[This report was sent to subscribers to the e-mail  edition of "Gary North's REMNANT REVIEW" on May 16,  2003.]

     I suggest that you immediately create a new e-mail folder, "Gold Wars."  Move this initial issue of THE GOLD WARS into the new folder.  Keep doing this with each issue on the day the issue arrives in your e-mail box.  It will take you only a few seconds to create this folder.

     I have known Sam Parks for over a quarter of a century.  I regard him as the number-one expert in North American gold mining shares.  He works for National Securities Corporation, a brokerage firm in the Seattle area.  Contact him at 800-426-9993.  Note: he does not accept new clients unless they have $10,000 to invest.  But his monthly columns in REMNANT REVIEW provide specific recommendations that any broker with access to the Vancouver Stock Exchange can execute for you.  For small investors, he recommends ScotTrade: http://www.scottrade.com. 

     In this interview, he and I go over issues that are becoming hot again: the price of gold, mining shares, and future of the dollar.

     In mid-September, 2001, I became convinced that a bonanza lay ahead for North American gold mining shares.  I just did not know which ones.  So, I persuaded Parks to begin writing a monthly column in Remnant Review.  He began in October, 2001.  The timing was perfect.  Anyone who took his specific recommendations when he first made them is up 100% or more on the investment.  Gold was then at $283, but the mining shares had not yet begun their spectacular upward move. 

     If, as a prospective investor, you want to verify my summary of his track record since 2001, you can receive a PDF file with all of his articles published in REMNANT REVIEW, with all of his recommendations and the dates when he made them.  See the notice at the end of this interview.  (If you're not ready to invest, then you don't really need those specific recommendations.)

     Here is an interview I did with Parks earlier this year, updated in mid-May, 2003.

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GN:
Do you think that we are now in a bull market for gold?

SP:
I think we are.  I contend that we have been in a bull market for almost exactly two years.  Look at a chart for the gold price, and you can clearly see that the bull market for gold began in May 200l.  From early May 2001 until early May 2002, gold moved from $270 to $300.  During the seven months from May 2002 to December 2002, gold continued to rise from $300 to $320.  Then, against the backdrop of war, gold rose over a two-month period from $320 to $380.  In the next two months, the bullion price gave up $60 and returned to about $320. But, since early April, it has begun to move higher again.  At last count, gold was above $350. This $30 upward move in gold is for the right reason.  The move to $380 before the war, on the other hand, was for the wrong reason. 

GN:
What do you mean, "wrong reason"? 

SP:
All of the talk about the war was the wrong reason for gold bullion to rise $60.  True to form, the financial media misinformed its readers about gold.  The pre-war situation provided a cover to the financial media to give a plausible excuse for gold's rise -- one that was not related to a looming fall in the dollar against the Euro, which we have now begun to see.  Furthermore, the war story added fuel to the fire, which brought in new investors, despite an overbought price with predictable results: a sharp correction.  That correction of course took the wind out of gold's sails.  One thing we can count on is that the financial media have no interest seeing a real bull market for gold.  They prefer business as usual.

GN: 
With your previous experience, why do you think this might be a different situation from the previous ones, when the price reversed?

SP:
First, let me say that I am hardly 100% sure this current bull market won't reverse.  I am very confident that we have only scratched the surface of the bull market for gold that began two years ago, but I could be wrong.  I do not believe, however, that the past two-year mini-gold bull market is merely a blip in an otherwise continuing bear market for gold.  I am very confident that the gold's dark days in a sub-$300 basement are behind us. 

GN: 
If we are as you think in a bull market for gold, how high do you think the gold price can go?

SP:
If I said $5,000, would you let me finish this interview?

GN:
Let's see how the next few minutes go.  Go ahead with your $5,000 thesis.
 

SP:
Truthfully, I don't really have a target of $5,000, but I do expect the price of gold bullion in US dollar terms go to levels that today would seem unimaginable. 

GN:
Richard Russell, who in 1981 said that a 20-year bear market in gold was possible, and who was constantly bullish on the US stock
market from at least 1983 until 2000, recently said that he expects the Dow Jones Industrial Average and gold to meet at 3,000.

SP:
I'll answer the question "How high can gold go?" with another question: "How low can the dollar go?"  There is a small but growing number of investors who believe that paper money is terminal.  I happen to be among that group.  I believe that eventually the US dollar will come down in "gold bullion terms" to the point where the US can make its dollar freely convertible into gold. 

GN: 
Do you really believe that will ever happen?

SP:
Yes, I really do. 

GN:
Keep talking.

SP:
Since the birth of the Federal Reserve System, the dollar has lost over 90% of its purchasing power.  Anyone can check this with the inflation calculator on the home page of the website of the Bureau of Labor Statistics: http://www.bls.gov.  The earliest year on the calculator is 1913, the year that the Federal Reserve law was passed.  If you enter $100 into the calculator, you will find that it would take almost $1,900 to match the 1913 dollar's purchasing power.  But, in 1913, the brand-new income tax kicked in only above $3,000, at 1% to 7%, at a time when most American families earned under $1,000 a year.  You could buy a new Model-T Ford in 1913 for about $500.  So, to match 1913's prices, today's $1,900 would have to be mainly after-tax dollars.  You would have to earn almost $3,000 to keep $1,900. 

The idea of the Federal Reserve was sold to the American people in 1913.  We wouldn't even be having this interview today had the American people rejected the FED, and insisted on a freely gold-convertible U.S. dollar instead.  The worldwide policy of money manipulation (central banking) is the antithesis of sound money. In my view, most (if not all) economic problems are a result of fiat money.

GN: 
You would say, then, that the biggest truth is that the government continues to inflate the currency? 

SP: 
Exactly.

GN: 
The bear market in gold was a long one, almost a classic long
one.  Tell us about the duration of it.

SP: 
Where do we begin 1980 or 1996?

GN:
My assessment is that we're talking about a fundamental aspect of dollar/gold, that is, the relationship between the strength of the dollar and the price of gold.  The dollar began to strengthen, certainly after 1980.  Then there was the 1985 international currency accord when the FED began pumping -- seriously pumping -- the money supply, and the dollar fell against international currencies.  But gold did not significantly move back up, even though the dollar was falling in relationship to those foreign currencies.  So, let's talk about that maniacal move up to, briefly, about $840 for one day in January of 1980.  Then let's talk about the movement down to 2001. 

SP: 
As you will remember, the "inflation and the perception of more inflation" talk in the mid to late seventies caused some serious fears.  Also, investors up to that time had not witnessed a bear market for gold.  Remember, you could buy a quarter-ounce British gold sovereign coin for $10 in 1970. 

GN:
I did, as a matter of fact. 

SP:
More importantly, the anti-gold spin had not yet begun -- not in earnest at least.  So, the conditions were ripe for a spike in the gold price in 1980.  Since then, even though the anti-gold geopolitical spin has been in command of the gold bullion market, there have been a couple of mini-bull markets: one in 1988 and another in the mid-nineties.  Each time, this was enough to suck in old-line gold believers.  "Happy days are here again." They weren't. 

GN:
Just before the war in Iraq, the gold price moved up to over $380.  But once the war got under way, it fell back to about $320, and now it is trading around $340.  What I am interested in now is this: If this move from a 2001 low of $270 to the current $350 price range is a fundamental turn in the market.  In terms of timing and its paralleling the turn of the Euro, it does have the look, to me, as a permanent turn.

SP: 
Nothing is permanent, of course, but the current market could be an indicator that a serious bull market for gold is in the works.

GN: 
We have to say, in the past, we've had these temporary up moves, and then it has moved back.  From the point of view of the investor, is there something that you would say he should look at  -- pay attention to -- that would indicate that this could be a temporary phenomenon compared with the downward move that we saw from 1980 until 2001.

SP: 
In other words, what should the investor watch out for that could indicate that this bull market is temporary?

GN:
That's what I mean, Sam.

SP:
To a large degree, the bear market for gold was driven by the holders of above-ground gold.  As the European central banks proudly sold their gold, the financial media pounded their anti-gold drums with a deafening beat.  The gold bear market was an orchestrated affair, as most gold investors know now.  The big shoe that hasn't dropped is the IMF.  The International Monetary Fund is a holder of over 3,000 metric tonnes of gold.  Should it ever announce a plan to liquidate its gold, the gold market would crash.

GN: 
I would almost be willing to bet in that scenario that mainland China's central bank would be a major purchaser of IMF gold if the IMF did that. 

SP: 
IMF action and continued selling pressure from central banks is, in my view, the biggest potential negative I can see.  If you believe China could be a major purchaser of IMF gold, then the only significant potential negative I can see could actually become a huge positive for gold. 

GN: 
Meaning it would be a signal to the world about the value of gold
as an alternative currency.

SP: 
Exactly.

GN:
The Chinese were not players 10 years ago and certainly not in 1979, when Deng Xao Ping first began to decentralize agriculture and return profits to the farmers.  But the Chinese now have become significant players in international trade, and I think they would likely be willing and even enthusiastic buyers of gold if western central banks indulge in some large dumping, which they've said they won't do until at least next year.  Officially they've said that.  Now, that doesn't mean they won't do it, but that was what was agreed to in the Washington Agreement.  Meanwhile, Canada's central bank has sold 98% of its gold since 1980, and still has 500,000 ounces to sell, which it says it will do. 

Ultimately, gold is a political metal, and it should be purchased on that assumption, whether you're going long or short.  There are political -- strong political -- implications for both buyers and sellers.  And so, gold's price is subject to manipulations in a way, for example, that silver or copper do not seem to be.

SP: 
Yes, I agree with you completely that gold is a political metal.  I disagree, however, with your use of the term "ultimately."  In my view, the dollar price of gold is ultimately a hard currency.  Mises said that a country's currency must be a commodity, and as such, at the end of the day it will be subject to the laws of supply and demand.  If and when the citizens really become afraid of fiat money, and believe they need a safe haven for the fruit of their labor, the price of gold will defy politics. 

In other words: in the shorter term, gold is a political metal, but in the long term, its price will be driven by fear and then watch out.  You taught me this, Gary: 29 years ago. 

GN:
Let's talk about the difference between the gold bullion market and the gold shares market.  Do you think that the shares will out-perform bullion?

SP:
While that question is simple, the answer is a little more complicated. 

GN: 
Go on.

SP:
Generally, gold shares provide leverage to gold bullion.  In a rising market for gold bullion, gold mining stocks tend to out-perform gold.  Conversely, when the price of gold is falling, the gold shares tend to fall dramatically faster and further than gold itself.

It is my view that a higher price for gold in the immediate future will push most of the gold shares higher. 

GN:
Might the stocks have some particular technical reason for appreciating either slower or faster than simply the ownership of the bullion itself?  Let's talk about why would there be a technical advantage of shares or disadvantage to shares verses the bullion.  For instance, a mining company may have been involved is forward sales.  That is, its management has agreed to deliver gold at a fixed price.  Now, that company might not do very well in a rapid upward move of the bullion price because it would have contracted previously to deliver gold at a lower price. 

On the other hand, there may be another company that's a marginally producing company with high costs, but maybe that company would do very well with the rising price of gold because of a sudden move in that company from a non-producer to a profitable producer.  So, obviously, those two share prices are going to move very differently in relation to gold. 

SP:
To the extent that a mining company has sold gold forward, it has limited the potential for upside gain and downside risk on the gold sold forward.  Say that a company has sold 300,000 ounces of its 2004 production forward at $360 per ounce. In the event the gold price is higher than $360 in 2004, the company will have given up opportunity on the difference.  A fifty-dollar difference in the gold price would affect the company by $15 million (300,000 times $50).  If gold goes higher, the company gives up opportunity. If it goes lower, the hedge offers protection. 

Marginal producers offer the most leverage to gold.  Say that a mining company can show a profit of $5.00 per ounce of production when gold is $350 per ounce.  If we up the gold price by $50 per ounce, and the company's profit increases to $55 per ounce of production. This leverage of course works both ways.  If gold goes down $50, the company's profit per ounce will go from $5.00 per ounce to a loss of $45 per ounce. 

GN:
Is there as much hedging going on today as there was two or three years ago? 

SP:
No.  In fact there is much less. 

GN: 
That would indicate that the guys in the mining industry think that this is a bull market. 

SP:
They are certainly coming to that conclusion.  But, there is more to the hedging story.  In the past, hedging was profitable for the gold producers.  In its 2001 annual report, Barrick stated that over the preceding 14 years, it had made $2 billion from its hedging activities. 

GN:
Two billion?

SP:
Yes, two billion.  For several years, Barrick was the most popular gold stock.  Much of its popularity came from its profitable gold-hedging activities.  But, as the gold market began to improve in mid-2001, the effect on Barrick turned negative.  Gold stock investors shunned the company because it had so many ounces sold forward.

GN: 
Quantify that - how many ounces?

SP:
At year end, 2002, Barrick had 18 million ounces sold forward at an average price of $341 per ounce.

GN: 
What effect has Barrick's hedging had on its share price since the bear market in gold ended in 2001? 

SP:
At the beginning of the 2001, two companies were trading around $17 or $18.  Newmont, the big major known for its disdain for hedging, is currently about $28 and Barrick is stuck at $17. 

GN:
What could happen to Barrick, or I guess any company, that hedges, if gold went way up say to $800 for example?

SP: 
Barrick contends that it can roll its hedge position forward.

GN:
Isn't that like a debtor asking the bank to roll over his note?

SP:
Exactly.  This brings us back to your question about the mining company guys believing that we are in a bull market for gold.  Barrick management seems to believe that the bull market in gold is only temporary. Evidently they believe that they can always find those 18 million ounces to pay off its forward position.  So, they can't be terribly bullish on gold -- can they? 

GN:
From 1976 to 1980, the market in gold stocks was just spectacular.  How do you view the current market compared to that time? 

SP:
It is very different.  For one thing the market for gold shares is broader, and likewise the number of companies is, too.

In the late 70's gold stocks were a new game for investors.  In fact, gold itself was a new game.  So, what you had in the late seventies was thousands of retail investors chasing South African gold stocks which, at that time, were paying huge dividends.  Also, there were a few operating gold companies in North America, but very few.  So, much of that money found its way into "penny gold stocks."  Today, that term has almost vanished from the gold mining vernacular. 

A new selection of gold stocks has emerged as time passed, and the mining industry operated in a gold price scenario that averaged $300 per ounce rather than $100.  The price of gold spiked to over $800 in early 1980.  And, although the price hasn't returned since, it has been high enough to maintain some level of interest in gold mining. 

Where the current gold stock market is different is that there are more stocks to choose from, and more importantly, they tend to be more substantial.  The gold mining industry has grown up. 

GN:
Will this "grown up" gold mining industry offer more or less opportunity for investors than did the industry in the late 1970's? 

SP:
There will be more real opportunity.

GN: 
What is "real" opportunity?

SP:
Lottery tickets are not a real opportunity, regardless of how much payoff there can be on a single ticket.  From 1976 through 1980, most small gold stocks had a risk profile like a lottery ticket.  I particularly remember two stocks that I and my clients got into that paid off 20 to one.  Although one of them did mine some gold, neither was ever an economic success.  In my view, the huge payoffs in those two stocks had to do in part to the "hype" of the times.  The current gold mining stock sector offers so many more real gold mining investment ideas that the "Lottery ticket" stocks loose out by comparison.

GN:
To keep the metaphor going, is there any point at which you would buy a "Lottery Ticket"?

SP:
Throughout the gold bull market, there will be tiny gold stocks (exploration companies) that are doing very good work on their exploration projects.  In really hot gold bullion markets, these tiny stocks can be very exciting and very profitable.  Most of them, of course, will never discover a mine that will become a commercial producer.  As I see it, the time for an investor to buy these stocks is only after he has made a fortune in the more substantial gold producers.  In my view, now isn't the time to take exploration risk.  With gold at $350, the risk-to-reward ratio in producing companies or companies with well advanced projects is much better. 

GN:
So, you think there will be future columns to write in REMNANT REVIEW?

SP:
For a broker, there are always columns to write.  The question is this: Will there be readers?

GN:
If my subscribers continue to make the kind of profits a few of the hardy ones made when you first began writing your column in 2001, there will be lots of readers.

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     Because of regulation by the United States government, which is designed to make investors wary (if not worry), I include the following disclaimer.  This disclaimer is specially designed to enable government regulatory bureaucrats from getting fired after a major public relations disaster, such as the recent unpleasantness experienced by NASDAQ investors.  It states the obvious.

     All statements herein contained are considered expressions of opinion. No statement or expression herein contained is to be considered an offer or solicitation to buy or sell the securities  referred to herein. There can be no assurance that future prices of any securities or commodities mentioned in the context of this article will prove profitable or will equal the performance of past price levels.

     Note: to read this PDF file, you must have Adobe's Acrobat Reader installed on your computer.  It's free.  If you don't have Acrobat Reader installed, download it now.  Click here:

      http://www.adobe.com/products/acrobat/readstep2.html

      Next, download Parks' report.  As soon as you see Parks' report on your screen, save the file on your hard disk.  On the left-hand side of the Adobe Acrobat Reader's tool bar, there is an icon of a floppy disk.  Click it.  Name the file "gold stocks."  Then save it in whatever directory you choose, such as "My Documents."  You can then retrieve it at any time for review.  I also recommend printing out the file immediately.  Click the printer icon on Acrobat Reader's tool bar.

     Who needs Parks' report?  Only someone who is thinking about investing in North American gold mining shares.  This may or may not be you.  If you are serious about taking advantage of this opportunity before the general investing public finds out about it, then you really should read what Parks has had to say. 

      If nothing else, Parks' report will save you from a lot of grief later on, when the gold stock mania hits the investment markets, and you think: "I knew I should have bought shares.  I'll buy anything!  At any price!"  This mania will come.  Don't get into it.  Sell into it!  Or else stay out of it.  With every mania, there is a "NASDAQ 1995" phase and a "NASDAQ 2000" phase.  Your goal is to start unloading your shares, systematically, in the "NASDAQ 1999" phase.

      That's why I am publishing THE GOLD WARS: to cover the reality of gold and the government's likely responses to the mania when it hits -- and it WILL hit, in my view.  Of course, that's just my opinion, and past performance is no guarantee, yada, yada, yada.

      Some of you are going to invest a couple of thousand dollars in this market in the next few days, just so that you will not be kicking yourself later on, in "NASDAQ 1999."  That's actually a sensible defensive strategy.  It's psychological insurance against being sucked into this market when you ought to be unloading your portfolio, however small.

      I want to be clear about this.  I regard this market as a high-return market, but with all hopes of high returns the investor should have a willingness to lose.  It's the "can't lose" investments -- "NASDAQ 1999" -- that will bust you.  If it's a question in your mind of economic survival, buy some gold coins before you buy North American gold shares.  Park's strategy is for people with crap-shoot money.  (In my view, so is the S&P 500.)

      In short, "widows and orphans need not apply."

      Having said this, let me add something else: If you're going to get into this market, get in now with at least some money.  You can buy more shares later.  On the other hand, if you decide to stay out now, stay out permanently.  What ruins people who hear about a bonanza early, but who fail to act on what they believe is likely, is that they kick themselves all the way up the charts, right into the second half of 1999.  Then they buy.  So, if you decide to walk away from this market, don't look back.  Take advantage of some other opportunity later on.  There are always new opportunities.

      In short, "act now or forever hold your peace."

      I am offering Parks' compiled report to serious investors as a free bonus for subscribing to my newsletter, REMNANT REVIEW.  A one-year subscription to REMNANT REVIEW is $129/12 issues.  But you can also sign up for a quarterly subscription (3 issues), which will be billed automatically to your credit card every quarter until you cancel, for $33.25 per quarter.  This way, you can "test-drive" my newsletter to see if you like it . . . and you get the compiled special report by Parks. 

     The big payoff will be here, if gold rises.

     Subscribe to REMNANT REVIEW by phone.  Call my customer service number:

                          (800) 528-0559

     Ask specifically for the e-mail edition of REMNANT REVIEW, since it is only with the e-mail edition that you can get Parks' compiled bonus reports on specific North American gold mining stocks.  The report and REMNANT REVIEW both come in PDF format.  Be sure the order-taker tells you how to access Parks' report.  Ask, if she forgets. 

     Hours: 9 a.m., Pacific Daylight Time, to 5 p.m.
 

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