Forum Archive Index - February 2002

[Des J McDonnell <desmondo@labyrinth.net.au>]

The article in Toronto’s GlobeAnd Mail attached may be of interest. It
confirms that the left establishment is desperate to suppress interest
in gold. If gold goes, and it will, because the inflation and
money-print are no free lunch, and the aftereffects are certain, it will
widen the already growing cracks in the whole financial pyramid. Someone
optimist said Warehouse was a better investment than gold for the last
ten years. So what? Do you make money by buying yesterday’s news? What
happens when you drive in the rear vision mirror? I venture to say NZ’s
last remaining gold stock GRD having risen from 30 cents to 130 in four
years has not only been a better investment than any of your overpriced
banking fantasies but still is. Maybe, you ain't seen nothin yet! (I
don't own any GRD). Note too in the Globe article the sneer that is the
hallmark of journo-prostitutes - paid scribes of the left-liberal
establishment. These paid hacks - say gold investors are just nutters,
mad conspiracy theorists. Conspiracy is no theory but a fact of life.
When did anyone ever get some business up without conspiring secretively
with two or three? All business is conspiracy! And when rich psychopaths
join their efforts, does anyone really believe it is with the intention
of doing good as they profess so earnestly with one voice at the World
Economic Forum? They hate the very sight of each other. Have you ever
been in a bankers’ club? Or a university faculty restaurant? You could
cut the air. The stupid rich old farts conspire only because their
hatred of the common man is so great it unites them temporarily. By the
end of this year 2002, rich fools (see Luke 16:19) will be jumping out
of their Babel-like phallus-shaped real estate. Don’t join the S11 kids
at the bottom cheering “Jump, capo, jump!” Remain at a safer distance,
like Bora Bora, where your gold coins will buy you whatever you need, as
they always did, while angry Argie-types the world over burn their
central bankers, real not effigy, under wheelbarrow loads of worthless
paper.

“What is the fast-beating pulse of the gold-stocks market telling
investors? For conspiracy minded gold bugs, it announces the day of
reckoning, foretold by countless [sic] exotic [sic] theories [sic]
(ranging from the absurd to the tantalising) [sic] about how and why
gold has languished in the dank cellar of investors' affection for two
decades. For more sober-minded enthusiasts, who settle for railing [sic]
against hedgers and central bankers, it's deja vu all over again [sic,
the sneerer is a callow youth who must have missed out on being taught
grammar]. Although the two camps are separated by the magnitude of their
suspicions, they share a view: Gold prices have been manipulated for too
long and recent trends suggest that manipulation will come to a quick
end. For the sober camp, the rigging of the bullion market comes in
various forms, notably forward gold sales by producers and the efforts
of central banks — the U.S. Federal Reserve Board mainly — to
"stabilize" gold prices, the idea being that a fast-rising U.S. dollar
gold price would suggest a lack of confidence in a mighty greenback,
which the U.S. economic imperial engine relies upon. Years of weak and
falling gold prices have yielded predictable consequences: After rising
almost relentlessly for 25 years, gold production will drop, slightly
this year, then precipitously. Gold mining firms, by failing to earn
their costs of capital, have depleted their coffers and shut themselves
off from new money. The casualty rate is high. Planned production is
being mothballed, and growth now comes mainly from acquisitions, hence
the rapid pace of consolidation in the industry. Gold mining is not
truly economic at prices below $400 (U.S.) an ounce, so no new
production will be contemplated any time soon [yuk leave off with this
dumb expression please you journos]. The lag time between contemplation
and production is years long. The other side of this hopeful argument is
that confidence in the U.S. dollar will wane along with a fall in asset
prices and a rise in mistrust in the system. Confidence in the dollar is
easy to foster with a federal funds rate of, say, 7 per cent; it's a
sight more challenging today, after 11 interest rate cuts. The historic
parallel is the 1970s. After a lengthy period of low gold prices
(depressed, some say, by central bank interference), production fell,
confidence in the U.S. dollar deteriorated, and gold soared to more than
$600 an ounce from $35 There are variations to these arguments (the
spectrum of which investors can behold at lemetropolecafe.com and other
sites). But in general, they don't seem easily dismissible, even after
years of unrequited gold-bug enthusiasm. Investors who like these
arguments, however, should not rush out and blindly buy gold stocks.
TSE-listed gold companies are hardly bargains, with enterprise values
that, in some cases, exceed the value of reserves by a factor of two
[compared with what in the general market, 3, 4?] This is not to say
that they won't rise. A premium to the undiscounted net asset value
isn't unusual, although it offends the value investor. There are better
alternatives for gold stock investors willing to venture offshore. Gold
Fields Ltd, for starters, trades at a discount to its net asset value.
As with all discounts, this one comes at a price: political risk. Gold
Fields is based in South Africa (and does most of its digging there).
But given the 80-per-cent rise in the stock since the fall, in the face
of mounting tensions in Zimbabwe, it appears investors are becoming more
comfortable with that risk. The real juice on Gold Fields was in
evidence yesterday as it released second quarter results: earnings rose
to $67-million (U.S. from $24-million) in the previous quarter
(operating profit rose To $110-million from $59-million). These added
riches were, in part, derived from higher production, which rose 11 per
cent. But they came mostly from the drop in the South African rand and
versus the U.S. dollar. Since Gold Fields pays its costs in rand but
takes in revenue in greenbacks, benefits accrue to shareholders.
Mitigating to some extent the political risk, the company pays out half
its earnings in dividends. The stock, which trades as an American
Depositary Receipt, yields about 2.5 per cent. The stock has appreciated
lately, which will make it look expensive. But with rising production
and asset diversification, investors are getting what they pay for.”



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