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A Different Perspective

January 3, 2000

It would seem appropriate for a review, at this, the dawn of a new calendar age. In this commentary, I hope to give you some insight as to how I stumbled upon my early and, thereafter, consistent claims of fraud and manipulation in the gold and silver markets due to the inherently corrupt nature of leasing/forward selling and unrestricted short selling. I think it might give you a better understanding of why I have embarked on my campaign of specific accusations these past 6 months or so.

Let me digress for a moment. Recently, we lost a literary giant in the passing of Joseph Heller, author of one of the finest novels in American history, "Catch-22". An added bonus to Heller's masterpiece is the immortal creation of a simple phrase that conveys instantly the futility of easy escape from a checkmated situation. In the novel, a dark comedy about WW II, the protagonist, an American flyer named Yossarian, is frustrated at his inability to earn discharge because the required number of missions needed to be flown in order to be sent home is constantly raised, just as he reaches the old limit. He then feigns insanity to effect safe passage home. In the highlight of the story (I'm relying on a thirty year old reading), he is confronted with the ultimate bureaucratic stalemate, that anyone desiring to escape the madness of war just proves he is sane and is to be denied an insanity-discharge. Upon this confrontation, Yossarian can only mutter, in haunting respect and resignation, "That's some catch, that Catch-22".

Everything about the gold and silver markets, from the over-all composition, to the specific conditions of the various participants, is one giant Catch-22. We're all hooked in some way. There is no easy escape from the stalemate. The gold and silver markets need much more production and/or much less demand to satisfy the current deficit. The only way to get that on a long term basis is for higher long term prices. The only way to get higher prices is to stop the uneconomic dumping of metal due to leasing/forward selling, as the central banks said they would on September 26. The market needs leased metal to balance, and the central banks must continue to provide new metal, albeit reluctantly, despite their announcement. They now realize all previously lent gold and silver can't be returned, yet they must continue to lend new metal from their depleted stocks, lest the market respond to the immediate physical shortage and expose the whole sham. Mining companies (like Barrick) now realize that in spite of shareholder and analyst pressure to close shorts, they are prevented by financial considerations and the sheer size of their short positions, which would foreclose on covering in an orderly manner. Financial firms, like Chase Manhattan and Goldman Sachs are precluded from responding to public charges of manipulation, fraud and even racial discrimination, by knowledge that may result in an open airing of the entire leasing scam. Investors contemplate a confusing landscape, and the uncertainty of knowing which investment is as it seems, and not impaired by hidden shorts and counterparty liabilities.

But the gold and silver Catch-22, is different from Heller's version. In the classic Catch-22 interpretation, you are simply blocked from achieving a specific goal or result. In the metal Catch-22, the stalemate exists, but, in addition, the very nature of the stalemate insures its demise. The only question is a matter of timing. When does the leasing scam end? At least we now know the official date of the beginning of the end of the scam - September 26, 1999. That date marks the demarcation of the New Age in gold and silver. The date, of course, was when the central banks announced the limit to leasing of gold and the subsequent price jump. The New Age of gold and silver began on that date because that date changed forever people's perspective of the metals markets. Maybe not everyone's perspective, but the perspectives of those whose opinions matter most in the gold and silver markets - namely, the central banks, the dealers, the miners. and large investors. The CB statement, or more correctly, the price reaction to it, changed thinking in dramatic ways. First, you don't announce a change of a 15 year old policy without good reason. Regardless of the reason, the CB's changed their minds about leasing, after all, it was their announcement. Second, the mining companies who had heavily shorted up to September 26, have changed their minds about additional forward selling. Let's wait until the fourth quarter earnings reports come in, but if any of the heavy hedgers significantly increased short positions, those managers risk lynching by angry shareholders, not just the certain dismissal they face eventually for their malfeasance in the prior selling of years of production. Third, the dealers have grown mute about the predicament they are in as a result of perpetuating the scam for so many years, and then, in the final insult, loading up the mining companies with disastrous alligator spreads. Maybe, if we all close our eyes real tight, Ashanti and Cambior will just go away. Finally, large investors knew on and after that date, that the risk/reward ratio suddenly favored the long side.

And all these monumental changes occurred on September 26, 1999, because of one simple fact - that perceptions had changed on that date. When you think about it, that is the key to all the markets - market perception. What the mass of participants perceive to be true, becomes reality. What is unusual about market sentiment is that rarely can you assign a certain specific date to a massive change in market perception. It has happened, but it is rare. Black Thursday in 1929, the day in August 1982, when the US stock market began its 17 year bull-run, December 1989, when Japanese equities topped out are standout examples. September 26, 1999 is the official date of the start of the gold and silver bull. And all because the key players simply saw the market in a different light. In an instant, they knew that the keyforces that had shaped the market for 15 years, leasing and forward selling, would be different from then on. That change of perception came in the blink of an eye, even if the market has not reacted as quickly. Remember, while it may take many years to form an idea, and years to adjust to a new idea, the actual time it takes to change one's mind or perspective is near instantaneous. That's what makes ideas so powerful.

Not everyone's perspective was changed on September 26, 1999 - certainly, mine wasn't. The CB's announcement and the subsequent price action caught me by surprise in its specific timing, but only confirmed my long held feelings about leasing. I say this not to boast, but to explain how I came to see the fraud of leasing and forward selling years ago, and why I felt compelled to write about it, as I indicated at the beginning of this piece. You see, it truly is only a matter of perspective. It really only is how you look at things. I'm not the dumbest or smartest guy in the world. What enabled me to see this fraud and manipulation before anyone else (again, not to brag, but to explain why) was because I looked at it from a different perspective. Nothing more, nothing less. Many years ago, almost 15 years, I began to see the pattern of fraud and manipulation in gold and silver (silver first, gold later) for one simple reason - I was looking for it. I had become, based upon my experience as a commodity analyst, convinced that something was wrong in the silver market because there was an inconsistency between observable fundamentals and the price. So, I began to look at the markets through a perspective that something was wrong and I intentionally looked for what was wrong. In looking, I found it. It is hard to find something if you are not even looking. The more I looked, the more I found. I found that the short interest in silver, and eventually gold, was greater than anything the world has ever seen. This would depress the price of anything. I found, after looking for 10 long years, that physical supply was being provided to the market in a fraudulent and manipulative manner by leasing. It's amazing what you can find if you only look for it.

The purpose of this personal explanation of revelation is not to congratulate myself, but to further present my long-standing premise of fraud in the metals. Probably, like you, I have had a fairly standard exposure to life with regards to upbringing, education and experience. We're all different, but we're all remarkably the same, too. That exposure that you and I have experienced in life, works against us seeing (or believing) the manipulation in gold and silver. We're taught to believe in free markets, our institutions, and justice and the rule of law. Clichés reverberate loudly and incessantly - "you can't fight city hall...the market is always right...if they were wrong, they wouldn't be rich". Obviously, new ideas are hard to come by if we all think the same way.

Here's an exercise I would ask you to try (especially if you don't accept my version of things in the metals). Try and force yourself to look at the metals from a different perspective. I know it might be difficult, but I'm not asking you to renounce long held feelings - just for a few moments look at gold and silver through different eyes. I promise it won't harm you - your brain will remain intact. There's a great saying about the truth - "there's your version, my version, and then there's the truth" The point is that to discover the real nature of something, we often must look at it from different points of view. I ask you to forget the premise that the market is honest and free. I ask you to assume that our institutions can't blindly be trusted. I ask you to assume the possibility that corporations could be guilty of mass stupidity and then, of collective denial. I ask you to look at the gold and silver market from the perspective that something is wrong, and ask you to prove what it is that's wrong. I ask you to seriously think about how we can run deficits for years with flat to declining prices. I ask you to look at the existence of a never-witnessed enormous short position and explain to yourself why it's wrong to be short more of something than exists. I ask you to look at leasing from the view that destroying the collateral at the outset of a lease is fraud. I ask you to question why miners have to sell physical metal short to effect a hedge and not just paper, when no other producer in any other industry sells physical in order to hedge. I ask you to list the reasons why producers shouldn't sell years of future production at fixed prices at their cost of production.

I am not asking you to abandon your strongly held beliefs that the markets are inherently honest and that no one, or no group could manipulate markets like gold and silver on a long term basis. I am just asking you to make an honest attempt at seeing it from a different perspective, if for no other reason, than to satisfy your core beliefs in the free market. To be fair, while I am convinced of the fraud of leasing/forward selling, I force myself continuously to evaluate the markets from the "no problem" perspective. I practice what I'm preaching. But I must warn you. If you embark on this research journey in good faith, and diligently attempt to view gold and silver from both the "honest" and "fraudulent" perspectives, you will be surprised at the result. There is no doubt that, sooner or later, you will discover that the gold and silver market is rotten to the core. You will come to understand clearly why gold and silver are in a epic Catch-22 situation. You should, and will, come to be outraged that certain selfish interests, first by stupidity and greed, and then by collusion, have conspired to continue the manipulation and fraud. And, as a bonus, you'll come to understand how I can portray Barrick Gold as a fraud and manipulator, Chase Manahattan as a conspiricist and racketeer to their mining clients and Goldman Sachs as a cheat and racist to their client Ashanti, all with little fear of reprisal, because what I say is true. At a minimum, you know it is highly unusual for someone to make blatant, specific, and documented public accusations against our leading corporations, and rarer still, for those accusations to be ignored.

The New Age of gold and silver is only a few months old, but you can feel the massive change underfoot. Never again will the heavily hedged miners sell another additional ounce net short, they are too busy figuring how to cover. Never again will the dealers be able to fabricate stories and lies to their mining clients to sell physical metal forward and sell naked calls and alligator spreads. Never again will the central banks embark on a fantasy of disposing of metal assets it took hundreds of years to accumulate, for 1% interest per year and a "three card monte" promise of return. As unbelievable as it is to realize what has transpired in the metals these past 15 years, what's even more amazing is how quickly it changed. It just took a different perspective, something we are all capable of.

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