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To: Rarebird who wrote (36992)	7/11/1999 9:20:00 AM
From: Alex	Respond to of 116764

Losing its glitter W A S H I N G T O N , D C <Picture: picture><Picture: picture credit>By George it's cheap! ONCE a bedrock of monetary stability, gold is fast becoming a source of political squabbling and outlandish conspiracy theories. Gold prices hit 20-year lows this week after the Bank of England auctioned 25 tonnes of Britain's gold reserves on July 6th. The auction brought howls of protest from gold producers; criticism that Gordon Brown, Britain's finance minister, had mishandled the sale; and, most remarkable, a host of half-baked theories that the gold sale was an underhand attempt to prop up the weak euro or even part of a global conspiracy to keep the price of gold down. The truth is less dramatic. Britain's decision to sell just over half of its gold reserves through a series of auctions over the next few years is a sensible portfolio diversification. Gold has been a lousy investment in recent decades. As inflation risks have fallen, so gold's allure as an inflation-proof asset has proved less lustrous. Britain's sales are not unusual; nor are the amounts particularly large. Canada, Belgium and the Netherlands have each sold more than the 415 tonnes Britain plans to dispose of. Switzerland intends to sell as much as 1,300 tonnes. The market's strong reaction had more to do with the method of selling adopted by the Bank of England under its governor, Eddie George. Unlike other central banks, which usually sell gold on the quiet, reporting the sale only afterwards, Britain has stated its intentions in advance, announcing that it would conduct an auction. And although such greater transparency might help gold markets in the long run, it may have worsened the short-term fall in prices. Plunging prices are certainly hurting producers. According to the South African Chamber of Mines, 40% of the country's gold production will become unprofitable if prices stay below $260 an ounce. That could result in 80,000 people losing their jobs. Thabo Mbeki, South Africa's new president, has now come out against the sale. Other poor countries that rely on gold exports will also be hurt. That, in turn, has stiffened opposition to further official gold sales, and, in particular, to the sale of another 300 tonnes planned by the International Monetary Fund to help pay for debt relief for poor countries. At their summit in Cologne, leaders of the G7 group of rich countries agreed that the IMF should sell up to 10% of its gold reserves and invest the proceeds. The Fund holds around 3,000 tonnes of gold, having sold 1,500 tonnes between 1976 and 1980. The interest income on this investment would finance the IMF's contribution towards debt reduction for the poorest countries. But the decision to authorise gold sales must have the support of at least 85% of the IMF's board. With a 17% shareholding, the United States could block the sale. Although the Clinton administration supports gold sales, there is considerable opposition in Congress (whose approval would be needed). Lawmakers, especially those from mineral-rich states, are worried about tumbling prices. Others fret about selling gold to sustain what they regard as the IMF's s failed policies. Some Republican lawmakers are proposing legislation that would prohibit gold sales, unless the proceeds are returned to America and other donor nations. In the current environment, it is hard to see Congress voting in favour of IMF gold sales. And that is a pity. For the amounts involved are not large—and could be sold without disrupting markets. And if there is no such sale, it is not clear where the resources will come from to allow the IMF to pay for the debt-relief scheme agreed in Cologne. Not, it seems clear, from America's Congress. economist.com

To: Rarebird who wrote (36992)	7/11/1999 9:22:00 AM
From: Rarebird	Respond to of 116764

Bubble Talk: William Kay of the Mail on Sunday on the Freeserve float The City Editor, Mail on Sunday 11 July 1999 John Clare. He is a pleasant chap who has had the patience to understudy the demanding Sir Stanley Kalms at Dixons for seven years. Now he has the challenging task of turning Dixons' Freeserve Internet venture into a goldmine. There is little doubt that the Net will turn into a major industry for years to come, and Freeserve has the makings of a substantial, well-run business within that industry. But investors are being asked to climb aboard at a frighteningly high price. Clare admits that Freeserve shares will be a speculative and volatile bubble for some time to come, arguing that the bubble will fill with profits as Freeserve gathers pace. But that is precisely the worry. I have recently been re-reading accounts of the biggest bubble of them all, of the South Sea Company, which in its day even took in such luminaries as Sir Isaac Newton. I am not suggesting that Freeserve is a South Sea. It may yet be overshadowed by the really big bubble, still unidentified. For the South Sea was not alone. It was just the biggest among a spate of such speculative farragoes in the early part of the 18th Century. And Freeserve is merely one among a herd of businesses being rushed to market because they have an Internet connection. I stress, we have had no evidence that any entrepreneurs caught up in the Internet are but honest toilers doing their best to serve a public thirsty for the new services on offer. The new consumers are being anticipated by an equally thirsty investing public who see the prospect of mouth-watering profits. In the City of London, around the present-day Lombard Street and Cornhill, 18th Century promoters would rent a room and advertise the opportunity to invest in all sorts of wild schemes, from importing Spanish donkeys to 'a scheme the details of which will be revealed later'. This was all very novel, and the fashionable way to save was through the unofficial, unregulated stock market that operated in the City's streets, alleyways and coffee houses. As today, they had no real notion of what it was to lose money. All shares were a sure thing. The Internet has just such a feel. Agreement that the Internet is the future is so widespread that any enterprise associated with it has to be a sure thing - allegedly. Traditional values have gone out of the window. It is regarded as fuddy-duddy nit-picking to ask where dividends* are coming from. We are now into a highly convenient world of shares priced on multiples of sales rather than of boring old profits. The word is that Freeserve shares will be worth buying because they will be priced 'to go'. That means do not buy them because you think they are attractive, but because you think other people will rate them. Then you get out before they do. This is the world of the chain letter, revolving mirrors - and, after more than 300 years, the triumph of hope over experience. financialmail.co.uk