Gold & Venezuela

The only purchasers of the Bank of England's gold sale were the 12 market makers and 50 ordinary members of the London Bullion Market Association (LBMA). Buyers included HSBC Midland, the parent company of Hong Kong Shanghai Bank, through its ownership of Samuel Montagu, one of the five banks that sets the daily gold price fix in London. Others were N.M. Rothschild, Bank of Nova Scotia, Barclays, Morgan Guarantee Trust and UBS. The Bank of England lost almost $800 million on the sale and the U.S. $9 billion.

There is no question that the British engineered gold sale was executed to bankrupt financially weaker gold mining companies, which would then be gobbled up by financially stronger companies at fire sale prices. $252 to $260 an ounce gold is well under the average cost of production of $273 in S. Africa, $267 in Canada, $261 in Australia and $257 per ounce in the U.S.

We recently mentioned a possible merger between Barrick and Newmont. Other cash rich predators are Anglo American and Rio Tinto. During this period of low gold prices these majors enjoy the luxury of shifting production to high grade deposits, which allows them to continue to generate profits or absorb acceptable losses. The lower gold prices have caused a 50% reduction in workers in S. African mines since 1990. In the last year and a half 103,000 miners have lost their jobs in S. Africa, while mining costs dropped from $342 to $273 an ounce. 50% of S. African mines lose money with prices between $252 and $260 an ounce. Over the next six months another 80,000 miners will lose their jobs if current prices persist. This will push the official unemployment rate to 35% and the real unemployment rate to 55%. This also effects surrounding countries, such as Mozambique. Miners send $50 million home to their families, where one wage packet feeds 20 people. Ghana's largest mining company, Ashanti Goldfields, is laying off 2,500 workers. At this point official gold sales are an act of contempt pointed directly at the world's poor.

Rumors continue to abound concerning producer buy backs as the gold market finds its footing between $252 and $262 an ounce. It is also very significant that Goldman Sachs and Merrill are rumored to be major buyers of December 300 calls. On the other hand heavy selling appeared on August 23rd and 24th, as more gold carry-trades were put on. The world knows that another 8,000 contracts will be sold on September 21st, the day of the auction, so their isn't great incentive to go long. Long contracts have dropped 5,000 recently. Short-term the pressure is neutral to down.

VENEZUELA

Placer Dome is not expected to start production at the Las Cristinas property in Venezuela for at least 4 years.

There has been a number of phone calls, faxes, and scads of email regarding our updates on the affairs of Crystallex and Placer Dome. I'm surprised there is such interest and that so many subscribers and brokers are interested in the company.

It has been reported by El Universal, a Venezuelan news agency, on Saturday, August 21st that three members of the KRY board met with President Chavez at Miraflores Place. It is believed those board members were Marc Oppenheimer, Robert Fung and Tejara Paris. Mr. Paris was former ambassador to Spain and a friend of U.S. presidents, back to President Johnson. Let's hope their efforts are fruitful.

Now that Cecilia Sosa, Supreme Court Justice, has resigned what better opportunity has Chavez than to expose the fact she was bribed by Placer Dome in its court confrontation with Crystallex. He could announce to Venezuelans that he had discovered her corruption, atypical of the former ruling elite and nullify Placer's claim to Venezuelan gold properties and expel them from the country. KRY would then file a suit to recover their property or have it granted by previous title and end up with the entire property.

Desperate people do desperate things. Hugo Chavez was elected president by obtaining 90% of the vote. 50% of the electorate voted, which by U.S. standards isn't bad. He won 119 of 128 seats in the Constitutional Assembly, which give him a free hand to push through his reforms. The problem is he is the enemy of the people. He has a dictator mentality, in his speeches be meanders in confusion like Fidel Castro, he has no economic plan and is an ardent anti-Semite. The main reason he is popular is that he has the money to spend to make the masses happy. He was in a sense saved by higher oil prices, which have built up the country's foreign reserves. Venezuela's voters are not stupid. They desperately wanted to rid themselves of this corrupt ruling elite. Unfortunately they traded one set of criminals for another. They now have a demagogue that is controlled by the international elitists.

The Assembly on August 19th approved a decree giving it the power to sack hundreds of corrupt judges and remove Supreme Court Magistrates. This latest move by Chavez has outraged opponents, who believe the country is headed toward dictatorial government. This could have never happened if the opponents and judiciary were not irredeemably corrupt. The question now is will there be a review of cases corruptly adjudicated?

On August 25th a constitutional assembly controlled by supporters of President Hugo Chavez declared a legislative emergency usurping most of Congress's functions, such as the right to pass laws and limits it duties to a narrow range of activities such as budget oversight. Chavez says, the assembly is the country's supreme power.

On August 24th Cecilia Sosa, Supreme Court Justice, who we contend was bribed by Placer Dome, resigned after a majority of fellow court members voted to cooperate with the National Constituent Assembly. Sosa has resigned because she is aware sooner or later the ax will fall. V-headline news reported Ms. Sosa traveled to Washington, DC to confer with U.S. Justice and State Departments, probably in regard to her $3 million wire transfer.