Projections for gold price are improving

Section:

10:47p ET Sunday, April 21, 2002

Dear Friend of GATA and Gold:

Michael Kosares, proprietor of Centennial
Precious Metals in Denver and of
www.USAGold.com on the Internet, made some
typically insightful observations on his
site's bulletin board the other day. For
starters, Mike explained again how central
bank gold sales are probably not adding metal
to the market as much as rescuing big bullion
banks from otherwise irretrievable short
positions. I couldn't help but copy Mike's
comments for sharing with you here. They're
below.

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

* * *

By Michael Kosares
www.USAGold.com

There is not much gold available in size.

If you were the finance minister for Japan
(for example) and you wanted to increase your
gold reserves, you would have only a few
options.

1) Hope that some other central bank is
forced to sell and that the gold is "free."
By "free" I mean available for the open
market. The Bank of England sales were not
"free" but channelled sales -- available only
to London Bullion Market Association members,
at which point control of BOE reserves was
delimited to whomever the members chose.

As I have said before, I believe the BOE
sales were meant to help some bullion bank in
trouble with gold loans. The BOE in essence
became the lender of last resort, though it
tried disingenuously to paint the sales as a
prudent change in the bank's asset structure.

The same can be said about the Swiss sales,
which, as you recall, first went through the
Bank for International Settlements, but when
things did go as the Swiss had hoped, were
altered to go through bullion banks
designated by the Swiss central bank.

To acquire metal through central bank
channels, no matter how many sales are
announced in the future, may be a waning hope
for any central bank, since most of the big
ones need to hold something in reserve should
one of their primary banks be pushed to the
ropes due to a high failure rate in gold
loans.

When one puts this thinking to use, it
becomes obvious that gold sales by central
banks are no longer something to be feared by
the marketplace, since nearly all the metal
will be channelled to deals already on the
books. This metal is unlikely to see the
light of day.

2. Attempt to structure a deal direct with
mining companies at a fixed cost (or
escalating cost within a band in your
domestic currency) over any number of years
to fulfill the need. This is going to be
difficult to get done in the current
environment.

3. Attempt to buy from a private holder. Once
again this is unlikely, since for major
private holders gold is not an investment but
a currency holding ("Footsteps of Giants"
scenario) not to be touched except in dire
emergency. In fact, with this group, the
opposite becomes a problem: The private
holders will be buyers too as the world's
major currencies continue to depreciate
recklessly against one another in this
beggar-thy-neighbor environment.

4. Attempt to buy in the open market.
Essentially this is what Japan is doing now
by standing aside as national investors'
scramble to acquire yellow metal. By doing
this, the Japanese people get some of the
advantage of these ridiculously low, bullion
bank-sponsored prices, and the metal flows
within Japanese borders. (Once again,
probably never to see the light of day.) This
is stealth economics at its best -- the
redemption of paper dollars for gold while no
one is thinking about it (as such) -- and
without the national government having to
make a public issue about it.

5. Force the United States government to
begin shipping its hoard of bullion to the
Japanese central bank in the same way France
forced the United States to ship metal to the
continent in the late 1960s -- a strategy
that forced the collapse of the London gold
pool and the phony $35 benchmark price. Japan
may force the issue in the same way now with
its citizen purchases. That's why I have
tried to bring the proper emphasis to the
Japanese situation. When Japanese gold
experts say they believe that gold demand in
Japan could rise sharply from here, we should
pay close attention. This phenomena is
beginning to take on the feel of an economic
policy.

U.S. Rep. Ron Paul's legislation to make U.S.
gold dealings more transparent takes on an
even more important aspect when thought about
in the context just outlined. If the United
States has uncommitted reserves (and that in
itself is a question straining to be
answered), will Japan, Europe, and China (our
chief trading partners) make a claim on them?
And if so, what will be the U.S. response. At
current prices, I don't think that even this
would be a threat to the gold market as the
current currency situation progresses. The
price will have to be raised substantially to
keep these countries from collapsing their
largest export market.

Much to think about.

So what does all this mean to the gold
investor?

It means that you could be easily crowded out
of the market and it could happen before most
people even understood what had happened.
Even now, when things get moving, the supply
of gold coins tightens up ... AND IT DOESN'T
TAKE MUCH.

In 1999 when we had the post-Washington
Agreement run-up in the gold price coupled
with the Y2K buying spree, the pre-1933 gold
coin market was completely bottled up by
major investors working through brokers like
USAGOLD/Centennial Precious Metals. I expect
that to happen again. But believe it or not,
I believe that the flow of pre-1933 coins --
because theirs is a smaller, targeted market
detached from the bullion banks -- will be
better than bullion coins. That will be good
for those who buy now, because it will
lubricate a two-way market.

I don't know how the small dealers will do,
but like everyone else they will have trouble
keeping metal in stock. Their ability to
fulfill orders will be directly related to
their long-term business arrangements with
primary suppliers -- a problem we don't have
at USAGOLD, due to our large volumes.