GATA opens account at E-Gold


6:10p EST Sunday, December 19, 1999

Dear Friend of GATA and Gold:

This article by Marc Faber from the November 29 issue of
Forbes magazine will interest you is more exhortation to
trade overbought tech stocks for oversold gold stocks. It
actually preceeded the similar advice from Thom Calandra
of www.CBSMarketwatch.Com, which was posted to you
last weekend and is archived at GATA message No. 311.

Of course we don't expect that everyone in the world is
going to buy a little gold, as Faber suggests. But we do
hope that gold has seen its low price for a long time.

Gold Anti-Trust Action Committee Inc.

* * *


By Marc Faber
Forbes Magazine

The world's gold mines produce about 2,600 metric tons
of gold annually, worth $30 billion. If Bill Gates,
beleaguered by Washington, is looking for an investment
with a future, he might sell his Microsoft shares and
buy two years of gold production. Here's why he would
be well-advised to switch.

A year ago the fundamentals of the gold market were
poor. Persistent selling by central banks bent on
diversifying their reserves depressed its price. But
recently European central banks stopped unloading the
metal. That led to a price surge of 20 percent from its
low, to a recent $320 per troy ounce (31 grams). This
marked one of financial history's most remarkable short
squeezes, and may be the start of a solid turnaround.

There's a strong argument to be made that, sooner or
later, we'll see a new bull market for gold.

Let us briefly consider the present fundamentals of
gold. All the gold that is above the ground -- that is,
every bit of it that has been mined since King
Solomon's reign -- amounts to 120,000 tons, worth $1.3
trillion. The gold is mainly in the form of jewelry and
coins, and bars held by central banks. Compare this to
the $1.6 trillion market value of the six largest U.S.
technology companies: Microsoft, Intel, IBM, Cisco,
Lucent, and Dell. Or to the $30 trillion value of the
global bond market. So there is comparatively little
gold around.

Still, as wealth spreads to developing nations, it's
logical that demand for gold will grow, particularly
for jewelry.

Take India, a poor country with a gross domestic
product per capita of a mere $300. In 1998 Indians
bought 800 tons of gold. That's one gram of gold per
person. Now, if everyone in the world bought just 1
gram of gold per year, it would amount to approximately
6,000 tons, or 2.5 times the annual supply of newly
mined gold. Should every man, woman, and child in the
world decide to buy 1 ounce, then the demand would be
twice as large as all the gold available outside the
central banking system.

Forget antitrust-troubled Microsoft. Gold is on the way
back as a store of value. Gold, of course, costs money
to store and insure; stocks and bonds, by contrast, pay
dividends and interest. Indeed, if companies generate
earnings in excess of the inflation rate and are
reasonably valued, then they probably will deliver over
time a higher return than gold. But companies also can
be unprofitable. And they can be savaged by inflation,
expropriation or taxation.

Similarly, bonds can default or be denominated in an
unsound currency. The sum total of credit instruments
outstanding globally is growing by about 10 percent per
year. Thus, it doubles in size every seven years and will
reach $1 quadrillion in 37 years. The global economy,
however, expands by just about 3 percent per year.
Inflation and the growing complexity of our financial
system explain part of the disparity. But another part
of the bond story is uncontrolled credit expansion,
courtesy of our central banks. This sorry condition
will lead either to far higher inflation rates or to
massive defaults. Consequently, gold will provide the
only sound currency. Do not put your faith in the
dollar, the euro, or the yen, dependent as they are on
the whims of ill-informed central bankers and

That's a longer-term consideration, though. For the
present the question is whether the new strength of
gold will last. After the recent surge it may run into
some profit-taking. Yet, despite the cherished beliefs
of short-sellers who have an outstanding short position
exceeding 4,000 tons, I very much doubt that we will
see gold prices fall below $280 ever again. We have
greater demand and we have the fading of the central
banks from the market. The downside risk is, therefore,
about 10 percent; the upside potential is unlimited.

When a market gives a strong signal by breaking out
after an extended bear run, the participants usually
can't tell at once why such a move occurs. Just the
same, the troubles of U.S. equities and the dollar have
occurred during gold's upturn. And that may be more
than a coincidence.

In the inflation-ridden 1970s, gold was a store of
value that hit $850 per ounce. And today I would rather
own half the world's available gold than all the
world's Internet companies, valued at about $500
billion and (many of them) losing money.

Thus, Bill Gates, go for it. Switch your $100 billion
into gold. By selling Microsoft, you are getting out of
a crowded trade because everybody owns tech stocks. And
by buying more than two years of annual gold supplies,
you will force the shorts out of business and drive the
price close to $1,000.