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Taylors Musings on Gold

June 11, 2001

"MORGAN CHASE SEES YEAR OF GLOOM"

That was the leading title on the front page of the "Financial Times" dated Thursday June 7, 2001. According to this front page article, J.P. Morgan said it had suffered losses so far this quarter in its private equity portfolio and predicted a drop in trading revenues to the end of the year. With less than 1/2 of 2001 behind us, the ability to predict losses in trading for the entire year suggests management may be locking in losses now in some forward contracts or derivative of some kind or another so as to avoid much larger losses later. Remember, if you are on the short side of the market, as J.P. Morgan is in gold, your potential losses are UNLIMITED because there is no theoretical limit to where a price can rise. And if J.P. Morgan is beginning to see Frank Veneroso's supply/demand numbers, they may very well hold the view that the price of gold could rise to levels much higher than the market in general is ready for. In that event, the losses would be enormous. Could it be that gold is playing a much larger role in the gloomy profit picture at J.P. Morgan than this article is leading one to believe? Is it possible J.P. Morgan is now getting ready cut their losses as they exist the gold manipulation scam and now begin to play gold from the long side?

Could it be that the word from GATA, Reggie's law suit and the very thorough work of Frank Veneroso is finally being paid attention to by some of the makers and shakers in America?

JAMES SINCLAIR PROVIDES MORE REASONS TO BE BULLISH ON GOLD

GATA also passed along a letter from legendary gold trader James Sinclair who suggested gold's future was beginning to look brighter for three reasons, none of which are being provided by the mainstream media.

1. A recent issuance of Statement No. 133 related to accounting for Derivative Instruments and Hedging Activities by the Financial Accounting Standards Board (FASB). The ruling would bring about more transparency with respect to gold and other derivatives. With the light shone on the gold hedgers, fewer gold hedging will take place.

2. With greater transparency, companies would need to report both capital cost and operating costs for producing gold. Hedging at current low price levels for gold would then look very foolish to investors. Thus the low price of gold combined with greater transparency would result in less hedging being carried out by gold producers.

3. The limitation of by the Washington Agreement to hold the line on additional gold sales, thus stopping a major source of gold supply which has helped push the price of gold lower even as supplies from the mines have fallen seriously short of demand.

Don't Forget Declining Interest Rates & Higher Gold "Lease" Rates

In addition, another dynamic is working in favor of the gold bulls and that is 1) declining short term U.S. dollar interest rates and 2) rising gold lease rates. Taken together, the gold carry trade, which has been the profit offering mechanism used by the Clinton & Blair administrations to drive the price of gold lower, is becoming increasingly unattractive to the bullion banks named in Reginald Howe's lawsuit.

Fasten your seatbelts. We gold bugs could be ready for blastoff!

BUSH APPOINTMENTS DON'T LOOK HELPFUL TO MANIPULATORS

From a general Republican vs. Democratic philosophical point of view and on the basis of at least one recent Bush appointment, there is reason to believe the Bush administration may not be willing to uphold the American side of the gold price fixing scheme. And incidentally, for reasons I cannot get into here, there is reason to believe the President himself is very much aware of GATA's gold price fixing charges.

With respect to Bush appointments, on May 31st, the President announced the intention of nominating Sheila Blair to be Assistant Secretary of the Treasury for Financial Institutions. Why is this of interest to us gold bugs? Because this lady was fired by Bill Clinton back in 1998 immediately after she urged greater transparency, regulatory controls and cooperation among international regulators with respect to OTC derivative markets. If confirmed, in her new post she would again have a voice in proposing regulation that would reduce the ability of the kind of price manipulation we have been experiencing in the gold markets by shedding light on the unethical and in some instances we think illegal behavior of crony capitalist friends of the United States government. Ms. Blair's concern back in 1998 which prompted here to urge greater transparency was prompted by the Long Term Capital Management debacle, which thanks in large part to a huge short position in gold, the global financial system was, by the Fed's own admission, gravely imperiled.

GATA SUIT

I received a call Friday evening from Bill Murphy, Chairman of GATA. He was extremely upbeat on Friday evening, following Friday's $7.30 rise in the price of gold. With a great deal of excitement, Bill insisted he was absolutely certain that the gold rigging days for the defendants in the Reginald Howe case are all but over. Bill insists that we are on the verge of witnessing a truly great bull market explosion in gold.

Bill pointed out that the move in gold on Friday began immediately after the London market closed, just as it did a few weeks ago when gold cut through the $275 level Alan Greenspan reportedly said he could no longer defend. Moreover, Greenspan reportedly arranged for the British to provide bullion cover for several American bullion banks, presumably those named in the Reginald Howe lawsuit. So, it may indeed be significant that these bullish runs have taken place immediately after the close of the London market because through the end of the Clinton administration, the manipulation of the gold market has been a joint Anglo-American effort. But why on Friday, would the buyers not have waited until the British come back into the market on Friday? I can only speculate on this, but perhaps it was because they had to deliver the gold in a timely fashion and could not wait until Monday. Or, it might also not be that the major gold buyers, now on the long side of the gold market, reportedly George Soros, the Middle East and China, know very well Frank Veneroso's numbers rather than the World Gold Council's supply and demand numbers are correct. And knowing this (and perhaps much more from their privileged positions), they understand time is running out for the Cartel and that the Brits will not be able to hold down the price of gold come Monday.


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