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To: Cogito Ergo Sum who wrote (28855)	2/18/2003 6:50:34 AM
From: TobagoJack	Respond to of 74559

KastelCo, <<gold ... Yes the buying will be trickier this time but of course that adds to the excitement ...>> ... trickier only for the trading account, not for the LTBH ledger ... ;0) forbes.com Yes, But The Case for Gold James Grant, 02.17.03, 12:00 AM ET The metal will do well in a time when inflation is heading up and short-term interest rates are negative. Don't be misled by those who say commodity prices will stay low. Walk through a metal detector into the Florentine splendor of the Federal Reserve Bank of New York. Bear left. Enter the American Numismatic Society's exhibit of rare coins, rare bills and not-so-rare credit cards. Take another left. Walk west 40 paces. Behold 751 shiny Byzantine gold coins spilling out of a toppled pot. This is the Bet She'an hoard, 7½ pounds of gold discovered in 1998 under the floor of an ancient residence in the Jordan Valley in northern Israel. It was buried around A.D. 680, probably to avoid confiscation, Israeli archeologists say. If he weren't so very dead, the unnamed owner of this treasure would be desolated, and his heirs would be inconsolable. For 13 centuries the coins in the pot earned no interest. What is the foregone interest on 7½ pounds of gold uninvested since the time of the fifth Umayyad caliph, Abd al-Malik? Say the gold price in A.D. 680 was $350, or its equivalent. Say the value of that gold, $38,300, was invested at 3%, compounded continuously from that time to this. Then the foregone interest income would be no less than $6.4 sextillion. Now, 751 coins is not so many. The Numismatic Society claims to own more than a million coins and bills and other forms of money issued and spent over three millennia. The foregone interest income on this uninvested collection is beyond calculating. Albert Einstein is said to have called compound interest the eighth wonder of the world. But it must be number one in the power to tantalize. If Adam and Eve had opened even a small savings account in the Bank of Eden, and if they and their descendants had conscientiously not made a withdrawal, then the human race could have long ago put its feet up and lived on the interest. Of course, compounding is not continuous because history is discontinuous. People die, banks fail and nation states rise and fall. Money is confiscated or debased. There likely is a very good reason that 751 gold coins were buried instead of being lent out at interest. The owner traded an income stream in the bush for gold in the hand. The paradox of gold is that it can be the finest speculation and the poorest investment. Though indestructible and lovely to behold, the barbarous relic earns no interest. And--what is much, much worse--it earns no interest on interest. Gold was the right thing to bury in A.D. 680 and the wrong thing not to dig up and invest in Microsoft at a split-adjusted price of 18 cents a share in March 1986 A.D. (Today, 17 years later, the price is $51, a 283 bagger, as Peter Lynch might say.) Knowing when danger is advancing and receding is the rarest insight in investing, and it helps to explain the paucity of sextillion-dollar fortunes in The Forbes 400 list. Now, walking out of the Fed into the bracing winter cold, one is faced with the question: Is risk advancing or receding? I say it's advancing. Nominal interest rates are low, government bond buyers are complacent and central banks are easy. Much to the dismay of finance ministries in Japan and Europe, the dollar exchange rate is falling against the yen and the euro. This is not because the Fed is objectively tight. For the first time in a decade the "real" federal funds rate is negative (i.e., a 1.25% funds rate minus the 2.4% year-over-year gain in the December consumer price index is a negative 1.15%). Ben S. Bernanke, one of Alan Greenspan's new hires at the Federal Reserve Board, reminded a Washington audience in November that the Fed has a marvelous invention for fighting deflation. This device is called a "printing press," said Bernanke, one of America's foremost monetary economists. With it the government can "produce as many U.S. dollars as it wishes, at essentially no cost." On Jan. 9 an auction of ten-year Japanese government bonds was 18.6 times oversubscribed, although their coupon was only 0.9%. For perspective, Haruhiko Kuroda, one of the top contenders to take over the governorship of the Bank of Japan when the job becomes vacant in March, has pledged to print enough yen to push his nation's inflation rate to 3%. And nobody believes him. I believe him, and I believe Bernanke. And I also believe that the First Eagle SoGen Gold Fund and the Tocqueville Gold Fund (to name only two of the better-performing gold mutual funds) will go on delivering a better return than the interest-bearing securities of the governments that run the printing presses. James Grant is the editor of Grant's Interest Rate Observer. Visit his homepage at www.forbes.com/grant.

To: Cogito Ergo Sum who wrote (28855)	2/18/2003 6:58:56 AM
From: TobagoJack	Read Replies (2) \| Respond to of 74559

KastelCo, ... and we must have faith, believe, truly believe, in the power of gold :0) forbes.com Gold Bugs Look To History Robert Lenzner, 01.31.03, 11:00 AM ET This is a chart to cheer gold bugs and confirm their sister deflationists in their convictions. It shows the relationship between the prices of gold and equities. Note, the pessimists say, the decades of the two previous descents of that ratio from a peak: the 1930s and the 1970s. Christopher Wood, emerging markets analyst for CLSA, a unit of Credit Lyonnais, who supplied us with the numbers, believes strongly that "gold is at the very beginning of a multiyear bull market that will take the yellow metal many times higher than its present level." The reason Wood gives: "Gold is the only real hedge against the massive financial excesses that still prevail in the western world." Wood feels that central banks' gold reserves are not sufficient to defend against a run on the dollar that he believes has already begun. Lack of confidence in the U.S. currency, sharpened by war scares and a rising U.S. budget deficit, has pushed the euro from 98.52 cents in August to over $1.08. Speculators and hedge funds are betting that further weakness in the dollar can only strengthen the thin and volatile market for gold. "Asia is massively overweight the U.S. dollar and massively underweight gold," says Wood, the author of CLSA's Greed and Fear investment recommendations. The World Gold Council estimates that gold's share of total foreign reserves is now 57% in the U.S., 51% in France, 50% in Italy and 39% in Germany. These strong positions compare with only 6% in India, 3% in Taiwan and Indonesia, 2% in China, Thailand and Singapore and only 0.1% in Korea and 0.02% in Hong Kong. "This massive Asian underweight position in gold makes no sense either from a financial or a geopolitical standpoint," says Wood. "The more the dollar falls and the more gold rises, the more Asian policy makers and central bankers are likely to focus on the risks of having all their eggs in one dollar basket." Wood also rests his case for gold on two technical market aspects. First, the short position of commercial gold users like jewelry manufacturers has more than tripled since 2001. Someday these short positions might have to be covered, which will put upward pressure on the precious metal. Second, as the chart shows, the value of the Dow Jones Industrial Average to gold suggests that gold has a long way to go on the upside. Back in 1980, when gold peaked at $850 an ounce, the Dow 30 was only 872.8 or almost in parity. But today the Dow industrials sell at over 20 times the price of gold. If the ratio of stocks to gold were to be five times--a common occurrence at other market troughs--gold would have to rise to $1,600 an ounce. "The bottom line is that gold is a hedge against both deflation and inflation, and the inevitable breakdown of the 'paper dollar standard,' asserts Wood. He has been bullish on gold for more than a year and has been recommending the precious metal since when it sold at $270 an ounce. Gold is now trading at above $350 an ounce, its highest level in nearly six years. The best equity plays in gold, says Wood, are Newmont Mining (nyse: NEM - news - people ) in the U.S., Harmony Gold Mining (nyse: HMY - news - people ) and Durban Roodepoort Deep (nasdag: DROOY - news - people ) in South Africa, and Lihir (nasd: LIHRY - news - people ), an Australian mining company which owns property in Port Moresby, New Guinea.