Gold unchained by Swiss and ready to rock

Copyright 2000, www.LeMetropoleCafe.com
Not to be reproduced without the author's permission

* * * * * * * * * * * *

MIDAS COMMENTARY FOR APRIL 13, 2000

By Bill Murphy
www.LeMetropoleCafe.com

Spot Gold $281.20, down 20 cents
Spot Silver $5.10 up 2 cents

Marie Bartaromo of CNBC reported the 1 percent increase
in the March producer price index, which was double
market expectations, as quot;tamequot; -- just because the core
index was up only .1 percent. She spouted the same Wall
Street line about food and energy; that is, they don't
count. Tell that to the truckers who have been striking
in Canada and the United States. Tell that to the moms
at the supermarkets.

Then she gave out the wrong retail sales number, which,
she went on to say, clearly showed a slowdown in
consumer buying. OOPS. Then she was handed the correct
number (an increase of 1.4 percent), which showed U.S.
consumers were stepping up their buying. That caused a
great deal of backtracking on commentary by both her
and the guest on the show, who was clearly embarrassed
having just given an explanation of the significance of
the lower-than-expected retail sales number that turned
out to be bogus.

The retail sales number for February also was revised
sharply higher. Why are all these economic numbers
always being revised sharply higher in the ensuing
months when they have less impact on the credit markets
because the revisions are quot;old newsquot;?

There was barely a mention on CNBC of the National
Association for Business Economics report issued this
morning. This association was founded as a professional
organization for people who use economics in their
work. The NABE has over 3000 members and 44 chapters
worldwide.

This is a summary of their report, followed by its
highlights.

* * *

* Strong growth at home, coupled with burgeoning
recoveries abroad, has clearly shifted the pressure on
prices. quot;We have seen a distinct upward shift in
pricing momentum in recent months, particularly in the
ability of firms to realize planned price increases,quot;
said Diane Swonk, NABE president and chief economist
for Bank One Corp. quot;This, coupled with worsening
shortages and a further tightening of labor market
conditions, suggest that inflation pressures extend
beyond the oil-based inflation seen in the first
quarter.quot;

* NABE panelists report generally growing demand for
their products and services in the first quarter of
2000, although the pace of growth appears to have
slowed slightly since late last year. Goods-producing
industry demand outpaced the entire panel for the
second quarter in a row, after lagging the rest of the
economy for the previous three years. Increasing
exports contributed to those gains.

* Cost accelerated in the first quarter, both for labor
and materials. Wage increases were the largest since
1989.

* Many of these costs, however, were passed along in
the form of higher prices. The percentage of firms
reporting increases in their prices was the highest in
four years. A startling 94 percent of firms also
claimed they were able to realize planned price
increases over the period, a sharp turnaround in
pricing power from earlier surveys.

* Profit margins remained intact, and held close to the
levels seen in the fourth quarter. Profit margins in
the goods-producing sector, which narrowed during the
worst of the global financial market crisis, increased
for the first time in two years.

* Capital spending continued to grow at a healthy pace,
especially in the finance sector. Capital spending in
the goods-producing sector, however, appeared subdued.

* Employment rose at panelists' firms, despite
increasing shortages of skilled labor. Skilled labor
shortages existed at 66 percent of reporting firms, the
highest reading in more than three years.

Unskilled labor also remained in short supply at a
sizable number of firms. When asked about hiring plans,
the percentage of firms planning to hire remained at
the high levels that we have seen over the last year.

* * *

That is what is really going on out there in the U.S
economy. Does that sound benign?

The mainstream press would rather focus on how there is
just hardly any pressures on the financial system and
on quot;voodoo economics,quot; which, of sorts, has made its
comeback. It is fantasyland at its finest and even
stretches to the fantasyland land of fantasylands,
Disneyland.

Disney has chosen not to raise its adult visiting price
of $41 according to the press reports and not taking
taking inflationary measures. Of course, an adult, for
pricing purposes, is now 10 years old, not 12 years
old, as was the case until just recently. What does
that do to the pocketbook for a mom and dad who take
their youngsters to Disneyland? Are kids' prices are
somewhere around $12?

I would say, in aggregate, Disney just raised its
prices sharply. In the quot;new economyquot; world of tricks
and mirrors, that is not taken into account.

The Gold Industry -- a Sad Lot

The following is a story, quot;No Capital for Gold
Industryquot; in the West Australian, which emanated from
the Australian Gold Conference:

quot;Continued rationalization was essential for the gold
industry to compete for investor funds in global
markets, the Australian Gold Conference was told
yesterday.

quot;The head of one of the world's top five goldmining
companies, Ron Cambre of Newmont Mining, admitted
yesterday that 'gold is simply not relevant to most
investors' in today's technology-driven equities
market.

quot;He said the four biggest North American gold companies
had a combined market capitalization of 0.14 percent of
the Samp;P 500 index.

quot;'The capital markets are telling us that size
matters,' Cambre said. 'North American gold funds today
hold only $US2 billion in assets as investors have
withdrawn funds to invest elsewhere.

quot;'Future investors in gold shares must come from the
generalists who judge us not against our relative
performance within the industry, but against the
outlook for all investments, including the dot.com
world that few of us understand.

quot;'Considering that the Fidelity Magellan Fund and
Vanguard's Equity Index Fund are each managing $US100
billion in assets, the threshold size for consideration
by many portfolio managers today is a market cap of
$US5 billion to $US10 billion.'

quot;Cambre said the market capitalisation of the global
gold industry was less than $US40 billion, and only
nine companies had a market capitalization of more than
$US1 billion.

quot;He said companies should also give thought to the re-
emergence of the major mining houses of the past, and
there was good logic to consider 'multi-metallic'
investments in the future.

Cambre said that despite hedging no major North
American producer had been consistently profitable in
the past 10 years.

quot;'Looking only at earnings from operations, the average
return on shareholders' equity for the top producers
declined from 13 percent in 1987 to zero last year. The
average return for Samp;P industrials is above 20
percent,' he said.

quot;'Generating adequate shareholder returns must be the
industry's No. 1 challenge in the years ahead.

quot;'We must stop believing that because we are gold
producers we can ignore the cost of capital.

quot;'Projects that do not have a high probability of
returning solid double-digit returns at today's gold
price cannot be justified.'

Cambre's views on rationalization were echoed by Delta
Gold managing director Terry Burgess.

quot;'For the industry to survive in the lowering-grade and
lowering-margin environment, there will be an ever-
increasing push for mergers and acquisitions to take
place between companies,quot; Burgess said.

quot;'Adding value must be the reason for this as growth
for growth's sake can provide only a short-term warmth
followed by a hollow feeling -- not unlike the feeling
that Internet stock investors will experience when they
realize that revenue without profit is not a driver.'

quot;Burgess said the outlook for the Australian gold
industry was robust even in the face of the low gold
price.

quot;'Hedging will still provide the confidence and price
outcomes that will allow projects to go forward,
although vigilant treasury management and controls will
be of paramount importance,' he said.

quot;'The reduction in exploration expenditure will not
materially impact the output of Australian gold mining
industry for another three years or so, due to long
lead times between discovery and first production.
However, like a hand water pump, once the water flow
stops, it will take an appreciable period of pumping,
with no apparent results, before the water starts
flowing again.'quot;

Where do I begin?

This is actually a well-written, informative story. Ron
Cambre is correct when he says quot;future investors in
gold shares must come from the generalists who judge us
not against our relative performance within the
industry, but against the outlook for all investments,
including the dot.com world that few of us understandquot;
and that quot;gold is simply not relevant to most
investors.quot;

The increase in the claim on wealth of investors all
over the world these past years is staggering. The
investment portfolios (like mine) of those who own
shares in gold companies have withered away. There is
not much money left in our group to propel the share
prices up at all. Redemptions continue to plague
institutional gold money managers, which forces them to
sell shares of companies on rallies that they would
prefer to not only hold but own more of.

Yes, it will be the generalist money managers who will
propel the share to much higher ground, buy they won't
buy gold shares these days because they get the picture
of what the gold market is really all about while the
gold industry bureaucrats have their head stuck in the
sand and act like rats trapped in a maze. Rather than
exploring the avenues of how to get out of the maze,
gold industry folk keep trying what does not work for
improving the gold price -- like rats receiving
electric shocks as they bump into the same electrically
wired exits of the maze.

The generalist money managers know the truth about the
gold market better than the industry does and do not
even blink when it comes up in discussion that the gold
price is being held down and that the gold market is a
manipulated one with the benefits accruing to certain
bullion dealers and perhaps to the U.S. Treasury
Department's Exchange Stabilization Fund.

Ye, the gold industry seems oblivious to the obvious
and makes little attempt to find out if that is the
case and if something could be done to rectify the
situation. Instead, the industry goes on and on about
issues that accomplish very little. We know that to be
the case because the gold price is stinking up the
place, going nowhere, and whatever the gold industry
thinks it is doing, investors are leaving the gold
share arena in droves -- witness the XAU index, which
broke 55 today.

As chairman of the Gold Anti-Trust Action Committee, I
am appalled at the gold industry's lack of ingenuity
and curiosity, and its impotence. Our committee is a
few unpaid volunteers and a legion of you out there who
have contributed time and money in an effort to expose
the manipulation of the gold price so that the big
shorts holding down the gold price will be forced to
cover, giving impetus to a sharply rising gold price.

It is bad enough that our gold share investments have
been a trip to nowhere. It is much worse to watch three
junior gold company members of LeMetropoleCafe.com go
out of business, as recently was the case. The
executives of the larger gold producers can hang out,
collect their fat salaries, and gobble up some of the
better exploration projects for peanuts. Many of these
bigshots can get by at $282 gold. Most juniors and gold
share investors cannot. They are gradually going out of
business or taking their capital and investing in other
financial arenas.

Never has an industry shown such little fight. I was
very serious a year ago when I said the producers were
being led to slaughter like sheep. Hannibal Lecter
(Goldman Sachs) and its gang have been eating them for
lunch, day in day out, week in week out, month in month
out, and year in and year out.

Unfortunately, it would appear that the gold industry
is just a bunch of bureaucrats collecting those
handsome salaries with quot;don't rock the boatquot; as their
mantra.

GATA does what it does for the gold share investors,
the out-of-work miners, the geologists, and the smaller
gold companies, and because we want to find out the
truth about the gold market. We do not do what we do
for the big companies. But you would think more than
one of them might call us up to know more about what we
know, how we have compiled our evidence of
manipulation, etc. You would think a few more might
call and at least say thanks for making the effort to
help them and their shareholders. Would not some want
to offer help?

Some have, in the sense that three major gold producers
have contributed $10,000, $20,000, and $50,000
respectively to cover our expenses. The names might
surprise you. Many of the gold producers you would
think would be behind us are not, and others you would
not expect have helped. GATA is very grateful for that
support. About 10 junior gold companies have also
contributed to GATA, and we thank them very much. But,
as a rule, zip. Regular mailings, faxes, and emails
routinely go unanswered. One would think we were trying
to shut down their companies, not working on matters
that might greatly benefit their shareholders.

I am not griping for me personally. Being accepted in
the gold industry is not important for me, nor are the
perfunctory compliments. This is WAR against powerful
forces that are hurting a lot of innocent people. It is
not right. They must lose and we must win. It just
ticks me off that the gold industry has so few
fighters. No wonder our adversaries think they cannot
lose and are so arrogant.

I am not just talking about the executives of the
senior gold producers. I am talking about the World
Gold Council, Gold Institute, etc. Since GATA was
founded they have badmouthed us over and over again. I
have kept my mouth shut about this. No more. Throw in
the CPM Group and Gold Fields Mineral Services for good
measure. All have derided GATA.

Let me deride you, GFMS, an industry supply/demand
information group whose data is published by the
mainstream press and extolled by the bullion dealers.
You say the gold loans are only 4,500 tonnes. Chase
Bank's chief gold trader, Dinsa Mehta, says they are
7,000 tonnes. U.S. economist David Hale says they are
7,600 to 10,400 tonnes. The ramifications of the
variance in these numbers are enormous for the future
of the price of gold. Are you willing to debate your
numbers in a public forum? I doubt it. But if I am
wrong and you accept, GATA will pay to organize the
event.

I realize this essay may make me persona non grata at
with many in the gold industry, as if I am not already,
but Groucho Marx said it best: quot;I wouldn't want to join
a club that would have me as a member.quot;

Do I seem a bit touchy today? I AM. Because of the
implications of today's U.S. economic numbers, gold was
not allowed to go up in price. Years ago, I thought
this was just bad market action. Now I know it is
orchestrated market action.

I am not spouting off because I woke up on the wrong
side of the bed. This Bloomberg excerpt from yesterday
got me ballistic:

quot;Singapore, April 11 -- Albert Cheng, World Gold
Council's area manager for Asia, on gold demand, the
agreement between 15 central banks last year to control
gold sales, and its role as a monetary tool....

quot;On prices: 'The Washington Agreement erased major
price uncertainty in the gold market. I think prices
will now stabilize and just fluctuate between $280 and
$300 an ounce.'

quot;'We are very happy with this range because miners will
be happy to produce at this price and consumers will be
happy to buy. Producers want as little volatility as
possible....'quot;

Huh? The World Gold Council is funded by the producers.
Ron Cambre says few of them can make money at these
prices, and one of the senior WGC people says publicly
that this is good. I thought gold producers wanted a
price as high as possible.

As a gold share investor, what do you think about that?
Does it make you comfortable that the gold producers
fund the World Gold Council to the tune of $50 million
to get a public comment such as this (which Bloomberg
News published, naturally).

The XAU, the index of senior mining companies, closed
today at 54.67 down .62, a new low for the move.
Wonderful, eh?

What counts to the gold industry is calmness, and they
have it. Don't ruffle the bullion dealers' feathers;
root for stable low prices (hedging can win the day,
according to Delta's Terry Burgess, whom I like
personally), and keep the status quo. It works, gold
industry. You know the old saying: Be careful about
what you wish for; you might get it. The gold price has
been below $290 for three years. Congratulations.

Not only did I puke when I read Cheng's comment; I then
was sent this note that was written by an executive of
a major gold company to a Cafe member:

quot;I am responding to your letter of March 29. Were life
as simple as you and GATA seem to think. You say 'it is
clearly evident' that bullion dealers and the federal
government are 'involved in illegal gold price
manipulation,' and that as a result your investment in
XYZ Gold Co. has suffered. If you have such evidence,
we and every other shareholder would like to hear it.
Because, frankly, it's not evident to us.

quot;Greed, like water, fills every crack. The market
offers many ways for speculators to profit from selling
gold short. Companies that sell their production
forward add to the problem. So do central banks that
lend gold at rock bottom prices. So do governments that
announce plans to disgorge part or all of their
reserves. So do bullion dealers who cry, 'Sell now
before it's too late.' And we know that jackals travel
in packs. All of this hurts the price of gold and the
shares of companies that produce it. But is it illegal?
Our people who deal with the bullion banks can't
support the collusion thesis.

quot;GATA deserves a lot of credit for putting the
spotlight on gold's vulnerability to speculation. They
have focused Washington's attention on the need for
credibility in handling U.S. gold reserves and they led
the investor revolt against hedging. But to date their
conspiracy charges have fallen flat. Every hedge fund
from Long-Term Capital Management to Tiger Management
has been accused of shorting gold (which is not
illegal), but no such evidence has surfaced. Denials by
Federal Reserve Chairman Greenspan and Treasury
Secretary Summers that the U.S. government has secretly
sold, lent, or traded gold have been interpreted by
GATA only as further evidence of a coverup.quot;

quot;Perhaps GATA will turn up something, and their efforts
to foster transparency in government and corporate
actions are to be encouraged. But as a publicly traded
company we cannot support witch hunts and prefer to
keep our focus on things properly within our domain as
miners. We strongly supported the World Gold Council as
it brought gold's important monetary role into the
public debate in Europe, which led to last fall's
central bank accord limiting future gold sales. We also
helped lobby Congress last year to halt the planned
sale of IMF gold. And we are seeking to build industry-
wide support for a marketing campaign to promote the
metal both for fabrication and investment....quot;

This same company has returned our emails and after
sending a representative to Dallas 10 months ago to
pick our brains about the manipulation of the gold
market, now refuses to take our phone calls.

Regarding what this executive has to say about GATA,
this is not the time and place to go into great detail.
But to say that he does not believe in our collusion
ideas because of what the bullion dealers say is like
asking George Bush if he would vote for Al Gore.

Witch hunts? Our hunt is for the truth and we are close
enough to it that Alan Greenspan has responded to GATA,
as have two Treasury Department officials. In addition,
many U.S. senators and representatives felt there was
enough substance in GATA's questions to request
responses for constituents. That is much more than I
can say, in general, for the gold company executive's
responses to GATA.

We never did say that LTCM and Tiger were colluding. We
said we heard they were short major gold tonnage and
that this tonnage was part of a dangerously large gold
carry trade. Your facts are way off, Mr. Gold Co.
executive. Instead of shooting from the hip, take a
Saturday and read through the James Joyce Library at
the Cafe and review the twice-a-week commentary for the
past 19 months and then tell me you what you think and
why.

If you do take that time, you WILL learn that I did say
last summer that Tiger was in deep trouble, had serious
redemption problems, and might not make it. For that,
the Cafe was vilified by many. Guess what -- Tiger did
not make it.

One final point on this. GATA is building a case that
we believe can blow the gold market wide open. It is
extensive and detailed. We have a paid investigator on
the quot;the casequot; this very moment. quot;The casequot; against
Microsoft was years in the making. The case by quot;The
Elvesquot; and Paula Jones was years in the making against
President Clinton. There were big money and vast
influence behind those cases. GATA's popgun army, with
little support from the gold industry, is going against
bigger money and bigger power.

GATA is making great progress in our case and we are
going to win the day because of our great individual
supporters around the world. The Internet is listening
and we have truth on our side. It just takes time to
put it all together.

The Dow closed down another 201.58 today to finish
below 11,000, while the Nasdaq is going after that
heralded retest of 3650, as it finished down 92 points
at 3677. The stock markets are reeling, the economic
news is robust, and the inflation picture is darkening.

That is the perfect scenario for gold not to go up as
far, as the collusion crowd is concerned. Of course it
should be the perfect scenario for a big pop in the
gold price, but the clamps are on even though gold
demand is fervent. The India gold premiums were very
firm once again today at 14.2 percent, and Turkey just
reported a 52,500 kilo gold bullion increase in the
first quarter of 2000 over that of last year. That is a
214 percent increase in gold demand.

Those type of numbers used to matter to the gold
market. Now what matters is that Goldman Sachs
economist Abby Joseph Cohen conveniently cuts back on
her stock market allocation right before the stock
markets really take a tumble and Goldman Sachs stops
the $11 gold market rally of Tuesday a week ago cold
with massive gold selling, while their stock futures
department is paying way up for Samp;P futures to stem the
that day's stock market panic.

What matters is that this collusion crowd buried the
gold market right back down again so intensely after
last Tuesday's big rally that few want to even try the
long side again on days like this.

God forbid that financial market players should view a
rising gold price during a time of financial stress.
The Wall Street bullion banking crowd has most of the
investing American public hooked on the idea that there
is no stock bubble, inflation is dead, the productivity
miracle cures all, concerns over explosive growth of
credit are overblown, and our low savings rate is OK
because savings are invested in the stock market and
money-making IPOs.

The simplest and easiest barometer to follow in all the
world that something is amiss in the financial arena is
a sharply rising gold price. Perhaps it should not be
that way, but that is the way it is and that is what
the Wall Street crowd and the Exchange Stabilization
Fund know. And that is why they are doing whatever they
can to keep that from happening.

To date, this gold market manipulation has worked, but
it is a ticking time bomb that will blow up in their
faces, and the price of gold will eventually go much,
much higher than it otherwise would have.

Misinformation about gold is everywhere. Accuracy means
little to the Joseph Goebbels-like propaganda coming
from the establishment. Today's Dow Jones precious
metals market commentary is a typical example:

quot;'We still have the reality of the Swiss bank sales (of
1300 metric tonnes of gold from their reserves) for
May,' noted Dave Meger, senior metals analyst at Alaron
Trading in Chicago.quot;

No, Dow Jones, that is 1300 tonnes over five years, not
for May, and all of that is accounted for in the
Washington Agreement, which restricts selling to 400
tonnes per year by 15 central banks.

Dow Jones will not be alone in trumpeting the coming
Swiss gold sales. Day after day, expect the propaganda
machine to be in high gear.

These sales, initially orchestrated by Paul Volker,
according to the Cafe's well-connected Swiss sources,
are not constructive for the gold price, but they are
not even close to being enough to hold it down. The
yearly supply/demand gold deficit is running around
1500-2000 tonnes. The Swiss, Dutch, and British sales
add up to only 400 tonnes per year. They are not enough
to stop the gold price from soaring.

Only Russia, Taiwan, China, India, Venezuela, Lebanon,
Algeria, the Philippines, Sweden, Brazil, Saudi Arabia,
South Africa, Turkey, Greece, Poland, Rumania,
Indonesia, Canada, the Bank for International
Settlements, and the International Monetary Fund have
gold left to lend or sell. The U.S. Congress won't let
the IMF sell its gold. John Brimelow believes that
about half of the rest is already lent or has been
secretly sold (a la the Austrian gold sales that were
recently announced). That would leave about 2200 tonnes
to be lent or sold. That is not that much when the
yearly supply demand deficit is 1100-1600 tonnes after
figuring in the 400-tonne Washington Agreement limit.

One more thing. Seven weeks ago I received information
from a very protected and informed source that I had
finally upset Goldman Sachs. Five weeks ago my car was
stolen from my driveway, and 11 days ago somebody
sucker-punched me in the jaw not far from a fancy
restaurant. It is hard for me to believe this sequence
of events is related, but I think about them every time
I go jogging, return home, or hear a knock on the door.
Gold industry executives: What do you think about all
day long?