CBS Market Watch features Gold Fields

Section:

MIDAS COMMENTARY FOR MARCH 3, 2000

By Bill Murphy
www.LeMetropoleCafe.com

Spot Gold $288.20, up 60 cents
Spot Silver $5.05, up 4 cents

Technicals

How low can you go? The gold stochastics showed that
gold was as oversold as it gets as of last night's
close. In addition, the price of spot gold closed lower
yesterday in New York for the seventh day in a row, the
first time that has happened in 26 years. The
manipulation crowd has done their job well. They
certainly have had enough practice.

Goldman Sachs has turned a modest buyer as the specs
are puking up gold left, right, and center. The same
pattern we have seen so many times over the past years.

Despite its very oversold condition, the best gold
could manage on this Friday in March was a puny gain.

Silver was more spunky with the May futures contract
gaining 9 cents. The Cafe predicted that the Comex
silver stocks would rise to 100 million ounces. They
are now even greater than that, standing at 105,229,840
ounces, climbing 7 million more ounces today.

It is very hard to know what is going on here. Do the
shorts know that someone is going to stand for delivery
and they do not want the silver stocks to get too low
in the United States and attract additional speculative
interest? Does it have anything to do with a possible
silver announcement by Warren Buffett tomorrow? You got
me.

I do know the commercials were big buyers of silver the
past two trading sessions in New York. The sideways
silver action just goes on and on and on.

Fundamentals

The legendary Harry Schultz always has something of
interest to say.

The following article will appear in a forthcoming
issue of the International Harry Schultz Letter. We are
privileged to have permission to share it with you in
advance here.

"Gold. The anti-gold press (which is 95 percent, as
they're owned by insiders) loves to describe those who
believe in the discipline of gold in the monetary
system as having 'religious fervor' about gold.
Presumably we are supposed to be ashamed of that
description. I am not! Apparently the foaming-at-mouth
media feel it's ok to have religious fervor if
discussing political freedom, religious freedom, and
press freedom, but not OK about monetary freedom. If
you ant a real 'free market in gold,' free of
government and central bank interference, you are a
fanatic. Yet the paper money in your pocket shrinks in
value every day and always does in a fiat (non-
convertible, dictated) money system, as the supply is
endless. In former days, in most nations, the public
was not so cowed. For example, in the first 150 years
of the United States (not to mention French or Greek
history) people demanded and got gold coins, as
governments always debase money.

"Government debased coins by cutting gold content or
clipping edges. Later came gold-backed paper, and then
paper-backed paper. People like to get paid for their
work. And they like that payment to be worth the same
in buying power next year as this year. But present-day
fiat money doesn't allow that. People should again
demand gold-backed paper, if not actual gold coin
money, as before. And meantime, demand an honest, free
gold market. And demand it with religious fervor!

"P.S.: If you are a WHY-bird and want to know why
governments and banks hate gold and are preventing a
free market and are trying to cap the price, the answer
is childishly simple: Under present fiat rules, they
can create money from fresh air. If you had that power,
you might be tempted to hang on to it. Unless you had a
conscience?

"Our Page 1 cartoon reflects the other reason
governments and banks banks want to cap the gold price:
If it rises, it reflects the REAL health of the
economy/monetary system/debt loads as bad,
inflationary, and dangerous. So they must stop gold
being a functioning thermometer. This makes Federal
Reserve Chairman Alan Greenspan a hypocrite, for he
claims to watch the gold price as an inflation
indicator while behind the scenes he engineers the
price lower, by his own testimony in Congress.

"P.P.S: Framers of the U.S. Constitution (the most
advanced of all constitutions, then or since) made gold
and silver money mandatory, not optional. Politicians
and bankers have gradually chipped away at those cast-
in-stone rules. Today's paper money is actually
illegal. So into the fridge with the gold thermometer!

"But let them know you know what they're up to. Let
them worry about what you plan to do about it. They
assume you are blind and toothless."

Harry understood what was really going on in the gold
market almost before anyone else and has been a big
supporter of the Gold Anti-Trust Action Committee ever
since.

No surprise here:

"LONDON, March 3 (Reuters) -- The U.K. Treasury said on
Friday it would press ahead with plans to more than
halve the country's gold holdings to 300 tonnes,
announcing the sale of 150 tonnes in six auctions this
year and next.

"This second set of 25-tonne auctions will start in May
and continues Britain's programme to restructure and
modernise its reserve holdings with purchases of
foreign currency."

It is my feeling that somehow, some way the U.K.
Treasury and the U.S. Treasury are working closely
together on the manipulation of the gold market.

GATA has still not gotten a reply from U.S. Treasury
Secretary Lawrence Summers to the questions posed in
our open letter in Roll Call in December. The Treasury
told U.S. Sen. Joseph I. Lieberman last month that it
was reviewing its answer to us. What is there to review
and how many ways is there to say it?

Rumors had it for days; now it's official: J.P. Morgan
has closed down its precious metals trading in New
York, leaving only two sales people to handle affairs.
All Morgan bullion trading will be handled out of
London.

These bullion operations are being whittled down
everywhere. Carr Futures closed down its upstairs
precious metals office and does futures only on the
floor now.

Potpourri and the Gold Shares

Stinky, stinky that XAU. It closed down again at 58.89,
down .90

Meanwhile the CRB's performance is stellar. It finished
the day at 213.57, up 1.46 and is not far from making a
new high for the move. Very healthy chart pattern.

The dot-com insanity grows. It may be insanity, but it
is a saving grace for some gold companies. From one of
your Cafe members:

"Is it a sign of the times? Our largest institutional
shareholder -- +/- 20 percent -- had a meeting with us
yesterday and advised us to get out of gold and into
dot-com/high-tech ASAP. As long as we stay in gold they
will not help us, but if we change they will bend over
backwards for us, eliminate debt, etc. After 20 years
as a miner, this is hard to adjust to, but we raised
more money in a half hour on the markets Monday (when
we said one of our related companies was going high-
tech) then we did in three months with (a Canadian
mining company), and many people were upset that they
could not get in before trading in the stock was
halted. Maybe it's time to go with the flow."

I am already in the dot-com business, and the Cafe is
doing quite nicely, thank you very much, but this is no
abracadabra vehicle to fame and fortune. One has to
wonder how, if everyone is going this route (out of
necessity, etc.), all these many companies will make
money at the same game.

I wish everyone well at this racket, but if most of the
Internet stocks do not tank down the road, I will be
shocked. The tulips are being crushed in this dot-com
stampede. Soon many of the Dutch tulips of old will
look like bargains.

A good heads-up from a Cafe member:

"Have you noticed what has been happening in the
supermarkets in the last six to eight months? A lot of
manufacturers are going to proportioned sizes in their
products and keeping the same prices. Example: One of
the leading spaghetti sauce makers has reduced the size
of its container from 16 to 14 ounces but continues to
sell at the price of the 16-ounce size. That's
inflation in my book! Baby food is the same. Many other
companies have followed suit to get their profit
margins up. Of course you screw the public at the same
time, but people don't care. Lots of signs of inflation
but nobody's listening and nobody's looking. The poor
get poorer and the rich get richer. Many a revolution
has been started for this reason."

Hannibal Cannibal news:

"Deutsche Bank reprimanded By Gillian Tett in Tokyo.
March 2, 2000.

"The Japanese regulators on Wednesday reprimanded
Deutsche Bank, the German banking group, for
shortcomings in the compliance and business standards
of some of its Tokyo operations.

"The reprimand follows a six-month inspection into
Deutsche Bank's operations by the Financial Supervisory
Agency, the main Japanese banking watchdog, which is
trying to demonstrate it can improve standards in Tokyo
markets.

"The FSA has not formally commented on this inspection.
But a focus of the probe was whether Deutsche Bank
companies had helped Japanese clients to engage in
`accounting driven' transactions. These are
transactions that allow companies to conceal losses by
exploiting loopholes in Japan's accounting system,
through a broad range of financial trades."

This is what Martin Armstrong was thrown in jail for,
without even a trial. Why are not some Deutsche Bank
executives in the same cell?

More on the economy, Cafe style:

"Heavy truck stores all over have got a lot-full of
inventory and I hear that orders aren't that good
either. Besides, these large fleets that typically
cycle their equipment every three to four years will
run these rigs for another before purchase, if they can
-- at least the ones they have running. Many people
don't realize the capital expense of one of these rigs
-- try between $110,000 to $130,000 for sleeper units
and $75,000 to $90,000 for day-cab (non-sleeper) units.
Most major fleets purchase 50 to 500 units at a time,
serious money. A good friend of mine in the used
medium/heavy truck business, told me the last two
months were the worst he's had in years. So it's not
only affecting new sales, but used as well. There is a
relationship between trucking & the economy."

Bob Bishop of the Gold Mining Stock Report has made a
stellar name for himself by discovering natural
resource companies and getting his followers behind
them before their share prices took off. Like Harry
Schultz, Bob was quick to recognize that "something is
rotten in the state of Denmark" as far as the gold
market is concerned. His support for GATA also has been
very much appreciated.

Bob travels a great deal, visiting companies and
attending gold shows such as the recent one in South
Africa. I thought you might like to read a portion of
what he has to say in his most recent fax alert:

"Several years ago in the middle of the night I sat
bolt upright in a Boston hotel room, unable to sleep
because I'd just had a five-hour dinner with Dr. Chris
Jennings. Those who know him can attest that Chris is
an enthusiast, but it was much more than that which
caused me to sit up in the middle of the night. More
like an epiphany than anything else I've had, I
believed that Canada would in fact have a diamond
mine -- and that the rest of the marketplace would arrive
at the same conclusion over the next 12-24 months. From
having read Frank Veneroso's Gold Book Annual and spent
a fair bit of time with him over the past year, I think
Frank Veneroso's conclusions about the gold market are
every bit as significant. A year ago The Economist
and, frankly, a wide segment of the market was divided
on Veneroso's conclusions about the gold market. Today
he is viewed not only as credible, but, in my view, is
only in the earliest stages of being proven right. Last
year's `crackpot theories' have become the widely
accepted wisdom of the gold market, but only
fractionally on the scale they are likely to be judged
by a year from now.

"Earlier I said that the nature of audiences is that
they tend to grow (or shrink, depending on whether a
market is headed up or down). A related observation
that I'd like to make is that the nature of major news
stories is that they evolve. Watergate began as a
third-rate burglary, then became a campaign finance
violation, before leading to a whole series of events
that were inconceivable and that quickly became
yesterday's news over the course of the story's
evolution.

"More recently, do you remember the first inkling of
the Monica Lewinsky story? I believe it came from the
Internet's Drudge Report. Look where that story went
over the next 12 months. So inconceivable then, but now
just old news.

"I submit to you that the gold market story that has
evolved a great deal over the past 12 months is going
to change radically in the next 12 months. In England
investigations are under way and GATA appears to be
developing a constituency in the U.S. Congress. I think
there will be investigations and that the fast-
shrinking bullion banking fraternity will be subjected
to growing distress in the year 2000.

"I think that the Ashanti and Cambior fiascos have
already demonstrated the willingness of this crowd to
engage in transactions that compromised the very
existence of some of their clients. In a declining gold
market, this crowd had created a license to print
money. In a rising gold market, which some of their
models apparently never contemplated, large short
positions represent a trap from which no collection of
exotic derivatives can extricate those holding these
short positions.

"As I've said several times in recent months, the gold
carry trade may be over but it is not yet unwound. The
imbalance in the gold market that was created over a
period of several years and it cannot be unwound due to
a few short months of adversity. One by one gold mining
companies are taking steps to remove hedges and
reconfigure their exposure to the changed conditions in
the gold market. (Old friend Ian McAvity notes that
even Barrick has gotten into the act: 'Dragged kicking
and screaming and protesting is not industry
leadership. Barrick is almost unique in that it acts as
though it's not sure whether it's a mining company or a
derivative hedge fund.' While the miners are getting
out of the way of the market, apart from increasingly
flagrant manipulation of the gold market, there is
little evidence that the rocket science community has
taken many steps to get on the right side of the gold
market. If they had done so, the price of gold would
already be much higher."

With the general market so strong and the gold shares
slumbering, it is only natural to feel like we have
been left at the investment station. What I have to say
about our "station" is not a pep talk; it is a reality
check.

The more our camp delves into the manipulation, the
bigger it becomes. The numbers are getting bigger. That
means the eventual price gold price rise is going to be
that much greater. The shorts really do have a major
problem that cannot be solved except by letting the
gold price rise dramatically.

You have heard that before, I know. But it is become
more evident to the GATA camp that we are going to get
our day in Congress and a chance to prove our case.
There will be an investigation into the gold market.
And if all goes well, we will be able to assist James
Turk get his independent audit of the U.S. gold
reserves at Fort Knox, which is way overdue.

My guess is that the inquiry will begin with a
subcommittee, but as soon as they know what we know, it
will catapult into a full-fledged investigation. By
then the shorts will be starting their panic and the
gold price will be ascending. That will make all of us
happy campers and our train ride one worth waiting for.