Midas commentary for April 25, 2000


9:50p EDT Sunday, April 23, 2000

Dear Friend of GATA and Gold:

From the beginning GATA has been puzzled by what
has seemed the failure of the gold mining industry to
appreciate its own product -- to realize that the
industry isn't producing merely jewelry but, infinitely
more important, money itself. From this failure to
appreciate its own product flows the industry's failure
to recognize that its biggest competitors are not other
mining companies but rather the other issuers of money,

Reginald H. Howe of www.GoldenSextant.com has
discoursed brilliantly on this subject in his latest
essay, below.

Please post this as seems useful.

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

* * *

The Golden Ostrich:
Misruling the Roost in Gold Mining

By Reginald H. Howe
April 24, 2000

Nothing better represents the executive echelons of the
gold mining industry than the legend of the ostrich:
the world's largest bird, reputed to respond to danger
by burying its head in the sand. The legend is untrue.
Brooding ostriches lower their long necks to avoid
detection. Messing with them invites savage attack.

But the legend is apt for another species: the golden
ostrich. Without apparent flight or navigational skills
in the real world of gold and money, these birds climb
to the top perches in the gold mining industry, where
they sit secure in golden parachutes, singing for stock
options and pecking at shareholder equity. Pull their
feathers, eat their lunch, starve their young, and it
doesn't matter; they remain docile, accepting
misfortune as their fate. Crumbs from the sovereign's
table, doled out in miserly servings by his bullion
bankers, are their diet and the apparent limits of
their ambition. C'est la vie pour l'autruche d'or.

Where better to look for a real John Galt, hero of Ayn
Rand's "Atlas Shrugged," than at the head a major gold
mining company, leading the fight for honest money? On
peut l'y chercher; on ne le trouvera pas. Today those
positions are largely filled by a bunch of Mr. Thompsons,
men with mining, management, and accounting skills,
but as deserving as the original of John Galt's scorn:

"Thinking is man's only basic virtue, from which all
others proceed. And his basic vice, the source of all
his evils, is that nameless act which all of you
practice but struggle never to admit: the act of
blanking out, the willful suspension of one's
consciousness, the refusal to think -- not blindness,
but the refusal to see; not ignorance, but the refusal
to know. It is the act of unfocusing your mind and
inducing an inner fog to escape the responsibility of
judgment -- on the unstated premise that a thing will
not exist if only you refuse to identify it, that A
will not be A so long as you do not pronounce the
verdict 'It is.' Non-thinking is an act of annihilation,
a wish to negate existence, an attempt to wipe out
reality. But existence exists; reality is not wiped
out, it will merely wipe out the wiper. By refusing
to say 'It is,' you are refusing to say 'I am.' By
suspending your judgment, you are negating your
person. When a man declares: 'Who am I to know?'
-- he is declaring: 'Who am I to live?'"

Underground miners who do the hard, dirty, and
dangerous work of digging gold ore know that existence
exists. Theirs is one of those activities where to
forget this basic principle is to court an early and
painful demise. But neither rockbursts nor cave-ins
patrol the executive suite or the boardroom.

Gold bugs, the gold mining companies' largest natural
constituency, may sometimes appear almost overzealous
in their search for the truth about gold and money. If
they sometimes see things that may not exist, it is not
for want of sincere desire to know the truth but
because they have already known too many official lies
and deceptions. They are among the small band of
paranoiacs who have good reason for their affliction.
Burdened with much deeper knowledge of gold than the
mining executives who produce it, gold bugs receive
mostly brickbats from the industry in which they are
the principal investors.

Running a gold mining company is not easy. Too diligent
a search for the truth about official policies relating
to gold and money can quickly lead to conflict and
confrontation with powerful political interests, some
of whom may wield influence over the company's bullion
banks or the official permitting authorities with which
it must deal. Then too, with gold money now relegated
to the academic and political fringe, wearing the gold
bug label too brazenly may bring a certain degree of
social chill into previously warm relationships.

There is never a shortage of reasons for going along to
get along. The real question is whether the leaders of
the gold mining industry are prepared to change their
ways and join the fight for gold in its most important
use -- as permanent, natural money. If not,
shareholders should wipe them out before they wipe
out their companies and the industry.

Two recent statements by high-ranking gold mining
executives illustrate the problem. One suggested that
either a lower gold supply or increased consumption is
necessary to raise gold prices. What? Annual demand
now exceeds new mine production by some 60 percent,
but this executive has yet to absorb the most basic fact
about gold: It is the only commodity produced by man
for accumulation rather than consumption.

Another asserted that there is no credible evidence of
gold price manipulation by governments or bullion
bankers over the past year, a view confirmed by a third
executive as that generally held in the industry. But
ask any of them why the British and the Swiss are
selling half their gold reserves, and at best you will
get a blank stare. They cannot tell you because neither
they nor the World Gold Council has made any judgment
on the true reasons for these sales, notwithstanding
the complete failure of the British and Swiss
governments to put forward any plausible ones of their

Nowhere is this suspension of judgment more obvious
than in the WGC's own publications. The April issue of
the WGC's "Gold in the Official Sector"
(www.gold.org/Gra/Gios/11/Contents.htm) contains
articles on the Swiss, British, and Dutch gold sales.
The main point of the first is that Swiss do not yet
have any clear idea of what to do with proceeds. A
child would ask -- but not the WGC -- why the Swiss are
in a rush to sell gold at multi-year lows if they have
no current use for the proceeds.

The main point of the other two is to contrast Dutch
"deftness" with British "daftness" in implementing
their respective gold sales. Not much sophistication is
required to ask -- although the WGC does not -- whether
the British are really as daft as they appear, or
whether perhaps there is a method to their madness, not
to mention whether there could be some relationship
between all these sales and the enormous net short gold
derivative positions that have built up in the paper
markets. Confidence has been defined as suspicion
asleep; the WGC and the industry it represents are
intelligence asleep.

Will they wake, or, resting in their collective coma,
will they be carried off? Two recent statements by Miss
Haruko Fukuda, CEO of the WGC, could represent cause
for hope. Speaking in January on "Gold in the 21st
Century" (www.gold.org/Gra/Speeches/Hf000127.htm) to
the Zurich Business Club, Fukuda observed: "The
scenario of prolonged weakness in the gold price is to
the detriment of all, except those who want to see the
absolute supremacy of the dollar." Last week, speaking
at the annual meeting of the Gold Institute, Fukuda
revealed that some Third World nations are now
negotiating with the International Monetary Fund about
scrapping its prohibition on currencies linked to gold.
This subject, including the IMF's anti-gold policy
adopted in 1978 at American behest, is discussed in a
prior commentary at The Golden Sextant.

Although not popular with the IMF, currency boards can
be a reasonably effective solution to the problem of
crummy, unreliable paper currencies in developing
countries. But a country prepared to accept the
discipline of a currency board is also ready to accept
the discipline of gold. What is more, by linking to
gold, a nation takes the interest rates associated with
gold rather than those of another country whose
currency is administered by its central bank according
to the particular requirements of its own economy.

Here is a cause -- the freedom to choose gold money --
in which the WGC could and should be a leader, not
merely to expand the use of gold but also to support
many peoples whose yearning for economic development
and democratic government cannot be satisfied without
first giving them sound money.

Gold is where you find it, and many mining companies
have found it in the world's less developed countries.
Mining gold that serves to increase the monetary base
for their own expanding economies is likely in the long
run to be far more attractive to these countries than
mining gold to be exported for use as jewelry

Indeed, failure to appreciate gold's monetary
importance can lead to political problems for gold
mining companies even in the developed world. In a
recent polemic, "Gold at What Price?" (April 5, 2000,
www.mineralpolicy.org/index.php3?whatshot=3), a U.S.
environmental group argues that it is ridiculous to
despoil beautiful countryside by mining gold for
jewelry, dental fillings, and other minor purposes when
gold enough to last for years sits unused in the vaults
of central banks. Indeed, if gold is not money, the
point is well taken.

By first raising the spectre of gold as competition for
the dollar, and then the possibility of gold-linked
currencies for developing countries, the intrepid
Fukuda has edged dangerously close to what has
heretofore been forbidden terrain in the mostly macho
male world of gold mining. Klondike Jessie herself must
be smiling at the thought of this woman giving the boys
some lessons in the ways of the world. And if that's
her plan, she deserves support from all shareholders of
gold mining companies.

But either way, the season of annual meetings is
underway, and shareholders should speak out against
managements that almost to a man refuse: 1) to promote
gold as money, its natural, highest, and best use; or
2) to act on the growing body of circumstantial
evidence suggesting massive official suppression of
gold prices carried out through leading bullion banks.

In this event, it is not just the profits of gold
mining companies that are affected. Other critical
aspects of their businesses -- calculations of ore
reserves, long term planning, not to mention hedging --
are almost certainly based on flawed assumptions about
the probable course of future prices. Cambior and
Ashanti are dramatic testimony to the perils of putting
gold mining companies in the hands of managers too
reliant on advice from bullion banks and too unaware of
gold's role as an international monetary reserve.

Time is past due for the golden ostriches to be knocked
from their comfortable roosts. If they cannot or will
not fly in the real world of gold and money, of
international monetary politics and much-needed reform,
they should be grounded before they crash their
companies and their industry. In short, what gold
mining needs in its boardrooms as well as underground
are some real John Galts. C'est vrai.