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THE
ROCKET SCHOOL OF ECONOMICS


High Hopes, Wishful Thinking & The Absurd
by Professor von Braun

February 24th, 2001

An article appeared in the Wall Street Journal on the 2/23 by a Mr. Neil Behrmann, (Bearman?) entitled "World Gold Council Hopes to End Gold Price's 20- Year Bear Market".

The first line read, "The golden bear is just over 20 years old. The big question is whether it will celebrate a 21st birthday".

Well Mr. Behrmann, here are a few facts. Gold peaked in January of 1980, 21 years ago in January of 2001. It, the golden bear, celebrated its 21st birthday last month, so there is the answer to your "big question".

As for the hopes of the World Gold Council (WGC), as in its implied ability to end the bear market, well, really! How do they intend to do that? What unique process will they devise that ends a bear market that, for a very long period of the 21 years referred to, they were not even aware that it was occurring? Or, are they saying that they have known all along that the golden bear has been parading amongst us and now they see the imminent appearance of a golden bull?

Are they aware that bear markets do not end with a whimper, but require a final sharp spike down to remove the last of the "longs" and create as much damage to them as possible? Are they aware that calling an end to a bear market before it happens can make one very unpopular, especially if the bear decides to have one last stroll around the field.

The same article describes the WGC as and I quote, " a producer marketing and lobby organization". One that has not succeeded to date one must assume, certainly not in the gold price arena anyway.

In the same paragraph the article states "In an attempt to lift gold out of its lethargy, the WGC, has persuaded members to raise their membership fee to $2 an ounce from $1. The result is that we will spend $32 million this year on marketing gold compared with only $14 million in 2000." That (persuading it's members) must have been an effort.

One would truly hope that this is not the "plan" for ending a 21-year bear market. Surely not! If I was a member of this "producer marketing and lobby" group, I would want a refund, quickly. After all if you spend $14 million on marketing something, then increase your spending to $32 million, following a dismal performance in the gold price during the year 2000, then there is a reasonable chance, by virtue of what occurred the prior years, that your strategy does not work. Why do you now hope it will?

That has to be $32 million of mining company shareholder's money, shareholders who have seen share prices decline dramatically over several years. The members of the WGC are mostly mining companies that trade publicly and have suffered as a result of declining gold prices. Yet the WGC manages to "persuade" these members to increase their membership fees to enable the WGC to spend in excess of twice the amount on marketing something they have so far been very unsuccessful at. What a deal that is!

We believe that the World Gold Council should, at the very least, look seriously at changing its name to something that reflects what it is, something a lot less official sounding. It is after all an entity funded by contributions from gold producers to market gold's usage in jewelry and to lobby somebody, about something, presumably to do with gold. This of course, could be handled by any good public relations firm experienced in this type of activity.

If the WGC managed to persuade members to increase their contributions by a factor of two, based on the premise that increased spending on advertising "might" end a 21 year bear market, then the members need to be reminded that forward selling programs have contributed to the malaise in gold prices just as much as has central bank selling, possibly more so. Marketing gold (to supposedly increase the gold price) and forward selling (which depresses the gold price) are two concepts that are opposed to each other, yet most of the 'members" indulge in it.

Why the WGC needs to follow the lead of De Beers Diamond Cartel and employ a London-based consultant and an advertising firm to propose a global promotion campaign when there are all these sellers of gold in the market place, a fact mentioned in the same article, is interesting. Does the WGC see itself as a potential cartel?

Perhaps the WGC should retain the services of an investment bank, one familiar with the global derivatives market and ask how they can invest their $32 million dollars (which is at $260 per ounce, 4.5 tonnes of gold) and leverage up their investment, strategically of course.

Should the WGC be successful in its lofty aims and be able to take credit for ending a 21 year bear market, them I am sure that they would find work with the Japanese government and the NASDAQ market would also be happy to hear from them, as would televisions financial version of Survival, CNBC. However should the gold price move upwards then several of their members may have a problem, one not to dissimilar to Ashanti's, which could lessen the members' contributions.


The Prof can be contacted by email at profvonb2@aol.com

Copyright by Professor von Braun. All Rights Reserved. Reprinted at USAGOLD by permission.

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  • 17 Sep 2002 -- Wishful Thinking!
  • 27 Jul 2002 -- Gold Bugs Beware -- part 2.
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  • 26 Jun 2000 -- A Yellow Brick Wall
  • 22 May 2000 -- The King IS Naked
  • 30 Apr 2000 -- Goodbye Yellow Brick Road
  • 18 Apr 2000 -- Beware the Ides of March, April and May
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