first majestic silver

Taylor Gold Review

March 20, 2001

Not surprising to me at least, the U.S. Treasury filed a motion to dismiss the lawsuit brought against it by Reginald Howe, which cites among other charges, manipulation of the gold market. This is almost an automatic requirement of the Treasury. For the sake of honesty and truth, we can only hope the Boston Federal judge agrees to hear the case. If he does, the actual position of the Bush Administration on the question of whether government is permitted to violate anti-trust laws will be discovered.

Given the "dogs breakfast" the Clinton Administration left for the new Administration, it would not be hard to excuse the new U.S. Treasury Secretary if he chose to fight the law suit. We say that because if Frank Veneroso's most recent estimates of the maximum amount of gold now lent by central banks is true, the cost of unwinding the short position by the Central banks, especially given extreme leverage on their balance sheets - may almost certainly lead to a financial panic and ruination of the global financial system. Frank suggests that as much as 17,000 tons may now have been lent out. That compares to around 35,000 tons that is reported as being on the balance sheets of central banks. If I understand correctly, the central banks really report their gold holdings untruthfully because rather than record gold lent out as a gold loan they report it as if the gold was still in their coffers even though it has been sold into the market and is now in the form of jewelry.

It would not be difficult - with a clear conscience in my view, for the new Treasury Secretary O'Neil to effectively argue that it would be irresponsible for him to allow the markets to see an honest view of the illegal activities of the U.S. Treasury & Federal Reserve, if doing so triggered an international financial collapse.

If the world believed in the credibility of Frank Veneroso's numbers, the price of gold would not be where it is today. The main stream estimate of gold lent out (World Gold Council and Goldfields) is only around 5,000 tons. Frank believes it would be at least slightly north of $600 per ounce! But that is a viewpoint the establishment is doing everything they can to spin as "nonsense".


Meanwhile, GATA is making progress in getting the world to look at charges of gold price manipulation among the people who have been really hurt by the manipulated gold price. In last week's hotline, we noted how GATA was picking up a great deal of support from South Africa. Now, this week, there are some important Russians who are considering becoming involved in bringing the truth about America's gold manipulation to light. That makes sense because Russia has huge gold reserves which could also help their destitute economy rebound. Wouldn't that be an irony! Russia, who is scolded by America for not running free markets, could legitimately (we believe) point its finger right at he Fed and the U.S. Treasury and show how our markets are rigged too by way of a manipulated gold price as part of our strong dollar policy.

How Much Longer Will Gold Be depressed?

Where will all this end? We think the day is approaching when the lid is going to blow off the gold market. Lease rates plunged back down to 2% early last week after spiking up to 7% on Monday. More gold was apparently shoved into the markets by the central banks by way of gold loans even as the more visible Bank of England sale took place. With gold being leased out in mass by central banks behind the more visible central bank sale, the anti gold propaganda crowd could point to a very week auction demand as evidence once again that gold ownership is no longer a viable and wealth saving asset for people to own. I guess they are better off buying dot come companies right?

Why such a weak demand at the auction? We suspect because a whole lot more gold was clandestinely being leaked into the market via the same mechanisms so well documented by GATA, namely the gold carry trade. Those privileged folks who get to borrow gold at 1%, sell it for dollars, buy Treasuries yielding 5% or 6% and never need to worry about a rising gold price – at least until the central banks run out of gold - will continue playing this game until they are stopped, either by law or by a collapse of the economic system - which ever comes first. If the public only knew how paper money and the gold manipulation scheme was at the heart of their stock market losses, they would not stand for it. It is left to the few of us hard money advisors to tell them or at least to help our clients prepare for the inevitable pain that will result form dishonest money.


Our Stock pick of the week is not really a stock. Rather it is a mutual fund, TO which we have allocated 25% of our hypothetical portfolio, namely THE PRUDENT BEAR FUND (BEARX - $5.29) The fund has helped our overall portfolio very much because it is up 15.5% so far this year. Not too many funds have done better than that in this bear market.

The stock promoters on CNBC yesterday kept talking about how there is no place to hide in this bear market. The reason they don't see any place to hide is because they don't want to know the truth about where the best hiding place is. They have such a vested interest on the long side of the market that they simply dare not think about shorting the market.

But, shorting the market is very dangerous because, your losses are potentially limitless. All you can loose if you buy a stock with cash is 100% but there is no limit to how much you can lose if you short a stock. There are legendary stories of how famous millionaires made even grater fortunes by shorting the stock market in 1929. Big players like Bernard Baruch and Joseph Kennedy reportedly did it 1929. So, this is a game for the pros, not for amateurs. The Prudent Bear Fund provides an opportunity for the small investor to short the market. Given our view that the equity markets in American have much further to fall, BEARX is a natural for our readers and this newsletter. I would like to point out that BEARX is the brainchild of David Tice, who heads up David Tice & Associates.

Not surprisingly, the performance of BEARX mirrors that of the general market decline. As noted, the fund is up 15.5% so far this year. For the 12 months ending 12/29/00 the fund had gained 30.5%.

Gold weighs 19.3 times as much as an equal volume of water.
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