Gold Investment Demand On The Rise Nik Bienkowski CFA Posted 8 May, 2003 Head of Institutional Investment, Gold Bullion Limited Melbourne, Australia Latest News: Last week CPM Group announced that gold investment demand had hit a 35-year high. Also announced last week was the proposed listing in Toronto of Central Gold Manager's Gold-Trust. A closed-end fund which will invest at least 90% of its assets in physical, allocated, 400oz bars. The fund will be in part managed by the team from Canada's Central Gold Fund and Eric Sprott and John Embry from Sprott Asset Management. The gold bar doesn't stop there... Wednesday 7th May, Gold Corporation (the Perth Mint) announced it would list on the Australian Stock Exchange a gold-backed warrant (Code: "ZAUWBA") which entitles the holder to exercise a call warrant to receive 1/100th of one ounce of gold bullion. 2 gold-backed securities in 7 days... 3 gold-backed securities in 6 weeks... gold investment demand on the rise... and the US$ gold price is rising. I will let you make your own conclusions. What will happen when the Chinese get their product up and running in what is expected to be the next couple of months? Increasing Demand: Gold Bullion Limited (ASX Code: "GOLD") listed its gold-backed security in Australia about 6 weeks ago. Since then the fund size has been growing at an increasing rate. Last week it traded A$8.7 million - the second most liquid gold stock on the ASX on that day. The fund now has over 50,000 ounces of physical gold bullion. That might seem a small number to some but with gold investment demand changing and equity demand volatile at best, 50,000 ounces is but a drop in a potential ocean. A small gold company would be happy to produce 50,000 ounces in one year and yet this demand has come from investors without a significant marketing campaign yet. Exchange Traded Funds & Gold These new gold-backed funds are merely gold ETFs. ETFs have exploded on to the global investment markets with products in almost every asset class, on every major exchange and in every sector. There is potential for other commodity ETF's to be listed as well however, liquidity, fungibility and ease of storage are critical to the product. Try storing $100 million of wool! That amount in gold will fit under your desk. Again, it is no coincidence that ETF's are the cheapest and most liquid investments being traded these days. What investors will be looking for in a gold-backed security: 1. Accessibility - tradeable by anyone, in any amount, and on an established exchange; 2. Ownership in the gold - this helps to reduce the risk of the investment, gives the investor the sense they own physical gold, and investors want to have ownership (or at least legal title and ownership) of the physical gold as a store of wealth; 3. Liquidity (and minimal tracking error) - as with the original equity-index ETF's, liquidity needs to backed by a creation/redemption feature to allow trading in the ETF or the actual physical itself. Otherwise the ETF's liquidity will be a poor substitute for the product it is trying to mimic; and 4. Everyone's favourite - fees. Fees need to be rock bottom to encourage investors to trade these products. Prohibitively high fees, as with managed funds which are in the order of 2%+ p.a., do not allow investor and traders to hold these product short-term and again, they will revert to the physical if the substitute is poor. All in all, this is an exciting time for the gold market and the timing is right given the explosion of alternative investments and ETF's globally. Notes: Gold Bullion Limited is an open-ended gold fund listed on the ASX (Code; "GOLD). The fund invests in allocated gold bars which are stored and insured with HSBC Bank USA in London. Each share is equal to 1/10th of one fine troy ounce of gold bullion. For more information, please see our website. Nik Bienkowski CFA nb@goldbullion.com.au Head of Institutional Investment, Gold Bullion Limited Melbourne, Australia 7 May 2003 321gold Inc Miami USA