for
producers -- sent shares of Canada's Cambior Inc. and
Ghana's Ashanti Goldfields Co. reeling. Both companies
entered into contracts betting prices wouldn't rise in
the months ahead, and their stocks got hit when they

"I have a better understanding of this whole hedge
book issue, and it's going to help me restructure my
portfolio," said Gil Atzmon, portfolio manager at U.S.
Global Investors Inc., a San Antonio-based mutual-fund
company that has US$140 million invested in gold and
gold equities.

After most presentations at the conference, whose
attendees included AngloGold Ltd., the biggest
producer, and Barrick Gold Corp., ranked No. 4,
investors buttonholed managers to ask about one thing:
hedging. It's an aspect of their business some
companies often don't fully disclose.

Some investors, newly enlightened about the risks of
hedging, said they favor producers that do little or
none of it. Companies that hedged usually do so by
arranging to lock in at least some of their sales at a
fixed price.

"I will increase my exposure in companies that have
more exposure to a rising gold price and decrease in
those that have given up that exposure by
overhedging," said Atzmon.

Companies are responding to higher gold prices in a
variety of ways. Some, such as Echo Bay Mines Ltd. of
Englewood, Colorado, and Johannesburg-based Gold Fields
Ltd., said they're reducing their hedge positions.
Battle Mountain Gold Co. plans to hedge more.

Others, such as Franco-Nevada Mining Corp. and Goldcorp
Ltd., aren't hedged at all and have no plans to start.
Cambior said in its presentation that it's looking for
partners and considering selling its base-metals
business to boost shareholder value. Ashanti didn't
attend at the conference.

Gold prices soared after Sept. 26, when 15 central
banks said they will limit gold sales for the next five
years. Gold company executives aren't cracking open
the champagne yet.

Many companies that gave presentations this week are
still calculating their reserves at US$300 an ounce --
below the current price of US$303.

Investors are also skittish about where gold is headed.
Mark Johnson, fund manager for the US$100 million USAA
Gold Fund based in San Antonio, said that investors had
taken about US$4 million out of his fund in the
previous two weeks, a period during which it rose 29.3
percent, lifting it to a 21.7 percent gain this year.
His was the top-performing gold fund last year.

"People closest to the market are totally skeptical"
about gold's rise, said Peter Palmedo, who runs the
US$100 million Sun Valley Gold Funds in Sun Valley,
Idaho. Still, he expects gold to go to US$375 an ounce
by the end of this year.

Hedging concerns aside, interest in gold stocks has
surged in recent weeks. The conference was a sell-out,
drawing 400 people, about half of whom are investors
and analysts, said forum director Michele Ashby.

"A set group of gold investors always attend, but the
generalists don't normally come," she said. "That's
new blood for us."

Ashby, who has directed the conference since 1989, is
aware of how fickle gold's popularity can be. "We went
from being the metal that people hated to the best
performer on the Street," she said. Investors
"wouldn't have come when gold was at US$250 (an
ounce), but we've been getting calls from some people
we'd never heard from, and some who we've been mailing
invitations to for years."

Gold now trades 7 percent below its 52-week high of
US$326 an ounce reached on Oct. 6.