Gold

December 22, 1999

The manipulation continues unabated. The Dutch central bank has announced it intends to sell 300 tons of its gold reserves over the next five years. Nederlandsche Bank will sell 100 tons initially and then 200 tons over five years. That will leave them a reserve of 700 tons. They will not be announcing the sales beforehand. These sales are part of a plan of the 15 European central banks to limit their total gold sales to 2000 tons during the next five years and to freeze gold lending levels. There was no need to make such an announcement other than to influence a sensitive gold market.

There is no question the FED is operating in the gold derivative markets. This is why Alan Greenspan was so animate during the Congressional hearings that there should be no regulation of over-the-counter derivatives. Legislation would have stopped the FED's manipulation of the gold market. The FED's actions particularly facilitates the gold carry trade which keeps sustained downward pressure on gold prices and creates bogus liquidity, which keeps the world stock markets well oiled. Recent and future gold sales by the BofE rendering their gold reserve position to that of a third world nation, and the subsequent sale announcement by the Dutch central bank, were certainly engineered in their fashion to lower gold bullion prices and in all likelihood to bail out the FED's put or short position. Every single move or announcement by any central bank, government spokesman, politician, investment banker or broker, regarding gold has been calculated to drive it lower. There is an institutional commonality of interest for lower gold prices. That is to reflect stability in their non-gold paper system, which is systemically bankrupt. If gold goes higher many might think the stock markets are going lower. A break below 9000-9200 on the Dow would signal a correction of more than 20% and thus a bear market, which would bring this monetary and financial charade to an end. Thus there is much at stake. If, as we have predicted, the 20% barrier is reached, we can assure you the FED will be in the stock market at any cost keeping it from going lower. Since its 1913 inception the FED has been a disaster for the American public, but it has made untold trillions for bankers and brokers. The bubble is there. It will be pricked and we ultimately will have a bear market no matter what the FED does. Conversely, gold will rise again from its depths and reassert its position as the only real money.

There is 13,000 tons a gold in India, almost all of which is in private hands. It buys 1/5 of world production and demand is increasing due to good harvests and over 6% growth this year and next. The government regards owning gold as barbaric and medieval, a threat to the balance of payments and a wasteful diversion of savings into a non-productive asset. Last year 600 tons of gold was imported at a cost of $7 billion. In January, the government increased customs duty on gold by 160%in an effort to curb the outflow of funds. The government has offered a gold deposit scheme. An individual company or trust can deposit as little as 200 grams of gold for 3 to 7 years for a gold certificate which pays an interest rate of 3-4%, tax free. At the end of the term the certificate can be exchanged for gold or the market value of the gold with no capital gains tax. The certificates are transferable and can be used as security for a loan. Jewelers can borrow gold at 9 to 10% less than the cash borrowing rates. The goal is to borrow 100 tons a year saving about $1.2 billion in foreign exchange. Most of the gold is in the form of jewelry that would have to be melted down, destroying the value of work, which is usually 15%. A major problem for the government program is most of the gold was bought with unreported funds. If exposed to the government it makes the owner liable to prosecution. Our guess is they may get 20-50 tons the first year and less later. Those who own gold trust neither the government nor the financial system, thus we forecast the program as another bureaucratic failure to control citizen wealth and gold prices.

Gold industry officials have been contacted by government regulators, such as the British Financial Services Authority and the FED, in regard to the firms' gold hedge-book exposures stemming from a little-known detail about producers' hedge contracts, especially in regard to lack of margin calls, which was part of the contract agreement. As gold prices fell commercial hedgers gave increasingly favorable terms rationalizing it by thinking margin calls are only for speculators. What pray tell were the producers doing if not speculating. The banks who wrote the derivatives are over extended by billions of dollars and liquidity is now since absent from the market. The banks are selling bullion to force the price of gold lower, putting the derivative bets on side. Kuwait lent gold to the BofE, and the Dutch announced sales all calculated to drive prices lower. The FED isn't investigating - the FED and other central banks are the problem. It is transparent that all the major central banks are manipulating the price of gold and the new preferred range is $250-$300 an ounce. Are we the only people who see this? What is Congress doing hiding? They have to be aware of what is happening.

Palladium hit a record high of $447.85 an ounce due to uncertainty about exports from Russia, which produces 70% of the world's palladium.

China is poised to become world's biggest gold consumer.