Here''s how the scheme against gold works

Section:

Gold 'on brink of breakthrough';
U.S. dollar is the trigger

By Keith Damsell
Financial Post (Canada)
http://www.nationalpost.com/
March 31, 2000

The inflated U.S. dollar is long overdue for a major
correction, a day of reckoning that will mean dramatic
gains in the price of gold, a Toronto investment
adviser says.

"We are in the early stages of the next up cycle for
gold," David Chapman, investment advisor at Gorinsen
Capital Inc. in Toronto, told the Canadian Society of
Technical Analysts yesterday. "If the U.S. dollar
stands to slide, make sure you've got gold on board."

Within the next two years, he forecasts, gold will rise
to its rough historical median near "the value of a
good suit," suggesting a price range of between $600
(all in U.S. dollars) an ounce to $1,500.

A price spike as high as $5,000 "may very well happen
if we get a deep enough crisis," Chapman said.

The unique correlation between the value of the U.S.
dollar and gold figures prominently in the analyst's
forecast. In 1971 the U.S. abandoned the gold standard,
a move that has put pressure on the U.S. Federal
Reserve to support the value of the dollar -- and drive
down gold -- for much of the past 30 years. In 1994 and
1995 the Fed and the Bank of Japan undertook a "massive
intervention" campaign to boost the ailing currency,
sparking a chain of events that led to further pressure
on bullion and a flood of capital into the U.S. stock
market, Chapman said.

Gold eventually sank to a 20-year-low of $250 an ounce
in August last year. Despite an agreement among
Europe's central banks to limit sales and lending and
dramatic hedging reductions by gold producers, the
precious metal continues to hover in the $280 range.
"Gold has slipped into oblivion," he said. "There is a
lot of negative sentiment out there."

But "astounding" U.S. debt levels suggest a dramatic
change is in the works, Chapman said. The U.S.'s record
10 years of economic growth have been fuelled largely
by debt, especially corporate and household debt. The
U.S.'s total debt has climbed from about $14-trillion
10 years ago to more than $24-trillion today, more than
twice the size of the U.S.'s gross domestic product.

Meanwhile, the U.S. trade deficit is rising at an
alarming rate, with consumers and corporations buying a
record $28-billion more foreign goods than U.S.-made
goods in a recent month. Savings rates have hit record
lows as more dollars make their way into soaring
stocks.

"Why preserve regular economic activity when I can make
more money chasing stocks?" Chapman said. "It's debt
that's holding the glue together, and when that becomes
unhinged, the whole house of cards will come down."