Gary North''s ''Gold Wars'' asks: Is America''s gold gone?

12:40p ET Thursday, June 26, 2003

Dear Friend of GATA and Gold:

GATA consultant James Turk, founder of GoldMoney
and editor of the Freemarket Gold amp; Money Report,
has replied to the rebuttal from Richard Hayes of
Perth Mint that was dispatched to you June 21.
Turk's reply is appended.

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

* * *

By James Turk

I have read the June 21 reply from Richard Hayes of
the Perth Mint concerning my comments about Perth Mint
that were distributed by GATA on June 7. Hayes alleges I
made quot;statementsquot; that are quot;misleadingquot; but he fails to
specify such statements.

If I have made mistakes in my analysis, Hayes should say
what they are so I can make a public correction as well as
learn from my mistake. I'm sure GATA's readers would also
find any correction to be beneficial.

But if Hayes cannot identify my quot;misleadingquot; statements, he
should provide me with an apology.

I have some comments in response to Hayes' reply. My
comments follow excerpts from his reply below.

HAYES: I refer to a recent discussion between James
Turk, editor of the Freemarket Gold amp; Money Report,
and a reader in Australia, distributed by the Gold
Anti-Trust Action Committee Inc.

TURK: For the record, as both the original GATA post
and the subsequent Qamp;A post l noted, I am also the
proprietor of GoldMoney.com. I don't know why Hayes
neglected to mention this relevant fact. Though I have
years of experience in the gold market, it was from
researching storage options to provide GoldMoney
customers with the safest possible storage alternative
that I became particularly knowledgeable about gold
storage.

HAYES: Turk has made statements regarding Gold
Corp. and the security of client precious metal in its
Perth Mint Depository programs (Perth Mint Depository
Services and Perth Mint Certificate Program) that are
misleading and require a response from the corporation
to reassure investors about the security of its depository
services.

TURK: Please identify these quot;statementsquot; and explain how
they are quot;misleading.quot;

HAYES: Gold Corp. is a statutory authority created by the
Gold Corporation Act 1987 and wholly owned by the State
Government of Western Australia. The activities of the
corporation are underwritten by a government guarantee
as described in Section 22 of the act. The state has an
AAA Samp;P rating, Samp;P's highest category. An AAA-rated
sovereign liability of this kind represents the best
available investment risk.

TURK: Hayes fails to acknowledge -- and perhaps fails
even to recognize -- that gold itself is not Samp;P-rated. Gold
is an asset, not someone's liability, so it does not need
rating. Consequently, Hayes apparently agrees with my
statement that anyone owning a Perth Mint certificate is
a quot;general creditor of Gold Corp., doing business as
Perth Mint.quot; It is creditors -- not gold owners -- who need
to be concerned about Samp;P ratings.

HAYES: Recent high-profile corporate failures in the
United States highlight the need for investors to achieve
greater security than that provided by a private limited
liability company.

TURK: I agree with this conclusion, which is one of my key
reasons for explaining the difference between allocated
and unallocated gold storage. With unallocated storage
you are exposed to the credit of a quot;private limited liability
company.quot; You do not have this exposure with allocated
gold, which is why gold used within GoldMoney is allocated
gold only.

HAYES: Perth Mint Depository investors are very fortunate in
that they do not rely solely on non-guaranteed corporate
undertakings, third-party corporate structures, third-party
corporate governance procedures and protocols, and the
creditworthiness of counterparties without an AAA Samp;P credit
rating, like investors in other precious metal programs.

TURK: Hayes and I apparently have a philosophical difference
here. I am a free-market-oriented individual who believes in
and relies on the market process. GoldMoney is an example.
In my view, by relying upon established and reputable
third-party companies to provide key services to GoldMoney
and by linking these firms through a carefully designed system
of checks and balances, we have attained within GoldMoney
an unsurpassed solution for individuals seeking to store their
allocated gold inexpensively and safely with insurance
underwritten by Lloyd's of London, while also giving these
individuals unprecedented liquidity by enabling them to use
their gold as digital gold currency, a process for which
GoldMoney holds three U.S. patents. Hayes apparently
takes a different point of view. He seems to favor a
government guarantee, but I do not share the faith he
apparently puts in government promises. If you are relying
on a government guarantee, you may be relying upon a
hollow promise. Clearly, I would put my faith in the market
process over a government guarantee, but of course people
may reasonably disagree on this point.

HAYES: The premier of Western Australia recently reaffirmed
the state's support for PMD and GC's new Australian Stock
Exchange-quoted Perth Mint Gold product (PMG) in a letter
dated 21 March 2003. This letter appears in the PMG Product
Disclosure Statement, which was submitted to the Australian
Securities and Investments Commission prior to the recent
quotation of the PMG product. The premier noted that quot;the
corporation's Perth Mint Depository precious metal storage
facilities are attracting renewed interest from Australian and
international investors, in response to global economic and
financial market uncertainty. It is gratifying to learn that
Western Australia's triple-A credit rating is an important
reason why investors are choosing Perth Mint Depository as
custodian of their precious metal assets, together with the
state government guarantee.quot;

TURK: I don't mind that Hayes introduced a sales pitch into
his reply. But I am still looking for the supposedly misleading
statements he alleges I made.

HAYES: Given Gold Corp.'s unique status as a government-
guaranteed entity, it is clearly not directly comparable to a
limited liability company. Hence, it is incorrect to imply that
GC's balance sheet, as described in its statutory public
accounts, is a relevant issue for PMD investors.

TURK: Now this statement is unique, particularly since Hayes
is the company's chief financial officer. I noted in the Qamp;A that
Gold Corp.'s quot;2002 financial statement shows that it has
approximately 4.5 times more debt than equity, fairly high
leverage.quot; I also asked anyone who holds a Perth Mint
certificate: quot;Are you prepared to be a general creditor of Gold
Corp., given that kind of leverage?quot; Hayes says this balance
sheet is irrelevant, but it is VERY relevant because the
financial position of Gold Corp. will determine whether the
government guarantee will be required, and whether Gold
Corp.'s creditors -- including its Perth Mint certificate
holders -- will need to look to the government guarantee to
be made whole on their credit exposure to Gold Corp. In fact,
in my opinion as a financial analyst and former banker, it is
irresponsible for Hayes to state that Gold Corp.'s balance
sheet is irrelevant to Perth Mint certificate holders.

HAYES: GC and all PMD investors are covered by an
AAA government guarantee that underwrites delivery of
client metal at all times.

TURK: Unless, of course, the quot;force majeurequot; clause is
invoked.

HAYES: GC emphasises once again that all unallocated
precious metal held by PMD is safe and secure. PMD's
growing number of international clients clearly gain
considerable comfort from the fact that their precious metal
is held by an organization with an AAA Samp;P rating.

TURK: This may be true, but it has no relevance to my
original article posted by GATA or to the subsequent
Qamp;A email. As noted in the Qamp;A, quot;Storing gold can be a
complicated matter, and most people do not appreciate
the intricacies of the law, which is why I wrote my article.quot; I
have explained the differences between allocated gold
(which is gold you own) and unallocated gold (which is a
promise to pay gold to you). That conclusion of these two
very different storage alternatives is irrefutable.

HAYES: All client accounts are fully backed by precious
metal purchased by GC.

TURK: As I noted in the Qamp;A, this statement cannot be
supported by disclosures in the 2002 annual accounts of
Gold Corp.

HAYES: Client unallocated precious metal is NOT used
by GC for short-selling transactions, derivative activities,
or leasing outside the group.

TURK: I never said that it was. But I did say that Gold
Corp. engages in gold lending, which is clear from its
financial statements. There is not sufficient disclosure in
the annual accounts to confirm Hayes' statement above
about other gold activities.

HAYES: GC is therefore in a position at all times to meet
its physical delivery requirements.

TURK: In the Qamp;A I stated: quot;According to Gold Corp.'s
2002 financial statement, there is $96.2 million of gold
on hand against $234 million of liabilities. Unfortunately,
the financial statement does not show what portion of
these liabilities is Perth Mint certificates, but it does
show that $222.5 million represents gold liabilities, so
the Perth Mint certificates represent some portion of this
$222.5 million of debt. Unfortunately it is not possible to
determine from the financial statement whether there is
less than $96.2 million of Perth Mint certificates
outstanding, as the mint claims.quot; If this statement is
misleading, Hayes should explain how it is misleading,
rather than make unsubstantiated statements like the one
he makes above, which is simply asking everyone to make
a leap of faith.

HAYES: GC has a legal obligation to ensure that client
precious metal is always available for collection in a physical
form within a specific period from the date of receiving a
client's instructions under the terms of its depository programs.
Clients who have PMD unallocated precious metal accounts
have the security of knowing that their accounts are backed
by precious metal. It therefore is incorrect to imply that PMD's
unallocated precious metal is merely an unsecured quot;promise
to pay.quot;

TURK: I didn't quot;implyquot; that is was an unsecured quot;promise to
payquot; -- I stated that to be the case, which is an accurate
description of any unsecured certificate. It is not only
irresponsible for Hayes to claim otherwise; it is incorrect.
Also, I do not understand why Hayes claims that Perth Mint
certificates quot;are backed by precious metalquot; but fails to
explain why other creditors of Gold Corp do not receive this
apparent privilege. Gold Corp.'s financial statements show
$96 million of gold assets, which quot;backquot; $234 million of gold
liabilities. The so-called quot;backingquot; is not 100 percent, as
Hayes seems to imply, but only 41 percent, according to my
calculations. If my analysis of the Gold Corp. balance sheet
is incorrect, I would welcome an explanation from Hayes.

HAYES: With regard to the West Australian Government
guarantee in Section 22 of the Gold Corporation Act 1987, the
corporation is empowered to remit either currency or deliver
gold to a client, according to a client's instruction. Clients
certainly are not precluded by the act from requesting and
receiving physical gold under any circumstances.

TURK: Unless, of course, the quot;force majeurequot; clause is
invoked.

HAYES: It is incorrect to suggest that GC can quot;relieve itself
of any obligationquot; under the force majeure clauses in
its client agreements.

TURK: By taking the above quote out of context, Hayes
completely misstates the point I was making. I did not state
or suggest quot;that GC can 'relieve itself of any obligation.'quot;
In explaining the inherent weakness of needing to rely on
a government guarantee for your gold -- and I consider gold
to be the bedrock of any portfolio, for which you should not
take any risk -- I wrote: quot;As for the 'air-tight guarantee,' if there
is a problem, is the Western Australia government going to
pay you dollars or ounces? Is it going to exercise a 'force
majeure' clause to relieve itself of any obligations? My
point is that one should not take risks with his gold, which is
the cornerstone of your portfolio, particularly amid the
prevailing financial uncertainty. If you are relying on a
government guarantee, you may be relying on a hollow
promise. You don't risk relying on a hollow promise when
you have allocated gold.quot;

HAYES: The inclusion of quot;force majeurequot; clauses is standard
commercial practice. These clauses are designed to
provide a mechanism for institutions, be they government
or private corporations, to deal with specific events that may
occur and are outside of their control.

TURK: You need not worry about quot;force majeurequot; when your
gold is placed safely in allocated storage, which was my point.

HAYES: Furthermore, under a declaration of quot;force majeure,quot;
GC's obligations to its clients are suspended only. GC is
legally required to resume performance of its obligations once
it is no longer affected by the quot;force majeure.quot;

TURK: Unless, of course, the Western Australian government
changes the rules and declares the quot;force majeurequot; to be
permanent, which is entirely within the government's power.
Governments often change their contractual obligations to
suit their own advantage in view of prevailing circumstances,
which were unforeseen at the time that the government
entered into its contractual obligation. To take but one
example with which many of us are familiar, I have lost count
of how many times the U.S. government has unilaterally
changed its obligations under the Social Security contract.

HAYES: The Perth Mint has more than a century's
involvement in gold trading, refining, and minting in Australia's
leading gold-mining state. PMD's business mission is to
provide domestic and international investors with the safest
and securest location for storing their precious metal assets.
PMD has an increasing number of loyal and valued clients
precisely because of its commitment to client precious metal
security and client service.

TURK: To my knowledge the Perth Mint is a fine institution,
and, in fact, not too long ago we at GoldMoney had contacted
it about using its allocated gold storage facilities. Also, I've
known Perth Mint's chief executive, Don Mackay-Coghill, whom
I hold in high regard, for 15 years, and during most of this time
he has been receiving my newsletter, Freemarket Gold amp; Money
Report. I've also had occasion to meet other employees of the
Perth Mint, though I've not had the opportunity to meet Hayes,
who, I have been told, is new in his position. Perhaps it is his
inexperience that explains why Hayes does not seem to know
the difference between allocated and unallocated storage,
and the different level of risk one takes with unallocated
storage, such as the unallocated storage offered by the Perth
Mint certificates. In any case, I will await either his explanation
of how any statement I made was misleading, or failing that,
I will graciously accept his apology.

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