uh oh.. the dogs of the dow are on the loose
Gold market attracts bigger money
Experts see flows into large, small mining shares
By Thom Calandra, CBS.MarketWatch.com
Last Update: 12:19 PM ET May 20, 2002
SAN FRANCISCO (CBS.MW) - When the saints come marching in, you want to be in
their number.
The gold market, surging Monday after a terrorism warning from U.S. Vice
President Richard Cheney and a slipping dollar, is luring large investors
stymied by red ink in their core stock-market holdings. Managers of $100
million or more are establishing hundreds of new positions in Placer Dome Gold,
Anglogold, Gold Fields and Newmont Mining (NEM), the world's largest gold
producer,
As of March 31, 83 investment firms alone had bought shares of Newmont Mining
for the first time, according to U.S. Securities and Exchange Commission
filings. The money managers bought a total of 14.2 million shares, or 6 percent
of the Newmont total held by financial institutions and money managers,
according to a survey by 13Fpro. The new Newmont holders include Oz Management,
which runs the Covered Call Fund, a strategy that benefits by writing call
options on stocks that are rising.
"Performance attracts money," said Robert Bishop, editor of . Bishop said large
investors, such as fund managers and pension funds, are finding it hard to
ignore the scorecard: North American gold mining stocks up 30 percent since
Jan. 2, bullion itself up 16 percent, Nasdaq 100 down 18 percent.
Bishop, who has been tracking large and small gold, silver and diamond miners
for more than 25 years at his California-based service, says he noticed a
subtle change in the way investors treated shares of Newmont Mining when the
company reported a mixed quarter last week.
Newmont of Denver estimated operating profits for the year, based on a gold
price of $312 or so an ounce, would amount to between 40 and 50 cents a share.
The mining executives' profit guess was 10 percent to 20 percent below what
Wall Street and Torontoanalysts were forecasting for the company, which
earlier this year completed a three-way merger with Australia's Normandy Mining
and Canada's Franco-Nevada.
"Yet the stock had almost no profit taking," said Bishop, who acknowledges
Newmont Mining's estimated operating cash flow for this year, about $2 a share,
makes the $30 stock look expensive. "I think a lot of folks want to own Newmont
because they believe gold is going far higher." Some 4.4 million Newmont
shares now change hands each day on the New York Stock Exchange, an average
that is almost double levels from six months ago.
Central Fund's premium
Bishop says the financial world is getting its first demonstration of a
sustained gold rally in an Internet-ready age. He pointed to a sharp, two-day
rally, on record-breaking share volumes, of Central Fund of Canada (CEF), a
$110 million closed-end fund that stores gold and silver in its vaults. The
fund, an electronic proxy for gold, 11 trading days ago surged in price,
bringing its premium to the net asset value of its holdings to almost 25
percent from 6 percent.
Central Fund shares, traded on the AMEX in New York, still hold that premium,
with the shares closing in on their May 7 high of $4.65 a share. The fund's
rise, with spot gold and silver trading in a steady but narrow price band,
shows "people want to own gold as soon as they can," Bishop said.
Bill Murphy, the publisher of gold magazine on the Web, deserves credit for
getting the gold story before an online audience, said Bishop. "He stuck with
gold through a long bear market and put it in front of a loyal and growing
audience," said Bishop.
Murphy, a onetime commodities trader and a former professional football player
for the Boston Patriots, runs subscription LeMetropoleCafe.com from Dallas.
Some on Wall Street dismiss Murphy as a fanatic for the long-languishing metal.
Murphy, who wears a hat as chairman of the , asserts that central banks, Wall
Street investment banks and the U.S. Treasury depressed the price of gold
through much of the 1990s in a bid to moderate commodity inflation and interest
rates.
There is no denying Murphy's influence. "I know it sounds extreme, but Bill put
gold on the map for a lot of folks out there," says Bishop.
Murphy's LeMetropoleCafe.com has 3,500 subscribers who pay $149. Another 7,000
are on Murphy's mailing list. In Murphy's camp, or sharing at least some of his
beliefs about a rigged gold market, are scores of longtime mining investment
newsletter editors and natural-resource fund managers. These include John
Hathaway at Tocqueville Gold Fund (up 65 percent this year) in Manhattan,
Adrian Day at Global Strategic Asset Management in Maryland, Lawrence Roulston
of Resource Opportunities in Canada, Ian McAvity at Deliberations on World
Markets in Canada and former Central Intelligence Agency economist Mark Skousen
at Forecasts and Strategies in Irvington, N.Y.
Metropole, anyone?
I asked Murphy, who was on his way to a London presentation before metals
analysts, where he is advising his LeMetropoleCafe.com audience to put their
money these days: actual gold or gold coins, large producers such as Newmont,
gold futures contracts, long-term stock market options on gold mining
companies, silver or the smallest, most risky gold producers and exploration
companies?
Murphy, who sees $1,000-an-ounce and higher prices for gold, and a powerful
silver rally as well, advocated all of those investment paths. Silver prices in
the futures market on Monday rose 2.5 percent to their highest points in almost
two months. But clearly, Murphy, who used to work on Wall Street, sees the
smallest gold producers providing the biggest returns in coming months.
"My No. 1 gold choice is the smaller gold producer and the quality exploration
companies," Murphy said Monday. "As is normally the case in a gold bull market,
many have not matched the performance of the senior gold producers."
Murphy cited growing demand figures for gold, whose price has been stirred in
perhaps equal parts by a reduction of producer hedging, Nasdaq's relentless
slide, declining miner production of the metal, the dollar's recent weakness
against the yen and euro and concerns about terrorist strikes against the
United States.
"Very few in the investment/gold world realize the magnitude of the gold move
that is upon us," he said. "What a nightmare for the shorts. They are trapped.
There are gold loans and swaps of around 15,000 tonnes, an annual supply/demand
deficit of 1,700 tonnes and mine supply at 2,500 tonnes that is going lower in
the years to come, no matter what the gold price does. There is going to be a
mad scramble to find new gold supply."
Murphy's pick is Golden Star Resources (GSRSF), a small, Denver-based gold
company. In the interest of full disclosure, I must say I have been following
Golden Star, on and off, for several years - ever since Alan Snyder of Snyder
Capital Management in San Francisco pointed it out to me as a leveraged way to
own gold. "They just reported record profits, have building gold production in
Ghana and superb exploration finds in the Guyana Shield waiting to be
developed. It once traded $21 per share in 1996," Murphy said. "I expect that
to be exceeded in the years to come."
Golden Star Resources, traded in Canada (GSC) and over the counter, was
unchanged Monday morning at $1.30 a share. Gold mining shares as measured by
the XAU were up 2.2 percent to their highest point since Oct. 6, 1999. The
AMEX Gold Bugs Index of largely unhedged producers of gold was up 6 percent to
an all-time high. Spot gold's price rose $2.30 to $312.90 an ounce, highest
since May 8. Central Fund of Canada rose 1 cent to $4.56.
Update: By 12:15 ET, gold's spot price had risen $3.50 to $314.10, its highest
point since February 2000. Analysts said gold's price could surpass $320 in
coming days if thedollar, down against the euro and yen Monday, continued its
decline. Among small producers, shares of South Africa's Randgold Exploration
(RANGY) were up 15 percent by midday Monday.
Bill Murphy, Adrian Day, Robert Bishop and other gold managers and analysts
will speak at the . The November gathering, in its 29th year, also will feature
Richard Russell, editor of Dow Theory Letters.
Other tickers in this article: Gold Fields Ltd. (GFI), Tocqueville Gold Fund
(TGLDX), Anglogold Ltd. (AU), the XAU (XAU), the Gold Bugs Index (HUI) and
Placer Dome (PDG).
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Thom Calandra's StockWatch appears each trading day. He owns bullion and shares
of Nevsun Resources, Almaden Minerals and Golden Star Resources. Thom Calandra
has been covering gold mining companies for 15 years. |
