GOLD STORY: GLOBE AND MAIL
Gold soars in classic investment 'squeeze'
ALLAN ROBINSON
MINING REPORTER
Saturday, May 19, 2001
The price of gold soared $13.80 (U.S.) an ounce in a surge of afternoon trading yesterday to close the day
at $287.80.
The upward swing came abruptly after lacklustre trading throughout the morning, traders said.
One analyst said there was a classic investment "squeeze" going on in the market, forcing gold higher and
causing the shares of gold mining companies to take off.
Around noon, buying started to come into the market, said George Parrill, director of precious metals at
ScotiaMocatta, the metals trading arm of Bank of Nova Scotia. The buying could be the New York
commodity funds covering their short positions or possibly establishing long positions, he said.
"We haven't seen this since September, 1999," he said. Gold prices took off then when the European
central banks said they would restrict their gold lending activities.
In a matter of days from Sept. 21 to Oct. 6, 1999, gold went from $260 an ounce to $324.50.
"It's a shock," said John Ing, the president of Toronto investment dealer Maison Placements Inc. "There's
definitely a squeeze going on."
A squeeze occurs when traders who have been short in anticipation that gold prices would drop reverse
course and buy gold to stem their losses, pushing prices higher.
Mr. Ing said selling from one bank dried up yesterday and gold shot ahead.
"That was the only thing keeping gold down," he said.
Mr. Ing also said that lower interest rates are reducing the profitability of gold hedging. Some traders
borrow gold and raise cash by selling it in order to reinvest the proceeds in interest-bearing securities.
Douglas Pollitt, a mining analyst with Pollitt & Co., said a steady rise in the price of gold during the past 25
days to about $274 an ounce from $260 has given traders confidence to hold gold.
The price of bullion is at its highest level since mid-2000, but analysts said no specific news event could
account for its dramatic move yesterday.
"It's a very constructive pattern that is bound to attract additional interest," Mr. Pollitt said. "A little bit of
money in the gold market goes an awfully long way."
The Toronto Stock Exchange's gold and precious minerals index rose 5.04 per cent or 260.16 points
yesterday to close at 5,417.85 points. The shares of Barrick Gold Corp. gained $1.35 (Canadian) to
$29.20 each. The shares of Placer Dome Inc. climbed 78 cents to $18.70 and the shares of
Franco-Nevada Mining Corp. increased $1.20 to $21.85 each.
Gold has dramatically outperformed every other sector on the TSE during the past three months. The TSE
gold and precious minerals index is up 36.68 per cent during the past three months with the TSE metals and
minerals index coming in as the next strongest subindex, up 26.2 per cent.
"The funds are tripping over themselves to buy gold," Donald Eckert, head of precious metals trading at J.P.
Morgan Chase & Co. in New York, told Bloomberg News.
Analysts said gold has broken through several technical barriers such as its average 40-week and 65-week
price levels.
Traders follow these technical levels closely.