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Killer Move Down To End 21-Year Gold Bear Market

By BILL MURPHY
www.LeMetropoleCafe.com
May 31, 2001

Gold $265.50 down 40 cents
Silver $4.38 down 4 cents

First, from John Brimelow:

* * *

Indian ex duty premiums: AM $4.68, PM $5.32, with world
gold at $267.20 and $266. Above legal import point,
although showing understandable signs of shock.

MarketVane's Bullish Consensus for gold fell 12 points
to 43%, the biggest 1day fall since October '97, when
gold first fell through $300. (The only other double-
digit decline over the past 10 years occurred in
November '93 as that bull move expired.)

Amongst the very few positive wimpers, there is a
marked tendency to hope for a large decline in open
interest today, as evidence that the excessive spec
long has been cut back. Standard London suggests that
as much as 75% of the large spec long may have gone.
However, if, as seems possible, predator funds were
actively shorting over the past two days, this
indicator might well prove misleading. Only when the
CFTC data is published at the end of next week will it
be possible to adjudicate this.

A significant development last night was the
capitulation of the dean of American newsletter
writers, Richard Russell. Over quite a few years,
Russell's strategy has been to watch gold closely,
sometimes buying and sometimes selling shares and
options, but constantly advocating the steady
accumulation of bullion coins on a classical gold bug
view. Consequently his comments on "gold items" below
is particularly notable:

"What to do with the golds? Personally, I'm partially
giving up. I sold half of my options, and I'm holding
the other half, which don't expire until December. But
the gold action is discouraging. I wouldn't buy any
gold items here, and I wouldn't hold a bunch of gold
items either. I repeat, damn it, more money has
probably been lost on gold and silver than has ever
been made. That's the metal markets, love 'em or leave
'em."

Serious students of the gold market will want to read
the LBMA conference paper by Herve Ferhani of the Bank
of France on the gold leasing market. It appears at
http://www.thebulliondesk.com/Downloads/TBD/lbma1.doc.
Ferhani makes clear the BOF's determination to force up
lease rates and contract the volume of gold financing,
which cannot have pleased those LBMA attendees sober
enough to listen.

-- JB

* * *

Only two weeks ago the Richard Russells, Bill
Fleckensteins, Lawrence Kudlows, et al., were explaining
that gold was rallying because of increasing inflation
expectations, etc. Gone overnight? How do they explain
gold's meteoric rise and collapse? Perhaps they should
contact Bill King:

* * *

The King Report
Thursday May 31, 2001

As we mentioned, yesterday was important for gold
because futures settle next day, and the banker-broker
cabal, under Fed protection, needed to push gold below
last week's $275 breakout. Gold tanked $7.70 on
increased central bank lending of gold (principally
Asian central banks). Is it just a coincidence that
central banks yesterday desired to increase their gold
lending? What is the quid pro quo for the Asian banks
that knocked gold? Anyone who doubts the conspiracy and
its scope doesn't understand or pay attention to how
markets work.

The yen has strengthened noticeably against the dollar
lately and gained 7 percent on the Euro -- a big move.
Will the Japanese enter the gold-buying arena again as
they have in the past? Some commentary on the Japanese:

By Lance Lewis of www.prudentbear.com:

"Treasuries were uncharacteristically quiet with
equities under so much pressure as the long end
continues to sit near its lows and to be unable to even
bounce. This may have something to do with noises
coming out of Japan of late. My friend John Mesrobian
pointed out an article a couple weeks ago in the Los
Angeles Times by Kenichi Ohmae, who is advising Japan's
new prime minister on economic matters. The article
basically warned that Japan's financial institutions
may be forced liquidate their U.S. assets in the next
few months (the Japanese own 10 percent of U.S.
treasuries and are the largest foreign holders) in
order to clean up their chronic banking problems.

Now that article in and of itself means nothing. But it
may be worth giving a little credence to when taken
together with the sharp rally in the yen last week, the
inability of the bond market to rally over the last few
days, recent statements by the Japanese government
reflecting on the possibility of using Japan's foreign
reserves as well as foreign assets to clean up their
banking mess, and the fact that high-level Japanese
government officials are in Washington today meeting
with Secretary O'Neill and will meet with Uncle Al
tomorrow. If the market is beginning to sniff out that
the Japanese are planning to sell their U.S. treasury
holdings, it would certainly explain a great many
things. Obviously, such a move by the Japanese would
have grave implications for U.S. financial assets. On
the flip side, it might be just what the doctor ordered
to help Japan out of its 10-year funk.

* * *

From THC in Osaka, Japan:

"The mood here in Japan is definitely beginning to tilt
toward the positive. Not necessarily in economic terms,
but simply on a psychological level. The people are
strongly behind new Prime Minister Koizumi and Mrs.
Tanaka, the daughter of the famous PM Tanaka Kakuei.

"As an example, a sumo wrestler recently dislocated his
knee, but went on to win the tournament despite the
immense pain. PM Koizumi went to the awards ceremony
and presented a hugely heavy silver trophy to the
wrestler. He picked up the trophy by himself (it is too
heavy for most politicians, who in the past have had
supporters assist in holding the trophy), and strayed
from the standard fare in his speech by adding
something like, 'You did well in overcoming the
terrible pain to rise to victory. I am deeply moved by
your accomplishment.'

"This was excellent timing. I felt that the Japanese
people are ready to join Mr. Koizumi in bravely moving
forward in a restructuring of their economy as well as
the debt problem.

"This is just one small example, but I don't remember
every seeing the mass media and the people here so
excited about government. People love to spend time
watching the Diet debates on TV each afternoon.

"Change is in the air."

* * *

Either the Bush Administration is in the process of
ending the gold fraud or they are going to go down as
the biggest bunch of hypocrites to run Washington.
Clinton's crew was a bad lot and serious hypocrites
themselves, but we all know that. Bush, Ashcroft (with
his prayer meetings), and crew are supposed to be
different.

We ought to know soon enough.

My take on the recent gold price explosion and sudden
collapse is that the Gold Cartel lost control once
again of their collusion and were bailed out by the
official sector -- I believe for the last time.

It is interesting that this sudden drama occurred at
the end of May -- the time Bob Chapman reported that
Fed Chairman Alan Greenspan gave the bullion banks to
clean up their act. It has not yet played out the way
we expected or wanted, but that should be right around
the corner.

I can never remember a time when gold shot right back
up after a sharp liquidation like this. It will require
time to regain its composure for a move much higher.
That could be a matter of a couple of weeks.

My reasoning that the gold price fix game is on the way
out:

* Lease rates are still very high with the one-month at
2.2 percent. They are not retreating to anywhere close
to the norm.

* The Reg Howe lawsuit. The Gold Cartel is in serious
jeopardy of being caught flatfooted if the judge rules
Reg's way. If the ruling goes against them and
discovery is allowed, the Gold Cartel will lose control
of their spin machine -- that includes the Bush
administration too. It will belong to GATA and Reg
Howe.

* JP Morgan/Chase stopped the June gold deliveries. Of
the 3,200 contacts delivered today, Morgan took 1,566
of them. Carr futures stopped 669 contracts. Since Carr
will cease doing business on Comex soon, my guess is
that they will give up the gold to Morgan. Another
surprise was that the Bank of Nova Scotia delivered a
sizeable 2,949 contacts of the 3,200 hundred. They had
been the big takers (stoppers) the past few deliveries.
As of two weeks ago they were expected to do so again.

What happened? I will never know for sure, but my guess
is that a deal was struck. Scotia was let in on what
the Gold Cartel was going to do to bomb the gold price
and was allowed to sell June futures at much higher
prices. In return for that inside information, Scotia
was to deliver the gold to Morgan.

Morgan wants the gold to cover its shorts or to have
deliverable Comex gold in house to prevent squeezes in
the coming delivery months as their con game is
unwound. I find it interesting that Goldman Sachs was
the big gold stopper in August 1999, just prior to the
Washington Agreement.

* Former Treasury Secretary Rubin's new firm, Citibank,
today put out a buy advisory to its clients on the
Canadian dollar. In the past, a sustained rise in the
gold price has directly boosted the Canadian dollar.

* The two Princes of Darkness (Andy Smith of Mitsui and
Ted Arnold of Prudential) are bullish after being
bearish since the cabal commenced operations. These
long-time mega-bears knew that the fix was in on gold.
They had the inside scoop and made their reputations by
calling the never-ending gold bear market. They
probably have the word now that the end is at hand.

* GATA is all over this. We are everywhere they turn.
Our credibility is growing by leaps and bounds. I
received a call today from a Paine Webber broker who
was made aware of what GATA had to say about the
rigging of the gold price. He, like most, was very
skeptical. He called today, stunned by the recent gold
price action, saying he has never seen anything so
obvious as this "organized stuff job." I have a dinner
coming.

* The big buyers are still there. The supply/demand
deficit is increasing. The gold loans are growing to
more dangerous levels by the day. A gold-related
financial market disaster could occur at any time.

* The open interest is extremely low again. Yesterday
the open interest dropped an astonishing 18,209
contacts as the specs were obliterated -- leaving the
total at a very low 115,781 contracts. Once the pros
are convinced that the remaining weak longs have
exited, they will be buyers for the big move up.

* That brings us back to Mike Bolser and his wonderful
work. One of Mike's major points is that not only is
the Gold Cartel afraid of a gold derivative time bomb
blowing up the system, but they are afraid of an
interest rate derivative meltdown that could be set off
by an exploding gold price. Sixteen trillion dollars of
interest rate derivatives on the books of J.P. Morgan
Chase gone amok could do that.

What they are afraid of is the VOLATILITY TIME BOMB.
The increased volatility numbers blew up Ashanti's
hedge book. That is what blew up Long-Term Capital
Management. The Nobel prize winners at LTCM never
factored in ballooning volatility. Their bet was that
volatility would revert, or converge, to normal as
their black-box models said it would. It did not. Their
margin calls went off the charts. This threatened to
set off a chain reaction of defaults in the financial
system. So they were bailed out by the Federal Reserve
and other New York banks.

Who is going to bail out the 16 trillion at J.P. Morgan
Chase when the volatility of its interest rate
derivative positions goes amok?

Here is the scary part. I might have to start referring
to Alan Greenspan as Doctor Doom. What has this man
allowed to be put in place? Will his deliberate
deception about the gold market go down as one of the
most destructive maneuvers in financial market history?

I bring your attention to an Associated Press story of
November 2, 2000. The title reads, "Greenspan urges
exemption of derivatives from regulation."

"Washington -- Federal Reserve Chairman Alan Greenspan
urged Congress on Thursday to act quickly to exempt
from regulation the $80 trillion market in so-called
over-the counter derivatives, saying legal uncertainty
is posing 'unacceptable risks to the country's
financial system.'

"Greenspan, testifying before the Senate Agriculture
Committee, asked lawmakers to adopt the recommendations
of a White House Task Force that included exempting
over-the-counter derivatives from government regulation
and allowing the financial institutions using them to
police the market themselves."

This is before the same committee to which Doctor Doom
stated, "Central banks stand ready to lease gold in
increasing quantities should the price rise."

I think the man has lost it. The ramifications of the
direction in which he is cheerleading unsuspecting
politicians are staggering.

Just over a month after his pleading to Congress, I
brought up the following in Midas commentary last
December:

* * *

CARTEL CAPITULATION WATCH

Bank Credit and Gold Loans

"New York, Dec. 14 (Bloomberg) -- Chase Manhattan Corp.
and J.P. Morgan & Co. said fourth-quarter earnings
will miss estimates because of lower trading revenue
and higher merger-related costs.

"Both companies said earnings from capital markets
activities are falling because customers are trading
less and currency trading isn't as lucrative. Also,
losses rose in Chase's private equity business, which
had swelled earnings in past quarters."

The balance sheets of these two major bullion dealers
are contracting; earlier in the day the Bank of England
warned of credit risks due to overly heavy investments
in the telecom industry (following the heads up Frank
Veneroso gave to the Caf weeks ago); and Chase
Partners is heavily invested in the Internet and
Nasdaq.

The is not a good mix to support a massive gold loan
and gold derivative exposure. Especially with GATA and
Reg Howe breathing down their necks.

Maybe that is why Treasury Secretary Lawrence Summers,
who also has GATA/Howe barking at his tail, appears to
be in a bit of a panic to pass his derivative bill.

"WASHINGTON, Dec. 14 (Dow Jones) -- Treasury Secretary
Lawrence Summers urged Congress to move ahead with
passage of legislation to overhaul derivatives
regulation.

"We are pleased with the agreement reached last night
on over-the -counter derivatives," Summers said in
written statement issued last Thursday morning."

Could Summers fear that the price of gold could explode
at any time and expose his scheme, or effect financial
chaos? Why the rush to pass this bill which will make
bank derivatives less transparent? Can't it wait for
the new Congress?

Meanwhile, back at the ranch, Chase Bank was the big
seller today and the one that knocked gold down from
its highs.

Chase, Goldman Sachs, Chase, Goldman Sachs. The beat
goes on with these arrogants.

* * *

The picture could not be more clear. The inmates are
running the asylum. For Greenspan and Summers to do
what they have done to gold and then argue for J.P.
Morgan/Chase to regulate its own $16 trillion interest
rate derivative book is madness.

God help us.

The recent gold price bashing ought to be the last
hurrah for the Gold Cartel. They are on a short leash.

Gold and the gold shares are the place to be and it
will remain that way for a long time.