Midas commentary for September 24, 2000

Daily commentary for September 22, 2000

By Michael Kosares
www.USAGold.com

Gold drove to higher ground overnight and in early New York trading
as the big three economies -- the United States, Japan and Europe --
coordinated intervention in currency markets to stabilize the
cratering euro. The intervention is important not only in terms of
practical results -- the euro is up almost 3 (a large move in
currency terms) -- but in what it may signal as the G7 countries go
into top level meetings in Europe over the weekend. We would suspect
that if this rally gathers pace we could have major short covering
when you consider what's at stake in this weekend's G7 meetings in
Prague.

Even though the financial press is expressing its shock at the forex
situation this morning, we have been talking about the possibility
for weeks now, and the intervention should not have impress our
readers as a total surprise. It is a pleasant accompaniment to the
proceedings, however, that gold has decided to bolt higher. In
addition to the currency driven speculation, Dow Jones is reporting
strong physical buying in Europe. Equity market problems are also
weighing on investors who traditionally view gold as a safe haven and
portfolio hedge.

Back to the subject at hand, we would issue a stern warning that
coordinated interventions hardly ever work beyond the short term --
except to ward off a percentage of the speculators. You will hear
much opinion over the next few days whether or not this intervention
has any teeth and I wouldn't be surprised to see the policy tested at
nearly every turn. In a certain sense, hedge funds, and other massive
capital vehicles, have become foils to government ambitions nearly as
powerful as the governments themselves, and I wouldn't be surprised
if that were to become a subject over the weekend. What good does it
do G7 to co-ordinate a policy that can be over-ridden by a group of
hedge funds who through the use of derivatives have the power to
print paper at pennies-on-the dollar and at a rate equal to most
central banks? As a result, don't be surprised if you hear reports
that derivative regulation is being discussed in Prague. It is a key
issue in which the Europe Union, beyond all others, has a major stake.

Beyond that, solid progress will have to made over the weekend toward
solving the Europe and the rest of the world's energy conundrum --
the fact that all nations must purchase the dollar before they buy
oil creating an auto-response inflationary problem in those
countries, an automatic and very strong market for the dollar to the
detriment of all other currencies, including the dollar, and serious
economic dislocation in those economies.

Finding that solution could mean a range of options from continued
interventions through the announcement of an international convention
to erect a new monetary arrangement among nations. The latter would
be the most intelligent step because at least it would create the
illusion that the G7 has a handle on the problem and would like to
see an orderly solution. The former is where we are likely to end up
because if G7 knew where to go next with the energy problem, or had
even a modicum of agreement within the Group, we would have seen some
trial balloons by now. As it is, the band aid has been applied to get
us through the weekend (seemingly) at least as far as public
perception is concerned.

Meanwhile we will stick with our earlier assessment that this will be
a tense meeting in Prague, and that it will likely have major
implications for gold. Diplomats and finance ministers should come
equipped with plenty of Rolaids and headache remedy.

As all this was being sorted and weighed, Democrat presidential
hopeful, Al Gore, awkwardly promoted an intervention of his own:
Selling down the U.S. national oil reserve to hold down gasoline and
heating oil prices. The Gore camp thought that such a bold move would
frighten the markets in much the same way a currency intervention
would -- and lo and behold, America awoke to that blazing headline
while a massive currency intervention was launched. Convenient. The
proposal once again shows how little our politicians understand about
markets, and how they they gravitate in knee-jerk fashion to the
quick-fix. Forget that such a move would have little to do with
solving the long term problem, which by the way, remains essentially
a systemic currency problem.