You are here

GATA report goes all over as we terrorize NY Fed

Section: Daily Dispatches

12:30a EDT Monday, June 5, 2000

Dear Friend of GATA and Gold:

The enigmatic guru of, Friend of
Another, lately known as Trail Guide, has much to say
about GATA in his latest dispatch, which I've appended
here. FOA/Trail Guide has a different perspective on
the gold market, but he is fully in the gold camp and
his comments here are recognition of the growing
importance of GATA's work -- for which we thank him.

Please post this as seems useful.

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

* * *

The Trail Is Getting Hot!

By Friend of Another/Trail Guide
June 4, 2000

That was some weekend hike, yes? Let's talk while we
rest a while.

Is Bill Murphy not heard? No, not really, not yet.
While it's true that his ongoing presentation is still
not on the center of quot;anyone important'squot; desk, one has
but to spin 180 degrees in their chair to find a neat
stack of it on the quot;boss'squot; credenza. Very close by, so
to speak. (smile)

I know, GATA gets a lot of flack from the trader crowd
and spends a lot of time defending the gold cause. It's
important time, and well spent, because a broad base of
people must understand GATA's position if they are to
help with the public relations. But that bunch will
never be the ones that actually transition the market.
What I'm saying is that whether quot;Thequot; report drives
their personal trading is meaningless. It's the broad
political position that counts.

Harsh statement? No, real life and real politics.

The same holds true for the media. That venue is never
telling anything the real players didn't know two years
ago. So if the media appears to be downplaying the GATA
news, it's OK, because the story has been out for a
time now and it's truly moving in a wider circle!

Remember, the most damaging knowledge is the stuff that
moves quietly, behind the markets -- seemingly before
the fact in the eyes of regular citizens.

We said a long time ago that Bill didn't need to really
do legal action to blow this wide open. We also felt
GATA was doing something for the marketplace that was
above and beyond their stated aim. Truly, they only had
to keep talking until the game is almost over to have a
devastating impact.

What's so important about that?

Well, most of the quot;big goldquot; world knew about the
derivatives and all for some time. But no one really
knew when it would reach its political limit. In the
very same view that no one knew where the end of the
dollar's reign would be, either. In a very simple way
of saying it: Both of these paper currencies would
expand until there was no one else left to fool.

Just as soon as paper dollars and paper gold become
political liabilities, the perception of the game
changes. Today we see that perception changing.

For the first time ever, the U.S. dollar faction is in
a trap brought on by the Euro and its backers. With the
European world operating in a more closed-circuit
fashion than the U.S., their financial and economic
engine can continue to run without the supporting
American drive intact. This makes their exchange rate
values less important in maintaining real local
economic growth.

Even today, after a huge, economic supporting decline
in their currency, price inflation is still less that
in the United States, confounding the currency trader
bugs who present themselves as knowing just how a
currency should act. Further to their discredit, a new
euro carry trade is creating massive new Euro
liabilities that are based on the successful record of
the yen carry trade. This is a serious mistake, because
the yen trade was done using a single nation currency
that greatly depended on the United States. A big

The political agenda in both Japan and the United
States generally supported the outcome of borrowing yen
to invest in dollars, mostly because the Yen must
eventually be inflated in supply to keep the yen in a
competitively down stance to save market share. In a
long view, both currencies will inflate together and
balance that carry trade, even if they both hyper-

By contrast, the euro does not need to inflate to
remain competitive. We have said all along that the
European Central Bank is allowing the markets to do
what the Japanese have struggled a decade to
accomplish: that being having a weak (in exchange rate
only) global currency with low inflation relative to
the reserve dollar. This supports the internal economy
of Europe without having to drive interest rates to
zero (like Japan) to do it.

Every day that this euro/dollar currency mismatch
continues, it expands the coming euro zone financial
dynamics. The longer that dynamic is in place and
growing, the less impact an eventual failing dollar
will have on them.

This is the fatal flaw for the dollar in this ongoing
quot;currency warquot;. When the dollar death signs are
signaled by our Fed's raising rates further, it also
outlines the significant difference the yen carry has
with the euro carry. Truly, the ECB will not have to
inflate the euro currency supply in an exchange
lowering rate battle with the dollar to maintain market
share. This will trap the euro carry in a diminished
currency supply situation that will literally decimate
their (the carry trade) program. It will also gun the

The Fed cannot raise rates high enough or restrict
reserve creation enough to slow the U.S. economy
without cascading our financial markets. This is a
seldom-seen typical function of a failing currency
system off the gold system. Such a Fed action would
drive business into the euro zone at the exact same
time that its currency and economy are rising -- and
rising as local euro rates stay the same. Today the
political perception of this risk is raising the
dollar's political liability.

If the Fed does nothing, the United States remains on a
full-blown inflation track, right where Europe wants
them -- a track that every important player in the
world has quot;slightlyquot; hedged by taking the long side of
those billions in paper gold derivatives GATA has shown
are out there.

Yes, this is the very same super demand for gold that
has been with us for most of the 1990s. It's just that
the physical demand is a little above supply while the
rest of the demand has been channeled into a paper
leveraged position.

Even as many of these bullion holders elected to trade
old physical holdings for leveraged paper accounts,
they helped transfer the price-making dynamics toward
these dollar-faction paper creators. With new (old)
gold supply on the market joined with the unlimited
supply of paper contracts, price discovery started on
its now well-known downtrend, a trend started in a
joint effort between Europe and America. Our past
discussions outlined their current split.

But something is very wrong with this picture today. If
the political risk is now on the dollar side, and your
gold inflation hedge is discovery-priced with contracts
created with unlimited dollar supply, how will paper
gold rise in a dollar hyper-inflation? In addition, how
will any gold supplier who must sell into these markets
profit during an inflation?

We have hiked this path before, no?

As I said, GATA keeps putting 2 and 2 together in this
derivitive game as players keep rethinking their
position. Eventually, everyone will begin to reach the
same conclusion:

quot;I have to dump the contract derivatives game and buy
real gold ... AGAIN!quot;

In that process, the world gold markets, 95 percent
dollar paper today, will crash in the face of
unbelievable physical gold demand. Derivative and
contract values in all positions will be crushed in the
race to transition out of them.

Not exactly the end most investors had in mind!

We watch these developments.

So we see it was never a war between the dollar and
gold. The United States won that game long ago by
playing to Western gold bugs' taste for paper. No, now
you understand with all we have discussed why gold will
run because of a fiat currency war, not a gold currency
war. Indeed, this war is waged between different views
of what money should be -- a currency war that will
transition gold into a different world from our
perceptions today.

Keep talking, Bill. I said they started sweating more
than a year ago. Now even their shoelaces are wet!