Taylor on Gold

July 23, 2001

HOW MUCH LONGER CAN THE TREASURY SELL GOLD?

HOW MUCH LONGER CAN THE U.S. DOLLAR LIE BE MAINTAINED?

You could make the case as Doug Casey does, that America and other governments should sell all their gold so that a true free market for gold could evolve. That would be ok with me too, if such a decision were made in the light of day and if our elected Representatives had a chance to vote on it. The last time I checked our government officials have been claiming that we still do operate under a form of democracy.

Yet there is every reason to believe that our government is behaving more like a dictatorship than a democratic republic, judging by the behavior of the U.S. Treasury and the Exchange Stabilization Fund.

For example, as discussed recently in this hotline message, it seems as though the Clinton Administration may have clandestinely sold as much as 20% of the American gold supply without Americans or Congress knowing anything about it. This it seems likely was achieved by way of a swap transacted by the Exchange Stabilization Fund (ESF), which since the days of FDR can be secretly carried out with no one but the President & Secretary of the Treasury being aware of it. But, given that gold underpins and strengthens our currency, you would think in a democracy the American people should have some say about this issue. Apparently the elite bankers who in fact call the shots that really matter in America, think differently. Some democracy we live in!

As noted in recent issues of "J Taylor's Gold & Technology Stocks," there is reason to think Clinton and Summers may have swapped 20% of the U.S. gold supply to Germany so that 1,700 tonnes formerly owned by the U.S. and still stored at West Point is now owned by the Germans. This it seems made it possible for the Germans to sell the remaining 1/2 of the gold the used to hold after they sent the other half to support the EURO.

Why would the ESF do that? There may be several reasons, but one of the most obvious would be in order to reverse big losses the ESF was suffering at the time of the Washington Agreement. It seems as though Clinton was caught off guard by the sudden decision of the Europeans to stop selling gold. And with an annual short fall of new supply derived from mining activities each year amounting to about 1,500 tonnes, unless a new supply of gold was found and found quickly, the fundamentals of the gold markets would result in a surging price for gold.

But it was not only the ESF that most likely prompted this clandestine action. If the gold price were allowed to continue to rise, it would almost certainly expose the naked truth to the world about the dollar, namely that it was then and is now even a more over valued currency. What would happen to the U.S. dollar and global markets if the notion of productivity gains, which according to Alan Greenspan, Bob Rubin and Larry Summers justified high dollar and stock market valuations, were seen for the mirage they are? Would the dollar not plunge back to earth and the global markets with it?

The answer to that question is "not if you can emasculate the one currency in the world that is superior to all paper currencies." If gold can be manipulated to keep its price depressed, then you could explain the strong dollar exactly as the Bush people are now explaining it and that is to simply say the dollar isn't strong, it is simply less weak than other currencies." And if you could keep gold depressed, then the lemming like mentality of the masses will not result in a flight to quality - from paper trash to real money, namely gold. If CONfidence can be maintained in paper, the banks can keep on printing and the great dollar and American stock market lie could be kept afloat a while longer. Or from Clinton's vantage point, at least it could be kept in place until his time as President had expired.

So, How much Longer can the Dollar Con Job Continue?

There are several possible answers to this question. It could last for another four years, assuming the U.S. has clandestinely sold 20% of its gold by way of a swap aimed at disguising that transaction. We believe the annul gold shortfall from mine production to meet global demand is around 1,500 tonnes. Assuming other countries are not willing to sell more gold as per the Washington agreement, the U.S. could meet this shortfall for perhaps another four years.

Of course, there are companies like Barrick who some think is a knowing accomplice to the gold market manipulation scheme. Its recent acquisition of Homestake, which has not sold much of its gold forward, may provide another source of supply for the banker/government cabal to use to continue trashing gold. The ability of the Homestake production to be sold forward could buy the ESF a little more time to continue its dollar con game and in so doing contribute to the impending poverty of millions of Americans and billions of the world's citizens.

Hope Springs Eternal

Hope springs eternal with some of us gold bugs. We would like to think that either the markets will somehow begin to understand that something is amiss with respect to the American gold supply. We would like to think that American liberty and the rule of law might actually still be at least partly in play in America so that Reginald Howe's lawsuit will finally be heard. Yet I need only recall a remark made by the CEO of a small Wall Street commodity trading firm a couple of years ago. This person who once worked under Bob Rubin told me in an interview that "The U.S. Government has never given us a reason to doubt its truthfulness." Wow! Forget about Hollywood fantasies! How about Wall Street fantasies!

This kind of wishful thinking coming from folks who are frequently interviewed on CNBC goes far in explaining how compelling evidence in support of GATA's gold manipulation charges can be overlooked and how Americans have gotten so sucked up into a stock market bubble that is now in the early stages of a devastating implosion. When I hear these kinds of remarks, I hold little hope that Wall Street will, on its own come to its senses before it is forced to do so.

Which leads me to a third possible answer to my question about when the gold manipulation scheme might end. Unfortunately, I believe it is likely to end with the Kondratieff winter and the end of the fourth Kondratieff cycle since 1798. As regular subscribers to "J Taylor's Gold & Technology Stocks" are aware, we believe the Kondratieff winter will lay bare all the lies and myths of the dollar and U.S. markets. However these market distortions will be revealed only by way of a devastating depression.

Indeed as opined above by Dr. Kurt Richebacher, there are signs that control of markets is now being lost by Alan Greenspan. So it seems entirely possible if not likely to us that the laws of physics may soon overcome all the manipulation and con artistry so well perfected by Washington spin masters. In fact, we think the dollar may be about to crash under it own weight. There have simply been too many dollars printed and in the process of printing a fiat currency it can only be achieved by increasing debt at an increasing rate in relation to GDP as the Kondratieff cycle matures.

In addition, increasing debt leads to increased debt servicing requirements, which commands an increasing claim against national income. And this takes place at the same time that sharply decreasing earnings and national income results from mal investments that took place during the promiscuous creation of money during the financial money-creating orgy that we have just lived through. Combine declining income with surging debt service requirements and suddenly folks begin to seek liquidity. They stop spending in mass, which leads to still more decline in income. The vicious cycle of depression has begun! Unfortunately this is the Kondratieff winter that I believe we may now be entering.

The fact is however, that this kind of devastation has always taken place with fiat currencies, which governments and the banks that control them force upon society for their own personal and selfish gain. The ending is devastating.

Perhaps these notions, which arise out of the Austrian school of economics are wrong. Or perhaps we will wiggle through this downturn one more time. We pray that would be true. But increasingly this does not seem possible to me. Of all the explanations for what is going on today, the Austrians seem to make the most sense from my perspective. The laws of physics cannot be defied indefinitely and as Richebacher points out, there are signs that the system is beginning to crack.

Promising gold stocks

GOLDCORP INC (NYSE - GG - $10.81) - This is one of those rare gold producers that can produce healthy profits despite our authorities manipulating the price of the yellow metal to ever declining levels. During the second quarter of this year, the company produced 161,261 ounces at $87 per ounce, mostly because of its Red Lake project which continues its outstanding performance.

Earnings for the period were $15.3 million or $0.19 per share. The company is paying an annual dividend of $0.10 per share.

Production next year is expected to increase to 475,000 ounces, up from a projected 440,000 this year. The cash cost is expected to decline to less than $70 per ounce. The company is also recalculating its reserves. In light of the fact that average grades have consistently been higher than previously announced, management believes reserves may in fact be larger than what has been announced to date.

NOVA GOLD RESEOURCES (CDNX - NRI - $0.53) This has been our best performing gold mining stock by far this year. With it closing last year at a paltry $0.09, and with it selling at $0.53 at the end of this past week it has gained 490%. It is largely responsible for our overall mining sector gaining nearly 25% this year.

Last week the company announced that it has signed a final formal agreement with Place Dome US Inc. and Calista Corporation to acquire a 70% interest in the 13 million ounce Donlin Creek gold deposit. For reasons outlined previously, including ongoing cash flows accruing to this company from sources other than gold mining, this continues to be a favorite gold mining issue on our list. I plan to provide more thoughts about this company and other non producing gold mining firms in the August issue of J Taylor's Gold & Technology Stocks newsletter which should go to press during the first week of August.

Gold is widespread in low concentrations in all igneous rocks.

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