Gold shares have higher to go even without gold price rise


By Michael Kosares
February 15, 2002

Gold is moving sharply to the upside in early New
York trading as more concern surfaces over troubled
JPMorgan/Chase -- the huge trading/banking
operation many analysts feel has played a critical
role in the gold market over the past several years.

Many gold analysts believe that that involvement
has been as a deterrent to higher prices. Yesterday,
reports began to surface that Morgan/Chase may
have its credit rating lowered -- a circumstance
that started Enron's uncontrolled tailspin into
bankruptcy last year. While the public focuses on
the Enron committee hearings in Congress, a far
more pervasive and potentially crippling problem
-- the possible collapse of JP Morgan -- is festering
behind the headlines.

The public was blindsided by Enron (our readers
weren't); it will be blindsided by JP Morgan (our
readers won't be). The financial community is
certainly fully aware of what a JP Morgan breakdown
might mean for Wall Street and the rest of the
economy. That's probably why gold remained
strong during the recent corrective phase and
moved up smartly this morning. Money people
around the world are buying the yellow metal
... and for good reason.

But back to JPMorgan:

In just the past few months, JP Morgan took a
$2 billion loss on Enron, a $2.25 billion loss on
Global Crossing, and a $1.6 billion loss on KMart.
Reuters reports this morning, it has a $14.4 billion
exposure at troubled TYCO. The full story is still
out on its exposure in collapsed Argentina (but it
is likely in double figures). Now it surfaces that it
has exposure at another company on the ropes,
Qwest. And that's just what we know about. All of
this led James Cramer from to
exclaim this morning: "Unless you know of a
takeover at JP Morgan Chase, I think you should
still sell that stock. I don't think these guys have
a clue about risk right now, not a clue."

In recent years, it has been evident that what was
good for Microsoft and Intel was good for the stock
market. I think we can safely say that was is bad
for JP Morgan is good for the gold market, not only
directly through the possible ramping down of its
gold derivatives trading, but indirectly through the
effect that bad debt and trading problems within
that banking giant might have on the rest of the
financial markets.

If all of that weren't enough, Doug Cliggott -- its
most accurate and bearish analyst -- has decided
to leave for Sweden adding to the questions swirling
around the firm. Cliggott was a consistent critic of
the stock market bubble in the late 1990s and
added a great deal of credibility to JP Morgan's
sagging reputation. It's difficult to assess the
potential overall effects of JP Morgan breakdown
on the gold market, but we'll just offer this as a
starting point: It can't hurt. The market action thus
far today might be indicative.