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The Economist cites GATA''s gold price suppression claims
Is this gold rally for real?
Gold bugs have often been burned
By Jonathan Chevreau
Financial Post, Canada
September 14, 2001
Gold bugs must feel a bit like Charlie Brown in the long-running
scene where Lucy keeps grabbing the football just as he's
about to kick it. Gold is always poised to explode once it gets
past US$300, we're told. Then, wham, Lucy grabs the ball and
the yellow metal sags back below US$275.
In the wake of Tuesday's tragic attacks, gold took a predictable
bounce up, with stocks like Barrick Gold Corp. up almost 10
percent. But yesterday, the price of bullion had given back
most of those gains.
It's the possibility of unforeseeable events like these that
created the once popular investment axiom that investors should
put 5 to 10 percent of their portfolio in gold or precious
metals funds -- not so much as an investment but as disaster
Most investment professionals today view gold as a quot;barbarous
relic.quot; For example, Allen Clarke, chairman of Opus2Direct.com,
a fund wrap program, says, quot;I don't understand why people go
to gold during such times. This concept of owning gold is
But even if you believe gold is coming back, you should sort
out the difference between holding the actual physical bullion
or coins, and gold funds and stocks.
In the former case, you actually own something of value; in
the latter, just like other stocks and funds, you only own
paper claims on the assets.
Most gold funds own precious metals stocks, not bullion. If and
when gold finally starts to move, an amplifier effect will move
gold stocks that much faster, the believers say. If bullion
rises 10 percent, for example, the funds owning gold
exploration and mining stocks might soar 30 percent or so.
Gold funds have been rising most of the year, even before this
week. According to Morningstar.ca, topping the one-year numbers
with a 36.5 percent return to Aug. 31 is Mackenzie's Universal
Precious Metals. The three-year number is just 8.8 percent and
the five-year number a loss of 7.6 percent.
Most of the bank-owned gold funds are up 13 to 36 percent the
past year (TD's being the 36 percent)
Barclay's new iUnits Samp;P/TSE Canadian Gold exchange-traded
fund (XGD/TSE) is too new for a one-year number but is up 3
percent over the last quarter.
So the first question to ask yourself and your adviser is
whether you're buying a contrarian investment play, or
absolute insurance should the financial system be brought
to its knees by more terrorist actions.
If the latter, you may want to investigate the Millennium
Bullion Fund, which may be available in mid-October, pending
approval from the Ontario Securities Commission.
Managed by Toronto-based Bullion Management Services, the
fund will be invested one third in physical gold, one third
in silver and one third in platinum, according to president
Nick Barisheff. The actual physical precious metals will be
delivered if requested. Minimum investments may be about
$1,000, he says.
Long before the terrorist attacks, Barisheff was personally
heavily weighted in precious metals directly and through gold
stocks. He was already pessimistic about the U.S. stock
market and the U.S. dollar but believes the huge U.S. trade
deficit can't continue for much longer without a major flight
of foreign capital from the U.S. dollar to gold.
If you want to see the arguments for gold, most of them
associated with the collapse of the world economy and the
U.S. stock market, set your Web browser to
www.gold-eagle.com, and find the essays in the editorials
section. One of them is the perennial quot;Gold ready to explode?quot;
piece, which, if I'm not mistaken, has been running for several
While there, read the essay quot;The Golden Age of Paper,quot; by
long-time gold dealer Bill Haynes. He points out that after
adjusting for inflation, gold and silver are currently trading
at near record lows. That means quot;they hold little downside risk
but great upside potential.quot;
Given the vested interests at the site, it's hard to assess
their conclusions. Oh, I buy some of the arguments about
supply and demand, trade deficits, how the Fed is propping
up the U.S. stock market (not too well lately), how they
keep inflating the money supply and printing fiat currency
unbacked by anything but politicians' promises. Real assets
like gold are an anathema in such an environment.
It may not be true that the Fed, the Bank for International
Settlements, and Wall Street investment houses are involved
in some widespread conspiracy to suppress bullion's price,
as the Gold Anti-Trust Action Committee argues. But with
powerful enemies like these, why hitch your wagon to such
an ill-fated star?
Stephen Gadsden, an Aurora, Ont., financial planner, sees
an argument for some gold exposure but warns investors
not to go overboard. The better safe haven is cash or bonds.
Barisheff and others figure if bullion can break past the
US$300 level and then on to US$320, the fireworks will really
I'm not yet a gold believer personally but am tempted to move
the 5 percent position to a 10 percent one.
Lucy, come back and line up the ball one more time.