Killer Move Down to End 21 Year Gold Bear Market

June 1, 2001

First, from John Brimelow:

Indian ex duty premiums: AM $4.68, PM $5.32, with world gold at $267.20 and $266. Above legal import point, although showing understandable signs of shock.

MarketVane's Bullish Consensus for gold fell 12 points to 43%, the biggest 1day fall since October '97, when gold first fell through $300. (The only other double digit decline over the past 10 years occurred in November '93 as that bull move expired.)

Amongst the very few positive wimpers, there is a marked tendency to hope for a large decline in open interest today, as evidence that the excessive spec long has been cut back. Standard London suggests that as much as 75% of the large spec long may have gone. However, if, as seems possible, predator funds were actively shorting over the past two days, this indicator might well prove misleading. Only when the CFTC data is published at the end of next week will it be possible to adjudicate this.

A significant development last night was the capitulation of the Dean of American newsletter writers, Richard Russell. Over quite a few years, Russell's strategy has been to watch gold closely, sometimes buying and sometimes selling shares and options, but constantly advocating the steady accumulation of bullion coins on a classical gold bug view. Consequently his comments on "gold items" below is particularly notable:

"What to do with the golds? Personally, I'm partially giving up. I sold half of my options, and I'm holding the other half which don't expire until December. But the gold action is discouraging. I wouldn't buy any gold items here, and I wouldn't hold a bunch of gold items either. I repeat, damn it, more money has probably been lost on gold and silver than has ever been made. That's the metal markets, love 'em or leave 'em. "

JB

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Only two weeks ago the Richard Russells, Bill Fleckensteins, Lawrence Kudlows et all, were explaining that gold was rallying because of increasing inflation expectations, etc. Gone overnight? How do they explain gold's meteoric rise and collapse? Perhaps they should contact Bill King:

The King Report Thursday May 31, 2001

"As we mentioned, yesterday was important for gold because futures settle next day, and the banker-broker cabal, under Fed protection, needed to push gold below last week’s $275breakout. Gold tanked $7.70 on increased central bank lending of gold (principally Asian central banks). Is it just a coincidence that central banks yesterday desired to increase their gold lending? What is the quid pro quo for the Asian banks that knocked gold? Anyone that doubts the conspiracy and its scope doesn’t understand, or pay attention, to how markets work."

The yen has strengthened noticeably against the dollar lately and gained 7% on the Euro - a big move. Will the Japanese enter the gold buying arena again like they have in the past? Some commentary on the Japanese:

Lance Lewis of www.prudentbear.com:

Treasuries were uncharacteristically quiet with equities under so much pressure as the long end continues to sit near its lows and to be unable to even bounce. This may have something to do with noises coming out of Japan of late. My friend John Mesrobian pointed out an article a couple weeks ago in the LA Times by Kenichi Ohmae, who is advising Japan’s new Prime Minister on economic matters. The article basically warned that Japan’s financial institutions may be forced liquidate their US assets in the next few months (the Japanese own 10 percent of US treasuries and are the largest foreign holders) in order to clean up their chronic banking problems. Now, that article in and of itself means nothing. But may be worth giving a little credence to when taken together with the sharp rally in the yen last week, the inability of the bond market to rally over the last few days, recent statements by the Japanese government reflecting on the possibility of using Japan’s foreign reserves as well as foreign assets to clean up their banking mess, and the fact that high level Japanese government officials are in Washington today meeting with Secretary O’Neill and will meet with Uncle Al tomorrow. If the market is beginning to sniff out that the Japanese are planning to sell their US treasury holdings, it would certainly explain a great many things. Obviously, such a move by the Japanese would have grave implications for US financial assets. On the flip side, it might be just what the doctor ordered to help Japan out of its 10 year funk.

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From THC in Osaka, Japan:

The "mood" here in Japan is definitely beginning to tilt towards the positive. Not necessarily in economic terms, but simply on a psychological level. The people are strongly behind the new Prime Minister Koizumi and Mrs. Tanaka, the daughter of the famous PM Tanaka Kakuei.

As an example, a sumo wrestler recently dislocated his knee, but went on to win the tournament despite the immense pain. PM Koizumi went to the awards ceremony and presented a hugely heavy silver trophy to the wrestler. He picked up the trophy by himself (it is too heavy for most politicians, who in the past have had supporters assist in holding the trophy), and strayed from the standard fare in his speech by adding something like, "you did well in overcoming the terrible pain to rise to victory. I am deeply moved by your accomplishment."

This was excellent timing..........I felt that the Japanese people are ready to join Mr. Koizumi in bravely moving forward in a restructuring their economy as well as the debt problem.

This is just one small example..........but I don't remember every seeing the mass media and the people here so excited about government. People love to spend time watching the diet debates on TV each afternoon..........

A wind of change is in the air.......

THC

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Either the Bush Administration is in the process of ending the gold fraud or they are going to go down as the biggest bunch of hypocrites to run Washington in memory. Clinton's crew was a bad lot and serious hypocrites themselves, but we all know that. Bush, Ashford (with his prayer meetings) and crew are supposed to be different.

We ought to know soon enough.

My take on the recent gold price explosion and sudden collapse is that The Gold Cartel lost control once again of their collusion and were baled out by the official sector - I believe for the last time.

It is interesting that this sudden drama occurred at the end of May - the time that Bob Chapman reported that Alan Greenspan gave the bullion banks to clean up their act. It has not played out the way we expected or wanted yet, but that should be right around the corner.

However, I can never remember a time when gold shot right back up after a sharp liquidation like this. It will require time to regain its composure for a move much higher. That could be a matter of a couple of weeks.

My reasoning that the gold price fix game is on the way out:

  • Lease rates are still very high with the one month at 2.2%. They are not retreating to anywhere close to the norm.
  • The Reg Howe Complaint. The Gold Cartel is in serious jeopardy of being caught flat footed if the judge rules Reg's way. If the court ruling goes against them and discovery is allowed, The Gold Cartel will lose control of their spin machine - that includes the Bush Administration too. It will belong to GATA and Reg Howe.
  • JP Morgan/Chase stopped the June gold deliveries. Of the 3200 contacts delivered today, Morgan took 1566 of them. Carr futures stopped 669 contracts. Since Carr will cease doing business on Comex soon, my guess is that they will give up the gold to Morgan.

Another surprise was that the Bank of Nova Scotia delivered a sizeable 2949 contacts of the 3200 hundred. They had been the big takers (stoppers) the past few deliveries. As of two weeks ago, they were expected to do so again.

What happened? I will never know for sure, but my guess is that a deal was struck. Scotia was let in on what The Gold Cartel was going to do to bomb the gold price and were allowed to sell June futures at much higher prices. In return for that inside information, Scotia was to deliver the gold to Morgan.

Morgan wants the gold to cover their shorts or to have deliverable Comex gold in house to prevent squeezes in the coming delivery months as their con game is unwound. I find it interesting to note that Goldman Sachs was the big gold stopper in August, 1999, just prior to the Washington Agreement announcement.

  • Former Treasury Secretary Rubin's new firm, Citibank, put out a buy to its clients today on the Canadian dollar. In the past, a sustained rise in the gold price has directly boosted the CD.
  • The two Princes of Darkness (Andy Smith of Mitsui and Ted Arnold of Prudential) are bullish after being bearish since the cabal commenced operations. These long time mega bears knew that the fix was in on gold. They had the inside scoop and made their reputations be calling the never ending gold bear market. They probably have the word now that the end is at hand.
  • GATA is all over this. We are everywhere they turn. Our credibility is growing by leaps and bounds. I received a call today from a Paine Weber broker who was made aware of what GATA had to say about the rigging of the gold price. He, like most, was very skeptical. He called today, stunned by the recent gold price action, saying he has never seen anything so obvious as this "organized stuff job." I have a dinner coming.
  • The big buyers are still there. The supply/demand deficit is increasing. The gold loans are growing to more dangerous levels by the day. A gold related financial market disaster could occur at any time.
  • The open interest is extremely low again. Yesterday, the open interest dropped an astonishing 18,209 contacts as the specs were obliterated - leaving the total at a very low 115,781 contracts. Once the pros are convinced the remaining weak longs have exited, they will be buyers for the big move up.

That brings us back to Mike Bolser and his wonderful work. One of Mike's major points is that not only is The Gold Cartel afraid of a gold derivative time bomb blowing up the system, they are afraid of an interest rate derivative melt down that could be set off by an exploding gold price. Sixteen trillion dollars of interest rate derivatives on the books of J.P. Morgan Chase gone amok could do that.

What they are afraid of is the volatility time bomb. The increased volatility numbers was what blew up Ashanti's hedge book. It is what blew up Long Term Capital Management. The Nobel prize winners at LTCM never factored in ballooning volatility. Their bet was that volatility would revert, or converge, to normal as their black-box models said it would. It did not. Their margin calls went off the charts. It threatened to set off a chain reaction of defaults in the financial system. So they were bailed out by Peter Fisher, the Fed and other New York banks.

Who is going to bail out the 16 trillion at J.P. Morgan Chase when the volatility of its interest rate derivative positions goes amok?

Here is the scary part. I might have to start referring to Alan Greenspan as Dr. Doom. What has this man allowed to have been put in place? Will his deliberate deception about the gold market go down as one of the most destructive maneuvers in financial market history?

I bring your attention to an Associated Press story of November 2, 2000. The title readsGreenspan urges exemption of derivatives from regulation:

Washington - Federal Reserve Chairman Alan Greenspan urged Congress on Thursday to act quickly to exempt from regulation the $80 trillion market in so called over-the counter derivatives, saying legal uncertainty is posing "unacceptable risks to the country's financial system…..

Greenspan, testifying before the Senate Agriculture Committee, asked lawmakers to adopt the recommendations of a White House Task Force which included exempting over-the-counter derivatives from government regulation and allowing the financial institutions using them to police the market themselves.

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This is before the same committee where Dr. Doom stated, "central banks stand ready to lease gold in increasing quantities should the price rise."

I think the man has lost it. The ramifications of the direction he is cheerleading unsuspecting politicians are staggering.

Just little over a month after his pleading to Congress, I brought up the following in Midas commentary last December:

CARTEL CAPITULATION WATCH

Bank Credit and Gold Loans

New York, Dec. 14 (Bloomberg) -- Chase Manhattan Corp. and J.P. Morgan & Co. said fourth-quarter earnings will miss estimates because of lower trading revenue and higher merger-related costs.

Both companies said earnings from capital markets activities are falling because customers are trading less and currency trading isn't as lucrative. Also, losses rose in Chase's private equity business, which had swelled earnings in past quarters.

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The balance sheets of these two major bullion dealers is contracting; earlier in the day The Bank of England warned of credit risks due to overly heavy investments in the telecom industry (following the heads up Frank Veneroso gave to the Café weeks ago); and Chase Partners is heavily invested in the internet and Nasdaq.

The is not a good mix to support a massive gold loan and gold derivative exposure. Especially, with GATA and Reg Howe breathing down their necks.

Maybe that is why Treasury Secretary Lawrence, who also has GATA/Howe barking at his tail, appears to be in a bit of a panic to pass his derivative bill.

Dec. 14 - WASHINGTON (Dow Jones) - Treasury Secretary Lawrence Summers urged Congress to move ahead with passage of legislation to overhaul derivatives regulation.

"We are pleased with the agreement reached last night on over-the -counter derivatives," Summers said in written statement issued last Thursday morning.

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Could Summers fear that the price of gold could explode at any time and expose his scheme, or effect financial chaos? Why the rush to pass this bill which will make bank derivatives less transparent? Can't it wait for the new Congress?

Meanwhile, back at the ranch, CHASE BANK was the big seller today and the one that knocked gold down from its highs.

Chase, Goldman Sachs, Chase, Goldman Sachs. The beat goes on with these arrogants.

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The picture could not be more clear. The inmates are running the asylum. For Greenspan and Summers to do what they have done to gold and then argue for a J.P. Morgan/Chase to regulate their own 16 trillion dollar interest rate derivative book is madness.

God help us.

The recent gold price bashing ought to be the lash hurrah for The Gold Cartel. They are on a short lease.

Gold and the goldshares are the place to be and it will remain that way for a long time to come.

With gold stolen by Conquistador Francisco Pizarro from the Inca Empire in 1532, Spain financed its conquest of Europe.

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