Reg Howe: Gold derivatives -- elephant in the boardroom

9:25p ET Wednesday, December 20, 2006

Dear Friend of GATA and Gold:

Reginald H. Howe, plaintiff and litigator in the first federal gold price-fixing lawsuit and consultant to GATA, has studied the latest figures on derivatives in gold, silver, and commodities, as compiled by the Bank for International Settlements. He concludes that the Western central banks and their agents are using fewer forwards and swaps and more options to restrain prices. Maybe this is because the real goods are running out, leaving only paper to deceive the markets with.

Howe also raises the question raised in GATA's dispatches recently as to whether the bull market in commodities is a matter not only of growth in the developing world but also the monetization of commodities there and in the developed world -- the onset of what von Mises called "the crack-up boom," when people begin to realize that there will be no restraint on the money supply and that holding anything real is infinitely preferable to holding ordinary currency sure to depreciate quickly.

Howe concludes:

"The scourge of unlimited paper money is an addiction, operating on society much as alcohol or drug addiction does on an individual, and just as hard to shake. Derivatives are more like a malignant cancer. In scarcely more than a decade, they have rapidly metastasized to exert a controlling influence on the fundamentals of world finance, particularly interest rates. An international financial system beset by both afflictions cannot have a bright future.

"Dreams of four- or even five-digit gold prices are thus in the cards. But when this house of cards collapses, even gold bugs are unlikely to enjoy the world that follows, proving once more the wisdom of the old adage: 'Be careful what you wish for; you may receive it.'"

Howe's essay is titled "Gold Derivatives: Elephant in the Boardroom," and you can find it at the GoldenSextant Internet site here:

http://www.goldensextant.com/commentary33.html

It is probably the best and best-documented description of what is happening in the financial world at the moment. Of course GATA is working on averting the disaster whose outlines are becoming plain, but, just in case, you might want to check the classifieds for condos on Mars -- or in Tibet anyway.

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

* * *

Join GATA
at the
2007 Vancouver Resource Investment Conference
Vancouver Convention and Exhibition Centre
Sunday and Monday, January 21 and 22, 2007

http://www.cambridgeconferences.com/ch_jan2007.html

Admission is free for those who register in advance. The conference has arranged discount rates at the Pan Pacific Hotel adjacent to the convention center.

* * *

Help Keep GATA Going

GATA is a civil rights and educational organization based in the United States and tax-exempt under the U.S. Internal Revenue Code. Its e-mail dispatches are free, and you can subscribe at www.GATA.org. GATA is grateful for financial contributions, which are federally tax-deductible in the United States.