Placer Dome CEO believes GATA


9:50p EDT Wednesday, May 19, 1999

Dear Friends of GATA and Gold:

This report by Harry Bingham, president of Van Eck
Institutional Advisors and manager of PIMCO Precious
Metals Fund, was posted at

It is notable for its endorsement of GATA Chairman Bill
Murphy's analysis last week that the Bank of England's
announcement of its gold sales was timed to rescue an
investment house that was short a lot of gold.

Secretary, Gold Anti-Trust Action Committee Inc.

* * *

Hello, everyone, this is Harry Bingham reporting on May
20, 1999.

Last was a week of schizophrenia in all financial
markets except gold, which was focused unswervingly on
Britain's apostasy and was down $7.50 for the week.
Gold shares, which rose the previous week despite a
lower gold price, declined about 7% last week.
Announcements of a new secretary of the treasury, low
producer inflation, and a higher than expected CPI
roiled the securities markets but had little effect on

Although one month's result does not guarantee a trend,
the CPI report disturbed the stock and bond markets,
both of which uncharacteristically failed to mount a
significant rally following the initial reaction to bad

Bonds fell by more than twice Thursday's Producer Price
inspired gain. Bonds at 5.91 percent are now at their
highest yield in a year. Perhaps the market is sensing
that the purchasing manager's price index, which has
risen sharply this year, is a better harbinger of
inflation than the PPI.

Rates on three-month Treasury bills rose only 5 basis
points, just one third of the rise in bond yields.
Nothing is more closely correlated with gold than
gold's inverse relationship with "real" short-term
interest rates, where Federal Reserve policy has its
greatest impact. Today an international coordinated
monetary expansion to promote growth and to prevent
bankruptcies may delay a central bank response to
incipient price inflation. As we noted two weeks ago,
central banks may have a tiger by the tail because the
credit that ultimately fuels inflation is already
flooding a fragile financial system. The conundrum is
that much of this credit is of dubious strength to
withstand a tightening of monetary policy.

In 1993, at the culmination of the Federal Reserve's
policy of driving short-term rates lower to liquefy the
banking system, even while long-term rates remained
relatively high, gold rose 25 percent and gold mining
shares more than doubled in six months.

Perhaps soon the market and confidence rather than
central banks will determine the value of gold. Many
reasoned but erroneous arguments equate gold's price
with its commodity supply-and-demand characteristics,
of which central bank activity is an element. Gold has
very little commodity use. Including a large segment of
jewelry, at least 75 percent of all the world's gold is
held for its monetary and wealth-identifying
characteristics. When confidence in the world's
principal currencies wanes as it did during the 1970s
and 1930s, paper money becomes regarded as a receipt
for gold. That is why the dollar and other paper
currencies are defined as "notes." Notes are
certificates of indebtedness. Today in the absence of
official convertibility these notes can be redeemed
only at the behest of and at the rate demanded by the
holders of gold.

Conspiracy theories abound about the British
announcement. The most cogent is the record short
position in the gold market, perhaps involving one or
more large investment banks. Britain's long-term gold
policy clearly would not be determined by momentary
market conditions, but the ANNOUNCEMENT of policy might
be timed to coincide with the perils of major financial

To ease the sting, both the German and French central
banks denied any intention to dispose of gold. The
German Finance Ministry went so far as to say that the
new government envisions no change in gold policy,
which has been that gold is held for emergency use

But battle lines are finally being drawn. The president
of the World Gold Council, an organization previously
intent on good relations with central banks, said: "We
are told by Her Majesty's Treasury that it was
emphatically a political decision," adding: "We should
remember why gold became de-coupled from the dollar and
why the subsequent attempt to replace it with another
reserve asset, SDRs, was a failure." Then: "There is no
escaping that the value of currencies depends on
governments' promises." And: "Lastly, but most
important, gold reserves are an emblem of monetary

Terry Smeeton, former head of the Bank of England's
gold and foreign exchange operation and never known as
a gold stalwart, said: "This is not a policy I would
have advocated. I am sad this action has been taken. It
is clearly a Treasury decision in which the bank had to

Anglogold, which has extensive indirect dealings with
central banks, concluded its critique with: "Why, when
the gold market looks robust, does the Bank of England
choose this time to drop this news into the market?"

Nevertheless, the ultimate valuation of gold depends
primarily on confidence in paper instruments. Judy
Shelton, an economics professor and author of "Money
Meltdown," best sums up the risks in today's
undisciplined monetary system: "It's still a huge
experiment, and it's quite amazing that people will
accept paper currency as the medium of exchange. The
problem is that there is no anchor for the issuance of
money. So we have this free-for-all approach."

When asked what comes after Alan Greenspan, Shelton
said: "I wish his legacy would be to define what the
guide post will be right now. For a country that prides
itself on the rule of law instead of men, we are
extremely dependent one extremely competent man."

Yes, confidence is the key, and as a 2-plus-point drop
in the bond market on a 0.4 percent rise in the core
CPI suggests, confidence may be a mile wide and an inch
deep. Perhaps the reverse could be said about the
record 3-million-ounce-per-year rate at which Americans
are buying gold coins.


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