I don't believe that the mentioned "African Gold Zimbabwe" is AFG, but the article does demonstrate rapid resurgence of E&P in Zimbabwe:

Mining Giants Plan Massive Diamond Prospecting

The Herald (Harare)

January 22, 2004
Posted to the web January 22, 2004

Harare

MINING giants, De Beers Zimbabwe Prospecting Limited and Circle Three Mining Corporation are proposing a massive diamond prospecting project that will see the two companies prospecting for the mineral in Gweru, Harare, Bulawayo and Kadoma mining districts.

The two mining companies intend to prospect for diamond in areas covering a total of 448 180 hectares.


Another company, African Gold Zimbabwe, has also undertaken to prospect for gold on two areas measuring 120 550 hectares within the Harare and Gweru mining districts.

De Beers Zimbabwe Prospecting Limited, Circle Three Mining Corporation and African Gold Zimbabwe have applied to the Mining Affairs Board for an exclusive prospecting order for 12 areas under the four mining districts.

In the latest issue of the Government gazette, the Mining Affairs Board said De Beers, Circle Three Mining and African Gold Zimbabwe intend to prospect for diamonds and gold over an area of approximately 568 730 hectares from the three areas.

"The applicants intend to prospect for diamond within the areas, which have been reserved against prospecting pending determination of this application.

"Prospecting authority is sought upon registered base mineral blocks within the reservation," read part of the notice.

One of the two diamond prospecting projects to be undertaken by Circle Three Mining measures 65 000 hectares and is bounded by a line commencing on the Zimbabwe-Zambia border approximating five kilometres.

All areas, which have been earmarked for prospecting are within the 15 000 hectares and 65 000 hectares range and are mostly in the traditional mineral bearing areas of the country.

The proposal to prospect for diamond in the country comes at a time when the US$41 million Murowa Diamond Mine has started to operate following the successful relocation of 141 families which were on the mining site.

Mining is one of the sectors which has been depressed over the last five years but some of the players in the industry have said investors should look at non-traditional minerals.

An example that is often given is that of platinum, which is fast becoming the world's most lucrative mineral.

The mining of diamond in Zimbabwe is also fast gaining pace and it is expected that some of the mining projects would create a lot of employment.

Relevant Links

Southern Africa
Mining
Zimbabwe

Is there a date for results yet ?

African Gold PLC
15 June 2004


15 June 2004

African Gold announces Memorandum of Understanding with Tangold

African Gold Plc ('African Gold') the AIM quoted gold mining and exploration
Group has entered into a Memorandum of Understanding ('MOU') with Greendale
Universal Holdings Limited ('Greendale') concerning Tangold SPRL ('Tangold') a
company duly incorporated in the Democratic Republic of the Congo ('DRC'). The
MOU is not itself legally binding but is subject to formal agreement being
entered into.

Tangold has entered into an agreement with Office des Mines d'Or de Kilo-Moto
('Okimo') a DRC parastatal and the holder of the exploration and exploitation
rights to Concession 38 in the Kilomoto gold belt in the north-eastern DRC.
Tangold has the right to explore Portion 3 of Concession 38. Greendale owns 80%
of the shares in Tangold, and Okimo owns the remaining 20%.

The DRC has a long history of gold production and was in fact the world's fifth
largest producer in the 1960's. Limited gold exploration activities have taken
place since then. The country and in particular the Kilomoto gold belt, is well
known to host large gold deposits. Eleven million ounces has been produced from
the Moto and Kilo areas since 1906. The Agbarabo mine, one of the Moto deposits,
produced 600 000 ounces of gold at an average grade of 39g/t. The Gorumbwa area
produced 1.2 million ounces of gold at an average grade of 22g/t. The area is
therefore highly prospective for gold exploration.

The MOU entails:

1. In the next 90 days African Gold will undertake to:

Conduct a due diligence on the company and licence agreement;

Carry out a preliminary exploration programme;

Design a detailed follow up drill and exploration programme for
agreement with Greendale;
It is envisaged that this may involve expenditure of US$250,000


2. At the end of the 90 day period African Gold can enter into a Joint Venture
Agreement ('JVA') with Tangold and will pay a sum of US$250 000 or it can
withdraw.

3. African Gold will earn into the JVA by conducting a detailed exploration and
drilling programme. Pre-agreed drilling and exploration commitments will
allow African Gold to earn 50% of Greendale's interest in the project over a
period of time.

For further information on the Company please contact:

Contacts:

Oliver Baring + 44 (0)7785 320567
Jim Finn + 353 1 833 2833

Sounds. It seems that their strategy is to built their portfolio with gold rich land and then sale them to biggies for profit. It seems to me that the latter is more plausible since raising a mine is very very expensive and consider high risk, it also takes least 3 to 4 yrs to bring the mine into production. any views???

Why Invest in Gold Now?

Dr David Evans

devans@citigold.com

June 2004




Introduction
The reasons involve currencies, banking, and monetary history. These are complex areas, unfamiliar to most. Everyone knows how money works on an everyday level, but most people are surprised at the way the money system works at the high-finance level. The current money system has some systematic problems and is likely to undergo great stress in the next few years. These stresses will effect the financial lives of everyonemany will lose, some will profit.


Ive tried to present the case as simply and briefly as possible. Due to the inherent complexity of the topic, its almost impossible to do it justice in a shorter piece. No special background or knowledge is required to understand what follows, just some time and an enquiring attitude.

Summary
Here are the fundamental reasons to invest in gold soon (in summary form):


1. Gold is more than just another commodity, its a currency. It is THE currency that evolved in the marketplace over the last 5,000 years.

2. Gold and silver are the only currencies not created and controlled by governments. All of todays other currencies (dollars, euros, yen, pounds, renminbis, rupees, etc) are fiat currencies, which means they do not represent anything tangible but are only worth something due to government decree (namely legal tender laws).

3. Governments always end up creating too much fiat currency out of thin air. All fiat currencies in the past have ended up worth very little, collapsing into hyperinflation or threatening to. All of todays fiat currencies have been fiat currencies for less than 34 years (all government currencies were convertible to gold until 1971).

4. The rate of creation of fiat currency accelerated markedly in 1995, leading to todays worldwide bubble in asset prices. In September 2003 the rate started to slow, suggesting that the bubble might end soon.

5. In the pain of the post-bubble period, governments will come under pressure to return to backing their currencies with gold.

6. Returning to currencies backed by gold is practical. Even the possibility that it might happen will cause the value of gold to rise considerably.

7. Todays fiat currencies are unfair. For example, because the US issues the worlds reserve currency, the rest of the world sends the US real goods and services and just receives bits of paper or electronic bookkeeping entries in returnmany ships travel to the US full of goods, but return half empty.

8. Governments and central banks have been suppressing the price of gold since 1995 by lending and selling their gold. They wont be able to keep it up forever. Then the price of gold and silver will soar.

9. The pressures of enormous debts will increasingly tempt the United States to inflate the US dollar so much that it will become almost worthless, in order that the debts can be easily repaid in near-worthless dollars. Gold will gain as the falling US dollar destroys trust in fiat currencies.

10. The finance industry and governments have promoted fiat currencies at the expense of gold in the publics mind for decades. From here, the investing publics attitude to gold can only become more positive.




Details


1. Gold is more than just another commodity, its a currency. It is THE currency that evolved in the marketplace over the last 5,000 years.

Gold was the main currency in most of Europe, Asia and the Americas for most of the last few thousand years, up until 1971. Silver was also widely used, though to a lesser extent.


Gold evolved independently as money in the worlds main civilizations, because it is:

1. Rare

About 5 parts per billion of the earths crust. Difficult and expensive to mine.


2. Indestructible

It does not tarnish or decay.


3. Compact

If all the gold ever mined were made into a solid block whose base was the size of a football field, then it would be about 1.5 meters (5 feet) high.


4. Malleable and divisible

You can easily reshape it, flatten it, and divide it into tiny pieces.


5. Hard to find

The amount of mined gold has increased only slowly, rarely more than 2% per year.




Until 1971, government currencies were backed by gold. You could, at any time, exchange a unit of any of the worlds main government currencies (such as a dollar, a yen, a pound, or a rupee) for a prescribed amount of gold. Currency notes were just certificates for various weights of gold. For example, from 1934 to 1971 you could exchange 35 US dollars for one ounce of gold.




Progressively from 1913 to 1971 governments withdrew the right to exchange government currency for gold. For example, from 1944 to 1971 a non-US currency unit (such as a yen or a pound) could only be exchanged for US dollars, and only national governments could go to the US government to exchange those US dollars for gold.




In 1971 President Nixon of the United States broke that nations promise to always exchange 35 US dollars for an ounce of gold. Since then the worlds government currencies have been fiat currencies (see point 2 below) they are not defined as a weight of gold, they have no connection to any commodity or anything tangible, and they are only worth what someone else is prepared to trade for them. The fiat currencies now float against one another, with their relative values going up and down with economic trends or fashions.




The only significant use of gold today is for investment, that is, as a currency or a store of value. This includes jewelrythe fundamental purpose of gold jewelry is to store something valuable in your personal safekeeping. Gold has some non-investment uses such as in electronics, but the amount of gold used in these ways is relatively tiny. Almost all the gold ever mined is still in use today. Silver is differentthe industrial uses of silver (photography, utensils, medicinal, electronics) outweigh its investment use, and much of the silver ever mined has been effectively lost because it is hard to recover.





2. Gold and silver are the only currencies not created and controlled by governments. All of todays other currencies (dollars, euros, yen, pounds, renminbis, rupees, etc) are fiat currencies, which means they do not represent anything tangible but are only worth something due to government decree (namely legal tender laws).




All todays government currencies are fiat currencies. A fiat currency is defined and created by a government. It is given meaning only by legal tender lawsnational laws that say that the fiat currency has to be accepted as payment in that country, and thus force people to use the fiat currency.




The term fiat currency came about because the legal tender laws that give it value are a fiat (or authoritative pronouncement) of government. A fiat currency is a currency brought into existence by government decree (that is, by fiat).




The value of gold, on the other hand, is independent of any government laws. Unlike fiat currencies, gold is accepted as valuable without needing protection by laws.





3. Governments always end up creating too much fiat currency out of thin air. All fiat currencies in the past have ended up worth very little, collapsing into hyperinflation or threatening to. All of todays fiat currencies have been fiat currencies for less than 34 years (all government currencies were convertible to gold until 1971).




Fiat currency is created at the whim of politicians and bureaucrats. Historys lesson on this point is clear: those in charge of a fiat currency always, eventually, due to some urgent government priority, create too much of the currency and it becomes worth less, and ultimately worthless.




As a government creates more of its fiat currency then there is an increasing amount of currency to pay for the same amount of goods and services, so the prices of the goods and services rises. The increase in the quantity of currency is called inflation, and the consequent rise in prices is measured to some degree by the CPI (consumer price index). The value of a currency (how many goods and services a unit of the currency can buy) depends in the long run on how much the countrys government inflates its currency.




Gold, on the other hand, treats everyone equally. Unlike fiat currency, no one can conjure gold up out of thin air to spend for themselves and get others to do their bidding. Gold has to be mined, ounce by hard-won ounce. Because the supply of gold can only ever increase slowly, prices in terms of gold tend to stay roughly constant for centurieschanging mainly due to technological influences that make some goods relatively easier or harder to make.




There have been hundreds of fiat currencies in the past, in various countries at various times. In every single case, the currency eventually became worth much less and was abandoned because the people in charge of making it eventually succumbed to the temptation of making far too much of it.




Examples of fiat currencies include:

1. Chinese bark currency (notes printed on tree bark, as recorded by Marco Polo), 1260 1360. One of the earliest fiat currencies, ended in hyperinflation.

2. Banque Royale Notes in France, the Mississippi system (designed by John Law). Issued in 1716. Collapsed worth nothing by 1720.

3. Continental bills, printed by the US Congress during the American Revolution. Began issue in 1775, shrank to 1/40 of their original value by 1780. Hence the saying not worth a Continental.

4. Assignats in France during the French Revolution. Issued 17901796, collapsed to 1/600 of their original value by 1797.

5. Marks in Weimar Germany, after WWI. Issued from 1919 to 1924, collapsed to three trillionths of their original value. This was the currency that was carried in wheelbarrows towards the end.




The only fiat currencies that have not collapsed are todays fiat currencies (that is, none of the hundreds of previous fiat currencies ceased to be legal tender without first undergoing a massive loss of value). All of those currencies effectively became fiat currencies in 1971, when the United States abandoned its commitment to pay 35 US dollars for an ounce of gold (see reason 1, above). In the decades prior to 1971 there were no fiat currencies, because each currency unit was ultimately defined as a certain weight of gold.




In 1971 a US dollar was worth 1/35 of an ounce of gold. Today it is worth less than a tenth of that, about 1/400 of an ounce of gold (because gold is about US$400 per ounce). From an historical perspective, the only question is how quickly the US dollar loses value, not whether it will continue to lose value.





4. The rate of creation of fiat currency accelerated markedly in 1995, leading to todays worldwide bubble in asset prices. In September 2003 the rate started to slow, suggesting that the bubble might end soon.


The worlds main currency and the currency used for most international transactions is the US dollar. Vast amounts of US dollars are used outside the United States. All countries hold the US dollar as their main reserve currency. The health of the worlds economy depends on the US dollar.




In 1995 the number of US dollars started increasing quite markedly. The evidence is here in these monthly money supply statistics

http://www.economagic.com/em-cgi/data.exe/fedstl/m3ns+1

and graph

http://www.economagic.com/chartg/fedstl/m3ns.gif .


(M3 money supply is about the best measure of the number of US dollars, albeit imperfect. NSA means non-seasonally adjusted. It is the hidden money supply increase, the M3 increase less the CPI, which is most relevant to bubble formationbecause the extra money raises prices of items that are not well represented in the CPI, principally assets such as bonds, stocks, and housing. High M3 growth rates prior to 1990 were matched by similar CPI ratesthey did not lead to bubbles because the rising prices were plainly visible in the CPI and monetary authorities were forced to take appropriate actions.)



In the early 1990s the money supply increased at about the CPI, just a few percent per year at most. But from 1995 to September 2003 the number of US dollars increased at about 8% per year, far faster than the combined rates of increase of goods and services and of the CPI. This extra currency flowed into buying assets, thereby pushing up asset prices. In a bubble, the principle supply-or-demand factor is the oversupply of currency. Similar increases in the amount of currency occurred in most of the worlds fiat currencies, and a worldwide bubble in asset prices developed. As of early 2004, the prices of real estate, stocks, and bonds are all well above historical norms.




Starting in September 2003 the rate of increase in the number of US dollars has slowed to about 4% per year. A bubble requires rising asset prices to be maintained, because once a belief develops that asset prices are not rising then many people sell assets to repay the borrowed currency they used to buy those assets. Historically, bubbles usually end shortly after the flow of currency into the assets stops or reverses. The data thus suggests that the bubble may end in late 2004 or early 2005.





5. In the pain of the post-bubble period, governments will come under pressure to return to backing their currencies with gold.




This requires some understanding of the current fiat currency systems, and how the current bubble came about.

How todays fiat currency systems work

In all the worlds fiat currency systems, all currency is technically created by the act of borrowing. Currency is initially created by the government borrowing currency from its central bank (or reserve bank), which the central bank creates out of thin air (the act of borrowing is inseparable from the act of creating the currency out of thin air, so we say the currency is created by borrowing). All other currency is created by someone borrowing from a bank:

About 90% of deposits made to a bank can be lent out by the bank. This system is called fractional reserve banking, because the bank retains a fraction of deposits as a reserve then lends out the rest.

The depositors effectively still have their currency in the bank, while borrowers also have currency to spend. Hence, borrowing creates new currency.

The borrowed currency generally ends up as a deposit in a bank, where 90% of it can be lent out again. And so on. In this manner, for each dollar that is deposited, $10 of loans are eventually created by the banking system.

The system is safe enough as long as not too many bank depositors withdraw their currency at once.



By the way, printing only creates physical notes or coins to be substituted as required for the currency created by borrowingprinting does not actually create the currency. Most currency exists as numbers in bank accounts.


Thus:

All fiat currency is someones debt. Someone out there is paying interest on every unit of fiat currency.

A fiat currency is essentially a system of IOUs, a system of credit.

Lower interest rates encourage borrowing and thus increase the rate of growth in the amount of currency (which causes some prices to increase).

Higher interest rates discourage borrowing and thus decrease the rate of growth in the amount of currency (which causes some prices to decrease).

The amount of currency owing on loans (the amounts borrowed plus interest) is more than the total amount of the fiat currency in existence (the amounts borrowed). So either the amount of fiat currency must continually increase, or there will be many failures to repay loans. A fiat currency system must expand to survive.




Governments, via their central banks, set short term interest rates, essentially by decree. Due to fractional reserve banking, the amount of money expands or contracts in response. Consequently, we get the business cycle: More borrowing creates more currency, so prices start to rise, so the government increases interest rates, so borrowing decreases, which reduces the rate of growth in the amount of currency, so prices fall, so the government decreases interest rates, so more borrowing occurs, so more currency is created, and so on. This is normal, but todays bubble is not like this.



The current bubble

The current bubble started in 1995 when the government of the United States and then some other countries lowered their interest rates and left them low. The amount of US dollars increased by 8% per year over 19952003, and the amount of the goods and services increased by about 3% each year, implying about a 5% per year increase in prices due to the extra currency. However, US CPI only increased at about 1% per year over this period, because:

1. The CPI only measures a narrow range of goods and services, many of which became cheaper in 19952003 because (a) their manufacture switched, for example, from the US to China, and (b) because the retail chain became more efficient (for example, Walmart).

2. The US government changed the methods used to calculate the CPI in about 1996, so as to reduce CPI increases. The most significant of these is hedonic calculations for computers, which alone reduced the US CPI increases by at least 20% during 19972003. (The justification for hedonic calculations is to correct for qualitative improvements. For example, a 1,000 MHz computer bought in 2001 for $1,000 is considered to be ten times as much computer as a 100 MHz computer bought in 1997 for $1,000, so the CPI component for computers shows prices plummeting by 90% over the period. Of course, to buy a computer to write articles like this with still cost me $1,000, so the computer part of my cost of living stayed the same.) Another significant change is a system of simply lowering the weighting in the CPI of items whose prices are going up the quickest.




So which prices went up? The extra newly created currency was used to bid up asset prices, first stocks and bonds then real estate. Rising asset prices encouraged people to borrow to buy more assets, and that newly created currency further increased asset prices. A bubble developed. However, the central banks, particularly the US Federal Reserve under Alan Greenspan, did not raise interest rates to slow the rate of currency production. On the contrary, in response to various problems such as the Asian Crisis or the stock market fall of 2000, Greenspan acted to increase the number of US dollars.




As of early 2004, we now have the worlds biggest ever bubble. Biggest by amount of assets (measured in any sensible way you like), biggest in scope (worldwide), and one of the most extreme (measured in terms of ratios such as debt to GDP or stock PEs).




The bubble is built on debt: The currency brought into existence to bid up the asset prices is all debt. There are record amounts of debt in every sector of Western societies today; the ratio of debt to GDP in the West is substantially higher than it was in 1929. There is now so much debt that the central banks can no longer raise interest rates substantially without bankrupting much of the population. We are past the point of no return: the central banks can longer stop the bubble, they have to let it run its course. When no one has enough confidence or collateral to borrow any more currency then the bubble has to end, because asset prices cannot rise any further.




When the bubble bursts, asset prices will fall. Many people will find that their assets sell for less currency than they borrowed to buy those assets, and they wont be able to repay their debts. Fire sales of assets will lower asset prices further, making the problem worse and more widespread.



Where we are now

Governments are currently attempting to postpone the bursting of the bubble by creating more fiat currency. To date they have been successful: the bubble did not burst even in 2000 when stock markets fell severely, as evidenced by the growth rate of 9% that year in the number of US dollars (see the US money supply statistics in point 4). As the size and duration of the bubble grows, efforts to keep the bubble growing need to become more extremefor example, worldwide interest rates are at record lows.




The problem for governments is to increase the amount of fiat currency fast enough to stop the bubble from busting, while maintaining peoples confidence in its value. The principal mean of creating more fiat currency is to keep (both short and long term) interest rates low. The principal means of maintaining confidence is to promote the CPI as a measure of fiat currency unit purchasing power, while altering the CPI calculations so as to disguise the loss of purchasing power. Until 1990 or so the CPI measured the growth of money supply, but after that they have increasing divergedthe CPI now greatly underestimates the growth in fiat currency and thus its loss in purchasing power.




If the bubble bursts and the money supply growth rate goes negative then we will get deflation. There wont be enough currency in the economy to repay debts, and asset prices will fall. This is what happened in the Great Depression of the 1930s. The real economy suffered and unemployment was very high.




If government measures to create more fiat currency to keep the bubble going are too successful, or people lose confidence in the continuing value of the fiat currency because the CPI increases significantly, then we will tend to wards hyperinflationas ever-increasing amounts of fiat currency are required. Most fiat currencies in the past have ended in hyperinflation. Hyperinflation destroys savings and jobs.




If governments can create enough but not too much new fiat currency, while maintaining peoples belief in the continuing value of fiat currencies by increasing the CPI only slightly or slowly, then they will successfully have steered between deflation on one side and hyperinflation on the other. They have steered this course for the last few years, but it is becoming increasingly difficult. The bubble damages the real economy by misallocating resources, so unemployment creeps up. The CPI will creep up eventually due to the extra fiat currency and the dynamics of international trade. Simultaneous high unemployment and high CPI rises are a phenomenon known as stagflation, which we saw in the 1970s and which was ultimately cured by raising interest rates to over 15%. However due to todays high debt levels, such high interest rates are politically unacceptable.



Reforms to prevent a disastrous bubble from happening again

The economic pain, like the current bubble, will be huge. Many voters will have more debt than they can handle. This will lead to a huge political urge to do something.




Interest rates could be set by the market, not by bureaucrats. An historical lesson of the old Soviet Union is that its economy failed largely because bureaucrats could not set prices properly. In a market economy, a price is a mechanism that combines all the relevant information about the item into a single number. The price reflects all the factors of supply and demand, and rations the use of items to those willing to pay for them. The Soviet economy did not fail because its bureaucrats were stupid or lazy, but because it was just not humanly possible to know all the relevant information and to combine it properly to come up with a price that results in a good outcome for the economy. Without good pricing, people waste time and effort doing the wrong things. Markets, however, perform this function automatically and well, without bureaucratic interference, and have done for centuries.




The most important price in todays economies is the price of currencythe interest rate. High interest rates are a high price for new currency, and low interest rates mean new currency is cheap. In todays fiat currency systems, even in the western so-called market economies, interest rates are decreed by a bureaucrat or politician. (Actually it is short term interest rates that are set by decree. Although long term interest rates are set by the bond market, they are heavily influenced by the central banks.) For example, in the United States the US Federal Reserve under Alan Greenspan sets interest rates. The current bubble developed because those in charge of setting interest rates set them too low for too long. The political advantages of low interest rates are compelling in the short term: an expanding economy, extra spending power for voters willing to borrow, and rising asset prices.




If we are going to persist with using fiat currencies, the most important and basic reform is to use a market mechanism to set interest rates. However, for various technical reasons (to do with synchronizing the interest rates charged by different banks and homogenizing the currencies issued by different banks into one currency) it is difficult to use a market mechanism to set interest rates in a fiat currency system.




Modern central banks have been around since before 1700, and virtually every type of fiat currency experiment has been tried and rejected before. For example, Andrew Jackson won the US presidential election in 1832 on a platform of eliminating the third central bank of the United States (todays US Federal Reserve, which started in 1913, is the fourth central bank in the USthe previous three failed and were abandoned). There is nothing essentially new about todays system, except its worldwide reach. So, perhaps we should consider a return to the centuries-old practice of backing our currencies with gold.




It will take something of a crisis before we return to gold-backed currencies, because the finance industry and governments will resist it mightily. But the aftermath of the current bubble may provide enough of a crisis.





6. Returning to currencies backed by gold is practical. Even the possibility that it might happen will cause the value of gold to rise considerably.




All the worlds government currencies were backed by gold in the decades to 1971: a unit of government currency theoretically represented a certain weight of gold, and under the right conditions could be exchanged on demand for that amount of gold.




We could return to that system. We would continue to use the current notes and coins, continue to use credit and debit cards, continue to order over the telephone or internet, and continue to use other electronic financial transactions. It is very unlikely we would ever use a gold coin for buying anything, just as we didnt use gold coins for decades before 1971.




The only difference would be that the notes and coins and amounts of currency would represent goldand could, on demand, be exchanged for gold by banks or government. This would have consequences:

All the world would be on one currency, gold. Currencies would no longer float against one another, so foreign currency exchanges, currency risk, currency hedging, and currency speculation would disappear (except perhaps for changing notes and coins at borders). A nations industries would no longer risk losing their export markets because of fluctuations on the foreign exchange markets. The finance industry would lose a large source of easy income, but everyone else would benefit.

Governments would not be able to create new currency at whim. They would have to repay their loans. Everyone else would benefit through lower inflation (inflation is a hidden tax that acts by eroding the value of any currency we have).

The amount of currency could no longer expand faster than about 2% per year (see reason 1), so inflation would be very low, bubbles would be much less likely to occur, and economy-wide bubbles could not occur. Prices throughout the economy would be more stable than under the current system.

Interest rates could be set by market forces, as they were until WWI. The financial history of the decades prior to WWI strongly suggests that interest rates would be more stable than the last few decades.




If the world returned to gold-backed currencies, the value of gold would rise. If the US were to back its current number of dollars (about US$9 trillion) with its current gold reserves (about 8,150 tonnes), the price of gold would be about US$34,000 per ounce! This figure is only a rough indication, because the US government might not fully back each dollar, or the amount of US dollars or US gold might change between now and a return to the gold standard.




Even if the world doesnt return to gold-backed currencies, the possibility that some or all countries might return to the gold standard will send gold prices much higher as the bubble ends. In 1980 the slight prospect of a return to the gold standard (which did not eventuate then) caused the gold price to rise to about US$880 per ounce, which is equivalent to about US$3,400 per ounce in todays dollars.




Dont confuse value with price in US dollars. Today an ounce of gold buys about 150 Big Macs in the US. In the event that the price of gold goes to US$20,000 per ounce (a fifty-fold increase), it may be that an ounce of gold only buys 750 Big Macs (a five-fold increase).





7. Todays fiat currencies are unfair. For example, because the US issues the worlds reserve currency, the rest of the world sends the US real goods and services and just receives bits of paper or electronic bookkeeping entries in returnmany ships travel to the US full of goods, but return half empty.




Most of us have to exchange our labor to get currency, and gold miners have to go to a lot of effort to mine gold. But some people in the economy (namely the government and the central bank) have the privilege to create currency out of thin air, effortlessly, thereby acquiring much power. Is that fair or desirable?




Newly created money buys things at the price levels that exist when the money is created and spent. But that extra money raises the general price level, so the currency saved by others loses valuethings are more expensive when they later go and spend their money. So fiat currencies favor borrowing at the expense of saving. It is no coincidence that every sector of western societies is at record debt levels as of early 2004. How fair or wise is a system that favors debt over saving?




The United States manufactures the worlds reserve currency, the US dollar. Governments of countries all around the world hold vast numbers of US dollars as currency reserves, needed for international trade. To get those US dollars, those countries had to send real goods and services to the United States, and the United States sent them US dollars in the form of electronic bookkeeping entries or bits of paper (notes and bonds). So the United States gets massive amounts of goods and services in return for a few pieces of paper or electronic bookkeeping entriesjust because the US dollar is the world currency. Currently many ships are arriving at the US loaded full of goods, but return from the US half empty or with low-value back-fill loads. Is it a coincidence that the United States is the worlds richest country and can afford the worlds biggest military forces? Is that fair or right?




People or countries that feel these aspects of the fiat currency system are unfair will welcome (indeed, insist upon) a return to the gold standard. Moves in this direction have already been made recently by Malaysia.





8. Governments and central banks have been suppressing the price of gold since 1995 by lending and selling their gold. They wont be able to keep it up forever. Then the price of gold and silver will soar.




Governments and central banks routinely intervene in currency markets. They generally dont acknowledge that they are manipulating the market while they are doing it, because that would dilute the effect of the intervention. However they usually acknowledge their interventions after the factits not a secret, and is considered normal by everyone connected with currency markets. Gold and silver are currencies, albeit private currencies. Governments and central banks have routinely intervened in the gold and silver markets in the past, so it is reasonable to assume they might be doing so now. They dont directly and comprehensively deny it.




Governments benefit from the use of their fiat currencies. All the government currencies are thus in competition with gold and silver. Governments have an interest in promoting fiat currencies against gold and silverthat is, an interest in lowering the prices of gold and silver. The competition between gold and the US dollar is particularly intense, because the United States gains great advantage by the use of the US dollar as the worlds reserve currency (see reason 7 above).




Thus governments, particularly the US Government, have the means, the motivation, and a track record of suppressing the price of gold and silver. It would be standard practice for them to suppress the price of gold and silver but not acknowledge it.




In 1995, governments, through their central banks, owned about 25% of the worlds mined gold, about 32,000 tonnes. There is a lot of evidence to suggest (for example, see http://gata.org/) that the central banks have been lending their gold to bullion banks on long-term leases, who then sold the gold on the open market, which lowered the price of gold. The IMF even changed its rules for reporting central bank gold holdings in about 1997 so that the central banks no longer had to distinguish between how much gold they physically have and how much they have lent outthey just report both categories combined as how much they own. This word game allows the central banks to hide the extent of their gold lending. For example Australia reports that it owns about 79.9 tonnes of gold, but there are only a few bars of gold left in the Australian central bank because nearly all of it has been lent out.




The gold lent out by central banks has been sold at the retail level, largely in India. The bullion banks who owe the gold to the central banks will have to buy the gold on the open market when it comes time to repay the gold. Either this will force the price of gold up or, because they dont want the price of gold to soar, the central banks will allow the lenders to repay in fiat currency rather than in gold. The lent gold will probably not be recovered from the individuals in India etc. who now wear it as jewelry. Thus much of the gold lent out by central banks will probably never be repaid as gold. Official sales of central bank gold nowadays are often just a matter of the bank receiving fiat currency for gold that they previously lent out.




The amount of gold lent out by the central banks since 1995 is hard to estimate without official figures (of which there are few), but is probably about 15,000 tonnes, or about half of the gold that the central banks say they now own. Spread over the nine years 19952004, thats about 1,700 tonnes per year. Annual consumption of gold per year is only about 4,700 tonnes per year (the gold is mainly used in jewelry, but very little of it is actually lost forever from circulation), and the annual production of gold from mining and scrap is about 3,400 tonnes per year. So the surreptitious sale of 1,700 tonnes per year due to central bank lending would have had a large downward effect on the price of gold in that period.




For various reasons nearly all the remaining gold in the central banks simply cannot be lent out. There are indications that the central banks are already scraping the bottom of the barrel. As the central banks run out of physical gold to sell, the market price of gold will rise. The gold price rises of the last year suggests that this has already started.




It appears that the Western governments have effectively being selling their gold reserves at artificially low prices to people in Asia, particularly India, in order to promote their fiat currencies at the expense of gold. If the West is forced by the failure of its fiat currencies to return to gold-backed currencies, it may have to offer a lot to the gold owners in Asia to get that gold back againthat is, the value of gold will rise considerably.





9. The pressures of enormous debts will increasingly tempt the United States to inflate the US dollar so much that it will become almost worthless, in order that the debts can be easily repaid in near-worthless dollars. Gold will gain as the falling US dollar destroys trust in fiat currencies.




Many people and organizations in the United States are deeply in debt.


The net present value of the unfunded liabilities of the US Government is US$44 trillion, which is the value of everything produced in the world for about a year and half, or about four times the yearly GDP of the United States. To pay these liabilities, the US government would have to raise income taxes by 69% indefinitely, or cut all Social Security and Medicare benefits by 56% indefinitely. In addition, the debt of the US Government is about US$7 trillion, increasing by about half a trillion each year. The current account deficit of the US is another half a trillion per year. Or, per person in the United States: US$150,000 of unfunded liabilities, $25,000 of federal debt, and $1,700 of extra federal debt and $1,700 of current account deficit per year. And there are state debts too. In addition, the ratio of private debt to GDP is at a record high, even higher than in 1929.




But the United States has an ace up its sleeve: nearly all that debt is denominated in US dollars. If the meaning of a US dollar were to change to something worth very little, then most of that debt could be painlessly repaid (but not all of the debtmany of the unfunded liabilities of the US government are tied to the cost of living, so they not could be escaped so easily). That is, because much of those debts are in terms of nominal US dollars, if the US dollar became worth very little then much of the debts could be easily repaid. For example, if you borrow US$100,000 in 2003 when you are earning US$40,000 per year, you have a large debt. But if the US dollar inflates 100-fold by 2013 your income might be around US$4,000,000 per year, and repaying that US$100,000 will be easy. (However US$100,000 in 2003 would buy 37,000 Big Macs, but only 370 Big Macs in 2013.)




At the moment, the United States gains greatly by having a US dollar that is worth a lot and is used as the worlds reserve currencybecause the United States exchanges a few bits of paper for massive amounts of real goods and services (reason 8). But the debt being incurred by US voters is huge and growing quickly. Eventually the gain from supplying the worlds reserve currency will be outweighed by the pain of the interest and repayments on the debts. At some point in the future, the only rational course for the United States will be to cause its dollar to be worth as little as possible.




The way for the United States to make its currency unit worth very little is to inflate it dramatically, that is, to increase the number of US dollars enormously. It would start down this path by reducing interest rates towards zero, to encourage as much borrowing and thus currency creation as possible. A next step would be for the government to create new money out of thin air to pay some of its bills. Both of these trends are already underway.




Repayment of those debts would be in name only, a technicality, because the value of the repayment as measured in say gold or Big Macs would be tiny compared to the original value of those debts. The lenders would feel ripped off. Only the United States has this option, because it provides the worlds reserve currency. If the US Government can bring this off, it will be the worlds biggest ever financial scam by several orders of magnitude. The next few years might be, as the Chinese say, interesting.




The effect on commerce of this maneuver would be to scare people off fiat currencies for decades. No one would write a future contract in terms of a fiat currency. Only tangibles would be accepted, preferably gold. The world would return to a full classical gold standard very quickly. The value of gold would rise as dramatically as the value of the US dollar would fall.





10. The finance industry and governments have promoted fiat currencies at the expense of gold in the publics mind for decades. From here, the investing publics attitude to gold can only become more positive.




Gold and silver have been in competition with the fiat currencies (especially the US dollar) since 1971, and to a lesser extent since 1913. There is a great deal of power at stake. They say that alls fair in love and war, but perhaps they should amend that to alls fair in love, war, and high finance.




The finance industry and, to a lesser extent, governments would be the losers in a return to gold-backed currencies. The rest of us would be winners. With some of their power at stake, you might suspect that those in the finance industry and government would exaggerate, obscure, or deceive when it comes to gold and currencies.





Further Reading

1. Bob Landis, The Once and Future Money, http://www.goldensextant.com/LLCPostings4.html - anchor134408


2. Alan Greenspan, Gold and Economic Freedom, http://www.321gold.com/fed/greenspan/1966.html


3. Bob Landis, Gold Is Money - Deal with It!, http://www.goldensextant.com/LandisAMA.html - anchor537636


4. Financial Times editorial, with the financial industry view of gold

http://news.ft.com/servlet/ContentServer?pagename=FT.com/StoryFT/FullStory&c=StoryFT&cid=1079420385759&p=1012571727126

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Also by Dr David Evans

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Good website

http://www.gold-eagle.com/

Thursday Closing Market: mining stocks glitter on soaring gold prices
Published: 17:30 Thr 24 June 2004
By Dylan Lobo, Market Reporter

A late spurt lifted the FTSE 100 above the 4,500 mark, with miners shining as gold prices soared to a two-month high of $400 an ounce on the New York Mercantile Exchange.

Rio Tinto, up 45p to 31.25, paced the rally in the sector and was the strongest blue chip after confirming sales contracts to supply an extra 40 million tonnes of iron to Chinese steel mills over the next ten years.

Xstrata, up 17.5p to 713.5p, Anglo American, up 31p to 11.38, and BHP Billiton (BLT), up 12.5p to 472.25p, were also prominent features on the Footsie leaderboard.

Graham Birch, the AAA-rated manager of the Merrill Lynch Gold and General fund, believes that the commodity prices were forced down by the overselling on miners in April and early May. Birch feels that the cycle has run its course and sees a rally in the sector, with the long-term outlook for commodity prices good.

Food for thought: very nourishing!!

Citizens of Vietnam And China Will Be Rubbing Their Hands With Glee At The Strength In The Gold Price.

At the Minesite Forum earlier this week Joe Baylis, President and CEO of Olympus Pacific with its two gold projects in Vietnam, gave a fascinating insight into the attitude to gold in that country. Housing, he said , is priced in taels of gold which are bars weighing just under an ounce - an interesting thought for Chancellor Brown to ponder as UK property prices continue to soar. The actual purchase may take place in US$s or Vietnamese dongs, but gold is the basis of valuation and there is so much dealing in these tael bars that they tend to be priced at a slight premium to the world gold price. Gold , therefore, plays a vital role in the savings and investments of the Vietnamese people . Further evidence of the respect for gold is demonstrated by the government which cools down the economy by encouraging the import of gold whenever inflation appears to take a hold. In April the import tax was lowered from 3 per cent to 1 per cent on gold bars and from 1 per cent to 0.5 per cent on gold grains.

A day after the Forum it was announced that citizens of Beijing, the capital of Vietnams mighty neighbour China, were now able to buy and sell gold bars through a bank. Remember it was only in October 2002 that the Shanghai Gold Exchange formally opened for business after a gap of 50 years. A month later small sized gold bars were put on sale in Beijing through several department stores and early in 2003 the State Council confirmed further de-regulation of the gold market by altering the rules governing both domestic and international participation in the gold fabrication market within China. The initiative by the China Merchants Bank with repurchasable gold bars provides Chinese citizens with a new investment tool and it will be rolled out through China with Shentzen as the next stop.

China Merchants Bank is a marketing agent for CGS Ltd, a joint venture between China and Hong Kong, which manufactures the 99.99 per cent pure bars in three sizes, 2 ozs, 5 ozs and 10 ozs. The price of the bars is based on the spot price in London and Shanghai and there is additional commission of US$13.13 on a purchase and US$7.47 on a sale. The move was preceded by a test run in Chengdu, which is the capital of Sichuan province, back in November 2003. According to the China Daily the initial demand did not set the world on fire as only 135 ozs of gold in these bars was purchased from 5 branches in the first day. However, as Chairman Mao said, the longest journey starts with a single step.

Clearly the test went well once Chinese investors realised that the gate had been opened even further, but no data is available. Nor has it been disclosed how much gold has been handed over by CGS to CMB to get the new market going. As a guide to its potential it is interesting to note that the Shanghai branch of the Bank of China launched a paper gold business called Gold Treasure last November. Apparently volume growth for this investment instrument has grown by 40 per cent month on month which is rather more than can be said for Gold Bullion Securities which is listed on the London Stock Exchange. And another thought. If China Merchants Bank thinks it can achieve a yield of 5 per cent on a buy-sell transaction on a gold bar once customers catch on, surely UK banks could offer the same service.

Mind you the buying power of the British public is as nothing compare with the potential of China. If 1 in 20 Chinese bought a single 2 oz gold bar over the next five years they would mop up 128.8 million ounces of gold which is equivalent to 4,155 tonnes. This is equivalent to 1.6 times the worlds annual production of the metal. Add to this the growing appetite in Vietnam and other countries in the Far East and it is not hard to see why Germanys announcement that it might sell 17 per cent of its 3,500 tonnes of gold reserves under the Central Banks Gold Agreement, which is being renewed in September, was greeted with a yawn by the market. France is also considering selling 500 tonnes, but again no firm decision has been made. When western politicians see the view taken on gold by China, the industrial power house of the world, opinions may well change. Only the Netherlands has gone firm with a proposed sale of 100 tonnes and that is a drop in the proverbial ocean.

AFG will be one of the sponsors on Las Vegas Gold conference in Sep

http://www.iiconf.com/vegas04/default.aspx#sponsor

The Case For Gold.

(Extracted from the Annual Report of Golden Prospect PLC, A 25% Shareholder In Minesite)

The gold rally over the past two years has largely been an anti-dollar phenomenon but with all the increased geopolitical tension and general financial worries, gold really has assumed the status of an insurance policy against bad times. Its safe haven status has been restored and investor appetite for this dependable alternative asset class is steadily increasing. Although historically a volatile asset to own, gold has proved itself time and again in periods of financial stress and geopolitical turmoil. What we can say about todays climate is that the only certainty is continued uncertainty, i.e. the dollar is still stressed out, inflation is gathering pace, terrorism breeds investor caution and the general unrest will not go away. Interest rates are rising, consumer debt is exploding, house prices are teetering on the edge of a big fall almost everywhere and industrial equities on both sides of the Atlantic are witnessing waning support. Seasoned market investors are holding cash, buying gold and inflation linked bonds.

There are still huge imbalances in the US economy and these will need to be corrected at some point, creatingfurther degrees of financial strain. Some pundits believe that the growing deficits in the US could eventually result in the creditor nations deciding that they no longer want to hold US dollars. If that day comes, the greenback is going to plummet.

Furthermore, to quote from many economic forecasts, it is quite possible that we will soon see a breakdown of the triangular relationship between gold, the dollar and the euro. There have already been indications in recent months that gold may move in an independent direction and if it starts climbing again in all currencies, this will be the most potent bull signal of all. Investment funds would pour in!

Central Bank selling of bullion is also drying up.Whereas previous Central Bank gold sales contributedto a weakening in the gold price and negative sentiment within the investment community, the signing of the new agreement to limit sales over the next five years has provided some additional stability and positive sentiment to the gold market has returned. Even more importantly the European Central Bank confirms that gold will remain an important element of the global monetary reserves.

The supply demand equation is also going golds way.Capital costs of new mining projects are soaring and there is a lack of new mining projects coming on stream. By and large, major discoveries have not been made in the sector for some years, so the upshot is that new big supplies are not being found. Moreover, short term interest rates, although increasing, have not risen high enough to result in more hedging and gold producers are unlikely to hedge gold in a bull market environment. In the past, mining companies have used low gold lease rates to sell gold forward in order to raise money to finance the construction of new gold
mines, but we now believe that the large, global gold producers will continue to unwind their hedge booksat an increasing pace.

Factor in a huge boom in China, India, Russia and Brazil and the ultimate buying power of gold that this will eventually produce, together with the continued erosion of confidence in the dollar, then demand must exceed supply for some many years to come. It may be worth recalling that gold last hit its zenith in the late 1980s when inflation was rising and the world had suffered two major oil price shocks. Just as America inflated away the reckless spending then so it can be expected to do the same again to address todays looming fiscal problems. The FEDs usual way out of this problem in the short run is to print money. These current financial events, the rise in oil price and other deteriorating economic trends are all building a case for significant inflation down the road and thereby the most excellent environment for physical gold and gold equities.

African Gold starts drilling at Konongo/Owere project in Ghana
AFX


LONDON (AFX) - African Gold PLC said drilling has started at the AIM-listed company's 960,000 ounce Konongo/Owere gold project in Ghana.

The company plans to increase the resource base significantly beyond the 960,000 oz, defined by RSG Consultants in a due diligence report in early 2004,

already defined at Konongo/Owere, it said.

The four-phase drilling programme is designed to take the reserve base to a level which will sustain a long-term, stand-alone mining operation within two years.

'We are at the start of an active programme in Ghana which should result in African Gold having multi million ounce gold resources and the potential for a large gold mine,' said co-chairman John Teeling.

newsdesk@afxnews.com

jc
===

Boys and girls this is what we have been waiting for. The real test of how much the company is worth will soon become apparant.

10.20% so far. it seems we have reach the bottom too. Gold price is on the up again.

I think we also need to have a broader picture of where Gold is heading. Take a look on the outlook coming from Merrill Lynch, one of the best (if not the best) fund managers in the world. Also the FTSE World Gold benchmark supports this. Thanks

http://www.mlim.co.uk/shared/pdfs/mlf/ut-gold-fs-uk.pdf?silo=individual-investors

13th July 2004



AFRICAN GOLD, THE AIM LISTED GOLD PRODUCER, ANNOUNCES THE START OF DRILLING AT THEIR KONONGO/OWERE PROJECT IN GHANA





The Directors of African Gold are pleased to announce the start of a four phase, diamond drilling programme at the companys 960,000oz. Konongo /Owere Gold Project in Ghana. The first Phase will consist of 31 holes to test continuity of open mineralisation and to extend known mineralisation under the current open pit.



Earlier drilling has defined a high-grade, shallow (35m-deep) wide ore body underlying the old open pit and extending for over 1.25km. Grades encountered in the floor of the open pit are 20m @ 9.1g/t Au and 24m @ 4.4g/t Au.



This single reef has a defined gold resource of 243,000oz. at an average grade of 4.48g/t Au. It is one of nine similar reefs all of which will be drilled by the company during the next two years.



The company plans to increase the resource base significantly beyond the 960,000 oz, (defined by RSG Consultants in a due diligence report in early 2004), already defined at Konongo/Owere. The four phase drilling programme is designed to take the reserve base to a level which will sustain a long-term, stand-alone mining operation within two years.



Gold at Konongo / Owere occurs in the same host rocks and structural setting as the Obuasi (Anglo-Gold/Ashanti) and Prestea Gold Mines (Golden Star Resources) in the Ashanti Gold Belt.



An evaluation of the massive data base on the historic Owere/Konongo Mining Lease area is identifying numerous, untested gold-anomalous prospects which will be evaluated on a prioritized basis.



John Teeling, co-chairman, commented, We are at the start of an active programme in Ghana which should result in African Gold having multi million ounce gold resources and the potential for a large gold mine. The time is right, the gold price is strong, Ghana is a great gold province and we have good ground.


This is good news...Great potential... buy at 7p.

Weak dollar = Good for Gold.



European exporters could fuel a euro rise
Tue 13 July, 2004 12:17



By Justyna Pawlak

LONDON (Reuters) - European corporates are getting nervous about recent strengthening of the euro and may start piling on new protection against currency risk soon, which could accelerate any further rally in coming months, some bankers say.

A strong euro means that European exports are more expensive outside the euro zone and that hurts their manufacturers' profits.

But many companies have scaled down their hedging of currency risk this year, hoping the single currency would fall steadily from its February record highs against the dollar and make it cheaper, or even pointless, to buy protection.

Many now feel they may have waited too long.

A spate of disappointing U.S. economic data, particularly on the labour market, has depressed the dollar and prompted some banks to forecast that the euro would now resume its uptrend.

"We have been getting more and more calls (from worried corporates) in the last two weeks," said Peter Fontaine, currency strategist at KBC in Brussels. "And since the (U.S.) payrolls numbers it really exploded."

On Monday, the euro hit a four-month high at $1.2436, compared with February's life record of $1.2927. It fell to $1.1759 in April when the prospects of imminent interest rate rises in the United States powered a broad rally in the dollar.

SELF-FULFILLING PROPHECY

Many analysts say the jury is still out on whether the euro will retest those record highs soon.

Global investors could go back to punishing the dollar, as they did last year, for the U.S. current account deficit.

But many analysts argue the external shortfall will be offset by further U.S. monetary tightening and economic recovery there, giving the dollar plenty of support.

Goldman Sachs, however, has revised up its three-month euro forecast to $1.2700 from $1.1600. It also expects the euro to hit $1.3200 in six months. The Reuters consensus forecast, published earlier this month, calls for the euro at $1.2200 in three months.

Currency market professionals warn that any further rise in the euro, especially above the $1.25 level could spark a wave of demand for euros from European corporates fearing that a renewed dollar decline would weigh on their profits again.

This in turn could speed up the very rise of the euro they fear.

"Many corporates are getting nervous," said Thomas Stolper, global market economist at Goldman Sachs in London. "They may not be acting yet but I would expect them to come in between $1.25 and, more aggressively, the old record highs."

Most European corporates buy currency forwards in order to hedge the risk of their future dollar revenues losing value as the dollar falls against the euro. These instruments allow them to buy dollars at a fixed exchange rate in the future.

"We expect corporate rate dollar selling to be one of the main constituents of the next leg of dollar weakness," said Stolper.

One foreign exchange salesman at a London bank said $1.30 would be a more likely trigger point to set of panic among European corporates about further euro gains and power a wave of new hedging.

However the run-up to the $1.30 level earlier this year was also marked by verbal intervention from the European Central Bank, which at the time helped deter the market from driving the euro higher.

COUNTER FLOW?

British exporters appeared less concerned that the pound will head for its 11-year highs set at $1.9140 on the same day in February as the euro's record peak. On Monday the pound hit a four month high around $1.8660, less than five cents below the February peak.

"Dollar sellers are not panicking yet," said one currency salesman from a UK bank.

"But that would change if we were to go through $1.90. At the moment there is still a bit of complacency since many firms have already hedged a fair amount of exposure this year."

Other London bankers add that while many European exporters are still waiting for a clearer trend in the euro, importers have been taking advantage of the U.S. currency's recent downtick to snap up the dollars they need to buy goods.

More importer demand would surface if the euro rose beyond $1.25, one FX salesman said.

more on Gold:

Gold to hold above $400 this year and next
Mon 19 July, 2004 13:24



LONDON (Reuters) - Gold prices are seen holding an average above $400 an ounce for the foreseeable future as the dollar stays weak and world security worries keep big investors hedging their bets on where money is safe, a Reuters poll shows.

The global survey of 24 analysts pointed to an average gold price of $404.50 a troy ounce in 2004, up 11.2 percent on 2003. Gains were then seen being pared to an average for 2005 of $402.50, up 10.6 percent on the 2003 level of $363.83.

Analysts' predictions for 2004 were down around 3.5 percent compared with a similar survey conducted in January as expectations of broader investment flows had disappointed.

"2004 promised so much and simply failed to deliver," Ross Norman of TheBullionDesk.com said.

Gold's broad uptrend started in 2001, when the metal was near 20-year lows.

The advance gathered momentum as dollar weakness, global security worries and producer buy-backs of reserves in the ground that they had sold on forward markets pushed world prices to a 15-year peak in early January 2004 of $430.50.

Producer buy-backs have since slowed, but the market should remain firm as the spotlight concentrates on the dollar, where weakness makes gold less expensive for holders of other currencies.

"We are dollar bears, despite the fact that the second quarter of 2004 saw the dollar improve...We remain bullish on the gold price -- tempered to be sure," economist Martin Murenbeeld said.

"Issues such as debt -- government and household -- factor into our longer-term thinking and are gold-positive, while terrorism and its potential impact on oil prices are on average also gold-positive," he added.

BROADER INVESTMENT STALLS

Investment funds piled into commodities, including gold, in 2003 against the backdrop of a struggling dollar and heightened geopolitical tension.

But analysts said the market had been only partially successful in its efforts to attract new investors with products such as gold-backed securities traded on stock exchanges.

"The expectation of a sustained rally was based on the assumption that a retail and wholesale investment market would be launched and indeed gather momentum," TheBullionDesk's Norman said.

"The market has failed to inspire the investment community and so the indomitable laws of supply/demand are re-asserting themselves and gold is re-establishing itself in a rather uninspiring trading range."

Average 2004 price forecasts for gold in the poll range from $376.00 to $422.25, but even the low was above the average forecast for 2004 of $350 when a similar poll was conducted in July 2003.

Frederic Panizzutti of MKS Finance said economists' expectations of a slow but almost confirmed world economic growth cycle -- plus moderate, but increasing inflation -- should be positive for commodities prices.

"Geopolitical instability and concerns will be another source of support, in particular for precious metals," he added.

"These few but major factors should enable demand for precious metals to grow over time and generate additional price strength mainly in the last quarter of 2004," he said.

What was that last trade 350k BC?

Anyone got buying price thanks.

Consumer demand for gold increases
MoneyAM
The World Gold Council said consumer demand for gold rose in Q2 with increased consumption of jewellery and retail investment.

Institutional investment demand is thought to have fallen.

Consumer demand rose 11% in tonnage terms to 743 tonnes, and by 25% in US dollar terms, from the year earlier, said the organisation which is funded by the world's leading gold mining companies.

"The rise in demand was fuelled by strong economic growth, relative absence of price volatility, and continuing concerns over the long-term economic and political outlook," it said.

Demand for gold jewellery rose 8% on the year earlier to 664 tonnes even as gold prices increased 13%.

Net retail investment demand in key markets jumped by a third to 79 tonnes, the highest second-quarter figure since 1999 when demand was driven by concerns over the millennium bug.

While, industrial demand climbed 7% to 87 tonnes, the eighth consecutive quarterly gain, boosted by increasing demand for gold for electronic components.

Net central bank selling was half of that of a year earlier with planned central bank sales partly offset by purchases by Argentina, which bought 42 tonnes in the first six months of the year.

"The fact that consumer demand is up, for the second successive quarter, is good news for the gold industry," said James Burton, CEO of the WGC.

Consumer Demand in the Middle East was boosted by higher oil prices, while jewellery and retail investment consumption in India were buoyant and helped by the country's economic growth.

Consumer demand jumped by a third in Greater China, and by almost as much in China itself. The main cause of the increase was the effect SARS had on demand in the year-earlier quarter with jewellery buying 14% higher. Jewellery demand in Japan rose 10%, helped by the unexpected strength in the economy, while consumption in Vietnam surged more than 50%.

In the US, jewellery sales climbed 4% but trends in Europe remained generally negative, although the decline was less strong than in the past.

Institutional investment demand is thought to have fallen as some short-term holders, who had bought gold in earlier months when the price was rising, sold in the absence of any further price gain. However the selling back was less than in 2003 and evidence suggests that many buyers held onto their investment, the WGC said, adding that the relatively strong performance of the dollar also contributed to the decline.

Total gold supply fell 10% to 820 tonnes from the year-earlier quarter on lower Central bank supply and a dip in mine production.