AIC INVESTMENT ADVISORS, INC.

440 South Street, Pittsfield, Massachusetts

(October 6, 1997) METALS: Precious metals and gold shares alike are reflecting the tightening in the physical supply of the metals, particularly silver at this writing, as the fundamentals arising from years of consumption exceeding production and salvage begin to be felt in the marketplace. Surging demand from India, the U.S. and Japan in recent weeks have sent precious metal prices sharply higher. In late September silver prices soared, rising more than 5% on September 25 and another 4.0% on the 30th, as the metal rose to its highest price in 6 months. The surge in silver appears to have been fueled by a renewed attraction to the metal by hedge-fund buyers together with unconfirmed rumors that a London bank is executing a pre-placed purchase order (near $5 per ounce) for 10 million ounces of silver. The metal presumably is to be shipped to Middle Eastern buyers.

Silver supplies to the market from new production, official sales and scrappage have fallen far short of fabrication demand for the past eight years. Silver stocks held in good- delivery form in depositories have been drawn down to make up the annual shortfalls. It is estimated that silver's annual supply/demand gap could amount to more than 200-million ounces by the end of 1997.

Silver prices (Handy & Harman) surged $0.25 per ounce on September 29 and another $0.16 on the 30th as traders focused on the worsening supply/demand imbalance. Silver prices recorded a monthly low of $4.57 per ounce on September 17 and subsequently traded to a high of $5.21 per ounce on September 30. The average monthly silver price for September was $4.73 per ounce.

Although the supply/demand characteristics of the silver (and gold) have not greatly changed from a few months ago, traders now are beginning to take note. No doubt many traders, especially short sellers in the futures market, are wondering how the growing demand from Asia and Middle East markets (if it continues) will be met in the years ahead, and most particularly, at what per ounce price?

Likewise, the world's central banks have systematically liquidated gold reserves in order to contain any rallies in the metal's price over the past several years. If demand trends for the metals in the Middle East continue at current rates, this may portend sharply higher precious metal prices in coming years. Some of the demand for gold is likely to arise from India where the Reserve Bank of India may well be readying a monetary system that will reintroduce the gold standard to the world. India is considering setting up a parallel currency system with the rupee and a gold-related rupee functioning as joint currency. Presumably, one would be fully convertible into the other. The purposes of introducing a parallel currency would be to suck up the excess dollars floating around Asia and now being reinvested in U.S. Treasury debt. The new system would introduce gold as a financial alternative to dollar denominated investments. Citizens of India would be allowed to import gold and make payments in dollars–thus shipping the dollars outside of the Indian monetary system. Precious metal investors will want to keep an eye on economic and political developments in Asia and particularly India as this system is introduced and moves forward. With the Indian middle class now approaching 200-million people, and considering the region's affinity for gold, the effect on the dollar gold prices could be astounding.

Dollar gold prices (London PM fix) traded in a narrow band between $320 and $323 per ounce for the first half of September, recording a low of $320.45 per ounce on the 17th. The gold price trend, from the 17th forward, was positive and gold reached a high of $332.10 per ounce on the 30th. The dollar gold price averaged $322.76 per ounce for September.

Platinum prices (Mercantile Exchange) trended gradually higher during September; recording a low of $409.70 on September 3 and a high of $437.40 on the 22nd. The September average price was $425.83 per ounce.

The table shows metal prices and the Philadelphia gold/silver XAU index of mining shares for September 30 and approximately one month and one year earlier.

				9/30/96		8/25/97		9/30/97
Bullion
 Gold				$379.00		$324.00		$332.10
 Silver				   4.86		   4.61		   5.21
 Platinum			 385.80		 408.10		 432.50

Coins
 American Eagle			$403.42		$346.08		$349.19
 Austrian 100 Corona		 384.44		 329.55		 332.49
 British Sovereign		  89.18		  76.24		  78.14
 Canadian Maple Leaf		 404.37		 346.41		 349.52
 Mexican 50 Peso		 478.18		 407.06		 410.68
 South African Krugerrand	 385.50		 332.50		 339.50
 U.S. Silver Coins (1 bag)*	3,398		3,375		3,769
 XAU Index			 115.18		 101.04		 109.50

Precious metals have moved off mid-year lows in encouraging fashion. Moreover, the current environment for precious metals appears to be improving. We advise that investors maintain all precious metals holdings at this time. The rewards of patience may be in the offing.

Richard F. Maloney

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