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Gold/Mining/Energy : Gold Price Monitor

GDXJ 98.59

-2.8%

Nov 13 4:00 PM EST

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To: Bobby Yellin who wrote (33197)	5/5/1999 6:54:00 PM
From: donald martin	Read Replies (1) of 116762

Morgy, You've touched on something in your BRE-X discussion that intrigued me some time ago. This is in a somewhat different direction. I started following Bema Gold when it fell below US$2. From the end of September '97 to the end of November '97, BGO went from 4 15/16 to 1 15/16. That's in the ball park of $300 million in market cap. I've grown very accustomed to commentators making the statement over and over again about capital "flowing" out of one sector or stock and into another. The average volume of BOG for October '97 was under 500,000 shares per day. For November '97 it was under 750,000. I forget exactly how many trading days there were, but just eye-balling the numbers I'd guess that's a total of ~25,000,000 shares at an average price (being generous) of $4...so $100 million in capital "flow" resulted in a change of market cap of $300 million? That's not capital flow. That's capital destruction. (The other flaw I see in using "flow" to describe markets is that, for every seller there is a buyer...even if it's a buyer at a lower price. There is no net capital flow.) When Mikey (or whoever it was) fell out of the helicopter, I too thought it'd be good for gold (all that gold wouldn't be coming to market). I don't give Peter Munk credit for knowing that everyone and his brother would cop the "I'll never buy another mining stock again" attitude. On the other hand, we all know that these small outfits need a constant supply of capital to stay in business...capital supplied by folks who bought Bre-X.

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