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Gold/Mining/Energy : Exall Resources/Glimmer Resources -- Ignore unavailable to you. Want to Upgrade?

To: Winzer who wrote (829)	2/4/1999 9:03:00 PM
From: Rob	Read Replies (1) \| Respond to of 1319

COMMODITY WATCH - One perspective on Gold By John Dawe As we outlined in the Small Cap Express on Monday, over the next while we will periodically be featuring articles on different areas of the commodities sector. Today's article focuses on one component of the formula which determines the price of gold worldwide - the impact of central bank reserves. During discussions at the World Economic Forum which took place in Davos Switzerland over the weekend, a senior member of the European Central Bank (ECB) noted that she believes gold will play a smaller role as part of central bank reserves around the world. The Globe & Mail reported that Sirkka Hamalainen, who is the ECB board member responsible for market operations including gold, said gold can no longer be relied upon to provide “a guarantee of low inflation or stable monetary policy any more”. Historically, gold has been held by central banks as a ‘store of value' and has classically been seen as a key foundation on which public confidence in a banking system rests. However, over the last few decades, most industrialized countries have been moving away from this model and have translated significant components of their gold holdings into U.S. Treasury Bills and similar securities. These instruments are considered as safe as gold by world capital markets, but also earn interest and are relatively more liquid. Ms. Hamalainen's comments are important because the ECB is the body responsible for the euro, the new currency which is being phased in as the vehicle for all financial transactions among European Community countries over the next two years. The recent launch of the euro comes after many years of serious debate on how the new currency should be managed. As such, the philosophy of the ECB board represents the cutting edge of central bankers' thinking regarding the importance of gold reserves as a monetary stabilization tool. In recent years, some countries such as Canada and Australia have sold nearly their entire reserves of gold into world markets and this has created concern among gold analysts that the central banks of Europe may follow. In response to this issue Ms. Hamalainen noted that, irrespective of the trend toward lower reserves, it is unlikely that European central bankers will unload their current reserves anytime soon. This represents good news for world gold prices because the 11 central banks involved in the euro hold approximately 40% of all gold reserves held by central banks worldwide. Ms. Hamalainen went on to say that if any of the central banks did choose to liquidate any of their gold reserves they would require the prior approval of the ECB. Additionally, if any bank made the request, any decision regarding reserves would be “very gradual, very long-term and very transparent.” >From an investor's standpoint, the determination of where the price of gold might go is as complex a task as any in the market. Demand for gold is driven by a wide range of factors worldwide and has traditionally been one of the trickier commodities to try to predict. However, this report from Switzerland does represent a solid bit of analytic information. The clarification that European central banks will not move quickly, or rashly, to liquid gold reserves eliminates a question which has been overhanging the market for some time. Although it is unfortunate that these central banks do not plan to add to their reserves, it is comforting to hear that they are not part of the problem. In the short run, this news is an indication to large and small cap gold companies that their exploration efforts will not be blown away by a decrease in gold prices caused by a sell-off by the euro group of central banks.