Chapman's Gold Potpourri

December 9, 2002

The Prudent Bear Fund is rated number three year-to-date up 52.72% and for the last 12 months up 53.26%. It is rated number one for the past three years up 26.06%. As you can see David Tice has amassed a phenomenal record. We recommend his fund. If you like to purchase the Prudent Bear or Safe Harbor Fund.

You have to be demented or a psychotic to be a Barrick shareholder. Deutsche Bank just downgraded the stock from buy to sell. The analyst, Mr. Peter Rose, sees the stock falling 14% over the next six months. If you are a seller, the better alternatives are *Agnico-Eagle (AEM-NYSE) and *Goldcorp (GG-NYSE). He also cut Barrick's earnings forecast by 26% for 2003. Wait until gold hits $500 an ounce and Barrick gets slaughtered in their hedges. It will be worse than that. The company's exploration and office expenses purportedly were higher than expected. Mr. Rose expects a prolonged weakness in the share price and he anticipates that disenchantment will be the order of the day.

Gold producers repurchased 255 tonnes of gold in the first half of the year, leaving 2,800 tonnes on their hedge books. At that rate they'll be flat in 10 years. Not much of an accomplishment considering the problems they face. This makes for a strong floor under gold, but better yet it means lower prices remain a distant improbability. We ask, where else can you find fundamentals like this? Even better yet, there&Mac185;s a shortfall of 300 tonnes or more. We believe the central banks have sold or leased most of their gold to keep their fiat money system going and soon their game will be over. We can only conclude that the upward march of gold has just begun and for the 5% of the astute, who have the intellect to escape from denial, their journey will be immensely profitable. We have central bank dummies like the Bundesbank telling us they may sell more gold to buy more profitable assets. They do this periodically to show us how stupid they are. Gold has been going up for two years. The most outstanding asset. Gold and silver shares have made massive gains, the market heads lower; bond yields have peaked out or are close to doing so, thus we ask, which are more profitable assets? Of course there are none. They are manipulators about to be swept out with the tide. They have no idea of the purge that awaits them. The rest of the world buys gold as America sleeps.

*****

SHANGHAI, Dec 2 Asia Pulse - Shanghai Gold Exchange, which opened for business at the end of October, transacted 6,497 kg of gold (one-way) in the first month up to November 28. Five commercial banks took part in market trading during this period, buying and selling 2,507 kg of gold, accounting for 19.35 per cent of the total. The Bank of China alone took a share of 16.68 per cent.

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Market report for the week of December 2, 2002
By Ron Wolfbauer

The Dow: after being out of circulation last week, as we went to San Francisco to the Precious Metals Conference, we believe the Dow has finally completed its blow-off top in this latest bear market rally. We have been effectively selling these rallies and making money on the short side again. We would like to see the Dow close below 8530 to confirm that we will retest the last lows at 7200.

The question of the day most commonly asked is, what has been supporting the market? Unfortunately, for those who are long-term investors, and buy into the buy and hold theory on stock portfolios and mutual funds, the latest action in the market was eerily reminiscent of March 2000. This was because the P/E ratio on the Dow Jones ran back up as high as 31 off the false hopes and beliefs that the consumer was going to continue to carry the day with strong retail sales. In addition, the Fed's latest act of desperation of cutting 50 basis points was somehow going to be the miracle that turned the markets and economy around. Once again, our belief is that investors are going to be disappointed, as the latest retail sales data doesn't support this argument. More important, the retailers that have been able to move product have been forced to take deep discounts early in the holiday season. This is a bear market and it can be brutal and painful. Whether you're on the long or the short side, it's been very difficult to trade. However, we do have a high degree of confidence at this point that we're in another leg down and will retest the 7200 mark.

Gold:  gold has shown significant progress to the upside in the last several days, as we've seen renewed open interest in the long side. February gold closed at $325.60/oz today and it looks like we'll make an attempt to break through $330. With more developments coming out of the Middle East, and more troop movements from the U.S., it appears that probability of war is increasing and if gold ever had a shot at breaking out of this range and going through $330, it should do it in this next run up. If gold fails to break out above $330 off of renewed tensions in the Middle-East, we would exit all positions promptly on our gold. For clients of the firm long on metals, we would advise moving up our stops and selling calls against our futures positions to lock in gains.

Silver:  silver has broken out of its channel and has moved through resistance; it closed at $4.64/oz today. After being extremely oversold and building a strong base, it looks like it has the legs to move up to $4.85. For our clients, our recommendation today was to sell a $4.80 silver call for every March futures at a 9-cent premium to lock in gains in the event the market doesn't move through $4.84. To stay on the long side, we initiated buy stops for an equal amount of contracts at a $4.86 basis of March contract. We see silver moving up to $5.00/oz if it can make it through this level. Again, the metals, although extremely encouraging at this point, warrant caution.

The Euro:  the Euro closed today at 100 even, and the 50-day moving average is at 99.05. The European Central Bank cut 50 basis points off interest rates, which appeared to be mostly reflected in the market, as a response in Euro currency futures was very limited. We had Euro positions that we closed out yesterday at this level, as we were awaiting an announcement from the ECB. Earlier in the day, the Euro pulled back to 99.69, which we used as an entry point to re-establish long positions in the Euro. Once again, the Euro needs to break out above 101 to establish a new range, but right now we see the risk/reward ratio to be more favorable to be on the long side and using a 50-point stop.

THE INTERNATIONAL FORECASTER
An international financial, economic, political and social commentary.
Published and Edited by: Bob Chapman
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