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Politics : Stockman Scott's Political Debate Porch -- Ignore unavailable to you. Want to Upgrade?

To: lurqer who wrote (7655)	10/1/2002 9:39:12 AM
From: Jim Willie CB	Respond to of 89467

Mr. Gold's Rules for Investors (about Sinclair) by Jane Bussey [4 out of 5 requirements are in place for GOLD EXPLOSION] Although he has been dubbed "Mr. Gold," James Sinclair wears his mantle as the precious metals expert almost as a burden. "What did you do to pull this duty?" he laughs before he starts to talk the glitter out of gold investing. Gold funds and gold stocks are among the very few shining stars of the tumbling markets this year, but Sinclair believes investing in the precious metal is all about immutable requisites of the market. The price of an ounce of gold has risen from of $267.70 in the second quarter of 2001 to $312.70 in the second quarter of this year. But most brokers and financial advisors are still not suggesting gold investments. For Sinclair, who personaly made $15 million in 1980 by selling gold when it hit a high of $887.50 and then predicted it would languish in a 15-year slump, gold is not about psychology but about a series of measuring sticks. "You should do nothing because of fear," said Sinclair, who is chairman and CEO of Tan Range Exploration, a publicly listed gold mining company. "If it's based on fear, you are in the wrong arena and should see a psychologist," he added. "The only reason to invest in gold is that there are five market fundamentals," said Sinclair who lives on a Connecticut estate and answers his own telephone at his office. These five market fundamentals include: • The U.S. current account (the broadest measure of the economy's competitiveness with the world) must be in deficit and growing ever larger. The U.S. current account deficit is 4.5 percent of the gross domestic product. Markets traditionally become nervous about the deficit when it hits 5 percent. • The U.S. dollar must have hit a high and be on a downward trend. • The prices of general commodities must be going up. • Confidence in paper assets must be falling. • The bond market must have hit a high and be on the way down. Sinclair said that all five conditions must be in place to be assured of a bull market for gold. "Of the five requisites, four are there," Sinclair said, noting that the only one still absent is falling bond prices. Gold closed Friday on the New York Mercantile Exchange at $319.70. "For gold to make a new high about $330 -- which seems to be the Maginot Line now in the minds of those who have involvement in that field -- it's got to have No. 5 come in," he said. MARKET CHANGE But Sinclair also notes that the gold market has changed from earlier times. Big banks and to a lesser extent mining companies have large derivative positions in gold. The mining companies routinely sell unmined metal forward at fixed prices to protect themselves against further price drops. Banks have huge gold derivatives, ranging from deferred-sales contracts to hedged instruments, swaps and futures-linked devices that were devised during the 1990s to generate extra income while gold prices descended. This is a technicality of the market that will affect the price of gold, Sinclair said. Gold derivatives are also part of the question mark. If the price of gold rises above a certain level, then the automatic risk-control systems that tell banks when their risks are getting too high alert traders and spark nearly automatic moves to cover short positions. There is a certain danger for the entire trading system, since nearly all the derivatives have shorted gold and any risk alert will trigger all banks to cover their shorts. Covering of the shorts in a market, where the actual amount of physical gold is small compared to all the derivative positions and where daily trading is small compared to exposure, will cause prices to rise. This technicality -- banks' automatic risk control systems -- could affect the price of gold. BONDS ARE KEY But the bond market is the key condition that investors can watch out for, Sinclair said. "The investment decisions of the non-U.S. holders of U.S. government securities is the singular most fundamental characteristic that will determine if there is a long-term bull market in gold," he concluded. After putting millions of dollars of his own money into what he hopes will become a rich gold vein in Tanzania, the rise of the price of gold is more than academic for Sinclair. But he focuses on the fundamentals. "My own conclusion is, yes, gold will go higher," Sinclair concludes. But Sinclair does admit that he has not always been correct about gold. For instance, the 15-year price slump he predicted. "I was wrong. It's been 22 [years]" he said. full article: miami.com