Ted Butler: A long-term investment better than the best stock or land


On Gold Bugs and Net Shorts

By Dennis Gartman
The Gartman Letter
Tuesday, September 14, 2004

The gold bugs are a strange lot, really.

They see conspiracies everywhere and at all times.
If the government is not conspiring against the public,
then business is conspiring against the government,
or business AND the government are conspiring
against the public, and, if not that, then all three
are conspiring against ghostly, foreign forces that
are set to wage some sort of economic war against the

We see this as a wondrous waste of time and money
as they try to prove the merits of gold ownership
based upon conspiracies, far and near, visible and
invisible. However, as long as they do no damage and
stay within their small sphere of influence, they have
the absolute right to make their case and move on.

That having been said, we are always concerned when
we write about the gold bugs because in the past we
have gotten some of the most disconcerting threats
from them, including phone calls at odd hours; e-mails
threatening harm; name calling, etc. We trust today's
article will draw nothing more.

Having been taken to task rather often by the gold bugs,
we thought we'd take the time to read a report put out by
Sprott Asset Management of Toronto that has been much
in the news amongst the gold bugs of late for having
"proved" the case that GATA puts forth.

GATA, as our clients should know, argues that there is
a vast conspiracy amongst the gold bullion dealers, the
Wall Street trading houses, and the various governments
of the West to keep gold prices down.

The Sprott paper is rather weighty, and we decided to
take it with us on our long flight to Shanghai recently
in order to read it cover to cover. We did, and we took
notes at length.

We disagree with this report in its entirety, although
we do admire the sheer volume of the work done. Under
normal circumstances we would call this yeoman's
work and applaud the endeavor, but this is not a
normal circumstance.

We could, time permitting, cite passage after passage
with which we disagree. However, our major point of
contention is simply this: It is odd that the major
analysts supporting GATA's thesis are really rather
few, and they include Mr. Frank Veneroso, Mr. Reg
Howe, Mr. James Turk, and Mr. Bill Murphy, GATA's
founder and guiding spirit.

These are fine, educated, deeply intelligent men who
have done stunning amounts of work on the details of
the gold market. We are especially fond of the work
done by Mr. Veneroso and we do indeed rather like
Mr. Murphy, for he is a wonderful conversationalist
and Renaissance man.

What we find odd is that Sprott, having taken GATA's
position that there is indeed a conspiracy among the
leading central banks and brokerage and trading firms,
relies almost solely upon these other analysts who
hold to the same thesis to prove the thesis. Page after
page, footnote after footnote, textual citing after textual
citing is done ontologically; each cites the other; each
uses the other's facts and figures; each believes the
other is right and each "proves" each other's proof by
the proofs of the other.

We had hoped to see independence amongst the citations
used in Sprott's paper, for in using independent
sources we might well have been willing to listen and to
accept their analysis. However, in 68 pages of text, Mr.
Veneroso, Mr. Howe, GATA, and Mr. Turk are cited a
total of 87 times (Due to some minor printing errors in
the text we used, some of the notations were garbled
and so we may be off perhaps two or three citations in
either direction, a variance which we think shall make
little if any difference to our case.)

Further, we take issue with the manner in which this
report always seems to use the terms "may" or "might"
while making its case. For instance, on Page 58 the report
says: "As James Turk suggested in 'Behind Closed Doors,'
the leasing of gold by another nation may in fact be
directed by the United States."

"May be" and "is" are materially different, of course --
(unless you are William Jefferson Clinton -- and the Sprott
report seems always to pile on the references to possible
machinations taken by the U.S. government, the sheer
weight of which it hopes shall make its case. It does not.

Further, the report consistently tries to make the case that
the U.S. government has lied regarding the use of the
Exchange Stabilization Fund, where the report believes that
the government hid gold and used it for market manipulation.
It cites a statement by U.S. Treasury Secretary O'Neill that
the Treasury Department "intensively monitors foreign
exchange markets and maintains continuing monitoring of
gold markets and related developments."

GATA and Sprott will argue that "monitoring" equates to
manipulation. We shall maintain that "monitoring" is
precisely that: monitoring, watching, learning from the
markets what the market is saying to Treasury and the
Fed concerning policies that are either in place or may be
put into place. But "monitoring" need not be real action,
and likely is not.

We've not the time to go on this morning, and although our
case is perhaps not made with the same sheer volume that
the Sprott report has weighed in with, we trust it is made.
Conspiracies rarely exist, and when they do, they are far
more often than not exposed.

GATA's followers are legion and very often they are wise.
Would that they spent their collective wisdom on worthier
efforts. There are times when it is appropriate to be bullish
on gold; there are times when it is not. To GATA and the
gold bugs, it is always time to be so. To us, gold is merely
another asset bidding for our capital, and it is there that
they fail.

* * *

In Reply to Dennis Gartman

By Chris Powell, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
Wednesday, September 15, 2004

Dennis Gartman doesn't want to argue the details of the
Sprott Report -- which is fine, because that's not necessary
to prove a great conspiracy against the price of gold,
"conspiracy" being a more or less surreptitious agreement to
commit a wrongful act.

The conspiracy against gold needn't be proved in the
first place, because it has been admitted over and over
again by "the gold bullion dealers, the Wall Street trading
houses, and the various government of the West" even
as they deny it when the question is put to them plainly.

Like Tim Wood, formerly of MineWeb.com, Gartman might not
be able to see this even if Federal Reserve Chairman Alan
Greenspan knocked on his door to deliver a notarized
confession. For Greenspan and the heads of the other
Western central banks have practically done as much
already, and most financial analysts just don't want to

After all, what was the Washington Agreement of
September 1999 if not a proclamation that the 15
participating central banks were colluding to regulate
the gold price?

Of course in the Washington Agreement the central
banks affected to be SUPPORTING the gold price; they
pledged to limit their gold sales to 400 tonnes per year
for five years -- lest, they said, the gold market be
flooded with metal and the gold price collapse, taking
with it the economies of gold-producing countries.

GATA has put a different construction on the Washington
Agreement. We consider it the device by which central
bank gold LOANS are written off as SALES at discounted
prices, rather than be called back and cause a short
squeeze in gold.

That is, far from supporting the gold price, the
Washington Agreement was how the central banks kept gold's
price from rising and prevented the bankruptcy of the
financial houses that, at the invitation of the central
banks, eagerly joined the gold carry trade of the 1990s.
In that carry trade gold was, in effect, loaned by the
central banks for next to nothing and sold by the financial
houses to depress its price, strengthen the U.S. dollar,
reduce interest rates, and inflate the price of paper
assets, which were purchased with the proceeds of the
gold sales.

But no matter how you want to construe it, the
Washington Agreement was ADMITTEDLY a co-ordinated
action by the central banks to regulate the gold price,
using bullion banks as intermediaries.

While their meetings are closed to the public, that
central banks get together to discuss and unify
their policy toward gold is a matter of ordinary public
record. The bankers come out of these meetings and hold
press conferences and issue press releases saying that
they have been coordinating their policies on gold --
and financial analysts like Gartman and Wood can't see
the forest for the trees.

Does Gartman, like Wood, really believe that this
collusion by the central banks is always benign, in the
public interest, and without ulterior motives, that it
never involves more than the bankers say it involves,
and that it never should be questioned?

He should try attending one of their conferences, or
should ask to inspect the records of the Exchange
Stabilization Fund, or should ask to audit the central
banks' gold vaults. That would be called journalism, it
would be thwarted -- for none of this has ever been
done -- and then maybe he might begin to question his

The Washington Agreement wasn't the first coordinated
intervention of the central banks in regard to gold. It
was at least the second and probably much more belated
than that. How do we know?

Because Federal Reserve Chairman Alan Greenspan told
Congress that. As usual, few in the financial press
seem to have been paying attention.

But on July 24, 1998, Greenspan remarked to the House
Banking Committee: "Central banks stand ready to lease
gold in increasing quantities should the price rise." He
repeated that statement a few days later to the Senate
Agriculture Committee. His statement remains posted
on the Fed's Internet site:


Of course, like the central banks that participated in the
Washington Agreement, Greenspan was disguising the true
purposes of the gold policy he described. He was explaining
why he didn't think that the derivatives market needed
federal regulation, and he was suggesting that central bank
gold leasing was a safeguard against a private corner on
the gold market, a safeguard that made derivatives
regulation unnecessary.

GATA maintains that, as with the Washington Agreement,
the purposes of the central banks were the opposite of
what their leading spokesman was suggesting. Far from
working together to prevent a private corner on the gold
market, the central banks were using gold leasing to
maintain a corner on the gold market themselves.

Construe Greenspan's testimony as you will -- like all
critics of GATA, Gartman doesn't want to argue details
-- but there it is again, from Greenspan himself: Central
banks admit that they work together to regulate the price
of gold. And, more than that, Greenspan told Congress,
if inadvertently, that the purpose of gold leasing was not
really the purpose long maintained by the central banks
involved in it -- to extract a little income from a
supposedly dead asset -- but rather to prevent the price
of gold from rising.

Central bankers aren't the only ones in the gold business
who have acknowledged collusion to control the gold price.
The biggest hedger among the gold-mining companies,
Barrick Gold, has gone so far as to confess, in federal court
in New Orleans, to participation in this scheme. Sued along
with its bullion bank, J.P. Morgan Chase, by Blanchard &
Co., the New Orleans coin and bullion dealer, Barrick filed
a surprisingly candid motion in court on February 28, 2003.

Barrick moved for dismissal of Blanchard's lawsuit on
grounds of sovereign immunity. That is, Barrick claimed
that, in borrowing gold from central banks through Morgan
Chase, Barrick became the agent for central bank gold
policy; that, as the agent of central banks, the company
could not properly be sued without also suing the real
parties in interest, the central banks; and that, since the
central banks, as the agencies of sovereign governments,
have immunity and could not be made party to the
Blanchard suit, the suit should be dismissed. Barrick's
confession can be read here:


Fortunately Judge Helen Berrigan dismissed Barrick's
motion, and so Blanchard's lawsuit has gone to the
evidence-collecting phase. The suit is similar to Reg
Howe's federal lawsuit, which was brought in U.S. District
Court in Boston, underwritten financially by GATA, included
government defendants, and failed on the very issue of
sovereign immunity -- the issue that is now out of the way
in the Blanchard case so that the world yet might get a
close look at how the gold market really works.

But there it is again -- an admission, this time in court,
that central banks, bullion banks, and even mining
companies work together to regulate the gold price.

Just as the true purpose of gold leasing is to suppress
the gold price rather than earn a little interest on a
"dead asset," some central banks even acknowledge that the
ONLY purpose of holding gold reserves now, in the absence
of any currency's formal convertibility, is to rig markets.

Here's what the Reserve Bank of Australia says on Page
31 of its annual report for 2003:

"Foreign currency reserve assets and gold are held
primarily to support intervention in the foreign exchange
market. In investing these assets, priority is therefore
given to liquidity and security, in order to ensure that
the assets are always available for their intended policy

The RBA's statement can be found here:


All this shows that while the formal convertibility of
currencies into gold has been ended by the articles of
the International Monetary Fund, gold continues in its
nature and function as money and as the independent
international currency, the competitor of the dollar and
the euro -- and that central banks recognize as much,
however grudgingly.

Central banks often acknowledge intervention in currency
markets -- direct intervention, as with the Bank of Japan's
printing yen to buy dollars and the People's Bank of China's
enforcing a fixed exchange rate with the dollar; and
indirect intervention, as by the heavy purchases by many
central banks of U.S. government bonds. Meanwhile the
Federal Reserve intervenes in and supports the U.S. bond
and equity markets every week through the strategic
purchase and sale of U.S. government bonds.

Amid this constant collusion and intervention, why should
it be so hard to accept that central banks might be more
involved in the gold market than they make plain and that
their purposes might not always be consistent with the free
markets they tout?

As for those crazy gold bugs who are "always bullish on
gold" and whom Gartman alternately sneered at and
patronized in his letter today, they are so not because,
like him, they are in the investment advice business, where
"gold is merely another asset bidding for our capital," but
because they consider gold the great mechanism for holding
government accountable, for preserving limited government
against unlimited government, preserving liberty against
the sort of government lately running rampant nearly

That is, as much as gold bugs might like and even expect
to make money, all this is about a lot more than that.
It's about saving the world.


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Blanchard & Co. Inc.
909 Poydras St., Suite 1900
New Orleans, Louisiana 70112

Centennial Precious Metals
3033 East 1st Ave., Suite 403
Denver, Colorado 80206
Michael Kosares, Proprietor
US (800) 869-5115
Canada 1-800-294-9462
European Union 00-800-2760-2760
Australia 0011-800-2760-2760

Colorado Gold
222 South 5th St.
Montrose, Colorado 81401
Don Stott, Proprietor

El Dorado Discount Gold
Box 11296
Glendale, Arizona 85316
Harvey Gordin, President
Office: 623-434-3322
Mobile: 602-228-8203

Investment Rarities Inc.
7850 Metro Parkway
Minneapolis, Minnesota 55425
Greg Westgaard, Sales Manager
1-800-328-1860, Ext. 8889

178 West Service Road
Champlain, N.Y. 12919
Toll Free:1-877-775-4826
Fax: 518-298-3457
620 Cathcart, Suite 900
Montreal, Quebec H3B 1M1
Fax: 514-875-6484

Lee Certified Coins
P.O. Box 1045
454 Daniel Webster Highway
Merrimack, New Hampshire 03054
Ed Lee, Proprietor

Miles Franklin Ltd.
3015 Ottawa Ave. South
St. Louis Park, Minn. 55416
1-800-822-8080 / 952-929-1129
fax: 952-925-0143
Contacts: David Schectman,
Andy Schectman, and Bob Sichel

Missouri Coin Co.
11742 Manchester Road
St. Louis, MO 63131-4614

Resource Consultants Inc.
6139 South Rural Road
Suite 103
Tempe, Arizona 85283-2929
Pat Gorman, Proprietor
1-800-494-4149, 480-820-5877

Swiss America Trading Corp.
15018 North Tatum Blvd.
Phoenix, Arizona 85032
Dr. Fred I. Goldstein, Senior Broker



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