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Author: TMFSinchiruna One star, 50 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 247  
Subject: Re: Hi All! Covering ABX for TMF Date: 5/8/2008 10:02 PM
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Hi Boise,

I'll get to your question in a minute, but first some thoughts on Barrick.

Barrick produced some pretty numbers this quarter, to be sure:
http://www.fool.com/investing/general/2008/05/07/barricks-tarnished-gold.aspx
The original draft of the article had more info on the insider selling, which I consider to be a huge red flag. Please see my blog post here:
http://caps.fool.com/Blogs/ViewPost.aspx?bpid=31796&t=01006124249416869148
Now, it's possible that those insiders predicted the present correction and sold accordingly, but the fact that almost every one of them reduced their company holdings to zero troubled me greatly. I have tried several sites to check up on insider trading data for the stock to see if those same individuals bought back in, but oddly no site seems to have such data on Barrick.

To be clear, I feel sure Barrick will do well as gold continues its rise. If I were holding Barrick stock, though, I would consider holding for the short term as the gold price recovers out of the present correction, and then switch into a less encumbered major like Goldcorp or better yet an intermediate producer like Agnico-Eagle or Kinross Gold. :)

Now, to your question. With all the evidence available to support the bull argument for gold, I guess my first response would be to request some evidence from whoemever was presenting the bear argument... evidence that A), it's overproduced (that supply is outpacing demand), and B), that it has no real value in the modern economy.

I have plenty of evidence to the contrary, so anyone presenting such an argument would need to be ready for a hearty debate. :)

First the overproduction part. Mines all over the world are scrambling to increase production, but bringing new production online is a very time-consuming process, so the ability of mining companies to respond to higher prices by bringing more production online lags by several years. Given the strength of the macroeceonomic fundamentals driving investment demand, it's clear to me that demand will continue to outstrip supply for some time to come. Credit Suisse, agrees, and I recommend you take a look at this report they released in November 2007:
http://www.gata.org/files/CreditSuisseGoldReport10-30-2007.pdf
CreditSuisse knows as much about gold as any company in the world, so they are an excellent source for something like this. See the chart on page 3 of the document for their projections for supply-demand going forward.

As for the part about gold having no real value in the modern economy, I would say that sounds a lot more like a description of the US Dollar than gold. :) Gold is not purely a commodity. Gold IS money. Just because Nixon nixed the gold standard, doesn't remove its relevance as an alternative to paper currencies. In fact, the very creation of a fiat currency that is NOT backed by gold, nor anything at all for that matter, is sheer folly. As the dollar continues its slide, many are realizing that much of the US currency's perceived strength through the years was illusion. Gold's price, accordingly, is not only driven by demand, but is also determined in part by the behavior of currencies, principally the USD.

Also, don't forget about silver, which enjoyes a dual role as quasi-monetary metal and a serious industrial metal with thousands of irreplaceable applications.

http://www.fool.com/investing/general/2008/03/19/dodge-the-dollar-with-a-silver-bullet.aspx

Also, I would ask anyone arguing a bear case for gold to consider some of what history teaches us about paper currencies. There is little that differentiates the USD today from the Continental Currency of our infancy... or take a look at the Weimar Republic in pre WWII Germany. Those who ignore history are destined to repeat it.

Rather than close my response with more of my own babbling... :) Let me insert some thought-provoking words from Thomas Jefferson:

"I place economy among the first and most important republican virtues, and public debt as the greatest of the dangers to be feared. To preserve our independence, we must not let our rulers load us with perpetual debt." Thomas Jefferson

"unlimited emission of bank paper has banished all Britain's specie, and is now, by a deprecation, carrying her rapidly to bankruptcy, as it did France, as it did us, and will do us again, and every country permitting paper to be circulated." Thomas Jefferson

" If the American People allow private banks to control the issuance of their currency, first by inflation and then by deflation, the banks and corporations that will grow up around them will deprive the People of all their Property until their Children will wake up homeless on the continent their Fathers conquered."
--- Thomas Jefferson

Fool on!
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