Excerpts from ''Midas'' commentary for Wednesday, January 8, 2003

Section:

By Mike Bolser, Consultant
Gold Anti-Trust Action Committee Inc.
January 8, 2003

Medically, the application of leeches was
historically beneficial for then unknown
anti-coagulation reasons. An enzyme in leech
saliva thinned the blood and staved off
potential clotting. The trick was not to
overdo this bizarre "therapy" because too
much blood thinning could lead to excessive
internal blood loss and the patient's death.

As central banks struggle with a rising loss
of physical gold from their own brand of
patent medicine bullion-selling "therapies,"
they face a similar dilemma. How much more
treatment can the central bank patient
suffer?

When the next phase of the cartel gold
capitulation occurs, probably during the
densest period of Middle East war fog.
(Consider this to be a kind of administrative
anesthesia thus, the operation can't begin
until either the world or the patient has
been put to sleep.) The gold price selling
therapy may then be removed (the T* date) and
allowed to rise towards what Professor
Maurice Obsfelt (UC Berkeley) referred to as
the "choke" price. This is because the
central banks can no longer continue to
suffer egregious metallic losses in defending
an inherently weak dollar. The central
bankers know all-to-well that those vault
losses cannot be replaced in the future at
anywhere near today's dollar prices.

What is the "choke price" for gold? The
answer is to determine the equilibrium gold
price. That is the price of gold adjusted for
true inflation of the U.S. dollar and then
adjusted for the dollar's position with
respect to the world's major currencies.
Let's give it a diagnostic try.

I have taken the CPI from 1968 through 1995
and affixed an exponential growth regression
curve that yields a .98 R^2 value. (This is
not bad since a value of 1 is a perfect
predictor of the actual data.) This was done
in an effort to obtain an unadjusted CPI.
(Hedonics began in 1995 and the dollar was
gold-backed prior to 1971 so those periods
were discarded from the calculations leaving
a free-floating CPI.) Then I extended this
regression curve from 1995 to the present the
to get a more reasonable inflation value of
gold from 1968 through the present. I read off
the new CPI value and converted it to a gold
price based upon the gold price in 1968.

The equilibrium, non-hedonic, free-floating,
inflation-adjusted value of gold is $519 per
ounce for the beginning of 2003. This value
uses only the CPI data from 1968 through
1995. To be complete, however, this
calculation should also correct both for
inflation since 1995 AND the dollar's major
currency position change since 1995. The
final number is north of $558 per ounce.

When will the next phase of the central bank
"treatment" begin?

In order to answer this question, assume the
role of the central bank doctor for a moment.
The longer you wait to remove the "gold-
selling leeches," the closer to unstoppable
massive gold demand you get as a result of
the deteriorating world macro economy-
especially in Japan where only 10 percent of
the elder's assets there can exhaust the
central banker's remaining un-loaned and un-
swapped gold. If this happens the central
bank patient loses all its gold and bleeds to
death.

The world economy is also adversely affected
by oil in the hands of political and cultural
adversaries, thus the pending Middle East war
appears clearly to be a Western economic
imperative. Gold is not the only problem for
the central bank patient.

It is important to emphasize the gold
equilibrium price of gold at $558 ignores the
obvious inflation which government hedonic
price deflators have masked since 1995 and
should be considered only the starting point
in a continuing future inflationary regime.
The ultimate "choke price" will occur when
the price of gold rises to such a level that
metal is lured back into a long-government-
price-suppressed market. Administration
"therapies" of unbalanced "stimulus" burden
the central bank patient further, long into
the future, and they seem to assure a
stagnant prognosis with no real "recovery"
without a very high gold price.

Gold may feverishly spike upward in a semi-
controlled manner to say, at least $558 and
then continue to move higher as the
inevitable inflation therapy is also
"applied" by monetary authorities. It is my
belief that the G-10 has an upward gold price
track that it will try to maintain. That
trajectory should follow an exponential path
and avoid conspicuous vertical spikes so as
to dissuade the bulk of speculators.

From the standpoint of the central bank
surgeon who desires to stop the central bank
patient's bleeding of gold, he should follow
the advice of the wise medicine men of the
GATA tribe and remove his golden leeches no
matter how painful to the central bank and as
soon as possible.

Tomorrow isn't too early.

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