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Taylor Gold Review

March 13, 2001

The big news this week was gold interest rates. At one point on Friday the 30-day lease rate actually reached 7% compared to a more normal rate of around 1%. A week or two ago, the rate soared into the 4% to 5% range and that created quite a stir. Then it declined about the time Tony Blair visited Washington. We think this was most likely co-incidental, but not necessarily so.

In any event, regarding the gold markets, according to today's "Financial Times," there are persistent rumors that central banks are restricting their lending activity."

We think the curtailment or reduction of gold lending from central banks at this time may be explained by Reginald Howe's law-suit because it places the new Bush Administration in a tough position. If the new Secretary of the Treasury chooses to secretly collude with bullion banks and the Federal Reserve to drive the price of gold lower as part of a strong dollar policy, as we believe the Clinton Administration did, he will find himself added to the list of defendants named in Reginald Howe's law suit. On the other hand, if Mr. O'Neil and the Bush Administration choose an honest path and discontinue this illegal activity implemented most likely in secret by the former President and the Treasurer through the Exchange Stabilization Fund, the gold price is likely to skyrocket to levels that will add to an already shaky Wall Street environment.

Recall that for years we have heard many Wall Street stock promoters claim that a declining gold price proved that everything was "honky dory" in our economy in the equity and bond markets. They dismissed the notion that in fact the gold price was declining not because of natural forces but because it was being manipulated lower by those named in the Howe law suit.

The political trick for the Republicans will be to put the blame for the gold market price rise on where it belongs, squarely on Clinton's shoulders. Mr. Clinton leveraged the future of America by orchestrating a phony strong dollar policy by rigging the gold markets and quite possibly by rigging economic statistics as well. Indeed, Mr. Greenspan had it right when he first declared the U.S. stock market to be "irrationally exuberant." Would he have stood up to the gold cabal rather than playing along with it, he most likely would not have been appointed to a second term. But quite possibly the excessive and unrealistic strength of our dollar may not have occurred and with it trillions of dollars sucked into an immorally priced stock market.

With Americans having little more than a nano-second attention span for complex economic issues, the job of educating them about why the gold price is suddenly skyrocketing and why the equity prices are collapsing will not be an easy task. But for the sake of our democracy we had better hope they succeed.

Meanwhile, it is looking like we could have a very significant spike to higher levels as the gold shorts try to cover. Without a constant dishording of gold from central banks, this may be very difficult to do. In addition to GATA's possible impact, it may just be that the central banks have reached that point where they simply have no more gold to lend out or they are perhaps at a point where they do not feel it prudent to loan more gold out of their coffers when considering the solvency of their currencies.

James Turk told his readers to watch the $272 level. "If $272 is hurdled, the long awaited rally may be finally underway. And it also may be the rally in which those who have been manipulating the Gold price are finally forced to throw in the towel, just as they were forced to do so the last time the price of gold was being manipulated, which was in 1971."

With the bullion banks holding huge short positions, the losses they face could be enormous. Now wouldn't that be a big shame! If this turn of events is about to take place, lets enjoy the ride. We have had many false alarms in the gold markets in the past. Possibly this is just another false start. We shall see. Be sure to watch the gold lease rates for a hint at what is unfolding in the gold markets.


Because we think we may be about to enter a much more favorable climate for gold mining stocks, we are going to add two more gold mining firms to our list.

The first is Agnico-Eagle Mines Limited (NYSE- AEM - $7.375). This company, which has around 55 million shares outstanding expects to produce expects to produce around 230,000 oz. of gold this year at a cost of $150 per ounce. By 2004, production costs are expected to decline to just under $100 per ounce with 331,000 oz. of production projected. This is a solid company that will doe exceptionally well when the gold price begins to rise and its costs are sufficiently low to reduce risk of insolvency if gold should remain at current low levels.

The second company we are adding to our list is MINEFINDERS CORPOREATION LTD. (OTC BB - MNEFF- $0.75) - This company has around 16.3 million shares outstanding. Its Delores Project in Mexico contains 2.4 million ounces of gold and 124 million ounces of silver or about 4 million ounces of gold equivalent ounces. A preliminary economic analysis of this project suggests a cash cost of producing an ounce of gold at just under $150 per ounce with annual production equaling 242,900 ounces of gold per year. When the gold price rises, this stock may be expected to rise even more in percentage terms than Minefinders, though obviously with a feasibility study yet to be completed, Minefinders is a much more risky play on gold.


To make room for these two new gold picks, we are selling AngloGold at $16.81 for a 13% gain this year and a 23% loss overall and Barrick Gold at $16.50 for a 1% gain this year and a 5% gain overall. These are two gold stocks that have huge short positions and thus will not be in a position to fully benefit when the price of gold rises as will Minefinders and Agnico-Eagle, both of which do not hedge future gold sales.

In 1934 President Franklin Delano Roosevelt devalued the dollar by raising the price of gold to $35 per ounce.
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