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Financial Sense Newshour interviews Mike Bolser of Interventional Analysis

Section: Daily Dispatches

10:24p ET Saturday, June 4, 2005

Dear Friend of GATA and Gold:

Sunday's New York Times Magazine has a long article
on gold, for which GATA was asked to and did provide
information. Unfortunately the article is mainly a lot
of attitudinizing with predictable emphasis on the
eccentricities of certain gold advocates. It's as if
the Times had set out to analyze the economic policy
of the Clinton administration and concentrated on
Monica Lewinsky while never mentioning Robert Rubin.

The article never raises the gold price manipulation
issue, though even after receiving a lot of
documentation from GATA, the author interviewed and
quoted both Jim Sinclair, CEO of Tan Range Exploration
and proprietor of, and Don Doyle, CEO
of Blanchard & Co. in New Orleans, whose anti-trust
lawsuit against Barrick Gold and J.P. MorganChase
is now the focus of the gold cause.

It is hard to imagine that these men would not also
have mentioned the manipulation issue.

That the author could get so close to the
manipulation issue THREE TIMES but still not mention
it may give you an idea of just how sensitive and
even prohibited the issue is. Maybe gold's friends
can take this omission as some vindication.

The article did manage to spell gold's name right.
It's appended here.

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

* * *

Believing (and Believing and Believing) in Bullion

By Stephen Metcalf
The New York Times Magazine
Sunday, June 5, 2005

On a recent early spring morning, I made my way down to the
appropriately poker-faced and austere building that houses the
Federal Reserve Bank of New York. In its sub-basement, 80 feet below
street level, there is a vault that rests on the granite bedrock of
Manhattan. "No man-made floor could hold the weight of all this,"
Peter Bakstansky, a Fed spokesman, assured me. The vault holds 7,000
tons of gold. This represents the world's largest stash of the
precious metal, and it is worth about $100 billion. To view it, you
descend to an underground bunker and pass through a narrow
passageway cut into a 90-ton steel cylinder. Like most people, I'd
seen gold before, though only in small quantities -- a filling here,
a vanity wristwatch there. In front of me now, stacked in bricks
atop wooden pallets, lay some pretty serious bling.

Gold is a majestic condenser of wealth. A standard bar is seven
inches long, three and five-eighths inches wide, and about one and
three-quarters inches thick. It weighs 27.4 pounds, and at the
current market price -- roughly $420 a troy ounce, the unit in which
gold is measured -- is worth about $170,000. As miraculous as gold
is in itself -- it is soft, dense, ductile, sectile, highly
conductive, all but indestructible and, of course, very beautiful --
when you look at any quantity of it, you immediately exchange it in
your head for something else. One bar, college education; 10 bars,
Brooklyn town house. The cage in front of me appeared fairly small.
Filled to the ceiling with gold bars as it was, it might well hold
the financial health of a nation in the balance.

Most of the bullion at the New York Fed is kept -- in 122 separate
lockers -- in custody for foreign countries. (Most American gold is
in Fort Knox.) There is something ancient and strange about the
vault, in which workers wear magnesium shoe covers to protect their
toes from falling ingots. Egyptians were casting bars of gold
thousands of years ago; but the thrust of human history has been
away from hard money and toward virtual money, like paper bills, or
even little electronic pulses shot off by the trillion across the
ether. When I remarked that all this brute physical wealth
represented an anachronism, Bakstansky seized upon the word

"Yes, exactly. Gold is an anachronism."

"And yet," I said, "all these nations, they hold on to this
anachronism, just in case...."

At this, a light chill entered his voice. "I don't think anyone in
a policy-making position," he explained to me politely, "seriously
believes that everything else of value could disappear, leaving only

To a small but extremely avid subculture in the American financial
community, gold doesn't mean bling, or King Midas, or them thar
hills. Gold is money; and not just money, but the one true money.
The gold subculture divides along several lines -- some of its
members are gold speculators, some gold hoarders, some gold
philosophers and some outright nut jobs -- but it unites behind a
single idea: Paper money issued by governments, when not redeemable
for actual gold, is fraudulent. Most of us accept the existence of
dollar bills unconsciously. To the gold faithful, however, a dollar
bill is "ink money," or better yet, "fiat currency," a nearly
constant term of abuse at gold conferences and in gold chat
rooms. "Fiat currency -- it's a floating abstraction," Doug Casey,
a star speaker on the gold circuit, bellowed at me over the
phone. "What's its worth? I don't know what it's worth! It's a
figment of some government bureaucrat's imagination!"

The "gold bugs," as they often are referred to with more than a
hint of disdain, find gold appealing because they believe it
represents the one enduring form of nonstate money. "Money is far
too important to be left in the hands of bankers, Congress or the
Federal Reserve System," Gary North, a legendary gold bug who has
edited financial newsletters for decades, told me via e-mail.
North's Web commentaries include everything from advice regarding
prostate problems (saw palmetto has helped his immensely) to a
recently completed 700-page "economic commentary" on the Gospel of
Luke, which he encourages readers to download onto their hard
drives, in case he were to "drop dead and the site is taken down
for any reason." But the focus of his writings is politics, and
North's politics aren't hard to pin down. His is the fierce
libertarianism of the ardent gold bug.

I had sought out Casey and North, two leading voices among gold
enthusiasts, because after 20 years during which paper assets --
stocks, bonds, and the world's leading "fiat currency," the
dollar -- soared, gold was making a comeback. If you bought $10,000
worth of gold in 1980, by 2001 you would have lost $6,800. But then
the long bull market in stocks ended, and the dollar, responding to
the growing debt burden of the average American, not to mention the
federal debt and our trade deficit, began a steep decline. And so,
starting in 2001, gold, which like many commodities moves in the
opposite direction of the dollar, began to recover some of its lost
glamour as a store of value. The price of gold broke through the
$300 barrier in February 2002, then the $400 barrier at the end of
2003. Could this be the dawn of the apocalypse that the gold bugs,
whose prevailing attitude might best be described as a wishful
pessimism, have been predicting? Could the dollar collapse, leaving
only gold?

"I will accept questions by e-mail," North wrote me, adding, "I
will answer the following type question: 'In your article on [ ],
you write that [ ]. But what about this? How could this work?'" I
apparently phrased my first questions according to protocol, because
North e-mailed me back, relaying his nine-point plan for returning
gold to its proper status as the only money. Among his
ideas: "Government collects tax payments in gold. ... Abolish legal
tender law. ... Let anyone set up a bank/warehouse company
who wants to." Gold bugs are notoriously squirrelly, and North had
warned me ahead of time: no questions regarding the future price of
gold, and all questions must hew closely to his published work. When
I e-mailed him again, asking whether the rising price of gold might
be signaling doom, I must have crossed some invisible line. His one-
sentence reply read simply, "Here endeth the lesson."

For the past 70 years, the United States has been conducting an
experiment regarding the dollar. The experiment asks: Can the United
States manage its currency responsibly, without having that currency
backed by gold? The U.S. effectively went off the gold standard
twice in the 20th century, and both times responsible men in
positions of power foresaw cataclysm. "This is the end of Western
civilization!" Lewis Douglas, Franklin Roosevelt's budget director,
declared in 1933, when Roosevelt terminated the right of American
citizens to demand gold in exchange for their dollars. "Pravda
would write that this was a sign of the collapse of capitalism,"
Arthur Burns, chairman of the Federal Reserve, warned Richard Nixon
in 1971, when Nixon terminated the right of our international
trading partners to demand gold in exchange for their dollars.

In spirit, the gold bugs are the heirs to Douglas and Burns. Every
day is the end of Western civilization -- or should be, now that our
currencies float free of gold. In fact, the recent weakness of the
dollar has become an ide fixe within the gold community, as it
opens up one possible route back to an economic system ballasted by
gold. Representative Ron Paul, a Republican from Texas who is gold's
lonely advocate in Congress, put it to me this way: "We will go
back to the gold standard, even if it takes the near-destruction of
the dollar to get there."

James Sinclair is a 64-year-old American businessman in a tan blazer
and navy blue slacks. From his manner and dress, he could be host to
an Amway seminar. But when he speaks, he sounds more like a karma
yogi. It's as if you're watching a movie dubbed with the wrong
soundtrack. "Silence is deep rest," Sinclair told me as we waited
for sandwiches at a deli. "It's the only way to restructure
ourselves." Among the most famous gold speculators, Sinclair
proclaimed in the 1970's that gold, then at $150 a troy ounce, would
hit $900. (It eventually peaked at $887.50; he sold his position the
following day, for a profit of more than $15 million.) Then, with
some analysts predicting that gold could go as high as $2,000, he
declared the gold bull market dead. (Within months, he was proved
right.) In 2001, with gold near its bear-market lows, Sinclair told
Forbes magazine that it could hit $430. On the day I met him, gold
was trading at $434.

Sinclair remains a star attraction at gold conferences around the
world, but in the 1980s he sold his brokerage firm and took his
wife and two of his daughters to the foothills of the Berkshires,
where he lives on a 40-acre equestrian compound featuring its own
9,000-gallon water system, its own electrical system and a shooting
range. ("I like to cut a target every now and again," he told
me. "Get out my aggressions.") Sinclair's private office sports
the typical CEO blandishments -- a massive mahogany desk, a wall-
mounted flat-panel computer monitor -- but also a profusion of
religious items. Incense always burns, and a temple gong sits in the
corner, along with a prominently displayed statue of Ganesh. Behind
the desk there is a full-color portrait of Bhagavan Sri Sathya Baba,
whom Sinclair visits frequently in India. "I am an enquiring
soul," he replied, when I asked if he was Hindu. "All the great
minds have wandered the Indus Valley."

Perhaps because he has found spiritual satisfaction elsewhere,
Sinclair regards gold with dispassion. "Gold is not to be loved or
hated, accepted or refused," he said. "Gold is not barbaric or
angelic. It fixes nothing in itself. But it is a mirror." Sinclair
sees the health of the dollar reflected in the price of gold, and
the health of the dollar is now in foreign hands.

"We're not talking about what I want, but about what is," he told
me, as he picked through a tuna salad. "If we go over $529, that is
not good news," he said, referring to the price of gold. "Anyone
cheering for a high price of gold should get on Prozac." Sinclair
says that when the dollar acts successfully as the world's currency,
gold naturally returns to its status as a mere commodity. In the
parlance, it demonetizes -- it loses out to the dollar as the
world's reserve currency. But a mismanaged dollar, he said, could
cause gold to remonetize. Our world would look very different
then. "The first sign is the foreign banks will diversify out of
dollars. Then they will cease buying dollars. And then they will
sell them." What could happen then? "Stagflation. ... Expansion
of U.S. federal deficit. Expenses rise and incomes drop."

Are we talking apocalypse? "The most likely crisis is the collapse
in the common stock of the operating entity. In this case, the
operating entity is the United States, and the common stock is its
currency." We had made our way up a hill, to Sinclair's koi pond
and its accompanying meditation gazebo. As if on cue, what appeared
to be a military airplane flew across the sky. "That's carrying
Iraqi supplies," Sinclair told me. "We have war and monetary
easing at the same time," he said, shaking his head. "Everything
has its season. That includes gold. Do I have a bet on gold? You
know I do. Will I one day unravel that bet? You know I will."

The Daily Reckoning is a freewheeling Web site for libertarians,
gold bugs and doom enthusiasts of every stripe. Its editorial
director is Addison Wiggin, and before we met, I pictured
an "Addison Wiggin" as an ancient gold-hoarding Yankee, and the
offices of The Daily Reckoning as a cinder-block bunker patrolled by
Minutemen. I was wrong on both counts. Wiggin is a sober, black-clad
37-year-old who is active in libertarian circles. The Daily
Reckoning, meanwhile, is nestled in the lovely Mount Vernon section
of Baltimore, and its interior could pass for any 1990s dot-com,
with a glass-enclosed conference room, exposed brick walls and a
couple of nerdy 20-somethings in sneakers and T-shirts.

The narrative Wiggin spun out for me over lunch is repeated, nearly
verbatim, by almost everyone in the gold community. "This is the
blow-off phase for the Great Dollar Era. We're in an unsustainable
trend right now," Wiggin told me, ticking off the miscalculations
that have brought us to the brink of an economic apocalypse. To
begin with, the U.S. has become the world's biggest debtor, with
three outstanding obligations at alarming highs: consumer debt, or
our mortgages and credit cards; the federal deficit; and our current
account deficit with foreign countries. Federal Reserve Chairman
Alan Greenspan, Wiggin continued, has simply shifted one bubble --
the 90's bubble in stocks and bonds -- into another, in real estate
and "overconsumption," or the American propensity to pay for an
ever-more-lavish lifestyle on credit.

But the real nightmare involves the U.S. dollar. If Asian central
banks weary of buying Treasury bonds -- an asset denominated in the
weakening dollar -- then look out below. "What is that Dylan Thomas
quote?" Wiggin wondered over his fusilli. "The dollar will not go
gently into that good night."

Wiggin offered up his analysis with a confident and steady aplomb.
And for good reason. While no one in the mainstream financial elite
seriously advocates a return to the gold standard -- the modern
global economy is too fluid and dynamic for such austere discipline -
- at this moment, the gold bugs' grim prognosis for the dollar
happens to align with a more mainstream view. A low-level panic
about the debt crisis, and its possible effect on the American
economy, is gathering strength. "Our little post-bubble workout is
not over, not by any stretch of the imagination," Stephen Roach,
the chief economist at Morgan Stanley and himself a noted pessimist,
told me recently by phone. Roach says he firmly believes that an
adjustment is necessary and inevitable, and that when it comes, it
will be very, very painful. From appearances, Warren Buffett, the
savviest investor who ever lived, agrees. His company, Berkshire
Hathaway, has placed a $21 billion bet against the U.S. dollar.

Meanwhile, the general tone is darkening. In February, Paul Volcker,
the former Federal Reserve chairman, publicly stated in a speech
that "there are disturbing trends" undergirding the U.S. economy,
including "huge imbalances, disequilibria, risks." These
demand "a strong sense of monetary and fiscal discipline," he
said, gently chiding both the U.S. government and its citizens to
live within their means. Volcker, a man known for his prudence and a
cautious tone, let his words ring ominously. "Altogether, the
circumstances seem to me as dangerous and intractable as any I can
remember," Volcker continued, referring to the very same warning
signs as Addison Wiggin, "and I can remember quite a lot."

Recently, Comptroller General David Walker, surveying America's debt
crisis, uttered a one-word synopsis for the long-term future:

Money is entirely conventional. It's a system of equivalence, a
medium of exchange. In a society of any sophistication whatsoever,
money is used reflexively. You hand me 50 cowrie shells, I give you
a head of cattle. I give you a 20, you give me a tuna on rye and
some change. As the greatest theorist of money, the German
sociologist Georg Simmel, recognized, money is only money when it is
in motion: "When money stands still, it is no longer money
according to its specific value and significance." Furthermore, the
set of conventions that lend money its credibility as a medium of
exchange must be universal and stable, so that the shells for which
I relinquished my good cow today will be worth as much tomorrow,
when I exchange them for something else. Money is built on motion
and trust.

Gold, like everything else, is a commodity whose price is
established by supply and demand. But gold is unlike everything else
in that an ancient fantasy of solidity attaches to it. We produce
things, but to exchange them efficiently, we throw over them what
economists refer to as "the veil of money." Interest rate swaps,
swap curves, swaptions -- the veil only thickens with time. If the
gold bugs are apocalyptic, it's worth recalling the etymology of the
word "apocalypse": to uncover or reveal. Gold holds out the
promise, however chimerical, that one day we might pierce the veil
of money.

On the final leg of my tour of gold bugs, I visited the Blanchard
Co. in New Orleans. Blanchard is the largest retailer of gold to
the American public, and it is owned and run by Donald Doyle, a soft-
spoken man who might well be the living embodiment of the metal he
sells: There is something soft but indestructible about his courtly
Southern manner.

After talking gold for the better part of an hour, we descended to
the company vault. There he picked up two coins and placed one into
each of my hands. They were "Saint-Gaudens," named after the great
American sculptor who designed them for Teddy Roosevelt. They had a
face value of $20 and a value based on the amount of gold they
contain -- probably a few hundred dollars. But the ornate coins were
impossible to stack, and had been discontinued after a short run. On
the open market now, thanks to their rarity, the coins together
might fetch $800,000. They were heavy, and transfixingly beautiful,
and even as I did the math in my head -- five coins, Brooklyn town
house -- I heard Doyle say over my shoulder, "And they sure feel
good in your hands, don't they?"


Stephen Metcalf is the book critic for Slate and a regular
contributor to The Times Book Review.


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