Barrick and Homestake to merge

Section:

10:48a ET Saturday, June 23, 2001

Dear Friend of GATA and Gold:

Barry Riley yesterday devoted his column in The
Financial Times, "The Long View," to gold and GATA, and
we couldn't be more grateful. We'll happily accept the
gentle satire in exchange for Riley's again taking note
of us and making our points to an international audience.

Riley's column is a reminder that the battle for a free
market in gold is being fought by GATA, not by the World
Gold Council or anyone else.

CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.

* * *

The Long View: That old-time religion

By Barry Riley
The Financial Times
June 22, 2001

http://news.ft.com/ft/gx.cgi/ftc?
pagename=View&c=Article&cid=FT3LIBY5AOC&live=true

The setting sun was shining warmly, but it wasn't a
very good omen as I strolled one evening this week into
the so-called "bugs' bash", the once famous, but these
days sadly under-attended, midsummer barbecue of the
British United Gold Society. It is my own fault: if I
am foolish enough to attend esoteric events I am bound
to run the risk of bumping into my old adversary Fringe
Freddie.

Sure enough, there he was, glass of champagne in hand,
advancing towards me. I looked around desperately, but
was hemmed in by the promotional stall for a gold-
mining stocks website on one side and the PR advisers
of the World Gold Council on the other. He wore a
yellow metal badge proclaiming: "Bring back the gold
standard." There was no escape.

"Are you still punting on gold, Freddie?" I opened
provocatively. "It must be 18 months since we last met,
and you don't normally back losers for that length of
time. Gold, after all, came within a whisker of a 22-
year low when it sank to $256 an ounce in April, and it
has not recovered very much."

Freddie grinned, revealing a new gold tooth. "Like
nearly all the rest, you've been deceived by the dollar
propagandists, old boy," he responded. "Over the past
18 months the bullion price has RISEN against the yen
and the euro, not to mention the pound sterling. Oh,
and it's easily beaten the main stock market indices,
too.

"Not bad, eh? And it's only the beginning. Several
attempts at an upside breakout, the latest of which
took the price up 11 per cent, have been smothered by
intervention. But the anti-gold conspiracy organised by
the US government is running out of time and metal. A
big price upsurge, maybe a doubling, is just around the
corner. Just look at the mining stocks: your own FT
Gold Mines Index is up 25 per cent since April."

I replied that I had heard the gold conspiracy stories
time and time again. But the gold bugs were trying to
create a mystery where there wasn't one. Mining output
was rising steadily, thanks to improvements in
technology, and the price was being driven down. Gold
was a relic that was simply out of date.

No rational argument has any chance against a fervent
conspiracy theorist, however. Freddie's eyes began to
gleam, in a manner normally triggered by a major crop
failure and the mouthwatering prospect of a global
famine. The immediate object of his attention, though,
was the yellow metal.

"The signs are all there, old chap," he hissed.
"Official lending of gold by the central banks has been
much more than the 5,000 tonnes they admit. The recent
jump in the gold lease rate shows that some of the
lending central banks have backed off, because they
worry about running out of bullion. Meanwhile the
Americans are desperately printing dollars to stop
their economy diving into a recession. Gold is the only
place left to go."

I admitted that I'd had my curiosity aroused by the
gold "carry trade," the manoeuvre in which big banks
have borrowed gold at very low lease rates and invested
the proceeds in bonds, making a big running profit. But
the profit is destroyed, and could be turned into a
massive loss, if the bullion price rises sharply. Hence
the allegations of price manipulation.

But I pointed out that a professor at the London
Business School, Anthony Neuberger, was hired by the
World Gold Council to investigate whether activity in
derivatives was seriously depressing the gold price.
Last month he reported that the effect was small. An
effective extra supply of 4,000 tonnes may have been
generated during the 1990s, but that compared with an
existing global hoard of some 140,000 tonnes.

"Be honest," retorted Freddie. "You've only read the
spin doctors' press release and not the full 120-page
report. The professor was required to accept the bogus
official statistics as accurate. Even so, he has
confirmed that the lending market is very fragile, and
horribly vulnerable to a serious squeeze. Watch this
space."

Instead I looked optimistically towards the buffet
table, where the menu was advertised as ingots of
golden trout and 22-carrot salad. But the charcoal
barbecues seemed to be causing problems, so there was
no easy escape from the party pest.

"All right, I admit there are some interesting
parallels with what happened to the London Gold Pool in
the late 1960s," I said. "It was a previous exercise in
US Treasury-inspired gold-market rigging, to thwart
gold bugs inspired at the time by General de Gaulle.
After the policy became too expensive and was
abandoned, the bullion price went from $35 to, in the
end, $800. But that was in the context of Vietnam War
spending, an oil price shock and an inflationary flare-
up."

Freddie's gold tooth glistened again in the evening
sun. "Did you mention the oil price?" he chortled.
"What a coincidence. And American consumers are
spending far more on foreign goods than Nixon ever did
on fighting Ho Chi Minh. Now the US government will
have to admit defeat again.

"It will all come right out into the open soon when the
US Treasury is forced to respond to the court case
being brought by the Gold Anti-Trust Action committee,
the group of American gold defenders organised from
Texas. The Bush regime will cut its losses and regard
it as an opportunity to repudiate what the Treasury did
in pursuing the strong dollar policy under Rubin and
Summers."

I couldn't, I said, imagine that GATA would get
anywhere through the courts. But it was significant
that the US Business Roundtable, representing
manufacturing industry in the grip of a nasty profits
collapse, was pressing this week for a more competitive
dollar. Currency strength was a useful weapon to head
off domestic inflation during the great boom; in
contrast, as the global economy took a dive, we now
seemed to be heading straight for beggar-my-neighbour
territory.

But I said I was sorry that I couldn't pursue the
argument any further, because I needed to check out the
details of the gold mining stocks website. When you are
trapped by Freddie, any excuse will do.

His voice pursued me, nevertheless, his phrases
punctuated by that familiar braying laugh. "Currency
turmoil ... bullion banks melted down ... hedge
books in chaos." It may have been my imagination, but
gold fever has an emotional connection with old-time
religion, and I'm sure I heard him tail off with: "The
end is nigh!"