Miners must come to realize their product is money, not jewelery

Section:

By Adam Hamilton
May 4, 2001
http://www.zealllc.com

While the gold price appears to be calm and placid,
powerful forces war behind the scenes in a life-or-
death struggle to shape the gold market of the new
millennium.

The world gold markets are embroiled in a raging gold
information war. The stakes are stupendously high, as
the state of the gold market and the price of gold do
not exist in a vacuum. Virtually every other important
capital market in the world, from the mammoth currency
foreign exchange markets to the critical international
bond markets, is affected directly or indirectly by the
price of gold.

Unlike past economic/financial wars, the current war on
gold has not degenerated into actual physical conflict.
At the dawn of the Information Age, this latest gold
war is not being fought with Kalishnakovs and M-16s but
with fantastic new communication technologies centering
around the wondrous Internet. It is, in many aspects, a
perfect example of a true information war.

The raging gold info-war is a fight for free markets
and for the hearts and minds of investors worldwide.

As in most epic conflicts, the combatants of this gold
info-war are divided into two camps. The slogan of the
first group of soldiers could be expressed in three
words: "Gold is dead!" The battle cry for the
second group of warriors could be summarized as "Gold
is being suppressed and a price explosion is imminent."

The "Gold is dead" partisans can also be described as
anti-gold forces. They believe that timeless financial
lessons learned in the past do not apply any more to
our fantastically complex global economy. They believe
that gold is a "barbaric relic," with no place in
computerized and globally integrated financial markets.
The anti-gold forces generally think that humanity has
finally "tamed the business cycle" and that a paper-
based, derivatives-controlled global financial system
can continue to expand at rapid rates forever. This
camp believes that governments and large private
entities can control fiat currencies, markets, and
wealth-creation indefinitely.

The traditional role of gold as the monetary base and
ultimate asset is thought no longer necessary by the
anti-gold forces because systemic risk has been
mitigated through the light-speed, 24/7 global
financial infrastructure humankind has created. Through
the proliferation of derivatives, the anti-gold forces
believe that risk can be bought and sold until the
markets as a whole never experience a boom/bust cycle.

With the seductive prospect of no future
economic/financial earthquakes, the anti-gold forces
believe that there is no need for the ultimate rock of
financial security, fire-tested through millennia of
human history: gold.

Standing in the other corner are the allies of gold.
The pro-gold forces are small in number but ferocious
in resolve. They believe that financial history DOES
matter, and that gold will always have the same
critical role as the cornerstone of the financial world
that it has maintained virtually uninterrupted for
6,000 years.

The pro-gold forces are generally students of
economics, history, finance, and money. They have
witnessed past financial manias and attempts to cast
gold out of the financial system through the eyes of
people who lived through these historical episodes.

The pro-gold partisans recognize that markets move in
cycles and that trends always change. They also realize
that the human heart, the ultimate source of greed and
fear that drives booms and busts, does not change. Many
of the pro-gold forces, after years of study, believe
that the world gold market is being suppressed by a few
governments and elite private banks for selfish
reasons. The governments are trying to cover up past
policy failures and protect their 100-percent paper
money, backed by nothing but faith and trust, fiat
currencies, and overvalued equity markets.

The private banks jumped into the gold manipulation
game because borrowing gold at lease rates of less than
1 percent annually and selling it provided a virtually
endless supply of cheap capital that could be invested
in other markets at an enormous profit.

The pro-gold forces believe that after endless research
and investigation over the last six or so years, the
case for a manipulated gold market is virtually
unassailable. They note that the laws of economics are
ironclad and irrevocable, and can be cast asunder and
bent for only a relatively short period of time, as
history has taught us over and over.

As the gold info-war rages on, there have been
victories and defeats for both sides. Generally,
however, the anti-gold forces seem to have the upper
hand as gold continues to hover near 20-year lows.

The pro-gold armies, though they control miniscule
amounts of capital compared to the governments and
banks believed to be suppressing gold, make up for
their disparity of resources with world-class research,
a mastery of cutting-edge Information Age technologies
like the Internet, unquenchable zeal, and tenacity.

Like any good local guerilla army fighting a much
larger and better-equipped aggressor, the forces for
free gold markets carefully choose their engagements.

The next major battle initiated by the pro-gold forces,
and potential turning point in the gold info-war,
occurs May 10 in Durban, South Africa. The Gold Anti-
Trust Action Committee (www.gata.org) is hosting an
African Gold Summit where crucial evidence will be
presented to important African governments, gold-mining
companies, labor interests, and the media about what
has transpired in the global gold market in recent
years.

With the global physical gold market centered in London
and the global paper gold derivatives market revolving
around London and New York, Durban may seem an unlikely
battlefield for a potentially decisive confrontation in
the gold info-war. But it is actually a perfect
location, as South Africa has critical strategic
importance in the global gold trade.

South Africa alone supplies around a quarter of the
total mined global gold supply each year, with other
African nations contributing more gold. At its peak
production in 1970, South Africa supplied almost four-
fifths of the annual mined gold supply. Gold mining is
an extremely important strategic industry to the entire
country and region, and the low gold price has exacted
a devastating toll on the Africans.

The love of gold in South Africa runs deep. The country
is a crucial supplier of gold, and it has born the
brunt of the anti-gold campaign. There is probably no
better place in the world to hold a pro-gold, pro-free
market conference that exposes damning evidence of what
has really transpired in the global gold markets since
the mid-1990s.

The line-up of warriors GATA is presenting is
extraordinary, a veritable "Who's Who" of the gold
world.

Among the speakers are Bill Murphy, Frank Veneroso, Reg
Howe, and James Turk. These are the all-stars and
movers and shakers in the fight to liberate the
gold market.

It will be an incredible summit. Murphy is a founder
and chairman of GATA. He has fought long and hard to
illuminate gold market dynamics and to unshackle the
gold market so it can trade free of government
molestation. He has traveled to the U.S. Congress to
report the dangers of unprecedented growth in gold
derivatives. He has spoken with gold producers, gold
investors, and gold consumers all over the world. He is
also the proprietor of the excellent award-winning
contrarian website, LeMetropole Cafe,www.lemetropolecafe.com.

With his "four-star general" position in the pro-gold
forces, Murphy has extensive global contacts and one of
the best gold intelligence-gathering networks. He is
one of the most "plugged-in" individuals in the gold
market. Murphy has been commenting lately to his
clients on the unnatural tightness in the physical gold
market. He points out that sky-high gold lease rates in
recent months indicate that physical gold available for
lease is becoming harder to come by. He has also been
monitoring the deteriorating situation in the gold
derivates market centered around the New York
Commodities Exchange.

Physical gold inventories to settle futures contracts
that demand delivery have plummeted from around 2
million ounces at the beginning of the year to around
800,000 today. Although one wouldn't know it from the
perpetually anti-gold propaganda spewed out by the
conventional financial media, it appears there are
serious structural problems in the global gold trade
percolating menacingly right below the surface.

Murphy will no doubt present much more information in
Durban about the state of the gold markets. It will be
a real eye-opener for conference attendees who rely on
the mainstream media, which is hopelessly disseminating
disinformation on gold. As Murphy also probably has
many private sources that provide valuable intelligence
on specific gold market happenings, there is also the
possibility that he has an ace or two up his sleeve to
throw down for the African governments and gold
producers.

Frank Veneroso is also speaking in Durban. Veneroso has
been studying the financial markets for decades and his
reputation for gold market analysis is unparalleled. He
has consulted for governments and mega-financial
entities around the world, and his services are always
in demand. He has also presented data to Congress on
the danger inherent in explosive and massive gold
derivatives growth. He runs a renowned global
consultancy, Veneroso Associates. As the GATA Gold
Summit is by invitation only for elite African gold
players, we are fortunate that Veneroso was kind enough
to post a preview of his presentation on the Web. It is
located at www.gata.org/veneroso_presentation.html and
is highly recommended.

Veneroso's findings in this preview are simply amazing
and by themselves could rock the gold world to its very
core.

As everyone from a professor of economics to a child
setting up a corner lemonade stand knows, prices in
free markets are determined by supply and demand. If
supply EXCEEDS demand, prices fall to increase demand
and lower supply until a market clearing equilibrium
point is reached, where supply exactly meets demand.
But if demand EXCEEDS supply, just the opposite happens
in free markets. Prices rise to retard demand and
entice additional production online until supply equals
demand at a new market clearing equilibrium price.

These simple thoughts are the foundation for free
markets and economics. Although the immutable laws of
supply and demand have been briefly bent historically,
no force has ever been able to repeal these laws on a
macro scale for a prolonged period of time.

Veneroso begins his web presentation preview by
outlining consensus estimates of global gold supply and
demand, which point to global annual gold demand
exceeding global annual mined gold supply by 1,500
tonnes, or 60 percent, each year. He moves on to
present his own firm's conservative estimates, which
put the annual deficit at much more dangerous levels,
more than 2,200 tonnes, around 90 percent.

The vast majority of the annual gold shortfall is made
up by sales and loans of gold from Western central
banks. If those sales are interrupted for any reason,
or if the gold market finds out the banks are running
out of gold to dump, the gold price would roar
heavenwards immediately as artificial marginal supply
from central banks shrivels up.

Veneroso also examines the total gold loan (gold short)
position, which he and his people believe is 100-200
percent greater than the 5,000-tonne conventional
consensus estimate. He goes on to outline reasons why
the official data on gold provided by certain London-
based organizations is likely to be incorrect. At the
GATA African Gold Summit he will outline these reasons
in detail as well as present the sources and basis of
the stunning Veneroso Associates analysis of the global
gold market.

At the end of his preview slides, Veneroso notes that
there are approximately only six years of central bank
gold stocks remaining. This number is amazing as the
anti-gold forces have led the markets to believe that
there are decades and decades of gold reserves left
that central banks will sell into the market.

Overall, the impression Veneroso's preview leaves is
that his researched and documented analysis on the
economic realities of the gold market is going to be
explosive.

The audience at the GATA conference will realize that
the anti-gold campaign has been weighed in the balances
of free markets and found wanting. If the gold short
position is indeed this large and the central banks are
burning through their gold hordes this fast, the
implications of Veneroso's research are staggering.

A man who needs no introduction in the gold world,
Reginald H. Howe, will also speak in Durban on May 10.
Of course Howe is the man who launched the incredible
legal action against the Bank for International
Settlements, Alan Greenspan, and other elite anti-gold
players on December 7, 2000.

Howe is proprietor of Golden Sextant, an
internationally renowned website located at
www.goldensextant.com, which discusses money, politics,
economics, and gold. He is a brilliant lawyer who has
been studying and analyzing the gold market for
decades. Since he filed his complaint, he has probably
been more responsible for keeping the anti-gold forces
awake at night dripping in cold sweat and fear than any
other individual on the planet. The Howe v. BIS et al.
case is tremendously important.

We wrote an earlier essay explaining it entitled "Let
Slip the Dogs of War." Basically, Howe's complaint
contends that the defendants in their operations in the
gold market have knowingly violated pillars of U.S.
law, including the Constitution, the Sherman Anti-Trust
Act, and the Securities Exchange Act of 1934. Howe also
contends that some defendants committed common-law
fraud.

Howe's original case, as well as his response to the
expected motions to dismiss by the defendants, is
available for free quick and easy download in Adobe PDF
format at www.zealllc.com/howepla.htm.

Both documents are extraordinary and essential reading
for understanding the current gold info-war.

In his recently filed response, Howe carefully laid out
his arguments and the legal foundations on which his
claims rest. One of the most spectacular parts of the
document is the revelation of Howe's discovery in
official U.S. Federal Reserve meeting minutes that the
secretive slush fund of the U.S. Treasury, the Exchange
Stabilization Fund, is actively intervening in the gold
market. The ESF, created in 1934 and funded with the
proceeds of President Franklin D. Roosevelt's robbery
of private gold from the American public, is not
accountable to Congress. The secretary of the treasury
has direct control over the ESF and he reports
exclusively to the president.

The ESF has been used for covert interventions in
various world markets, usually currency foreign
exchange, for decades.

In early 1995 major American money-center banks were
facing large losses on loans they made to Mexico. The
Clinton administration decided to bail the banks out,
effectively backstopping their silly bets. Clinton's
market-manipulating crew ran up against a brick wall
when they tried to talk Congress into using taxpayer
money to bail out the bankers who had made risky loans
in Mexico. Congress rightfully refused, realizing that
capitalism can work only if traders big and small fully
bear all the risk of their positions themselves.
Without risk, there is no capitalism.

Backstopping the trades of big U.S. banks only
encourages them to act more aggressively in the future
and introduces a MONUMENTAL moral hazard problem. With
Congress opposed, Clinton's cronies explored their
options to make an end-run around the will of the
people. They came up with the idea of using the ESF to
bail out their banker friends, since it was not
accountable to Congress and operated outside of normal
oversight authority.

In the Federal Reserve meeting minutes from January 31,
1995, there is a discussion exploring the legality of
this option. Federal Reserve Board Governor Lawrence
Lindsey is uncomfortable with circumventing
congressional will by using the ESF. To allay his
fears, Fed General Counsel J. Virgil Mattingly and told
him about the broad authority of the ESF statute. As an
example of this authority, Mattingly mentioned the ESF
"gold swaps," and apparently everyone in the room
understood the example, as no one asked questions.

This is an inflammatory revelation because the U.S.
Treasury Department has officially DENIED, to everyone
from U.S. senators to American citizens to the U.S.
federal court system, that the ESF has been involved in
gold or gold derivatives since 1978. Every
communication from the Treasury on the subject
explicitly and forcefully states that the ESF is NOT
involved in the gold market.

But many in the pro-gold community believe that the ESF
has been used to sell gold into the market to stamp out
fledgling gold rallies in the last six years.

The disclosure of gold involvement by the ESF in a 1995
Federal Reserve meeting is very important and has
tremendous implications. In his remarks in Durban, Howe
will likely discuss the new evidence of U.S. government
involvement in gold price suppression as well as legal
issues surrounding his landmark complaint against the
gold shorts. It is sure to be full of startling and
disturbing revelations for the African gold community.

James Turk will also be speaking at the GATA African
Gold Summit. Turk is a renowned financial market expert
and has consulted for governments and private clients
around the world. He publishes the famous Freemarket
Gold & Money Report (www.fgmr.com), a prestigious
international financial newsletter, for his clients.
Turk has lived and worked around the world and has
studied the gold markets in far corners of the globe
firsthand. He is also a member of Howe's Discovery
Committee to review documentation obtained from the
Howe v. BIS defendants.

Turk recently has written some amazing must-read essays
on gold detailing his original research and also
spring-boarding off other analysts' findings to arrive
at startling new conclusions.

He wrote "The Smoking Gun" on December 11, 2000, an
outstanding analysis detailing ESF involvement in the
gold market by analyzing discrepancies in official
Treasury and Federal Reserve reports on U.S. gold
holdings.

In April this year Turk published another essay that
has far-reaching and enormous implications. In "Behind
Closed Doors," Turk further analyzes the revelation
that Howe discovered in the Federal Reserve official
meeting minutes on ESF involvement in the gold market.
Turk explains what the development means, but also
integrates some other analytical work to arrive at a
stunning conclusion.

Michael Bolser, another outstanding gold market analyst
on Howe's Discovery Committee with Turk, had been
looking through official U.S. Treasury records on U.S.
gold inventory levels. Bolser noticed that in September
2000 one of the primary U.S. physical gold reserve
storage points, the U.S. Mint in West Point, N.Y., had
mysteriously switched the status of 1,700 tonnes of
gold (more than 20 percent of the entire U.S. gold
reserves) from "Gold Bullion Reserve" to "Custodial
Gold Bullion." Now, as everyone knows, to be a
"custodian" over something means that you do not own
it, but are maintaining it for its true owner. Even
more ominous, there was no change in the "Gold Bullion
Reserve" status at all the other U.S. mints. Something
odd was obviously up.

Bolser wrote to the Treasury Department to seek
clarification on the cryptic status change in status of
1,700 tonnes of gold but received no reply.

In "Behind Closed Doors," Turk builds on Bolser's
research and adds his own explorations of Federal
Reserve records to conclude that the ESF has covertly
encumbered more than 20 percent of the country's gold
bullion. This is far beyond scandalous, as any changes
in U.S. gold reserves require congressional approval,
which has definitely not been granted.

Turk drilled down even further and makes the case that
a gold swap of 1,700 tonnes may have been executed with
the German central bank, the Bundesbank. This would
enable the ESF to stealthily dump physical gold into
the crucial European physical gold market directly from
Germany without transporting the gold physically from
the United States, which would cause all sorts of alarm
bells to ring in political, economic, geopolitical, and
financial circles. Turk makes the case that the
Bundesbank now owns 1,700 tonnes of formerly U.S. gold
on U.S. soil and that the Bundesbank's gold vaults
themselves are at least half empty and may even be
completely gutted.

The fallout from this will be mind-boggling in both
America and Germany.

Like Murphy, Turk has an extensive network of
professional gold contacts around the world and his
presentation at Durban is sure to be amazing.

We have not even mentioned all the speakers at the GATA
African Gold Summit in this brief synopsis. It will be
an extraordinary event in gold history. This critical
battle in the gold info-war that will be fought on the
African front in Durban on May 10 could prove to be a
turning point in the war. African governments and
African gold producers will learn what the pro-gold
forces have uncovered and exactly how the anti-gold
forces have destroyed the gold-mining industry and the
economies of the African nations that depend on their
abundant blessings of natural resource wealth.

Formerly highly secretive events of the gold world will
be laid bare for the Africans to see. Unlike the
average private contrarian gold investor, these African
countries, mining companies, and labor interests, along
with the media, ARE in a position to make an immediate
difference and turn the tides in the raging gold info-
war.

The African governments present at the conference can
immediately begin ending the great anti-gold game by
publicly and forcefully questioning the U.S. and
British governments about their trading activities in
the gold market. Tough questions need to be asked. For
instance, Congress has been very supportive of the
post-apartheid South African government. What if the
Clinton administration, contrary to stated U.S. policy
toward South Africa, secretively bombed the gold
market, bypassing congressional oversight and wishes?

The African gold-mining nations have a right to know if
the elite big-money anti-gold forces have raped them of
their natural resource wealth by aggressively applying
artificial supply augmentation to the global gold
markets to drive gold prices far below the cost of
production.

The gold mining companies themselves can probably move
the gold info-war to its endgame in a single trading
day. All they have to do is jointly announce either a
moratorium on all new hedging and forward sales and
close out their hedges, which depress the gold price,
or else announce a pact to limit production until the
gold price climbs north of some arbitrary target, say
US$500 per ounce. If the African gold producers that
supply over a quarter of the annual supply of mined
gold decide to force the hands of the anti-gold forces,
the game will be over and gold will be liberated.

When the voluminous evidence for official covert gold
suppression is presented to these companies in Durban,
they will likely be furious and may decide to act in a
unified and public way that will rock the gold market.

Finally, the world media covering the GATA African Gold
Summit may finally recognize how huge this scandal
really is. In U.S. terms, if the GATA allegations of
ESF involvement in the gold market since the mid-1990s
are correct, we have a scandal rapidly approaching that
DWARFS Watergate.

Interestingly, a German film crew is planning to make a
documentary at the Summit, so chances are that the
truth about the gold market will begin to see the light
of day around the world. It is virtually impossible to
manipulate a market when everyone knows you are doing
it, as large speculators can throw a monkey wrench in
the works and blow the operation sky-high at will.

If the media picks up this ball and runs with it, the
great gold suppression game is also nearing its
agonizing last gasps.

As the pro-gold forces continue the brave struggle to
liberate gold from the command-and-control anti-free
market schemes of the anti-gold forces, the GATA
African Gold Summit is shaping up to be a decisive
battle in the raging gold info-war.