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July 25, 2003

July 25, 2003

GOLD

In the last week we have purchased an increased position in gold shares, and for those clients who are willing and able to purchase currency forwards, we purchased the Euro.

We purchased increased positions in several non-hedged gold shares. Our favorite gold shares are: among small-capitalization shares, Tan Range; among mid-capitalization shares, Agnico Eagle; and among large-capitalization shares, Newmont Mining.

Kudos to Jim Sinclair and Ken Adams for their very accurate and prescient calls on the turn this week in gold, and also to Harry Schultz for his wonderful gold stock charts in Gold Charts R Us.

CHINA

We have taken profits in some of our Chinese Internet stocks. We still believe in China and in Asia as an investment theme, and we may repurchase after a normal corrective decline.

China continues to eat the lunch of the rest of the world’s manufacturers. The combination of a hard-working labor force, available capital from Japan, Europe and the US, technological expertise [much of which comes from Taiwan] and a currency tied in value to the US dollar, have allowed the Chinese to dominate the landscape for new manufacturing opportunities.

Competitors such as Eastern Europe, Latin America and non-China Asia may be hurt. In order to slow down the competitive advantage that China enjoys, there have been pressures on Beijing to let the RMB, or Yuan, as it is called, float up against other currencies. Chinese authorities have recently stated that they have no intention of letting the currency float, and I believe that they will continue to press their competitive advantage as long as they can. Until the constant acquisition of US dollars that they are undertaking through their export programs begin to create inflation, they have no incentive to de-couple their currency from the US dollar.

SUMMARY
Gold has entered a period of higher prices. We had predicted that this would take place in late August, as it often does seasonally. We were wrong; the rally has begun a few weeks early.

The Euro has begun to bounce and will retest the highs of June, after that we will sell unless the Euro breaks out above its previous highs.

China will continue to be the fastest growing economy on earth. Chinese tech stocks will continue to grow rapidly. Japan may benefit from their close proximity to China by producing cheaply and this may be very salutary for Japan’s economy. The Internet is just making its presence felt in China, India and many other countries, and this will lead to opportunities in many tech stocks. Although we like tech stocks in China, the US and elsewhere, many of these companies are not cheap, and we will wait for corrections before adding positions in these companies.