Taylor on Gold

July 2, 2001

James Turk Sums up a Powerful Case for Gold

I was glad to see my good friend, highly regarded independent thinking gold market analyst and inventor of the patented GoldMoney.com quoted in this week's "Barron's." James said the following: in his June 25th, issue of "The Freemarket Gold & Money Report":

"There are some big problems developing around the world. Any one of them could lead to a rush to gold and cause a pop in the gold price. In Germany, Bankgesellschaft is teetering on the brink of collapse, which could set off a chain reaction of bank problems. The Argentine currency situation is not yet resolved. The International Monetary Fund reports that inflation is developing in countries and is at the hightest level in seven years because of higher energy and food costs. And perhaps most ominously, the banks in Japan are moving from very bad to even worse. Estimates for losses from bad loans are creeping higher, and now generally exceed $500 billion. This could be an interesting summer for gold."

The Fed: Is it a Eunuch Guarding the Harem or a Fox Guarding the Chicken coop? Some hope for Gold from "Barron's"

Also in the July 2, 2001 issue of "Barron's", Gene Epstein makes some very interesting comments regarding Alan Greenspan and gold. In his article Mr. Espstein critiques a new book by Martin Mayer titled "The Fed". He disagrees with the premise made by Mayer that the Fed no longer has the power to effect money and the economy as it used to. Mr. Epstein said the following:

"In today's regime, the central bank sets the price of short-term money, and at that price, it provides all the supply the market demands. That was how it underwrote the expansion of money and credit that fueled the Internet and High-tech bubbles. At the same time, Mr. Greenspan was careful to blame it all on those who were prone to irrational exuberance-while providing all the drugs that kept them high. Then, feeling that the boom was getting out of had, he cut off their supply by hiking interest rates."

Epstein suggests that Mayer is wrong in comparing the potency of the Fed to that of "a eunuch guarding the harem" A more accurate picture of the Fed would be to compare it to the fox guarding the chicken pen according to Epstein. And then, much to my surprise, Epstein suggests that perhaps we would do well to read "The Mystery of Banking" published in 1983 by Murray Rothbard rather than Mr. Mayer's book. Here is what Epstein had to say about this wonderful book by the great Austrian economist, Murray Rothbard book and a fox named Alan Greenspan who is currently "guarding the chicken coop."

"While his description of the Fed's operations is a bit outdated, Rothbard explains in typically lucid prose what money is, how it is created, how banking evolves and why gold and silver almost inevitably become the money of choice. He then shows the difference between a free market in money and the controlled market imposed by government.

"Much of the essence of Rothbard's case is admirably summarized in a 1966 essay called "Gold and Economic Freedom" (appearing in a 1967 collection entitled Capitalism: the Unknown Ideal). As the author writes, the Federal Reserve was created in 1913 for the express purpose of underwriting the expansion of money and credit, which in turn causes boom and bust. The article was written by Alan Greenspan."

Comments From GATA's Bill Murphy

June 28 - Gold $269.20 down $2.80 - Silver $4.29 down 1 cent - The Bogus Game Goes On

Gold traded very quietly yesterday waiting for the Fed interest rate decision to be announced close to 2:15. At around 2 o'clock, Goldman Sachs came out selling like a wild banshee and broke gold down sharply. THEIR selling was widely noted in the gold market community and led certain operations to conclude that "connections" were used to obtain advanced information that the interest rate cut would be only 25 basis points.

I guess Goldman Sachs and crew do not like to be compared to a bunch of Dwarfs and decided to flex their muscle once again at the appropriate moment. As has been the case for 7 years, The Gold Cartel uses expected economic announcements as times to bash gold to highlight to the investment world how useless it is.

From what I can tell; AIG, Morgan Stanley, Goldman Sachs and JP Morgan Chase are still heavily short and dearly need to protect that position until they can turn their big sell side battleship around and accumulate more unhedged gold companies like Homestake.

I have alluded to, and have been noting, anecdotal evidence that The Gold Cartel is on the way out. I still feel strongly that way, but the sell off in the final minutes on Tuesday and the follow through $8 drop is indicative of the same trading pattern we have witnessed for YEARS. All gold spikes are crushed on that day or within days later. Always. Obviously, when gold starts to get away from the cabal, the calls go out, gold is mobilized and the market is bashed.

The open interest is only 124,528 contracts, but that is an increase of around 15,000 contracts from the lows, with the black box specs long. Without a doubt, many are once again puking out their long positions -which The Gold Cartel orchestrated. Whether they are long or short, the manipulation crowd has been picking the CTA pockets all these years and trading in a manner that makes the black box, gold trades losers. It is amazing that any of them still trade gold.

If the small interest rate cut was leaked to Goldman, the Microsoft news most likely was too. Mike Bolser noted to me today the fact that Goldman aggressively sold gold with these two announcements as a backdrop, should be no comfort to gold bears. Mike feels it demonstrates that they are running low on the limitless supply they have had for years and NEED to move now when they can get a big bang for their buck.

Bob Chapman reported months ago that his sources told him that Alan Greenspan gave the bullion banks until the end of May to clean up their manipulation act. We have seen a good deal of evidence that is occurring. However, if that truly is the case, Goldman Sachs is clearly paying no attention, or they requested a little more time to exist the orchestrated selling.

All we can do is to continue to monitor the situation as closely as possible and understand that short term gold analysis is like analyzing an illusion - the illusion being that gold is a free market, trading without orchestrated interference based on traditional supply/demand fundamentals. Two days ago I commented on what a wonderful chart pattern gold had. Since then, gold tanked and blew through important $271 support. If it were not gold, I would have to be a bear. But, IT IS GOLD, so I am still a wild bull !

Gold is widespread in low concentrations in all igneous rocks.

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