EDITORIAL PAGE — At last! At last!

We knew (or rather, we hoped) something was afoot when share prices of Canada’s major and minor gold producers started moving up sharply in January. It is a generally accepted investing principle that, where gold equities lead, bullion prices follow. In this case, the direction was up.

For example, the Toronto Stock Exchange gold and silver index hit a 52-week high of 8256.56 by mid-May. (The low over the past year was 7231.29.) While the equity index was reaching for the top, or a new top, gold stirred too. It posted a decisive breakthrough over US$380 by May 19.

Since then (and as the ink dries on this edition), the yellow metal has clung to its gains. But will the rally run out of juice? What prompted it in the first place?

For analysts, the only thing more perilous than explaining today why gold prices moved yesterday or the day before, is trying to predict today where prices will move tomorrow or the next day or the next.

Of course, explanations abound for gold’s recent rise, and more than a few crystal-ball-type pronouncements on upside targets have been promulgated. But rather than consider current assessments, let us reflect on the definitive text on the price behavior of gold in 1992. The work is based on actual demand and supply and is compiled annually by Goldfields Mineral Services. First and foremost, says Goldfields’ Gold 1993, jewelry fabrication, whether ultimately for sale as adornment or investment, rose 329 tonnes last year. This is the third-largest increase since Goldfields began its report 25 years ago. Southeast Asia, principally China, bore the weight of the increase. On the downside, net central bank sales (the “official sector,” as it is termed) totalled 599 tonnes, the highest since 1968. Last November alone, Dutch authorities unloaded 400 tonnes. Belgium (202 tonnes) and Canada (94 tonnes) were the other substantial (but voluntary) central-bank sellers. Iraq (50 tonnes) was a distress seller.

We would only comment, albeit somewhat facetiously, that given gold’s recent price history, heavy official-sector sales might represent an early buy signal for astute investors.

On a more serious note, we hope Canadian authorities have seen the light. Selling might have fit the Bank of Canada’s strategic goals (however misguided), but it was not a brilliant move from the point of view of price. The savvy approach, we are told by unimpeachable sources, is to buy near the bottom and sell at the top. The bank might want to stuff that in its pipe and smoke it. Meanwhile, the bank’s critics (our domestic gold miners who viewed the bank’s gold sales as a betrayal of the industry), have been vindicated. To return to Gold 1993, Western world mine production rose only 3.7%, a considerable decline from the annual increases seen in the 1980s. Interestingly, “investment interest revived in North America and Europe in the second half,” Goldfields notes. This activity seems to represent the first inkling that gold was again returning to favor with investors. Economic and political uncertainties in Europe, lower interest rates and presidential elections in the U.S. were cited as factors in the shifting sentiment. Unfortunately, for the final word on current market conditions, we will have to await Goldfields’ 1994 report.

In the meantime, as we’ve often suggested in this space, it may not be wise to sell gold short.