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(June 15,1999) The NY Times this morning headlines "An Icon's Faded Glory; Now the Gold Rush is to the Exits" Reading the popular news sources today, you may wonder why this bright shiny metal is now considered financial toxic waste.
(June 15,1999) The NY Times' "Business Day" section this morning lead off with an article, centered above the fold, highlighting the negatives about today's gold market. "Gold bugs die hard," was the opening sentence, and it went on to slag gold as an obsolete metal whose best days have come and gone: "In fact, gold - once the dependable haven for millions of worried investors - looks a lot like just another sinking commodity these days in a world financial system dominated by inflation-fighting central bankers."

The usual statements are trotted out, and the usual case against gold is repeated. Lack of inflation in today's world. Lower production prices. Forward-selling by miners. Central bank selling, including the forthcoming Bank of England sales. Even the World Gold Council admits that Britain's sales indicate "further evidence of official disenchantment with gold as a reserve asset."

Of course, lately we're quite used this kind of sniggering about gold in the business press. In their April 24th issue, the Economist weighed in with their annual screed against gold (it alternates with their annual let's-decriminalize-all-illegal-drugs rant). Cleverly entitled "Tarnished Gold," it details central bank gold holdings (which at 34,000 metric tonnes is a lot of gold, after all) and asserts that these banks are under pressure to improve returns on their reserves. And might, therefore, just sell all that gold.

:"Not only is gold costly to store, but it earns central banks only a tiny return, from making gold loans." The Economist article gives the impression that all this reserve gold is about to come to market at any time, and that the time-honored link between gold and money has ended, perhaps simply by default. Ignoring the role of gold as a reserve backing the value of national currencies, the story harps on the potential for gold sales to the exclusion of all other national considerations. One such startling revelation: "If all central banks tried to sell gold at once, the price would plummet." Well, as the kids like to say, "DUH!"

Gold markets always react negatively to announced sales of gold by central banks - but what we don't hear about is planned purchases by central banks. Where does all that gold go when sold? For the most part, to other central banks, whose purchases of gold seem to never make the news. The actual net sales of gold by central banks since 1965 have been insignificant in size. But you won't read that in one of today's gold-is-dead articles.

It's easy at this time to attack gold. Equities are still high. CPI-measured inflation is low. The dollar has become the world's reserve currency. Gold prices have trended downward as of late, and a massive short position in gold (which we touched in our April 20, 1999 article) is betting heavily that it will go lower.

But there's a bottom here somewhere, and we may be close to it.

Commenting on the gold market today via Reuters was British Treasury Minister Patricia Hewitt. Of course, it was the British announcement on May 7th of upcoming gold sales which triggered the 10% fall in gold price since that time. Of that dramatic slide in gold prices to a 20-year low, she says "Even with the orderly and transparent process we have adopted, the market reaction has been somewhat overdone."

There's no denying that gold is out of favor. The current spot price states that opinion rather forcefully. And media opinion against gold will continue to 'pile on' as long as the market direction is down.

But that won't be true forever.

If you're watching the gold market, someday soon you'll read the umpteenth opinion about gold that's so unreasonably negative that a little lightbulb will go off in your head - THIS IS IT, the final straw that broke the camel's back, the media slant on gold is now so totally gloomy that it has nowhere to go but up.


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