first majestic silver

Taylor Gold Review

April 12, 2001

How do you analyze a manipulated gold market is the question Bill Murphy and many more of us on the long side of the market have been asking for some time now.

We do take some comfort from the fact that the gold lease rates remain relatively high. At the close of business last week, the lease rate for gold was around 2.60%. That compares to a rate that was usually in the 0.50% to 1.0% during the height of the Clinton gold rigging scam. In addition, the interest rates paid on U.S. Treasury instruments were much higher at that time.

If you believe that Treasury Secretary Rubin and Summers after him used "the gold carry trade" to manipulate gold prices lower and lower as part of the strong dollar deception policy of the Clinton Administration, then you will begin to understand the significance for the gold markets if the trend in these two interest rates continue in their current direction much longer. With interest rates now declining sharply, especially on the short end of the yield curve, and with gold lease rates higher than before - perhaps because of a growing hesitancy on the part of one or two banks to play this short game - the economic incentive for the bullion banks to assist the Treasury and the overall commercial banking system in its paper money con game may be nearing an end. And when the manipulation of the gold markets come to an end, it is my view we are likely to seen an extremely explosive move on the upside for gold that could make the move of the 1960s to 1980 (from $35 to $850) look mild by comparison.

Even Richard Russell is Now Speaking in Favor of Gold

Meanwhile, that elderly statesman in the newsletter business and one who has been right on the money concerning the stock market, namely Richard Russell had the following to say about gold in his April 4, 2001 letter.

"The interest in gold is still here, despite a twenty-year bear market. Why? Because a lot of us still believe that gold is the only real money. And just as important, because many of us lived through the great precious metals market of 1975-1980,and we're thinking - 'Maybe it will happen again - well, maybe."

"But there's even another reason and it's that we know that the purchasing power of the dollar is being systematically undermined by the Fed. And ultimately, goes the gold argument, the dollar and all paper currencies will collapse - and gold will emerge triumphant. Anyway, that's the theory. In practice, it hasn't happened yet- to put it mildly."

To those comments I would like to reply to Mr. Russell with the following remarks.

1. Following the observation of past Kondratieff winters, and believing we may have well entered the winter period for the current cycle, the magnitude of the bull market in gold vis-à-vis paper is likely to be far greater than the bull market of the 1970's.

2. It is not true that "in practice it hasn't happened yet...." I know that Mr. Russell was referring to a bull market in gold since the 1980 high of $850. But I can't help but remind our readers that gold did triumph over paper during the Great Depression, when Roosevelt found it necessary to buckle under to market forces and revalue gold upward by 69% from $20.67 to $35 after assets denominated in paper, namely stocks, declined by almost 90%! Gold ultimately triumphs over paper when complete confidence is lost in paper, as it inevitably will be and always has been.

For a host of reasons we remain more than ever convinced that investors who own gold will find their portfolios greatly protected against the ravages that most likely lie in our immediate future. As such our portfolio contains a minimum of 22% committed to gold and silver.

Speaking of silver, I had a must unusual call from a Branch manager at A.G. Edwards who happens to be a gold bug. He made the observation that both gold and silver supplies are dwindling. He is extremely bullish on silver. I am also and need to talk more about this "poor man's gold." If I can find the time, I want to begin providing more coverage on silver. Of course one of our most favored silver plays is Itronics, Inc. (OTC BB - ITRO - $0.16) which we believe is destined to become one of the largest silver producers in the U.S. as its photochemical recycling and liquid fertilizer business expands.

SIGNS OF ECONOMIC DECLINE INCREASE

Meanwhile, as the people on CNBC continue to try to spin the economy on a positive path, there were a growing number of signs last week of continued slowing in the economy. Jobless claims have been rising sharply. Signs that the nation's energy crisis may be much worse than that of the early 1970s are starting to reveal themselves. Then it was only oil. Now it is oil, gas, and our entire national infrastructure which is inadequate to meet the energy needs of an electronic culture. Reports from the National Association of Purchasing Agents is showing that some segments of our economy is already in a recession and others are teetering on the brink.

Last, but not least, from past experience I can say with great confidence that this bull market will not be over until a complete capitulation takes place. Talk of capitulation so far is nothing more than wishful thinking by those who have not given up on the notion that stocks always rise in the long term and by those who need to keep you investing in what ever it is they have to sell. The capitulation I have personally lived through took place in the early 70's when I was a very disappointed young investor and in the 21 year bear market for gold. There are now signs that the bear market for gold may be nearing and end as the one for stocks is just beginning.


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