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A big day for gold and silver, and more are coming

Section: Daily Dispatches


By Doug Casey
a href=http://www.dailyreckoning.com
May 16, 2001

Reviewing lawsuits isn't exactly my favorite form of recreation.
But I've recently been taken to task for not taking seriously a
lawsuit filed on Dec 7, 2000 by one Reginald Howe in U.S.
District Court in Massachusetts.

The suit names, among others, Alan Greenspan, the U.S.
secretary of the treasury, and the Bank for International
Settlements (BIS). And it alleges a conspiracy to manipulate
the price of gold; as well as violations of the Sherman Antitrust
Act, various SEC regulations, and common law claims. It has
been financed and promoted by a group called GATA (the
Gold Anti-Trust Action Committee), of which I presume many
readers who are interested in gold may have heard.

Briefly, the complaint explains how certain mining firms and
gold-dealing banks sell the metal into the futures market for
a premium; how central banks lend their gold to commercial
banks to collect about 2 percent interest; and how commercial
banks capture the difference. The suit argues that new
production of gold is 2,500 tonnes but consumption is 4,000,
and that this deficit is filled with borrowed gold, constituting
a giant short position.

That short position, says GATA, can never be covered at
anywhere near current prices. So far, I agree.

But then the suit jumps to the conclusion that just because
some people have an interest in seeing the gold price stay
stable -- otherwise they might get caught short in a runaway
gold bull market partially of their own making -- that those
people are conspiring to depress the price of gold.

What do I make of it?

Well, I don't hold myself out as a legal maven, but all this suit
proves is that anybody can sue anyone about absolutely
anything. I'm sympathetic to the intent behind this suit, of
course. But I don't think it's got a snowball's chance.

In fact, I expect it will be dismissed out-of-hand by the court.
I can hear the judges chuckling up the sleeves of their ample
robes as they compare it to lawsuits alleging the Queen of
England still owns the United States, or that sovereign
individuals in the United States don't have to pay income tax
under the law.

As per their price fixing count, it makes sense to me that
there's a huge uncovered short position in the gold market.
But it doesn't make sense to me that the powerful people
and institutions named would collude to keep the gold price
down, however much that might be to their advantage.

Rather, in the real world, the guys that could get hurt most
would be trying to cover before the other guys do, recognizing
you can't control a market forever; these aren't plowboys who
just fell off a turnip truck. And the idea of the Fed chairman,
the Treasury secretary, and a roomful of bankers sitting down
at a table to collude wouldn't even make a good movie, because
it's so incredible. At least to me.

It's clearly in the interest of all governments and central banks
for the price to stay low, giving the appearance that all's right
with the financial and economic worlds. (It's one thing for the
stock market to be weak. But if gold takes off at the same time,
that could cause people to push the panic button for real.) So
maybe governments are trying to manipulate the price of gold;
that's the type of thing they've always done. In fact, that's
what most people think they ought to do.

But if they are, what do you think the chances are of a
government court saying they shouldn't? I'd say slim and
none. And Slim's out of town. If I were the judge I'd throw it
out of court as a grandstanding effort of a bunch of sore
losers and conspiracy wankers -- despite my dislike of
central bankers, and my sympathy for gold.

Another part of the complaint decries the BIS attempt to
force its private shareholders to tender their shares for
US$ 9,280 per -- when recent fairness opinion set their
value at over twice that much.

Well, of course the public shareholders are being screwed.
It happens all the time; that's what management buyouts
are usually all about.

Personally, I'd like to see the BIS wound up and its capital
distributed. And frankly, I wouldn't mind if its officers and
directors were shot at dawn. But that doesn't mean I'm
particularly sympathetic to its shareholders. They bought
into a corrupt and destructive quasi-governmental institution,
controlled by central bankers where all the other shareholders
are central banks. You swim with sharks, you can expect to
get bit. Tough luck.

The lawsuit also has a bunch of miscellaneous onstitutional
and Common Law violations thrown in for good measure. But
the U.S. Constitution is a dead letter, except for certain of
its aspects in which the Supreme Court has taken an interest.
And gold ain't one of them.

Common Law has, unfortunately, been superceded in all
meaningful ways by statute law in the United States. Which
actually leads me to what I think is a rather distasteful aspect
of the suit, namely its respectful reference to U.S. securities
and antitrust laws -- two areas of legislation in need of
abolition. Every suit filed referencing them serves only to
legitimize them.

But perhaps that's just a personal bete noir of mine.

Don't get me wrong. I'm happy to see folks do this kind of
thing, if only because it distracts the enemy. Maybe there's a
chance in a hundred that a lower court will entertain part of it,
before it's thrown out on appeal. I wish these folks well. But
mostly, I think it's just a waste of time. And regrettably, it
adds to the reputation of gold-bugs as windmill tilters and
conspiracy buffs.

Doug Casey is the editor of International Speculator and author
of several best-selling financial books, including quot;Crisis