Gold - Why Did The Price Rise So Dramatically?

May 22, 2001

The price of gold exploded upward by $18.25 per ounce last week to close at $286.15 in New York. Why this dramatic rise?

The "Financial Times" which falls all over itself to explain why gold is indeed a barbaric relic and which always assumes gold is a bad investment couldn't explain even why gold had risen to even to $274 on Thursday, even as lower than expected inflation reports came from the U.S.

Let me see if I can help the boys from London figure out why gold might have risen so sharply last week. Here are a couple of my own ideas.

1. The Financial Times and most everyone has been conditioned to think that gold only rises only with higher rates of inflation. In fact, gold rises when people lose confidence in fiat currency for whatever reason. What that happens, they recognize that a fraud has been perpetrated by the banking system and governments who permit the debasing of currency to occur. So, gold frequently rises during times of deflation as well as inflation. In fact, as Ian Gordon has pointed out, it is during the Kondratieff winters when deflation rather than inflation prevails, that gold has its greatest run. As we enter the current Kondratieff winter in the existing cycle that began in 1949, we should not be surprised to see gold rising dramatically in the weeks and months to come.

2. The "Financial Times," has done its best to first dismiss then undermine the proclamations of GATA and Reginald Howe, the plaintiff in the gold price manipulation law suit now filed with a Federal court in Boston. First they tried to ignore their statements. But now, it is becoming more difficult to do that with GATA now getting national attention in South Africa where the gold price rigging has had a most pernicious effect on that society. So the Times is no longer able to ignore GATA, so it has done its best to marginalize and undermine the efforts of GATA by providing articles with misinformation such as the one on May 7th that quoted a professor Neuberger who dismissed GATA's charges. Not only were Neuberger's claims without merit and half baked, but the Financial Times failed to disclose that he was anything but an impartial analyst. Instead he was on the payroll of one of the defendants in the Reginald How law suit. What kind of an objective view could he have about GATA's Charges.

We know the agenda of the Financial Times is to defend the bankers and their right to continue counterfeiting currency and that the bankers are thus the natural enemies of gold. But I believe more and more GATA's credibility is on the rise, because the evidence is so overwhelming in its favor so that when someone with an open mind, such as the folks in South Africa start to examine what they have to say, they can no longer be dismissed. Thus, I think the light that has begun to shine on the gold market conspiracy by GATA and its efforts in South Africa as well as the efforts by Reginald Howe in his law suit may now be causing some of the players in the market to begin reducing their short positions.

3. In fact one of the most significant players of all, namely the U.S. Government may be influenced, assuming as I do, that the new Administration is more law abiding than the Clinton Administration was. Evidence that the Bush folks may be refusing to play the games of the Clinton Administration to rig the gold markets by dishording American gold and/or twisting the arms of foreign governments to lease their gold, may be gleaned from an announcement made via GATA this past Monday. With the Friday afternoon move by gold through $275 like a hot knife through butter, GATA's announcement has been lent considerable credibility. Here was the announcement by GATA.

"Greenspan Gold Bombshell via Bob Chapman"

"A bombshell received from Bob Chapman, fits in perfectly with the information you have been getting from Midas the past 4 weeks or so; Bob, who is a big GATA supporter and Editor of the "International Forecaster," sent us the following even before he published it in his own newsletter.

"Our intelligence sources have informed us that Alan Greenspan has given the bullion banks until the end of May to clear up their hedging and outstanding gold derivative positions. Evidentially this process has been going on for some time. Furthermore, Tony Blair will try to make available, at the upcoming British gold auction, additional gold which will go to banks designated by Greenspan. We were also told that AngloGold will sell forward a designated amount of gold to banks also specified by Alan Greenspan. Our source for this intelligence has been very accurate in the past. They also said they thought that gold would break out over $275.00 an ounce by Friday."

At about 12:00 noon on Friday, I took a lunch break and before I went upstairs for lunch, I wondered in my own mine how legitimate my friend Bob's story was, since at that moment gold was selling at about $273. Certainly getting over $275 before the end of the day was not impossible, but time was running out for this to happen before the end of yesterday. When I returned to my office about 40 minutes later, I was amazed to see gold suddenly cutting through $275 like a knife through hot butter. It finished the day in New York at $286.15! I guess my friend and competitor Bob Chapman was not full of beans after all!

Incidentally, Bob provides a great newsletter. He jokingly told me he prices it just below mine. I know I run the risk of losing subscribers when I recommend the work of a competitor, especially when it is one who does such good work as Bob. But I'm going to do it anyway, because I think Bob deserves it and as one of my subscribers, so do you.

Where Does Gold Go From Here?

Given the action of the markets, there is reason to believe Bob Chapman's report about Greenspan's remarks was correct. I believe Reginald Howe has it figured out exactly right when he included Alan Greenspan in the gold price fixing scheme. He had to be at the very heart of it and when he said in 1998 that "central banks stand ready to lease gold in increasing quantities should the price of gold rise" he was in fact an operative part of that scam because he was sending a signal to the bullion banks named as defendants in Reggie Howe's lawsuit that it was safe to continue to with their lucrative "gold carry trade" business because with this statement, the bullion banks could count on always being able to cover their short positions with lower priced gold.

When previously questioned about this, Greenspan denied that the Fed or the U.S. was dishording its gold. But now there is reason to think Mr. Greenspan may not have been forthright about this issue. Based on information pieced together by James Turk and Reginald Howe, it seems as though the U.S. may have been swapping gold to other countries, thus freeing up those countries to sell the physical gold from their own coffers. This may have been done by the Clinton Administration in order to get around their lack of Congressional support to sell U.S. gold in order to lower the gold price in support of Rubin's strong dollar charade and his crony capitalist buddies at Citicorp and Goldman Sachs which firm had been the chief bullion bank at the heart of the gold manipulation business during Rubin's days at Treasury.

If in fact this run up in the gold price late last week took place because the Bush Administration is not willing to go along with the market manipulation orchestrated by the Clinton and Blair administrations, then indeed we could be at the start of one of the most amazing runs for gold in history. I say that because the amount of money printed, especially since 1971, as pictured on the front page of our May issue has enormous. With so much "purchasing power", even a small stampede into gold could take it beyond its old high of $850. Actually, given the need for the U.S. to try to print its way out of the enormous debt enslavement America has gotten itself into, the amount of money yet to be printed may in fact make the past growth in fraudulent U.S. dollars small by comparison. We could in fact face a hyper-inflationary situation. Thus, in terms of a rapidly depreciating currency, the price of gold in terms of that currency could be absolutely enormous (i.e. in the thousands of dollars per ounce) when this the dam breaks. When this is to happen is anyone's guess but when it does take place it is likely to be very rapid.

Following Bob Chapman's remarks, Bill Murphy made the following remarks. "I can't see how the bullion banks can cover without being bailed out. The weekly supply/demand deficit is too big. The only way for them to cover without the price going bonkers is for someone else to take on their shorts. This ought to be interesting. If Bob's intelligence is on the money again and The Gold Cartel has run out of protection - look out!"

Well folks, apparently Bob's information was "spot on" which leads me to think the Gold Cartel may have run out of protection. So for the boys at the Financial Times, there is your answer as to why gold has made its shocking rise. It is a rise GATA and many more of us gold bulls have expected for quite some time. And if you had not been so willing to buy what ever the power elite tell you to print, you may not have found it so surprising either. You might have actually been able to get the truth out to the market before that little known under-resourced non profit organization known as GATA.

Favorite Gold Stocks

If yesterday's major move in the price of gold really is the beginning of a major bull market in gold, then we have got to get ready for this move by focusing more sharply on the individual gold shares on our list. Which ones should you put be buying most aggressively now and which ones should you wait for confirmation of a bull market before buying.

First let me say that we cannot be sure that gold has turned the corner with last weeks very encouraging action. We have seen many false starts in the past. But based on fundamentals and the issues discussed above, there is a distinct possibility that we have seen the first baby step toward a move upward in gold to levels that should take the metal at least two or three hundred dollars higher than its Friday close. But until we have a confirmation that this is the "real McCoy", I think it is prudent to continue allocating 10% of our portfolio to "A" quality issues and 10% to "B" quality issues as they are so defined in page 16 of our monthly newsletter.

When we finally begin a protracted gold bull market, the stocks that will make the biggest gains will no doubt be the exploration stocks because as they make discoveries, they add more wealth relative to their market value than do the larger producers who's move is largely confined by the price of gold. Traditionally we had always focused more on the exploration stocks, but with the rigged market of the past few years, the price of gold fell to such a paltry level that we simply had no choice but to basically ignore the exploration issues in favor of those companies that had at least one project in production or nearing production, thus enhancing their chances of survival.

In general, only after gold rises into the $300 to $350 range do I think it will make sense to begin start focusing more on the juniors. Until then, I would continue to concentrate on "A" and "B" quality issues. "A" quality issues are defined on the back page of our newsletter as companies with producing gold mines. "B" quality companies are those having either a feasibility study or a pre-feasibility study as they are defined on the back page of our newsletter.

Among the "A" quality issues the following are currently on our page sixteen list. Agnico-Eagle Mines, Aurizon Mines, Crew Development, Durban Deep, Goldcorp, Newmont Mining, Placer Dome, Repadre Capital Corp., Richmont Mines, and Royal Gold.

The only stocks on this list that we are somewhat hesitant about buying a the present time are Aurizon Mines and Newmont Mining. Our reluctance with respect to Aurizon results from declining cash flows related in large part to a declining gold production. However, given a rising gold price not only will that help increase profitability on existing production, but it will also increase the likelihood that the Casa Berardi project, which has a resource in excess of 3 million ounces will come on stream.

Regarding Newmont, we note that given the company's large debt load its debt rating has declined somewhat. However, a rising gold price will help alleviate this credit rating issues as well. Overall, I have no problem continuing to own either Newmont or Aurizon though I may be somewhat more cautious in buying them than some other "A" quality issues.

"B" quality issues on our list include American Bonanza, Canarc Resources, Coral Gold, Gabriel Resources, Golden Phoneix, Minefinders, Nova Gold, Polyment Mining and X-Cal Resources. My top five picks at this time among this group are Nova Gold, Golden Phoenix, Minefinders, X-Cal Resources and Canarc Resources.

The "B" quality issues are really the ones we need to pay closest attention to because these are the ones that will be next to make really big moves. Having projects that are ready to place into production or at advanced stages, they are likely to attract analysts and investor attention very soon, unless the recent rise in gold proves to be a false start.

"C" and "D" Quality Issues later in the Bull Market

Given our aversion to companies with less advanced stage projects, we have largely avoided "C" and "D" quality issues. In fact among the gold shares, we have only two, "C" quality issues, namely Barramundi Gold and Eaglecrest Explorations. Likewise, we have just two "D" quality issues, namely IMA Explorations and Virginia Gold. All four of these companies could have explosive percentage growth in their share prices with a rising gold price and so if gold continues to rise, we will begin to pay more attention to lesser developed companies as the price of gold rises.

Lets just hope this is not a false start. If the Republicans are true to their free market rhetoric, rather than submit to the politically expedient actions of the Clinton Administration who obviously saw fit to rig the gold price as part of the bubble stock market and strong dollar fraud, then this could be the "real McCoy."


Jay Taylor, Editor of J Taylor's Gold & Technology Stocks

The California Gold Rush began on January 24, 1848 when gold was found by James W. Marshall at Sutter's Mill in Coloma.
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