More cc Letters to Saxton, and Good Quotes

Section:

Friends of GATA and Gold,

Here are two easy to understand, clear explanations of why and how the
price of gold is being deliberately depressed, and why world leaders are
so keen for the IMF to sell off what is really an insignificant amount
of gold in itself. There is good material here for using in your e-mail
letters to Congressman Jim Saxton, of the Congressional Joint Economic
Committee, other congressmen, senators, the media and gold websites.***

The first explanation is in a letter to the editor of the Wall Street
Journal by Michael Butler, a GATA member who practices law and was once
an air squadron leader. The second explanation is the latest, on the
mark contribution by Professor von Braun's at the Le Metropole Cafe.
Both offerings were posted at Le Metropole Cafe
(www.lemetropolecafe.com) yesterday, 18 March 1999.

GATA is on the move, with more goldbugs joining the ranks every day.

GO GATA, Go Gold,

Boudewijn Wegerif (Bodwin)
GO GATA Moderator

- - - - -
A CYNICAL FRAUD
by Michael Butler

President Clinton and Treasury Secretary Robert Rubin are currently
proposing the sale of $1.5 to $3.0 billion worth of IMF gold reserves
for the purpose of debt forgiveness to benefit the worlds poor. I
believe that the stated purpose of this proposed sale is in fact a
cynical fraud; rather its real purpose is to depress and control the
price of gold for the benefit of their friends.

The IMF has no gold reserves. All IMF gold is owned by and pledged by
member countries in a double accounting scheme for reserve purposes.
This is why congress must approve the sale of any IMF gold much of it
is U.S. gold owned by the citizens of the United States. The real
purpose of the sale of U.S. gold reserves through the IMF is to set a
precedent for raids on U.S. reserves in the future; in other words
another piggy bank to be raided any time someone dreams up a politically
high-minded scheme.

I will first address what the Clinton administration and other concerned
parties stand to gain by selling gold reserves because the first
principle of investigation is look to the motive. The concerned
parties who will benefit are not the worlds poor; rather they are hedge
funds, investment houses, bullion dealers, stock speculators and the
Clinton administration.

Last fall the public was introduced to the term yen-carry trade in the
aftermath of the Long Term Capital Management (LTCM) debacle in which
the U.S. Federal Reserve played a central role in bailing out LTCMs
investors. Hedge funds or others seeking risky-but-cheap cash for
speculation purposes could borrow Japanese yen at interest rates below
one percent. LTCM would convert the yen to dollars (or rubles) for
speculation purposes and hope to repay the loan later at less than
borrowed cost as long as the yen continued to fall in value relative to
the dollar. You will recall that the yen-carry trade blew up last fall
when the yen appreciated 15% in one week against the U.S. dollar. This
necessitated a bailout by the fed because, had LTCM liquidated its
positions in the market, the U.S. stock market would have crashed.

It is not well known that there is also a gold-carry trade similar to
the yen-carry trade that is currently used by speculators in the same
manner. Years ago central banks started lending their gold to producers
(miners) so that they could hedge against a future drop in the price of
gold. The central banks receive a low interest rate, around 0.7 to 1.2
percent today, and are repaid later with mined gold. An unfortunate side
effect for these mining companies is that this hedging also tends to
keep the price of gold down.

In the 1990s speculators saw these gold loans as a ready source of
cheap off-balance-sheet cash. They borrowed gold from the central banks
through the intermediary services of bullion dealers and sold it into
the market. These speculators are different from the mining companies
because they must go back into the market in the future to buy gold with
which to repay the loan. They are, in effect, speculating that the price
of gold will not go up.

As long as the price of gold stays low borrowers can repay the loan with
cheap gold in the future. If the price of gold goes up however, they
will all need to rush to cover, driving the price of gold up further.
The result would be more LTCMs. In fact, LTCM had borrowed around 300
tons of gold by last fall which the Fed helped them resolve in an
off-market transaction so as not to increase the gold price.

Presently it is estimated that the total amount of gold borrowed from
central banks, including our Fed, is between 3000 and 8000 tons. Total
annual gold production is only 2550 tons! Actually no one really knows
the correct amount because the worlds central banks, including our Fed,
do not disclose the amount of their gold reserves which are out on loan,
hence at risk. If the price of gold rose significantly it might be
impossible for all of the borrowers to buy enough gold to repay their
loans, causing default. Central banks that have placed their reserve
assets at risk for a tiny return might have to face credulous taxpayers.

Bullion banks benefit from this gold-carry trade because they make
enormous profits as intermediaries between the central banks and gold
borrowers. The real beauty and tragedy of this scheme versus the
yen-carry trade is that should the gold price rise, all the borrowers
need to do is borrow more gold and sell it in the market to depress the
price. Unfortunately this process is perilous and doomed to failure in
the long run, hence a new scheme to mobilize the worlds gold reserves
in the interest of a perpetual-motion negative-interest-rate borrowing
scheme.

Who else benefits from the sale of U.S. gold reserves other than hedge
funds, investment banks, bullion dealers and speculators? The answer is
the Bill Clinton, the Democratic party, the U.S. Fed, and any government
with loose monetary policy. As long as the price of gold, now at an 18
year low, remains depressed it is seen as evidence of low inflation.
Conversely if the gold price rises it will place pressure on the Fed to
increase interest rates, thereby perhaps causing both stocks and Bill
Clintons polls to decline.

The U.S. Federal Reserve and Treasury Department stand to gain by a low
gold price because it lowers CRB and inflation statistics, thereby
improving the Feds report card.

This week there has been an orchestrated raid on the price of gold led
by Goldman Sachs, the bullion banks and others (gold is down $14 in one
week!). It is interesting to note the coincidence of this successful
raid with press announcements pushing the sale of IMF gold by Jacque
Chirac (Monday), Bill Clinton (Tuesday), and Robert Rubin (Wednesday).
This is unprecedented. Given Robert Rubins relationship with Goldman
Sachs it also implies collusion in terms of timing because the
foundation for this raid was laid last week in the futures markets prior
to these announcements. Collusion in an effort to control the market
price of a commodity violates U.S. antitrust law.

Bill Clintons stated purpose, debt forgiveness for poor countries, is a
cynical fraud. Why not just forgive some IMF debts or reduce the
interest rate paid by developing countries to the IMF? The IMF gave
Brazil alone some $40 billion. Whats another billion here or there?

The proposed sale only involves between $1.5 and $3.0 billion dollars in
gold. The answer should be obvious this is a sham proposal with an
ulterior motive, the depression and control of the gold price. How many
miners in Africa, South America, Central America, Mexico and Indonesia
are out of work because of depressed metals prices? If Bill Clinton
really wanted to help the poor then he would stop attempting to depress
the price of gold.

The sale of 5 to 10 million ounces of IMF gold is a triviality, an
amount traded in one morning in London. The market could easily absorb
this. The fact is that this weeks orchestrated remarks by Jacque
Chirac, Bill Clinton and Robert Rubin have done more to depress the
price of gold than the proposed sale would. However, this sale would be
but the start of an ongoing raid by the IMF on its member countries
reserves at a time when world governments are printing money at an
unprecedented rate. The U.S. M3 money supply increased at an annual rate
in excess of 11% in the last six months alone (source: Grants Interest
Rate Observer).

Please notice that Robert Rubin said the timing of the sales would be
spread out so as not to affect the market. I am more likely to believe
that the sale timing would be coordinated with Goldman Sachs and others
who perpetrated this weeks gold raid.

If the U.S. Congress approves this first precedent of gold sales by the
IMF I predict the following results:

(1) It will be a signal to owners of stocks in mining companies to
divest themselves of these shares, putting more miners in Africa, the
Americas and Asia out of work.

(2) The speculation community involved in the gold-carry trade will be
given a green light to recklessly charge ahead, resulting in more LTCMs
in the future.

(3) The price of gold will continue to gradually decline over time,
helping prop up the U.S. stock market bubble a while longer, benefiting
Bill Clintons poll numbers in the short term but disastrous to the
economy in the long term.

(4) There will be many more IMF gold sales in the future. All, of
course, with a high-minded save-the-waifs rationale, but in fact nothing
but a sham to eliminate our reserves over time in the interest of
political expediency.

I believe it would be enlightening if the following questions were asked
of Robert Rubin and Alan Greenspan in future congressional hearings:

Have the U.S. Federal Reserve or the Treasury lent any of their gold
reserves? How much? To whom?

What did Alan Greenspan mean last summer when he stated in hearings the
price of gold cannot rise as long as central banks stand ready to lend
gold? Is this not illegal price fixing in violation of U.S. antitrust
law?

- - - - -
THE ALCHEMISTS DREAM
by Professor von Braun
The Rocket School of Economics

For thousands of years the search for the recipe to turn lead into gold
has occupied the minds of many. History, that wonderful recorder of
previous misguided endeavors, gives several instances where a
dictatorial ruler commanded local alchemists to come up with the formula
or face the death penalty. Unfortunately for the alchemists, the death
penalty always prevailed.

To increase ones coffers the local rulers had two options; either start
a war and steal the intended victims gold, or go out and find gold in
the ground and then mine it.

The endeavors of man seem to repeat and we are pleased to announce that
finally the alchemists, now masquerading as black box technicians, have
as a result of modern technology finally figured out how to create a
gold mine without actually mining any gold. Given the details of the
transactions now available this appears to be absolutely true.

Many of gold market participants have watched the falling gold price
with some CONFUSION, a confusion aided and abetted by such things as; a)
the reported daily turnover on the LBMA, (which recently has recorded a
significant decline, now only 850 tonnes per day), b) the World Gold
Councils supply and demand numbers (demand at 16 tonnes per day,
considerably less than the LBMA turnover), and, c) puzzled over how the
entire worlds known gold supply could be traded in such a tight price
range twice a year (giving rise to numerous conspiracy theories).

Behind the scenes it appears that the BULLION BANKS have been working
overtime making profits hand over fist as they say. This is further
evidenced by what has been described as a PLETHORA of bullion bankers
pounding the streets of Sydney seeking new clients.

Comments that have been received from mining company CFOs about
unsolicited phone calls from bullion banks offering very attractive gold
loan terms also tend to support that these bankers are indeed on to a
very good deal.

Research into this very strange state of affairs has occupied the Rocket
School of Economics staff for quite some time now. Obviously we have
been missing out on an opportunity that is only being offered to a very
select group of financial connoisseurs, whose apparent trading skills
are so esoteric that MERE MORTALS (in the form of shareholders of mining
companies, believers in the monetary value of gold and disbelievers of
the new era economical model) obviously could not comprehend the
complexity involved. After all one and one no longer make two. Forget
about basic math and forget about basic economics. Now we have THE BLACK
BOX.

The latest deal currently being offered, to selected players of
course, is rather amazing and once fully understood should be made
available to all gold aficionados. It seems only fair that we should
all get the chance to recuperate our losses from supporting an industry
that may have inadvertently become redundant as a result of this new
technology.

We are pleased to announce that TODAY'S ALCHEMISTS have surpassed the
wildest dreams of their ancient colleagues. Now it is possible to turn
paper into gold. The latest black box transaction currently being
offered goes like this.

First of all actually purchase physical gold, say 1000 ounces. Then
purchase gold futures contracts equal to an amount 10 times the physical
holding. Now you have a piece of paper that guarantees delivery at set
dates upon expiration of the futures contract. Next, call up your
friendly bullion bank and borrow physical gold against these futures
contracts (just like a mining company borrows against its reserves and
repays out of production) and sell into the market. Now you have cash.
Then invest that cash in more derivative contracts involving other
complex financial instruments and leverage the return (carefully of
course), so that you cover the potential for interest rate hikes and hey
presto, you now have the potential (so the hype goes) for an 80% return
on your original (now highly leveraged) investment.

This takes into account the contango that would appear to make this
transaction impossible. Not bad. Needless to say the exact specifics of
the entire transaction are not revealed until a confidentiality
agreement has been completed. This is the thumb nail version as
explained to the potential client.

WHAT IS IMPORTANT IS THAT THIS TYPE OF TRANSACTION IS BEING OFFERED TO
INTERESTED PARTIES

The key of course is the ability of the players to do several things.
First is the bullion banks ability to borrow gold from Central Bankers
at low (1 - 1.3%) interest rates, second is for the players to appear
credible (as in can they pay if we screw up), the next is to get in
early in case you miss the boat on this amazing concept. We are of
course ASSUMING (rightly or wrongly) that the purchased call option will
deliver the PHYSICAL METAL WHEN NEEDED.

Having milked the mining community for all they can get, the inner core
of black box technicians have now started selling their concepts to
anybody that will listen, and of course, has money (or at the very least
carefully managed money). No longer do you need in-ground gold
reserves when you have guaranteed delivery as a result of a call option.
No longer do you need audited reserves, when a Comex or OTC contract
will suffice. Gone are the days when you needed geologists or mining
engineers or for that matter, even a mine. To be a gold producer now
means to be able to produce gold from anywhere. As long as this
requirement is met, you can borrow against this ability and using the
loan proceeds to acquire more esoteric derivative contracts, make a
substantial return.

We suggest that shareholders of mining companies either contact bullion
banks directly to inquire about participating in this wonderful scheme,
or contact their favorite mining company to make sure that they are
enhancing shareholder value by partaking in this seemingly brilliant
transaction. Obviously, if it is so good, we should all be benefiting
from this new discovery.

- - - - -
***
(Congressman Saxton's e-mail address is jim.saxton@mail.house.gov.
For e-mailing the Senate surf to:
http://www.earthlaw.org/Activist/senatadd.htm, where all senators are
listed with their email addresses. For e-mailing Congress surf to,
http://www.webslingerz.com/jhoffman/congress-email.html )

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