10:30p EST Friday, February 18, 2000

Dear Friend of GATA and Gold:

The gold situation is coming to the fore in the mainstream
press. Here's an item from the new issue of The Economist.

Guess who they're talking about in regard to "conspiracy
theory"? Well, we at GATA don't care about that little
flippancy, for, as you'll see, The Economist pretty much
has accepted our premise that something is wrong with
the gold market and that gold should be much higher.

Congratulations to Frank Veneroso for recognition of
his essential work here.

Please post this as seems useful.

CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.

* * *

The Economist
February 2000

Gold bugs are a long-suffering yet romantic breed.
Despite years of declining prices, they remain
devoted to the glittering metal. Until recently
it has been easy to dismiss them as flat-earthers,
clinging to outdated ideas. Now, however, it is
harder to explain why the gold price remains so low.

This month, some of the world's leading gold
producers, including Canada's Placer Dome and
Barrick, announced the scaling back of their hedging
programmes. Hedging involves entering contracts to
sell gold in the future for fixed prices -- normally
in anticipation that prices will fall. Since the
reduction in hedging, producers, for the first
time in years, have been bullish about gold's
prospects. A deal between Ashanti, a troubled
producer, and its hedging partners also removed
a big uncertainty from the market.

At the same time, turmoil in the bond market and
a belief that gold was no longer destined to fall
forever have prompted many hedge funds to unwind
gold "carry trades." Under these, the funds borrowed
gold for a small fee from central banks, sold it
short in the expectation that it could be bought
back for less in future, and invested the money
in other higher-yielding assets.

Despite all this, gold prices have edged up by only
about 10 percent this month). Putting aside the
gold bugs' favourite argument -- that gold is a good
hedge against inflation -- the underlying supply and
demand for gold suggest that prices should be
rising more strongly. In Asia, a big gold market,
improving economies have brought stronger demand;
likewise, soaring oil prices have boosted demand
in the Middle East.

Most important of all, European central banks, which
had been busily selling their gold hoards, last October
announced that they would tightly restrict their gold
sales and lending during the next five years. Expected
sales of gold reserves by the IMF were also blocked.
America's Federal Reserve, which holds most of the
remaining official stocks of gold, said it would
not be selling.

The market's expectation that the 20,000 tonnes or
so of official gold reserves would be sold has long
depressed gold prices. Usually, when prices have
risen, some central bank has taken the chance to
sell, thus killing any optimism in the market.

Without this central-bank supply overhang, the
equilibrium price of gold would now be around
$600 an ounce, calculates Frank Veneroso, author
of the influential "Gold Book Annual." He says
the combination of increasing demand and reduced
selling by producers and hedge funds means that,
left to the private sector, the gold price would
now be soaring. But the overhang is still there,
leading to rumours that some central banker is
covertly selling gold. Alan Greenspan, the Fed's
chairman, has issued strong denials that it is
he. But another thing gold bugs love is a good
conspiracy theory. And, after all, if not the
Fed, then who?

-END-