Aside from the

final-hour flurry, Thursday was another fairly quiet session for equities, with more dramatic developments unfolding in the commodity and currency markets.

In commodities, gold continued its recent advance, rallying 1.4% to $322.80 per ounce, its highest level since June 2000. Elsewhere, silver rallied 1.5% to a 15-month high of $4.91. The Philadelphia Stock Exchange Gold & Silver Index rose 2.1% to $86.70 after hitting a 52-week high of $87.59 intraday.

Gold's rally was more impressive because it coincided with an advancing dollar. Buoyed by a second day of intervention by the Bank of Japan, the dollar rose as high 125.30 yen in New York trading before settling at 124.96, up 0.7% for the session. The dollar also rose from its eight-month low vs. the euro, which fell 0.5% to 0.9212 cents.

Most notable about the recent rounds of intervention is that the Bank of Japan intervened above the 120 level compared to Sept. 2001 and to the summer of 2000, when it stepped in at the 116-117 levels, observed Ashraf Laidi, currency analyst at MG Financial Group. "Therefore,

Wednesday's and Thursday's action can be interpreted as a medium-term strategy to protect the 120 level," Laidi said. Should the intervention fail and the dollar resume its downward path and breach 120, the BOJ is likely to take more aggressive action, he said.

Whatever the future holds, it's highly unlikely the dollar and gold can continue to rally in tandem. Those long gold and related shares must be cognizant of the potential for coordinated central bank intervention to support the dollar, as discussed here


"That's a risk" and central banks "might be inclined to do that

because if they don't, gold could get a head of steam and keep moving up," said John-Marie Eveillard, manager of the

(SGGDX) - Get Report

First Eagle SoGen Gold fund. "The price of gold going up reflects poorly on the policies of central bankers."

That's a polite way of saying the world's central banks have an incentive to suppress gold's rally, something conspiracy hounds believe they've long conspired to do.

Eveillard isn't big on conspiracy theories, but he does worry about central bank efforts to aid the dollar. Still, he doesn't believe they'll have more than a short-term effect.

"You had 20 years of paradise for financial assets, but with the bursting of the bubble, Enron and Sept. 11 things have changed," the fund manager said. "Maybe gold moving up in the past year or so is a reflection of" that.

Furthermore, he suggested "the

gold market

may be in the grip of medium- and long-term forces that are impossible to overwhelm."

In addition to the unwinding of hedge positions by major players such as

Anglo Gold

(AU) - Get Report

, he noted that major currencies worldwide have limited appeal. Japan is still mired in recession, the European Union has "economic unity but not political unity", while China's entry into the WTO threatens to make Europe's manufacturing "obsolete," Eveillard said.

Even the Swiss franc, which is up nearly 5% year-to-date vs. the greenback, has limited appeal because the Swiss are "so quick in lowering short-term rates whenever the franc appreciates vs. the euro," he said. "If you didn't like the dollar, it used to be currencies that were appealing, today, there's nothing truly appealing so maybe gold has gained some luster."

John Hathaway, manager of the

(TGLDX) - Get Report

Tocqueville Gold fund, was similarly optimistic about gold's allure, and even less concerned than Eveillard about the prospect for central bank efforts to shore up the dollar.

"The dollar is definitely breaking down and I think the more overt

central banks become the better for gold because it shows you how things are out of control," Hathaway said. "I'd love to see the banks do a combined intervention. It'll cause a near-term setback but" it will also prompt currency speculators to start challenging the central banks' combined will.

Panning for Picks

Eveillard's now $48 million fund (it was $18 million when we last spoke on

Feb. 7) is up 92.7% year-to-date and 99.7% in the past 12 months, according to Morningstar. Perhaps most impressively, its three-year annualized return exceeds 34%.

While wary of short-term setbacks in gold and related shares, Eveillard said "I think we're in the early stages of a bull market, so I'm willing to live with the risk of that correction."

As to what names might be attractive relative to peers, many of which have had huge run-ups, he mentioned "hybrid plays" such as Mexico's

Industrius Penoles

, which mines silver and zinc in addition to gold, and

Freeport McMoran Copper & Gold

(FCX) - Get Report


In addition to the common shares of Freeport McMoran, Eveillard's fund is long the firm's preferred B and C shares, whose principal and interest payments are indexed to the price of gold, and the D shares, which are indexed to silver.

Hathaway also acknowledged the risk of a short-term setback, but noted "pros with scars on their backs are getting skeptical saying 'too far, too fast.' In big market turns like I think we're going through, they're often wrong."

Indeed, he remains bullish long term and is "paid to be long," so can't be swayed by short-term concerns.

The $89 million Tocqueville Gold fund is up 77% year-to-date and 80.5% in the past 12 months, according to Morningstar. The fund has also posted three-year annualized returns of over 29%.

As for current attractive values, he recommended (and is long)

Lihir Gold



Compania Minas Buenaventura

(BVN) - Get Report


Placer Dome


, whose hedging activities have scared off other investors.

Aaron L. Task writes daily for In keeping with TSC's editorial policy, he doesn't own or short individual stocks, although he owns stock in He also doesn't invest in hedge funds or other private investment partnerships. He invites you to send your feedback to

Aaron L. Task.