THE GOLD MARKET Sales by central banks are widely viewed as a significant factor in the decline of the gold price  to the levels experienced over the last several years, and could continue to have an adverse effect on  gold prices. In the second quarter of 2001, gold funds post- ed an average 20.8 percent return.There seems to be a positive change in investor sentiment towards gold as investors turn to the gold sector as a safe haven from economic uncertainty. It appears that investors are looking to get back to basics and invest in companies with strong fundamental values —  revenues, earnings and cash flow, and are recognizing the need to diversify into alternative assets, such  as gold, especially in light of the most recent events that happened upon our nation. One thing investors should be looking for in gold stocks is leverage to a move in the gold price.We believe the shares of Royal Gold, which are highly leveraged to the price of gold, are an excellent vehicle for such an invest- ment choice. Central bank sales are being conducted under The Washington Agreement on Gold, an accord established in September 1999 by 15 European cen- tral banks that hold nearly half of all official gold. The accord states that gold will remain an important element of global monetary reserves; it limits gold sales to those “already decided sales” which will be completed through a concerted program until 2004; and it states that the associated banks have agreed not to expand their gold leasing and their use of gold futures and options over the same period.The accord is supported by the U.S.Treasury and other entities that control about 35 percent of the world gold reserves. According to Miss Haruko Fukuda, Chief Executive Officer of the World Gold Council,“own- ing gold at the national level is an insurance against an unknown future. If there is one thing of which we can be certain, it is that today’s status quo will not last. Gold also provides confidence to the ordinary citizen, who derives assurance from his county’s ownership of an indestructible, universally accept- ed asset.” For the first half of 2001, jewellery demand remained stronger than investment, and investment demand was 8% below year-ago levels. It was expect- ed that gold demand in 2001 would remain the same as last year, but that was before the recent wake of destruction in the United States. The World Gold Council has initiated a long- term gold branding campaign aimed at promoting the emotional values of gold to help stimulate more  consumer demand for gold. Besides jewellery, gold is also a vital part of today’s most advanced electronics, communications and medical science. The economy in the United States continues to slow and the Federal Reserve has reduced the feder- al funds rate eight times during 2001, from 6% to 3%, a level not seen since 1994. Despite the economic slow down and the lower interest rates, the U.S. dol- lar remains strong. It is believed this is partly because foreign investors have continued to purchase U.S. Treasury obligations, offsetting the U.S.’s continued trade deficit, and because the U.S.Treasury has held up the dollar as it has paid off significant public debt out of the surplus. As the economy slows and the surplus disappears, the Treasury will have to roll over more of its debt. If this happens and the dollar weak- ens, it would appear that the stage is set for an increase in the gold price. Royal Gold is an active participant in organiza- tions involved in promoting the use of gold.We  are members of both the Gold Institute and the World Gold Council. For more information on gold, you can visit the World Gold Councils’s website at www.gold.org or the Gold Institute’s website at www.goldinstitute.org. 11