Morgan e-mails tell of ''disguised loans'' but may be excluded as evidence

TOCOM gold at 5 1/2-year high in panic buying

TOKYO, Dec. 19 (Reuters) -- Tokyo gold
futures ended a frantic morning session at
5 1/2-year highs on Thursday as roiling war
clouds over Iraq triggered a storm of stop-
loss buying.

All yen-based gold contracts except the new
December 2003 benchmark finished limit-up at
lifetime highs. Turnover was a staggering
144,782 lots or 144.8 tonnes in the morning,
well over Wednesday's full-day tally of
107,336 lots. Individual investors on the
Tokyo Commodity Exchange took their cue from
spot bullion's surge to a new 5 1/2-year high
as jittery Australian investors piled money
into safe-haven assets.

But dealers said Tokyo's fireworks were
mainly ignited by trading houses after an
early burst of speculative buying on TOCOM,
with panic setting in as spot gold's rise
above $347 an ounce released a volley of
stop-loss orders.

quot;Iraq is just an excuse,quot; a trader with a big
Japanese trading house said. quot;I believe none
of the traders would say they didn't expect
this. Everybody has been talking about
military action in Iraq for three or four
months.quot;

News that the United States was likely to
declare Iraq in violation of a U.N.
disarmament resolution sent oil prices
soaring and added sparkle to gold's
traditional image as insurance against
trouble.

The United States said on Wednesday it saw no
sign Iraq would comply with demands to
disarm, while Washington's closest ally
Britain gave a clear signal it was preparing
for war against Baghdad next year.

Making its debut, the December contract
finished the morning session at 1,360 yen per
gram, a level not seen for benchmark gold
since May 9, 1997. Other months ended up by
the daily price limit of 40 yen.

Spot gold was fetching $348.50/349.50 an
ounce during TOCOM's lunch break, up from
$342.00/75 last quoted in New York.

Spurred by U.S. sabre-rattling against Iraq,
a weak dollar and strong oil prices, gold has
risen nearly 25 percent this year, making it
one of the best-performing financial assets.

A weak greenback makes dollar-based bullion
cheaper for non-U.S. buyers. For Japanese
investors, however, it makes yen-based gold
futures more expensive -- a consideration
that traders and analysts said was capping
the Tokyo market.

quot;Still people are worried about a stronger
yen,quot; the trader said. quot;If the United States
starts attacking Iraq, the dollar would
collapse. So in yen terms, the price surge is
rather vulnerable.quot;

* * *

Gold Shines Through War Clouds

By James Regan

SYDNEY, Dec. 19 (Reuters) -- Nervous
investors piled into gold in Australia on
Thursday, extending an overnight price rally
in the United States as fear of war in the
Middle East mounted and oil prices soared.
Gold bullion still trades hundreds of dollars
below the $800 an ounce it fetched in 1980,
though a frenzy of post-New York trading
polished the metal to a fresh 5 1/2-year peak
of $347 an ounce in active Asian trade.

quot;The war factor is driving up gold, there's
no doubt,quot; said Commonwealth Bank of
Australia commodities strategist David
Thurtell.

Many New York bullion dealers would have left
their desks for the night with gold fetching
$342.00 an ounce, itself a sharp $4 rise on
the benchmark $338 an ounce fixing price set
earlier in the day by the London Bullion
Market Association.

But bullion banks in Australia early on were
buzzing with a second gold rush as investors
simply crossed time zones to the start of a
new day in the southern hemisphere.

By the time bullion dealers in Hong Kong
opened shop, gold continued its shining
streak.

quot;We're seeing a fair bit of buying activity
post-New York,quot; a bullion dealer in Sydney
said.

Another dealer would not rule out a test soon
of the May 18, 1997 high of $350.90 given the
volume of trading in the precious metal.