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Fiat -- Sharefin, 20:09:22 03/12/03 Wed

Banks seek change in hard-asset rule

It may be much ado about nothing, but a proposed change to the way commercial banks handle commodities has some hard-asset investors riled up.

The Federal Reserve, at the request of two giant banks, is considering a rule change that would let bank-holding companies take title of nearly all commodities, like barrels of oil, briefly. The request by Citigroup and UBS AG of Switzerland essentially would let banks deal in a wider range of hard assets when they are buying, selling or designing derivatives based on those assets.

Right now, banks on American soil use derivative contracts when they are buying, selling or structuring a loan, swap or other transaction that involves commodities. As U.S. Federal Reserve rules now stand, banks can take title of only precious metals when they are in the world of hard assets.

Commercial U.S. banks are said to hold more than $50 trillion of highly leveraged derivatives on their balance sheets, and even more on behalf of clients. (The latest derivatives numbers came out Wednesday - see below.) The growing amount of such contracts, which take the shape of forward sales, futures, options and dozens of other paper-linked transactions, led insurance executive Warren Buffett of Berkshire Hathaway (BRKA: news, chart, profile) to declare derivatives "financial weapons of mass destruction."

At the heart of the proposed rule change is the ability of banks to take title to hard goods on an "instantaneous pass-through basis." Critics contend that would limit or eliminate disclosure of derivative trades, say in the haywire energy markets. Such trades, involving billions of dollars of leveraged paper contracts, could ring alarm bells with investors if they became widely known, say some.

"It's just another rule change in a pattern of changes already well established, namely, to bend over backwards to give the banks everything they want regarding derivatives, including no disclosure," said James Turk, a former commodities financier and director of payment transaction company "Basically my reading is that this change to the regulations is consistent with Fed policy to give banks what they want."

Fiat -- Sharefin, 19:59:31 03/12/03 Wed

Treasurys see rare negative finish

10-year yield noses below October's four-decade low

A three-week Treasury market rally paused Tuesday amid stock market gyrations, but not before a punch through October's 1958 low for a benchmark 10-year yield.

Fiat -- Sharefin, 19:47:01 03/12/03 Wed

It could always get worse

Bonds, dollar suggest it's far from over

One place bulls have been able to point their horns to over the past year is the economy. It may be slow, but it is growing. Once geo-political concerns are cleared up, surely the positive economic fundamentals will take over, and stocks will begin to rally.

But on Friday, the U.S. Labor Department showed us that the economy could get worse, when it said that non-farm payrolls fell by a too-big-to-be-real 308,000 jobs in February.

Then the yield on the 10-year Treasury bond ($TNX: news, chart, profile), which my mortgage banker said two weeks ago couldn't get any lower, did.

And financial markets are now pricing in yet another interest rate cut by the Federal Reserve (see Economic Preview), suggesting rates would go lower yet.

Things can't really get so bad that the overnight rate will drop to 1 percent and start approaching zero, can they?

The Bankruptcy of The United States FYI -- Cyclist, 10:36:01 03/12/03 Wed

Subject: .The Bankruptcy of The United States
United States Congressional Record, March 17, 1993 Vol. 33, page H-1303
Speaker-Rep. James Traficant, Jr. (Ohio) addressing the House:

"Mr. Speaker, we are here now in chapter 11.. Members of Congress are
official trustees presiding over the greatest reorganization of any Bankrupt
entity in world history, the U.S. Government. We are setting forth
hopefully, a blueprint for our future. There are some who say it is a
coroner's report that will lead to our demise.

It is an established fact that the United States Federal Government has
been dissolved by the Emergency Banking Act, March 9, 1933, 48 Stat. 1,
Public Law 89-719; declared by President Roosevelt, being bankrupt and
insolvent. H.J.R. 192, 73rd Congress m session June 5, 1933 - Joint
Resolution To Suspend The Gold Standard and Abrogate The Gold Clause
dissolved the Sovereign Authority of the United States and the official
capacities of all United States Governmental Offices, Officers, and
Departments and is further evidence that the United States Federal
Government exists today in name only.

ChartsRus -- Sharefin, 04:37:55 03/12/03 Wed

This chart shows a different perspective to the Homestake vs Gold chart I posted prior.
Here you can clearly see that the general gold stocks were heading down from a high in 1927 through to the bottom in 1933.
It was in fact only after the sharemarkets bottomed & gold had been confiscated & the price raised that gold stocks began to head up on a major bull run.

Below this chart is a chart with the DJIA & Gold price on it with a common dateline so as to work out time relationships.

Fiat -- Sharefin, 22:51:42 03/11/03 Tue

European banks exposed to credit derivatives

Many European banks have used derivatives to load up on credit risk rather than reduce it in an attempt to boost revenue, leaving them exposed to any sharp economic downturn, a study showed on Monday.

Fitch Ratings, the credit ratings agency, said initial results from a survey of the fast-growing credit derivatives market showed three-quarters of European banks had used credit derivatives to improve their results rather than reduce their exposure to defaults and bankruptcies.

The $2 trillion credit default swaps market, which doubled in size last year, allows users to buy and sell insurance-like protection against companies or countries failing to pony up on their loans or bonds.

The wide-ranging Fitch study seeks to uncover who in the global financial industry has ended up holding risk in the opaque credit derivatives market.

"The credit derivative's market rapid expansion, immaturity and relative lack of transparency present unique risks," the Fitch report said.

Fiat -- Sharefin, 22:49:04 03/11/03 Tue

Bond Bubble in Europe?

To some financial experts, that means just one thing: A bond market bubble--inevitably to be followed by a bond market bust--is in the making.

How so? Start with sovereign debt, whose behavior often predicts how corporate bonds will fare. David Fuller, global strategist at Stockcube Research Ltd. in London, says euro zone government bonds are already oversold. Yields on German Bunds, the benchmark, have fallen from 4.92% to 4.02% over the past year. Although Fuller hesitates to use the word "bubble," he predicts "a shakeout in bonds." A quick end to the war with Iraq would hit government markets hard, he says. The equity markets would almost certainly revive, however briefly, leading investors to dump German, French, and Italian bonds. "They'd be wise to be out of government bonds once the offensive against Saddam Hussein gets under way," says Fuller. Even if stock markets fell again, he adds, the medium-term prognosis for bonds is bearish.

Fiat -- Sharefin, 22:45:51 03/11/03 Tue

Banks Are Pushing Germany to the Brink

The German stock market has been the worst performer in the developed world over the past three years, and most of the emerging world, as well. Yet it is possible that the worst is yet to come in Frankfurt, as this epic plunge in equity values has only recently begun to erode the creditworthiness of German stocks' majority holders -- large banks at the country's moldering core.

The slow-motion collapse has not induced the sort of public anguish in Germany that the bear market has engendered in the U.S. because relatively few of the nation's citizens are shareholders. But bank failures -- in the unlikely event they're allowed to occur -- could change that, because most German workers put their income in savings accounts and depend on an increasingly shaky latticework of bank-backed bonds for their retirement.

ChartsRus -- Sharefin, 21:37:13 03/11/03 Tue

Gold vs Gold Stocks vs US Indices

1927 Crash

Homestake Mining vs DJIA 1922-1936
Homestake Mining vs DJIA 1922-1936 - Log Format

Homestake Mining vs SP500 1923-1937
Homestake Mining vs SP500 1923-1937 - Log Format

1987 Crash

Homestake Mining vs SP500 1987 Crash
Homestake Mining vs SP500 1987 Crash - Log Format

Newmont Mining vs SP500 1987 Crash
Newmont Mining vs SP500 1987 Crash - Log Format

Gold -- Sharefin, 05:40:37 03/11/03 Tue

GFMS Sees Gold Fall on Decisive Iraq Win, Then Recovery

Gold prices could tumble if the United States goes to war with Iraq and wins a swift victory, but bullish fundamentals leave room for renewed strength, an analyst with precious metals research firm Gold Fields Mineral Services (GFMS) said Sunday.
"If the crisis is resolved quickly, this could result in a massive round of profit taking," Alway said. "However even if there is a downward correction in the price, we consider that the external economic and political factors will mean that sentiment toward the gold price will remain positive."
The build-up toward a war in Iraq aligned with a slew of other gold-positive factors since last year.

The weak dollar also played a major role in the rally, along with the drop in U.S. interest rates to 40-year lows, which eliminated the financial advantage in selling gold forward and unleashed a wave of buying by gold companies to unwind forward hedge sales put on to lock in prices when gold was weak.

Alway said gold has not yet appreciated enough to stop a projected decline in mine production since the slide in prices in the late 1990s made it uneconomical for many inefficient mines to operate.

According to his calculations, even at an average of $375 an ounce gold production would drop 25 tonnes year to year. Gold at $325 could mean a 100-tonne drop in production year to year. World gold mine production was about 2,600 tonnes in 2001 and an estimated 2,543 tonnes in 2002, according to GFMS.

Gold -- Sharefin, 05:38:02 03/11/03 Tue

GFMS foresees another 100 tonnes of dehedging

London based Gold Fields Mineral Services forecasts that the gold price will receive support from a further 100 tonnes of dehedging in the first half of this year. The research house expects the gold price to average $350, with a range of $330-$370 per ounce.
GFMS's Bruce Always said gold producers had lightened their hedge books for three consecutive years for a cumulative reduction of 350 tonnes.

Dehedging has played an important role in supporting the gold price since it began to rally strongly in late 2001.

Gold -- Sharefin, 05:26:33 03/11/03 Tue

PBOC plans to allow China's 4 major banks gold import-export opportunities to relieve shortages

The People's Bank of China (PBOC), the central bank, and the State Economic and Trade Commission (SETC) have applied to the State Council to open platinum trade on the Shanghai Gold Exchange (SGE), SGE's Administrative Office Manager Yin Bo told Interfax. Meanwhile the PBOC had agreed in principle to allow the four state-owned commercial banks to conduct gold importing and exporting.

The Shanghai Gold Exchange has been conducting a feasibility study on opening up its floor to platinum trading for quite some time, said Yin. However, Yin admitted there is a way to go before platinum can be traded on the Exchange due to value-added tax issues, which once were responsible for stalling the launch of the gold exchange.

Platinum import and consumption figures for 2002 have yet to be released. In 2001, Chinese companies imported a total of 40 tons of platinum, accounting for 55% of the world's total imports, while platinum consumption nationwide exceeded USD 2 bln, the world's highest.

Meanwhile, Yin also told Interfax that the PBOC had agreed in principle to allow the four state-owned commercial banks to conduct gold importing and exporting. The four state-owned banks are the Bank of China, the Industrial and Commercial Bank of China, the China Construction Bank and the Agricultural Bank of China.

The move, which will provide a conduit for foreign gold supplies to access the Chinese market, will significantly alleviate the physical gold supply shortages being experienced by the Shanghai Gold Exchange, noted one official, speaking on the condition of anonymity. The Shanghai Gold Exchange is currently off-limits to foreign gold suppliers and buyers. All its 108 members are domestic companies who have passed the exchange's stringent licensing requirements.

Yin hoped the PBOC initiative would also help dampen gold prices. "For 80-90% of the exchange's trading days, gold prices trade higher than on international markets," he said. According to statistics released by the Shanghai Gold Exchange, China is experiencing a gold supply shortage of 50-60 tons a year, with that gap likely to widened further over coming years if no measures are taken to increase gold supplies.

Fiat -- Sharefin, 05:23:42 03/11/03 Tue

Resource Fund Manager: Mining Financings "Need Integrity"

While he's calling for a strong commodity recovery by 2005, portfolio manager Bill Belovay described elements of mining equity markets as greedy and rife with conflicts.
Belovay, of Jones Heward Investment Counsel Inc., manages the BMO Resource Fund and the BMO Precious Metals Fund. Jones Heward is a unit of Bank of Montreal .

Mining and exploration companies need to "clean up their act" with more disclosure, more integrity and expertise, while "investment bankers and analysts need an integrity transfusion," Belovay said Monday at a large Canadian mining conference.

In his view, sell-side analysts have invented "far too many exotic methods of valuation," reminiscent of the high-tech revolution. These valuation methods influence mining deals, and weaken acquisitor companies because the companies feel pressured to buy "hot potatoes," Belovay said.

Long-term investors such as pension, insurance and mutual funds have been " sacrificed" and are being replaced by high-risk rollers who take short-term positions, he also said. For example, he referred to warrants as "lingering land mines" that only benefit hedge funds and devastate long-term shareholders' performance.

Belovay said investment decisions are "plagued" by the continued collusion of investment bankers, corporations and analysts. "We all know about it, there's nothing more that needs to be said about it," Belovay said of conflicts of interest, adding that broker research is "bad for your health - well, bad for your wealth."

He added that mining companies themselves need to release more details about their activities and finances. Resources are the lifeblood of the business, but are poorly disclosed, he said. For example, in some annual reports there's no hint of the company's sensitivity to commodity prices, to working cost changes, or to different capital expenditure requirements, Belovay said.

He also said a conflict of interest exists within mining companies, because reserves are calculated internally. "This is the same as a corporation approving their own financials - why isn't this done by an independent body, so a consultant would put its name down on the line and say these reserves are there or they're not there?" Belovay said.

As for prices, Belovay said he foresees a strong commodity recovery in 2005 as the European, U.S., Japanese and Chinese economies "awake." Gold, nickel and aluminum prices could rise about 25% by 2005, while the price of copper could double by 2005, he said.

Fiat vs Gold -- Sharefin, 05:18:16 03/11/03 Tue

Bush's War Will Unify Peoples Of The Muslim World And Promote The Gold Dinar As A Trading Currency.

The Islamic gold dinar was officially re- launched in November 2001 by the Islamic Mint in Dubai but, as Minews reported last November, its acceptance will take a very significant step forward when an electronic version is introduced later this year to settle bilateral trade among Muslim countries. This trading version of the gold dinar will go live at the Organisation of Islamic Conference which is due to take place in Kuala Lumpur in October when it will officially be introduced by the Prime Minister of Malaysia Mahathir Mohamad, The western world should reflect long and hard on this fact before it goes charging into war with Iraq as the dinar is a symbol of independence to the Muslim world. According to the Islamic Mint it was the currency of the Muslim community from its beginnings up until the fall of the Osmanli Khalifate.

At that time it was undermined by financial instruments from the west which did not conform to Shari'a. In its literal interpretation Shari'a means the ‘well worn path made by camels leading to the watering place.' What it means in real life is the path or pattern which Muslims strive to follow in their lives. Western currencies have held sway for many years now, but the Muslims have always held on to the idea of Ummah which is the vision of a single human family deriving its life and guidance from God and returning its life and obedience to him. The gold dinar could be the catalyst which helps the Muslim countries become a cohesive trading unit again and this could signal a major swing in geo-political power.

One of the five pillars on which Islam is built is zakat whereby all Moslems are required to contribute 2.5 per cent of their savings to the needy and disadvantaged in their community. This zakat cannot be paid in paper money which is an IOU from a government, but only in gold, silver or certain merchandises. Deep in the Muslim psyche, therefore, there is a deep distrust of western currencies. This was expressed in a very straight forward manner by Malaysia's prime minister when he explained to the Al Baraka symposium of Islamic Economies last year that “the use of the Islamic dinar will effectively create an Islamic trading bloc. The international trading version is quite achievable and can be the beginning of closer economic co-operation between Muslim countries.”
As we read in the newspapers of mass anti-war rallies in Indonesia and Pakistan it is worth reflecting just how big a slice of the world's population is accounted for by Muslims. The figure is 1.6 billion which compares with a paltry 60 million in the UK. And these people are not strange heathens as 90per cent of American citizens who have never applied for a passport to venture abroad seem to think. The Qur'an (Koran) in Muslim belief is the revelation to Muhammad in Arabia in the seventh century of the Christian era. To them Muhammad is a prophet and they recognise Jesus also as a prophet. That is why Christians are called People of the Book, because they too received exactly same revelation through their prophets. It is all explained in an excellent book called “What Muslims believe” by John Bowker and published by Oneworld, Oxford.

The economies of the countries of the Middle East and Asia have long been vulnerable to the exchange rate between their local currencies and those of the western world. As Mahathir Mohamad explained,. "The gold dinar could be an important facilitating mechanism to help the smaller countries of the world move away from an inherently unstable and ultimately unjust global monetary system," he said. Central to the proposed plan for the trading dinar is the requirement that central banks in member countries would settle dinar trade balances every three months by transferring the beneficial ownership of gold held in a custodian bank, such as the Bank of England. These central banks would then settle with exporters and importers in the local currency.

What is very clever is the way the dinar has been introduced as a simple gold coin well before its adoption in a major trading role. It will give the people of the Muslim world plenty of time to reflect on its significance as part of the Islamic cultural heritage. And people from other countries should ask themselves what it could do for the price of gold.

Fiat vs Gold -- Sharefin, 05:14:43 03/11/03 Tue

SDR to replace gold franc at the BIS

The Bank for International Settlements (BIS) today announced that the Special Drawing Right (SDR) would replace the gold franc as the Bank's unit of account as from 1 April 2003. This decision was made today at an Extraordinary General Meeting of member central banks of the BIS. The Bank also decided to take steps towards modernising its financial accounting and reporting practices.

Used by a number of international organisations, the SDR is an international unit of account defined by the IMF and based on a basket of major currencies. The gold franc has served as the unit of account for the BIS since its establishment in 1930.

Commenting on the change, Andrew Crockett, General Manager of the BIS, said: "I welcome the introduction of the SDR. Along with a strengthened accounting framework, it will assist in managing the Bank's operations and economic capital more efficiently and enhance the transparency of its accounts."

Mr Crockett added that the changes would not affect the fundamental nature of the BIS's banking activities and would not have any implication for its policy towards its holdings of gold.

Gold -- Sharefin, 05:12:47 03/11/03 Tue

Australian miners cut gold hedges by 800,000/oz

Australian gold miners, seeking to boost their exposure to firm bullion prices, cut gold hedging by 800,000 ounces in the fourth quarter of 2002 to 15.4 million ounces, investment bank JP Morgan said on Tuesday.

The drop follows a reduction in hedges in Australia by 734,000 ounces in the third quarter and a steady quarterly decline over several years, according to JP Morgan gold analyst Geoff Breen.

Hedging -- the act of selling yet unmined nuggets forward at fixed prices -- is a popular tactic to lock in revenue and thwart cyclical downturns in bullion prices. But in a rising market, miners run the risk of being forced to sell their caches below current value.

"There were over 45 million ounces of gold hedged in Australia just two to three years ago -- the landscape has shifted," Breen said.

Hedging has declined in all but one of the last 12 quarters, Breen said.
The remaining gold hedges in Australia were divided between 8.8 million ounces in the form of forwards and 6.7 million ounces as put options priced at an average A$615 an ounce, Breen said.

Buffett buying more Precious? -- giovanni dioro, 04:52:34 03/11/03 Tue

Commodities are classified under "other investments" in Berkshire's balance sheet. This number jumped 78.6% from last year, or by $1.78 Billion. While this asset class includes other assets besides commodities, such as commercial loans, it is definitely possible that Buffett has added to his silver stake with a similar investment in gold.

Buffett invested $700 million in roughly 130 million ounces of silver in late 1997. Silver is currently selling at about a 15% discount when compared to Buffet's cost per ounce.

Gold -- Sharefin, 02:53:33 03/11/03 Tue

The Ultimate Portfolio Insurance

Centuries have passed, but the yellow metal has not lost its glitter. Studies have revealed that portfolios that have included gold or gold shares have outperformed those portfolios, which included just stocks and bonds. Holding gold assets not only help in generating good long-term returns, but also help in reducing the risk element in periods of economic instability. It has been found that investment in gold and gold shares is best suited for long-term funds like the pension and retirement funds. Surely the glitter still remains.

Many techniques have been used to develop a solid program to hedge portfolio risk. But instead of just looking at sophisticated computer models and financial derivatives, perhaps we should simply turn to one of the oldest monetary assets known to man: gold.

Many extensive studies have found that holding gold assets (i.e. gold bullion or gold shares) as part of an investment portfolio may help to improve long-term returns while reducing risk versus holding just stocks and bonds.

Gold is one of the oldest monetary standards in the world. It is recognized by every country in the world, and many countries have actually used it as their currency at one time or another. Gold is liquid, it is portable, and its value is accepted everywhere.

Gold draws its strength as a preserver of wealth from its relatively consistent price parity with other commodities throughout history. Two studies have documented this historical stability. The first, The Golden Constant, by Roy W. Jastram, published in 1977, analyzes gold prices in comparison to other commodities, represented by the wholesale price index, in Britain and the United States. The second, Gold as a Store of Value, a Research Study for the World Gold Council by Stephen Harmston, extends this study to France, Japan and Germany.

The studies demonstrate that in these five industrialized nations, gold has historically maintained a stable purchasing-power parity, with the United States and Britain recording the most stable trends. (The purchasing-power parity of gold is calculated by dividing the gold index by the wholesale price index.) This relative stability can be seen in the graph, which compares the fluctuations in the gold index with the wholesale price index in the United States (see Figure1).

The trends in purchasing-power parity are comparable in each of these five countries. It is this historical consistency that makes gold an effective wealth preserver during economically unstable times. Consider the following quotes:

• "Over time, gold has proved to be an effective preserver of wealth. In periods of economic and social instability, when the value of other assets has been all but wiped out, gold has been a safe haven." Stephen Harmston, Gold as a store of value.

• "Gold provides a stabilizing effect in a world of entirely flexible currencies."-Economist Robert Mundell, 1999.

Gold bears point to gold's characteristic stability when they argue against investing in it. They state that returns on gold tend to underperform returns from stocks and bonds. However, when gold is introduced into a diversified portfolio, the portfolios diversified with gold outperform portfolios without gold.

Two separate studies, one performed by the World Gold Council and one conducted independently, determined that investment portfolios that include a 15%-25% weighting of gold or gold shares tended to outperform no-gold portfolios.

Gold -- Sharefin, 01:50:54 03/11/03 Tue


A very astute investor on the west coast and a friend of mine sent me the following e-mail message this past week. He is worried about our contention that gold can do well in a deflationary environment. That is a troubling concept to many investors who have only experienced gold performing well in an inflationary environment during the 1970's. For the benefit of all subscribers here is my friend's question followed by my response.

"With respect to the most recent hot-line update:

"As Ian Gordon has pointed out, gold does very well during the inflationary Kondratieff summers when inflation is THE problem. But it does even better during the Kondratieff winter, when deflation implodes a countries currency to oblivion."

"As I observed previously, Prechter is in direct contradiction to this premise, based as best as I can see, on following the course of events and charts from the LAST Kondratieff in 1930's ..

"Some resolution is needed between the contention on the one hand that Homestake and gold was a good hedge and a profitable position in the 30's deflationary depression, and on the other hand Prechter's claim that gold did not start to rise until the economy began to recover in the 30's.

"Perhaps the difference lies in the fact of the underlying debt which the U.S. is in this time around .. but that is pure speculation on our parts that 'this time is different' if Prechter is correct (?).

"This needs to be nailed down, it seems to me. As I said before, the divergence between yourself and Prechter is worrisome especially since you both seem to accept the Kondratieff cycle/validity, but come to divergent conclusions on the issue of gold."

My Response:

In fact the price of gold was fixed for Americans at $20.67/oz. Then reflecting the realty of the global market forces of supply and demand for gold, after taking the gold from the American people, Roosevelt devalued the dollar by increasing the leading monetary asset of that time, namely gold by nearly 69% to $35/oz. The depth of the depression was commonly believed to have been in 1932 or 1933. In January 1934, the price of gold was increased by decree from Roosevelt to $35, so it is correct to say that gold did not rise before the economy bottomed out. However, IT IS NOT CORRECT TO SAY THAT DEMAND FOR GOLD DID NOT RISE UNTIL AFTER THE ECONOMY BOTTOMED!

In fact, quite the contrary was true. In 1932 Hoover's Secretary of the Treasury reportedly warned his boss that so much gold was being demanded from the U.S. Treasury by U.S. citizens and from people abroad in exchange for paper dollars that the U.S. Treasury would soon lose all of its gold. That's why on January 31, 1934, Roosevelt forced American citizens to give up their gold or face a $10,000 fine and 10 years in jail. And as an aside, I think it is interesting to note that one day after the gold was stolen by the government from the American people, Roosevelt increased the price from $20.67 to $35. And get this! With the 69% revaluation of gold from $20.67 to $35, the government booked a $2 billion profit which it socked away in THE EXCAHNGE STABALIZATION FUND which according to GATA to this day is being used to manipulate the gold price.

But the point I am trying to make is that in the midst of the deflation, people were trashing paper money and demanding gold. Why? Because they KNEW, just as Japanese people today know that their money would not be safe in the bank. They instinctively opted for gold - an asset money rather than paper money which is a liability money!

Prior to the confiscation of gold, many Americans began gold and also Homestake Mining shares as a proxy for gold, just as investors are now doing. From 1929 through 1940, the closing year end prices of a share of Homestake Mining shares were as follows:

1929 - $78.50
1930 - $80.625
1931 - $128.00
1932 - $150.00
1933 - $315.00
1934 - $376.00
1935 - $486.063
1936 - $422.00
1937 - $471.00
1938 - $513.50
1939 - $468.00
1940 - $$404.00

While the DOW was mercilessly hammered in the Great Depression, Homestake Mining relentlessly appreciated.

Again, bear in mind that these huge increases in the price of Homestake came when major DEFLATIONARY forces were taking place. American bought gold shares as a proxy for gold because they were not allowed to by gold. But gold was in huge demand as money around the world when the value of the dollar was actually buying more! The fact is that as huge numbers of people and businesses were defaulting on their dollar obligations, people preferred to get paid in gold rather than paper because gold was an asset money while money that would retain its value even as massive defaults rendered paper money worthless.

Fiat -- Sharefin, 00:54:08 03/11/03 Tue

The dangers of derivatives

Leverage is a double-edged sword. Leverage enables derivatives to offer a more efficient use of capital for hedging or investing, and at the same time it reduces the amount of capital backing a given amount of price exposure (ie, the size of a position). Raising the risk-capital ratio weakens the stability of each investor, and in turn it increases everyone else's exposure to the repercussions from investor failure. In short, it increases system risk by socializing individual risk while privatizing the rewards.

The presence of a market for foreign exchange derivatives can undermine the stability of a fixed exchange rate system in several ways. Derivatives provide greater leverage (lower capital costs) and lower transactions costs for investors taking a position against the success of the fixed exchange rate. Such investors are often referred to as speculators, attackers or hedge fund operators. Lowering the costs of betting against the fixed exchange rate will only encourage this behavior and strengthen the effects of those efforts. The greater the volume of positions that are short the currency, ie, against the fixed rate regime, the greater the necessary size of central bank intervention or interest rate hikes needed to defend the currency peg.

The presence of foreign exchange markets means that the central bank is faced with the greater task of having to peg the exchange rate in two markets: the spot markets; and the forward or swap market for foreign currency. Whereas the spot market is generally large in relation to the amount of foreign reserves at the central bank, and thus the central bank's potential for intervention is small in regards to the overall size of the market, the size of the derivatives market is unlimited. Together they increase the critical size for a successful central bank intervention.

Another problem posed by the presence of foreign exchange derivatives markets is that price discovery process in those markets will, under many circumstances, indicate a future devaluation. There are two reasons for this. First, interest rates in developing countries are in most circumstances higher than in advanced capital markets or developed economies. This interest rate differential means that the equilibrium forward or swap rate will always be higher than the spot rate - thus indicating that the currency will depreciate at the rate as the interest rate differential. Second, if the credit market in the developing country is not perfectly efficient, then foreign exchange market makers will not provide forward and swap contracts at rates that do not include a market risk premium. If a market risk premium is added to the interest rate differential, then the forward and swap rates will indicate a greater rate of depreciation.

In the event of a devaluation or a sharp downturn in securities prices, derivatives such as foreign exchange forwards and swaps and TRS functioned to quicken the pace and deepen the impact of the crisis.

Derivatives transactions with emerging market financial institutions generally involve strict collateral or margin requirements. Asian firms swapping the TRS on a local security against LIBOR were posting US dollars or Treasury securities as collateral; the rate of collateralization was estimated at around 20 percent of the national principal of the swap.

If the market value of the swap position were to decline, then the East Asian firm would have to add to its collateral in order to bring it up the required maintenance level. Thus a sharp fall in the price of the underlying security, such as would occur at the beginning of a devaluation or broader financial crisis, would require the Asian firm to immediately add dollar assets to their collateral in proportion to the loss in the present value of their swap position. This would trigger an immediate outflow of foreign currency reserves as local currency and other assets were exchanged into dollars in order to meet their collateral requirements. This would not only quicken the pace of the crisis, it would also deepen the impact of the crisis by putting further downward pressure on the exchange rate and asset prices thus increasing the losses to the financial sector.

The BIS "Lamfalussy Report" defined systemic risk as "the risk that the illiquidity or failure of one institution, and its resulting inability to meet its obligations when due, will lead to the illiquidity or failure of other institutions". Similarly, contagion is the term established in the wake of the Asian financial crisis of 1997 to describe the tendency of a financial crisis in one country to adversely affect the financial markets in other, and sometimes seemingly unrelated, economies. It is the notion of systemic risk taken to the level of national and international markets.

The presence of a large volume of derivatives transactions in an economy creates the possibility of a rapid expansion of counterparty credit risk during periods of economic stress. These credit risks might then become actual delinquent counterparty debts and obligations during an economic crisis. The implication is that even if derivatives are used to reduce exposure to market risk, they might still lead to an increase in credit risk. For example, a bank lending through variable rate loans might decide to reduce its exposure to short-term interest rate variability, thus the volatility of its income, by entering into an interest rate swap as the variable rate receiver. If short-term rates were to rise, then the fair market value of the bank's swap position would rise, and thus would increase the bank's gross counterparty credit exposure above that already associated with the loans which were being hedged.

In so far that derivatives increase counterparty credit exposure throughout the economy, they increase the impact of one entity becoming unable to fulfill its obligations. And to the extent that derivatives are not used to reduce firms' exposure in the market, then the greater leverage brought to speculative investments increases the likelihood of such a failure. In this way, derivatives contribute to the level of systemic risk in the financial system.

The presence of derivatives can also increase the global financial system's exposure to contagion by the international nature of markets. Many derivatives involve cross-bred counterparts and thus losses of market value, and credit rating in one country will affect counterparts in other countries. The second channel of contagion comes from the practice of financial institutions responding to a downturn in one market by selling in another. This demand for collateral assets can be sudden and sizable when there are large swings in financial markets, and thus this source of contagion can be especially fast and strong.

The process of policy formation was much more straightforward in the wake of the 1980s' debt crisis. The borrowers were mostly governments, and the private lenders were the large money center banks. This meant a single representative borrower for each debtor country was therefore represented by a single borrower, and the key lenders could be gathered into a single room. Together with the relevant multilateral institutions, all the parties could negotiate a plan to restructure debt payments.

The policy making process became much more complicated in the 1990s. There were many different private and public debtors and issuers of securities. There were many investors and many different types of claims on parties in the affected developing countries. Capital flows in the form of stocks, bonds and structured notes meant that there were hundreds of major investors and millions of lesser investors. These claims were all the more complicated because of derivative contracts. Derivatives added to both the number of potential counterparts and raised problems as to who held the first claim on outstanding debts and other obligations.

Moreover, losses on derivatives are not the same as late payments on loans. Debt payment problems do not necessarily have to result in loses to either side. Some loan payment problems are short-term liquidity problems that can be solved by merely restructuring the loan payment schedule. Derivatives losses, in contrast, are already lost and cannot be mitigated. These loses must be paid immediately, although the payments can feasibly be financed by acquiring additional debt. What is more, changes in market interest rates and exchange rates can cause derivatives losses to occur more suddenly, accumulate more quickly and sum to greater magnitudes than the losses associated with dollar denominated variable rate bank loans.

Fiat -- Sharefin, 00:50:49 03/11/03 Tue

Fed's Poole: Fannie Shocks Could Spread

An unexpected financial shock at either of the top U.S. home finance companies, Fannie Mae or Freddie Mac, could inflict heavy damage to the U.S. economy, St. Louis Federal Reserve Bank President William said on Monday.

"Should either firm be rocked by a mistake or by an unforecastable shock, in the absence of robust contingency arrangements the result could be a crisis in U.S. financial markets that would inflict considerable damage on the housing industry and the U.S. economy," Poole said at a conference on the two government-sponsored enterprises, or GSEs.

Surprises that destabilize financial markets can and do occur with some frequency, Poole said. Because of the scale of the short-term debt obligations of Fannie Mae and Freddie Mac, a problem at either company could spread quickly, he said.

"A market crisis could become acute in a matter of days, or even hours," Poole warned.
The regional Fed bank president expressed concern that ties the two companies have to the government have led to a perception in the market that the government would rise to the rescue in the event of a crisis, even though their debt carries no federal guarantee.

Poole recommended the government withdraw one of the advantages Fannie Mae and Freddie Mac enjoy -- the Treasury's ability to lend either firm billions of dollars. This would make clear to markets the U.S. government feels no obligation to guarantee the companies' debt.

Fannie Mae and Freddie Mac also should be required to hold greater capital, Poole said, noting their capital is well below the levels required of banks. "My sense is that the firms are vulnerable to nonquantifiable risks because their capital positions are so low," he said.

Fiat -- Sharefin, 00:13:56 03/11/03 Tue

Buffett says large reinsurer stops paying claims

Billionaire investor Warren Buffett said a large unnamed reinsurer has "all but ceased paying claims," which he said would lead to billions of dollars of write-offs by insurers who bought policies from the company.

His comments, along with general unease over the economy and a potential war, sent insurance stocks sharply lower in Europe and the United States.

Fiat -- Sharefin, 00:12:48 03/11/03 Tue

Tokyo nervous after latest North Korea missile test

As the United States and its allies focus on Iraq, North Korea is refusing to be ignored.

Politicians in this region are trying to play down Pyongyang's latest test-firing of a cruise missile into the Sea of Japan, but the people of Tokyo, who are well within missile range, are getting very nervous and regional financial markets are also feeling jittery, with the Nikkei Index at a twenty year low and a big sell-off of the South Korean Won.

Fiat -- Sharefin, 00:11:25 03/11/03 Tue

Fingers are pointing in the direction of Iraq to explain why Tokyo stocks hit a new post-bubble low Monday, but analysts say the blame may lie closer to home.

The Nikkei 225 index closed at 8,042.26, down 101.86 points, or 1.25 percent, from its close Friday. The index briefly dropped below the 8,000 mark in early afternoon trading, for the first time since March 1983.

The continued slide in stock prices, which began last week as a U.S.-led attack on Iraq began to appear inevitable, rang alarm bells with banks and life insurers. They are preparing to book their large shareholdings at the end of the fiscal year this month. Analysts say other major businesses are facing the same problem.

From the Far Side -- Sharefin, 23:59:40 03/10/03 Mon

Ist unser Gold bei Kriegsherr Bush noch sicher?

From the Far Side -- Sharefin, 23:57:30 03/10/03 Mon

Swiss may want to re-take physical delivery
(teo) Mar 09, 20:36

Big Headline today in the major Swiss sunday paper "SonntagsBlick":

Swiss politicians worried about US holding Swiss gold. The Social Democrat
Party announced they would ask the Federal Council (ie the government) to
check the possibility of calling back the Swiss gold reserves HELD IN THE
UNITED STATES OF AMERICA as it was no longer safe there should the US get
engaged in an Iraq war.

The article also said nobody knows where and how much exactly of the Swiss
gold is deposited in the US. Wait for public outcry when they realize that
their gold is not only unsafe in the US but already sold by the US bullion

Here is a link to the original story, in German.

Here is an Altavista Babelfish translation for those that read English but
not German. The translation is not perfect, but I think you get the idea. As
Kurt says the Swiss are a little concerned about how safe their gold is, if
Bush goes to war.

Article from 9 March 2003/source: Sundays view

Is our gold still safe with war gentleman Bush?


Where do the 2000 tons of gold reserves of Switzerland lie? The central bank
is silent. According to rumors a majority is to be loaded hoppers of it in
the American Fort Knox. That could have uncomfortable consequences, if US
president Bush without UN mandate pulls into the war.

"white I", does not say the inhabitant of zurich SVP national council Bruno
Zuppiger, member of the finance committee. "white I", does not say the pc.
Galler CVP national council Felix Walker, Mitglied of the financial
delegation and former boss of the Raiffeisen banks. "white I", does not say
those Bernese to FDP Nationalraetin Kaethi Bangerter, member of the bank
advice of Swiss central bank (SNB) and the finance committee.
The question, the Sundays view this week to some financial politicians
placed: Where is our gold? Where does the central bank keep its gold
reserves? The "national wealth", of which so much is the speech, because it
is sold to the half and the use of proceeds is politically disputed. The
"gold treasure", which amounts at present still to approximately 2000 tons.

Where is our gold? Exactly that wants to now know that Bernese FR national
council Paul Guenter. In the question time of the parliament Monday the
safety politician places tomorrow to the Upper House of Parliament three

Is it correct that the gold reserves of Switzerland are stored to a
substantial part in Fort Knox in the USA?
Are there still substantial gold camps of Switzerland at other places and in
other countries?
How rapidly, under which circumstances and of whom this gold can is if
necessary withdrawn?
The gold mystery. Today there are only rumors. A part is to store under the
federal place in Berne. A part in Fort Knox in the US Federal State Kentucky,
most important repository of the US gold reserves and depot of all European
central banks. A further part in London, the center of the international

Sundays view inquired with the central bank. But speaker Werner Abegg gives
itself covered: "over the gold the most diverse rumors circulate to the
central bank. For safety reasons it is not possible for us to commentate
and/or rectify it." Only so much can be drawn the speaker of Swiss issuing
bank: "the gold is stored at different places abroad the in and." According
to Abegg after the slogan: "the intelligent farmer does not put all eggs into
the same basket."

The fear is clear: The gold could be stolen. The fear seems so large that the
central bank refuses each still so small specifying to the repository
(countries, continents).

FR man Guenter has completely different doubts. "if it tunes that a majority
of the gold lies in Fort Knox, then is extraordinarily uncomfortable the
situation. If the USA lead an Iraq war without UN mandate, the gold is there
at the wrong place - then it must be fetched back."

It justifies: "at a prominent nation we cannot keep nevertheless our gold for
war. And which is, if the USA, which act in the Iraq question scruplesless,
extort us suddenly with the gold?" Guenter is afraid that the USA could
freeze the gold. "that would be a clear offence against international laws.
There we would have to resist with the Court of Justice in Strasbourg (F) ",
say ourselves to that Bernese SVP national council and financial politician
Hermann Weyeneth.

Retreat of the gold. That demanded before five years also the Appenzeller CVP
Staenderat Carlo Schmid. When in the Holocaust debate a US collecting
complaint threatened against the central bank, it required: "all gold
reserves in the USA must be withdrawn." If the gold is really there. Safe is
only: Originally the SNB had 2600 tons. Half is sold, to end of 2002 left to
660 tons. Daily a ton is sold at present, for approximately 15,000 Franconias
the Kilo

Do we know more on Monday? Hardly. Minister of Finance Kaspar Villiger is not
betrayed also in the parliament, where the treasure is kept. For "safety
reasons". "those have nevertheless something to hide", argwoehnt Guenter.
That Bernese financial politician Weyeneth scoffs: "those probably think,
Napoleon come back. And it transports the gold starting from as before 200
years Bernese the treasury."

Gold -- Sharefin, 23:39:19 03/10/03 Mon

Blanchard vs Barrick - Second Supplemental and Amended Complaint - pdf file

, through undersigned counsel, come Plaintiffs Blanchard
and Company, Inc. ("Blanchard"), Herbert Davies ("Davies"), and James F. Holmes
("Holmes") and file this Second Supplemental and Amended Complaint for Injunctive
Relief against Defendants, Barrick Gold Corporation ("Barrick"), and J.P. Morgan Chase
and Co. ("J.P. Morgan"), and ABC Companies. Plaintiffs adopt by reference and
incorporate all the allegations and paragraphs of their original Complaint for Injunctive
Relief and their First Supplemental and Amended Complaint as if fully set forth herein
and supplement and amend as follows. This Second Supplemental and Amended
Complaint contains the same allegations of fact and law as set forth in the First
Supplemental and Amended Complaint, except with respect to Paragraphs 34, 38, 52, 87
and 94. Except for Paragraphs 34, 38, 52, 87 and 94, all other allegations of fact and law
remain the same as set forth in the First Supplemental and Amended Complaint.


1. Federal Question Jurisdiction. Pursuant to 28 U.S.C. § 1331, this Court
has federal question jurisdiction as this action arises under the Sherman and Clayton Acts,
15 U.S.C. § 1 et seq. and 15 U.S.C. § 12 et seq., respectively, and the Commodities
Exchange Act, 7 U.S.C. § 1 et seq.. Supplemental jurisdiction over the state law cause of
action pleaded herein arises under 28 U.S.C. § 1367, in that the state law claim is so
related to the federal question claims that it forms part of the same case or controversy.

2. Venue. Venue in this district is proper. Barrick is a Canadian corporation
with significant contacts with the United States of America, including without limitation,
the ownership and operation of extensive mining facilities in this country. The Alien
Venue Act, 28 U.S.C. § 1391(d), provides that an alien may be sued in any district. J.P.
Morgan is one of the largest banking institutions in the United States. 15 U.S.C. § 22
provides that an antitrust action against a corporation may be brought in any district
where the corporation transacts business. Upon information and belief, J.P. Morgan
transacts business in this district.

3. Personal Jurisdiction. 15 U.S.C. § 22 provides in full: "Any suit, action,
or proceeding under the antitrust laws against a corporation may be brought not only in
the judicial district whereof it is an inhabitant, but also in any district wherein it may be
found or transacts business; and all process in such cases may be served in the district of
which it is an inhabitant, or wherever it may be found." Because 15 U.S.C. § 22 provides
for worldwide service of process in federal antitrust actions, Barrick and J.P. Morgan,
which upon information and belief have the requisite "minimum contacts" in the United
States and specifically in this district, are both subject to personal jurisdiction in this


4. Plaintiffs
(a) Blanchard is a corporation organized and existing under the laws of the
State of Louisiana with its principal place of business located at 909 Poydras Street, New
Orleans, Louisiana 70112. Blanchard is a retail dealer in rare coins and precious metals.
(b) Davies is a natural person of full age of majority who is a domiciliary and
resident of Montgomery County, Pennsylvania. Davies is an individual investor in gold
and/or gold coins.
(c) Holmes is a natural person of the full age of majority who is a domiciliary
and resident of Jefferson Parish, Louisiana. Holmes is a partner in a gold mining

5. Defendants
(a) Barrick is a corporation organized under the laws of Canada, with its
principal place of business at 200 Bay Street, Toronto, Canada. Barrick is one of the
largest gold mining companies in the world.
(b) J.P. Morgan is a corporation organized under the laws of Delaware, with
its principal place of business at 270 Park Avenue, New York, New York. J.P. Morgan is
one of the largest banking institutions in the United States.
(c) Fictitious Defendants ABC Companies represent all of the unknown
Defendant corporations that participated in the antitrust violations set forth in this
complaint. ABC Companies will be replaced with the specific names of such
corporations as soon as their identities have been ascertained.


6. This antitrust action is based on the unlawful combination of Barrick, one
of the largest and most powerful gold mining companies in the world, and the bullion
banks, including without limitation J.P. Morgan, with which it has contracted. Engaged
in far more than mere "hedging" to protect against price fluctuations, Defendants have
violated United States' antitrust law by unlawfully combining to actively manipulate the
price of gold through a process whereby millions of ounces of gold are removed from
central bank vaults and physically sold into the spot market, repeatedly driving down the
spot price or suppressing a rally in the spot price. Barrick and the bullion banks have
benefitted from the suppressed price of gold at the expense of individual investors, gold
retailers (of which Blanchard is the largest in the U.S.), and gold producers.

7. Plaintiff, Blanchard, as a retail dealer of gold and other precious metals,
Plaintiff, Davies, as an individual investor in gold, and Holmes, as a partner in gold
mining enterprise, have suffered and will continue to suffer damages as a direct and
consequential result of the violation of the antitrust laws that the Defendants have
committed. In addition to damages already incurred, Plaintiffs also face a threatened

8. This suit seeks injunctive relief pursuant to Section 16 of the Clayton Act
and the Louisiana Unfair Trade Practices and Consumer Protection Act, in the form of an
order of the Court directing that the Defendants cease and desist from, and otherwise
terminating, the unlawful scheme and combination that they have engaged in violations of
the United States' antitrust laws and the Louisiana Unfair Trade Practices and Consumer
Protection Act. Plaintiffs are subject to a threatened injury that makes injunctive relief
appropriate under the circumstances.

Barrick's Rapid Growth Through Acquisitions

9. Gold mining companies have traditionally grown through exploration.
Barrick, however, catapulted from obscurity to the dominant player in the industry
through other methods. In 1983, Barrick was incorporated as a relatively small Canadian
company with a single mine in that country. Less than twenty years later, Barrick has
become the world's second-largest gold producer with the largest market capitalization in
the industry. Barrick produced 6.1 million ounces of gold in 2001, and has proven gold
reserves of 82.3 million ounces. Barrick has the industry's only "A" credit rating, and its
off-balance sheet assets have been worth more than the market capitalizations of the next
five biggest gold mining companies in the world - combined.

10. Barrick's process of transforming itself from a small, upstart mining
company into an enterprise that could negotiate and take advantage of the favorable terms
involved in its "Premium Gold Sales Program," discussed below, centered in large part on
what former Budget Chief Leon Panetta described as a "multi-billion-dollar rip-off."
In the late 1980s - around the same time that the "Premium Gold Sales Program" began -
Barrick acquired private claims to the prized Goldstrike property, located on federal land
in Nevada. In exchange for less than $10,000, Barrick obtained rights to gold deposits
worth more than $10 billion. Barrick Goldstrike is now the largest gold mine in North
America. With the Goldstrike property bolstering its reserves and production capacity,
Barrick embarked on a program of growth through acquisitions. Key components of the
expansion plan were the so-called "Premium Gold Sales Program," discussed below, and
the related steadily declining price of gold.

11. When Barrick began its "Premium Gold Sales Program" in 1987, the
average price of gold was $450 per ounce. Over the following 14 years, Barrick's
"Premium Gold Sales Program" steadily grew in size and market impact. By 2001, the
average price of gold had fallen to $271 per ounce. Over that same 14-year period, as
other producers struggled to survive the tremendous and unrelenting decline in price,
Barrick grew exponentially by acquiring a number of gold mining and exploration

12. In 1994, for example, Barrick took over Lac Minerals, Ltd., an
international gold mining company with operating mines in Canada, the United States,
and Chile. The acquisition gave Barrick control of the El Indio belt, one of the richest
gold districts in South America. The district also included the Pascua-Lama Property,
now unified as the Pascua-Veladero District as a result of Barrick's merger with
Homestake Mining (discussed below). With gold reserves of over 25 million ounces and
71.3 million ounces of silver reserves, Pascua-Veladero is the largest undeveloped gold
and silver mining property in the world.

13. Two years later, Barrick bought out Arequipa Resources Ltd., a natural
resources company engaged in the acquisition and exploration of mineral properties in
Peru, including the Pierina early exploration stage property. Within four months of the
acquisition, Barrick brought an initial 6.5 million ounces of gold into reserves at Pierina.
The property commenced production in November 1998, and has produced over 2.6
million ounces of gold through December 31, 2001, at an impressively low average total
cost of $42 per ounce.

14. The year 1999 marked Barrick's expansion into a third continent, Africa,
with the acquisition of Sutton Resources, Ltd., an exploration company with mineral
properties in Tanzania, including the Bulyanhulu Gold Project. In 2000, Pangea
Goldfields Inc., with properties in Tanzania, Canada, and Peru, fell into Barrick's ever-expanding
empire. Barrick's buying spree culminated in 2001 with the acquisition of
125-year-old Homestake Mining Company. Homestake, a large S&P 500 enterprise with
gold reserves of 20.8 million ounces spread across North America, South America, and
Australia, was Barrick's biggest acquisition to date. At the time of the announced
merger, Barrick boasted that the acquisition would result in a company with the highest
earnings and cash flow in the industry and a market capitalization of $9 billion - double
that of the nearest competitor.

15. Barrick's rapid growth from obscurity to dominant global mining
enterprise was unprecedented. So, too, was the program by which the company, together
with crucial assistance from J.P. Morgan and other bullion banks, made it happen.

Defendants' Premium Gold Sales Program:

The Vehicle for Price Manipulation
16. A short sale of gold is a technique used to take advantage of an anticipated
decline in the price by borrowing gold and selling it immediately into the spot market. In
making short sales, producers borrow gold from bullion banks, who in turn borrow that
gold from central bank reserves. The producer (or the bullion bank acting for the
producer) then sells the gold into the spot market, leaving the producer with the
obligation to repay the gold loan at some time in the future. The producer invests the
proceeds from the sale in money-market instruments that provide a higher return than the
lease rate on the gold. The difference between the rate of return and the lease rate (the
"contango" or "interest premium") is profit to the producer, as long as the price of gold
doesn't go up.

17. The inevitable criticism of short selling is that, in buying an asset and
selling it into the market, the short seller adds additional supply that serves to depress the
price. However, the universal answer to that criticism is that short sales are normally for
short periods of time, and the depressing effect of the short sale will be exactly offset by
the stimulating effect that occurs when the short seller covers by buying and delivering
the asset.

18. Since most short sales of gold require that the repayment of the gold must
occur in a relatively short period of time, they involve a very real element of risk. The
maximum return that a short-seller can realize, if the asset sold short becomes completely
worthless, is the amount of sale. However, since the upside potential of the asset is
unlimited, so is the amount of the short-seller's potential loss. The inherent risks create
the requirement for collateral (margin) for short positions in stocks and in exchange
traded stock options and commodities. If the price moves against the short-seller, he is
required to post additional margin to make up for the difference in his position.

19. Because of the unlimited risk, and because of the requirement that he put
up additional margin as prices move higher, the short seller is normally forced to
scramble to cover his short positions whenever the price of gold moves up. When short
sellers cover their short positions, their covering reduces supply, pushing the gold price
even higher.

20. In 1987, as Barrick moved to take over what would become North
America's largest gold mine from the American public, the company, in concert with J.P.
Morgan and other bullion banks, began an off-balance sheet program that would enable it
to manipulate the price of gold for an indefinite period of time. As other gold mining
companies with higher operating expenses buckled under a 14-year slide in the price of
gold - from an average $446 per ounce in 1987 to $272 in 2001 - Barrick had the money
to go "bargain shopping." Barrick, which emerged from a decade of expansion as an
industry Goliath, calls its off-balance sheet price manipulation scheme the "Premium
Gold Sales Program." Barrick boasts that, since 1996, the program has generated over
$1.7 billion in additional revenue for the company.

21. Barrick describes its "Premium Gold Sales Program" as "a hedging
program." But such a label is misleading, since the program's mechanics are unlike any
hedging program as that term is commonly understood, and because the program has as
its purpose the unlawful goal of price manipulation.

22. Hedging generally is regarded as a transaction that reduces risk on an
already existing position, such as all or part of an annual production of a specific
commodity. Barrick's "Premium Gold Sales Program," however, involves something far
different than a simple agreement by Barrick to sell an annual production at a fixed price.
The program involves a unique arrangement whereby Barrick, and the bullion banks with
which it operates in combination, can flood the market with central bank gold - with an
unbelievably insignificant amount of financial risk.

23. Barrick's "Premium Gold Sales Program," like "hedging," does involve a
promise by the company to deliver gold at some future point in time. But that is where
any resemblance to traditional "hedging" ends. Because gold, unlike other commodities,
is stored in vast quantities in numerous central banks throughout the world, it is possible
for Barrick to leverage its gold reserves with central bank gold to generate income in the
form of "contango" The process generally works as follows:
A. When Barrick engages in a "Premium Gold Sales Program" transaction, a
bullion bank, such as J.P. Morgan, borrows gold from a central bank, then sells the gold
into the spot market. This step of the program involves the physical removal of gold from
the central bank and the physical sale of such gold into the market; it is not a mere paper
B. The bullion bank takes the money raised by the sale of the borrowed gold
and deposits it in the bank, where it earns interest (for example, 5%). The bullion bank
pays the central bank a lower "gold lease rate" for the borrowed gold (for example,
1.5%). The difference between the gold lease rate and the bank deposit rate (in this
example, 3.5%) is called "contango."
C. Barrick, for its part in the transaction, agrees to deliver gold to the bullion
bank at some point in the future. When Barrick does deliver the gold, which it has either
produced or bought, the bullion bank in turn sends it to the central bank in satisfaction of
the outstanding gold lease. Barrick then receives the original proceeds from the spot sale
of the borrowed gold, plus the "contango."

24. The effect of Barrick's "Premium Gold Sales Program" is to control the
price of gold, which is price manipulation. Barrick's price manipulation could not take
place without the integral assistance of J.P. Morgan and other bullion banks. For it is the
bullion banks who hold the keys to unlock vast quantities of gold from central banks -
gold that, through coordination with Barrick, can be, and frequently is, dumped onto the
spot market to drive down the price or stall a rally.

25. The impact of the "Premium Gold Sales Program," and Barrick's ability to
use it as a means of suppressing the price of gold, is based upon the unique terms of the
contracts that Barrick and the various bullion banks have crafted. J.P. Morgan and other
banks have, for the past fifteen years, entered into contracts with Barrick that place the
company in an unparalleled position to sell forward tremendous quantities of gold with
minimal risk.

26. Barrick enters into what it calls "spot deferred contracts" with J.P. Morgan
and other bullion banks at impressively favorable terms for Barrick - terms that other
gold mining companies could not secure, that enable it to periodically manipulate the
price of gold upward, as well as downward, and to profit from doing so.. Pursuant to
these spot deferred contracts, Barrick can postpone indefinitely the date on which it must
provide gold to the bullion banks. The initial spot deferred contracts allow Barrick to
postpone the gold delivery date for 10-to-15 years, at Barrick's sole discretion.
Moreover, the contracts contain "evergreen" provisions that restart the 10-to-15 year
repayment deadline each year unless the bullion bank takes affirmative steps to override
the "evergreen" clause - something no bullion bank has ever done in connection with a
Barrick spot deferred contract.

27. Further augmenting Barrick's power is the fact that its spot deferred
contracts do not allow the bullion banks to make margin calls - ever. The price of gold
could collapse or skyrocket, and Barrick would never be faced with a margin call.
Together with the indeterminate delivery date and vast gold reserves from which to
engage in large spot deferred contracts, Barrick and the bullion banks have put together a
program no other company can match.

28. Barrick recognizes that its "Premium Gold Sales Program" is unique. As
Barrick states: "Backed by the industry's only A-rated balance sheet, Barrick's credit
lines are unparalleled, while Barrick's proven assets give it the production capacity to
cover its hedge positions. As a result, no other company can match Barrick's ability to
roll contracts forward - as far as 15 years in some instances." Barrick admits that, "[t]o
[its] knowledge, no other gold producer has available to it the combination of margin-free
hedging, 10 to 15 year terms and flexible delivery dates that are available to Barrick."
The result: in combination with its bullion banks, such as J.P. Morgan, Barrick, alone
among gold mining companies, is positioned to manipulate the price of gold, at will, with
extremely limited downside risk.

29. Since Barrick is able to defer repayment of the borrowed gold and has no
margin calls at any gold price, it is able to do just the opposite of the normal short-seller
when gold prices rise. While other short sellers have to cover or add additional margin
when the price of gold goes up, Barrick already has pre-arranged derivative contracts in
place that give it the ability to add to its short positions at the higher prices. Rather than
being forced to cover its short sales, pushing the gold price higher, Barrick is able to add
large amounts of physical supply as the market hits those higher prices, eventually serving
to drive the price back down. By adding to its short sales at the higher prices, Barrick
increases the "contango" or interest premium it earns; increases its short-selling profit
when the market turns down; and adds physical supply that helps to depress the price,
adding a self-fulfilling element to its short sales of gold.

30. The best of all possible worlds for Barrick is one in which the price of
gold periodically goes up, permitting Barrick to make its short sales at the highest
possible price, but then falls again, giving Barrick an additional profit over and above the
"contango" or interest premium.

31. Because of the extraordinary flexibility of its derivative transactions with
J.P. Morgan, and particularly their long and variable durations until expiration, Barrick
can afford to manipulate the price of gold upward (i) by making negligently or
deliberately false or misleading statements that supposedly communicate its bullish
prognosis and plans for gold, and its intention to make changes to its short positions that
would serve to reduce physical supply; (ii) by sponsoring bullish investment
representations about gold by the World Gold Council that are negligently or deliberately
false or misleading; and (iii) by sponsoring the publication of bullish statistical data about
gold's supply/demand fundamentals that Barrick knows to be false, and knows to be false
because of Barrick's own activities.

32. Barrick manipulates the price of gold downward by injecting massive
amounts of additional supply through its short sales of gold - short sales that have a
negative impact on the gold price equal to the amount of the sale and which, because of
the interest premium it earns, Barrick has a strong financial incentive to leave in place for
15 years or more.

33. Barrick has recognized that it has the ability to manipulate gold prices. In
an interview in the June 1, 2001 edition of the Canadian Mining Journal, Barrick's Chief
Financial Officer, when asked if the company's hedging depressed the price of gold,
responded: "No, not over time. We are careful to manage the hedge position so as not to
disrupt the gold price." The CFO merely confirmed what is obvious from the company's
size, and the scope of its Premium Gold Sales Program, effected in combination with the
bullion banks: Barrick is capable of using its "hedging" program to move the price of gold.

34. Paragraph 34 is intentionally deleted in its entirety.

The Gold Sales Program Is Used to Manipulate Price

35. Barrick has done far more than make advance arrangements to safeguard
itself from losses should the price of gold decline. Instead, the very program that
ostensibly exists to protect Barricks downside exposure serves as a means of (a) locking
in guaranteed minimum gold prices for years' worth of Barrick's production, while (b)
suppressing the price of gold in order to weaken competitors and enhance acquisition
opportunities. Because of its highly favorable contracts with J.P. Morgan and other
bullion banks, Barrick accomplishes its goals with minimal financial risk.

36. Unlike a typical company engaging in forward sales, Barrick is not
constrained by the fear that, should too much future production be locked in at a
particular price, a significant rise in the price of gold would lead to too-great an
opportunity loss, or worse, financially painful margin calls from the bullion banks.
Instead, Barrick's forward sales contracts do not have margin calls, and if the price of
gold unexpectedly and uncontrollably rises, Barrick can sell current production into the
higher-priced spot market and roll its obligation to repay the bullion banks into the distant
future. Consequently, Barrick's "Premium Gold Sales Program" puts the company in an
unprecedented position from which it can manipulate gold prices. Barrick, in
combination with J.P. Morgan and other bullion banks, can dump millions of ounces of
tangible central bank gold into the spot market at any time without risking the company's
financial future. In fact, as further discussed below, such conduct is highly favorable to
Barrick, weakening its competitors and allowing it to acquire additional reserves at
bargain prices.

37. Barrick's "Premium Gold Sales Program" allows manipulation by
preventing the normal laws of supply and demand from determining the price of gold.
Barrick has suppressed the price by its combinations and contracts with J.P. Morgan and
other bullion banks whereby significant amounts of additional gold, once locked and
stored in the vaults of central banks, are physically sold into the marketplace.

38. The resultant weak gold prices have not harmed Barrick because of the
guaranteed minimum prices from the forward sales contracts. In prior years, Barrick
delivered all of its gold production to cover forward sales contracts, rather than sell the
production into the depressed spot market, while entering into additional spot deferred
contracts to increase the total volume of gold entering the market. At the same time, it
took advantage of its weakened competitors, who did not have analogous "Premium Gold
Sales Programs" of their own with which to withstand Barrick's price suppression
activity. As Randall Oliphant, Barrick's President and CEO, stated on May 8, 2002:
"With weak gold prices we acquired quality assets when others lacked the confidence to
build their asset bases." Two years earlier, Mr. Oliphant said: "Hedging allowed us to
seize the opportunity to buy the Bulyanhulu Mine as the gold market was headed down.
Isn't that what business is all about - buying good assets for a good price? You can't be
opportunistic without money - and the confidence to act." Of course, Barrick's
confidence no doubt was boosted by its unparalleled ability to flood the gold market with
additional physical supplies that, in some years, exceeded global investment demand;
exceeded the net amount of physical supply added by the world's two dozen major
bullion banks, combined; and exceeded the net amount of physical supply added by the
world's major hedge funds, combined. These massive injections of supply inevitably had
a downward impact on price. And Barrick has had the ability to scale down or terminate
its forward-selling activity and create a positive pricing impact - all at its discretion.

The Manipulation Has Been Unchecked

39. On January 31, 1996 the international press reported that the world's most
profitable gold-mining company, Barrick Gold Corporation, had announced changes in its
hedging policies (short positions) which could mean higher prices for gold. Barrick said
that, in the future, it would hedge (make forward sales) in an amount equal to only two
years' production - down from the standard three-year amount. That would cut the
amount of Barrick's short position from 8.9 million ounces to 5.9 million ounces, the
biggest adjustment Barrick had ever made. Barrick's Founder and CEO and other Barrick
officials said there would be less forward selling, which should push world prices

Gold -- Sharefin, 23:36:41 03/10/03 Mon

40. In February 1996, the press reported that the gold market surged above
$410, establishing a 5 ½ year high, and said that the catalyst for the price rise was the
announcement by Canada's Barrick Gold that it was reducing its hedging position by 100
tonnes (a little over three million ounces). In an interview with Barrick's CEO, he
acknowledged that hedging by gold producers had a profound impact on the gold market.

41. By the 4th quarter of 1998, Barrick had increased its short positions to 13.2
million ounces, or more than four times its annual production, and the price fell to a low
of $286.65. By the 3 rd quarter of 1999, Barrick had increased its short position to 18
million ounces, or approximately five times its annual production and the price of gold
fell to a low of $252.90.

42. In February, 2000, Barrick issued a press release announcing its hedging
(its short position) had been reduced from 18.8 million ounces to 9.8 million ounces;
announced that it would not increase its short position from the 9.8 million ounce level;
referred to that statement as a "commitment" made by the company's Chief Executive
Officer; and said in a press release it issued on February 8, 2000, that, "“We are going
forward with a reduced level of hedging and plan to fully participate in rising gold

43. Barrick underscored the magnitude of its commitment: "The significant 9-
million-ounce reduction in the committed forward-sale position reflects Barrick's
confidence in the gold price. It is approximately two-thirds of the entire amount of gold
supply from producer hedging in the world last year, or two-thirds of all the gold sold by
the Bank of England." Within the space of a few days, the price of gold jumped to $319
and remained above $300 for most of the rest of the month. Barrick's announcement had
much to do with the market's strength.

44. One of the most respected gold analysts in the industry said that the
announcement by Barrick and another gold company in February 2000 was "eerily
similar," to the announcement made four years before by Barrick, when it said that it had
cut its hedge book by a third, or 90 tonnes, prompting gold prices to rise above $410.

45. Despite its "commitment," Barrick increased its short position to 24.1
million ounces by the end of 2001, an increase of 14.3 million ounces or approximately
150%. The average annual price of gold fell to $271 an ounce in 2001.

46. Barrick's senior executives have represented that they are careful to
manage their huge short positions in gold so as not to disrupt the gold price, and that they
can be discriminating as to the timing of each new sale to ensure that it does not hurt
prices. The very practice that Barrick claims to follow - that of gold price stabilization -fits
clearly within the definition of market manipulation; intentional conduct designed to
produce a price that does not reflect basic forces of supply and demand. Under the
Sherman Act, a combination formed for the purpose of pegging or stabilizing the price of
a commodity in interstate or foreign commerce is illegal per se.

47. While the existence of the "Premium Gold Sales Program" has never been
hidden, this unique program has taken place "off balance sheet" and primarily behind the
scenes, with even industry specialists confused about the program's impact on spot
market prices. Many people, upon hearing the term "hedging," improperly assume that
Barrick's conduct involves mere paper transactions that do not add physical supply to the
market. Indeed, the highly regarded CPM Group, which produces an annual Gold
Survey, came to that very conclusion in its 2002 report:
Hedges, and the hedges that the bullion banks put on to protect themselves
from adverse price moves, almost exclusively are paper transactions.
These transactions do not increase current supply when they are initiated.
Nor do they reduce new physical supply when they are unwound. Thus
they should not be considered a source of physical supply in market supply
and demand analysis.

With regard to Barrick's "Premium Gold Sales Program," such analysis is completely

48. Even Merrill Lynch research analysts seem confused by Barrick's conduct.
In a report dated February 18, 2002, they wrote: "This is the first time in over ten years
that Barrick does not have its current year's output fully hedged, reflecting a more
optimistic view on gold prices." In fact, Barrick at that time had approximately 18
million ounces in spot deferred contracts, totaling 22% of its reserves, which is more than
three times its projected 2002 output of 5.7 million ounces. What Barrick did announce
was that it intended to sell half of year 2002 production in the spot market, rather than
send the entire year's production to the bullion banks pursuant to spot deferred contracts.
The distinction is significant, because it underscores Barrick's vast spot deferred position,
and its unparalleled flexibility vis-à-vis the spot price market.

49. Listening to Barrick's leaders only further confuses the issue of what
Barrick is really doing to the price of gold. In 1997, sounding quite bullish on the price of
gold, Barrick's founder and Chairman of the Board of Directors, Peter Munk, said that
demand was 20% greater than new supply. By the fourth quarter of 1999, Barrick had
increased its spot deferred position from 6.7 million to 18.8 million ounces, effectively
eliminating the purported 20% shortfall. The average annual price of gold fell more than

50. Also in 1997, Peter Munk said that Barrick "adds to its hedge position on a
regular, disciplined basis." At the start of 1997, its hedge position stood at 6.7 million
ounces. By the fourth quarter of 1999, the position had skyrocketed to 18.8 million
ounces, but before the end of that year, the hedge position rushed back to 9.8 million
ounces. Barrick then announced this reduction to the public in February 2000, and stated
as a "commitment" that it would not increase hedging from the 9.8 million ounce level.
Barrick represented that the company was "going forward with a reduced level of hedging
and plan[ned] to fully participate in rising gold prices." The week of this announcement,
gold closed at $316 per ounce. Barrick then increased its hedge position to 24.1 million
ounces - an increase of 14.3 million ounces - by the end of 2001. The average annual
price of gold fell to $272 per ounce.

51. As of late 2001, Barrick's hedge position of 24.1 million ounces
approached one-third of its vast reserves. If Barrick had hedged by shorting 24.1 million
ounces of gold via futures contracts, it would have exceeded the speculative limits set by
the United States Commodities Futures Trading Commission ("CFTC") by over 8000%.
Instead, Barrick's spot deferred contracts apparently do not fall under the authority of the
CFTC, and the unregulated transactions are kept off of Barrick's balance sheet.

52. Paragraph 52 is intentionally deleted in its entirety, and is replaced with
the following section heading.

J.P. Morgan's profits from Barrick's price manipulation occur in regulated and unregulated markets.

53. Why is J.P. Morgan willing to give Barrick such astonishingly favorable
terms on its spot-deferred sales contracts? In its 1997 Annual Report, Barrick said that
the advantageous terms that it received were "because of the unequaled size and quality
of its reserves and balance sheet." If that is the case, then how can it explain what
happened in the late 1980's? Why would J.P. Morgan be willing to lend quantities of
gold, at 1.5% interest, for 10 years, with no margin calls, to a company that describes
itself as follows: "Back in 1987, Barrick was a smaller, higher cost producer with a weak
balance sheet..." (Presentation by Barrick's CEO to the Nesbitt Burns 2002 Global
Natural Resource Conference, dated February 26, 2002). Part of the answer lies in the
fact that Barrick has reserves in the ground that, theoretically, it can eventually produce in
repayment of its borrowed gold. However the principal reason is that, whenever the price
of gold goes up, Barrick can be counted on to provide a supply shock to the market which
will depress the price, protecting and enhancing the value of J.P. Morgan's own short
positions. The weapon that J.P. Morgan gave Barrick - the spot-deferred sales contract -protects
and enhances J.P. Morgan's far greater short positions that have been so lucrative
over the years.

54. The benefit of the relationship to J.P. Morgan lies in the enormous
derivative positions ($40 + billion) held by J.P. Morgan over the past 15 years, the vast
majority of which are reputed to have been on the short side of gold.

55. A derivative is a bilateral contract whose value is derived from the value
of an underlying asset or underlying reference rate or index. With gold, the definition of
a derivative is often expanded to include any predominantly paper product whose value is
directly or indirectly dependant upon the price of physical gold. In other words, the gold
price is ultimately the basic point of reference from which the success or failure of any
bullion derivative is judged.

56. The price of a gold derivative depends on the current price of the
underlying commodity (gold) and a number of other variables including, possibly, the
future or strike price, the time until the contract expires, the volatility of the price of the
underlying asset, and the level of interest rates at which one can borrow or lend the
underlying asset. The price of gold and the profit or loss realized from the gold derivative
are both determined by the physical supply and demand for gold. Given the fact that the
derivative market is as much as 100 times the size of the physical market, it is easy to
understand why Barrick's ability to influence the price of physical gold can produce
phenomenal profits for J.P. Morgan.

57. J.P. Morgan, by acting as counterparty to Barrick in spot-deferred gold
derivative contracts with long and variable durations until expiration, provides Barrick
with a powerful incentive for the addition of physical supplies to the spot market in
amounts that depress spot prices. A firm engaging in such large scale transactions can, in
effect, lock in a profit on such contracts from the resulting fall in gold prices.

Barrick's Intimidation of Competitors and Critics

58. Defendant Barrick has a continuous and systematic history of utilizing
scare tactics to curtail or restrict discussion and disclosure of its business activities.

59. Defendant Barrick has long engaged in a policy employing litigation, or
the threat thereof, in order to bully, censor and silence competitors or critics of
Defendant's previously described unfair trade practices, market manipulation and other
illegal acts.

60. Barrick has sued, under United States, United Kingdom and Canadian libel
and slander statutes, several companies and individuals who publically criticized
Barrick's unfair trade practices and other illegal acts, including Chilean mine owner Jorge
Lopehandia, the British Broadcasting Corporation, and The Guardian journalist, Greg

61. Barrick has now served a Libel Notice for the Superior Court of Justice of
the Province of Ontario, Canada, on Plaintiff Blanchard and Blanchard employees Donald
W. Doyle, Jr. and Neal R. Ryan, stating that, commencing on December 18, 2002, the
date Blanchard sued Barrick in this Court, the named respondents have made statements
"... that have no basis in fact and are totally irresponsible and defamatory." Barrick's
Notice is an obvious attempt to intimidate Blanchard into abandoning this action, and to
force Blanchard to retract the allegations made herein. Along with its Notice of Libel,
Barrick issued a Press Release making false and defamatory statements regarding
Blanchard and its representatives.

Effects on Plaintiffs

62. As more fully set forth below, Davies is an investor in physical gold and
Blanchard is a retailer of precious metals. The unlawful practices complained of herein
have caused and will continue to cause both Davies and Blanchard irreparable harm by
artificially depressing the price of gold.

63. As more fully set forth below, Blanchard competes with J.P. Morgan in
the sale and marketing of gold investments to retail clients. The unlawful practices
complained of herein have caused and will continue to cause Blanchard to suffer
irreparable harm.

64. As more fully set forth herein, Holmes is a partner in a gold mining
enterprise. The unlawful practices of Barrick complained of herein have caused and will
continue to cause Holmes irreparable harm.


Defendants have Caused Antitrust Injury to Davies as an Investor and
Blanchard as a Retailer of Precious Metals

65. Plaintiffs adopt by reference and incorporate all previous allegations in all
preceding paragraphs as if fully set forth herein.

66. Barrick and J.P. Morgan, through their unlawful manipulation of the price
of gold, have violated of 15 U.S.C. §§ 1, 12.

67. Barrick and J.P. Morgan, through the anticompetitive conduct described
herein, have obtained and maintained that power to effectively manipulate the price of
gold, to the financial detriment of Davies as an investor, Blanchard as retailer of precious
metals and others similarly situated which constitutes a violation of the Commodities
Exchange Act, 7 U.S.C. §§ 22, 25.

68. Barrick and J.P. Morgan's anticompetitive acts unless restrained by the
Court, will allow them to continue in those anticompetitive acts causing irreparable and
continuing harm to Davies and Blanchard.

69. Barrick and J.P. Morgan have acted with specific intent to obtain and
maintain the ability to manipulate the price of gold and their unlawful practice has
enabled them to do so.

70. As a direct, foreseeable and proximate result of Barrick and J.P. Morgan's
unlawful practices, Plaintiffs Davies and Blanchard have and will continue to be damaged
by an inability for fair trading in a market manipulated by Defendants. Plaintiffs' injuries
are of the type the antitrust laws are intended to prohibit and thus constitute antitrust
injury. Unless the activities complained of are enjoined, Plaintiffs will continue to suffer
immediate and irreparable injury for which Plaintiffs are without adequate remedy at law.


Defendants have Caused Antitrust Injury to Plaintiff Blanchard as a
Competitor in the Gold Market

71. Plaintiffs adopt by reference and incorporates all previous allegations in all
preceding paragraphs as if fully set forth herein.

72. Blanchard and J.P. Morgan buy and sell physical gold and gold depository
receipts for retail clients.

73. Blanchard and J.P. Morgan provide clients with information about gold
and its investment attributes.

74. J.P. Morgan controls large amounts of customer funds over which it
exercises discretionary control and occasionally uses to buy, sell or otherwise trade in
gold . To the extent that these funds are invested in a manner that takes advantage of the
anticompetitive practices complained of herein, J.P. Morgan directly damages Blanchard
and profits from its own unlawful activities.

75. J.P. Morgan, through its unlawful dealings and manipulations of the gold
market, does business in such a manner as is detrimental to the spirit of fair competition
and as such does irreparable and continuing harm to Blanchard, and Blanchard is entitled
to injunctive relief under 15 U.S.C. § 26.

76. As a direct, foreseeable and proximate result of J.P. Morgan's unlawful and
anticompetitive conduct and its unlawful combination with Barrick, Blanchard has and
will continue to be damaged by an inability to fairly compete in a market manipulated by
the Defendants. Unless the activities complained of are enjoined, Blanchard will continue
to suffer immediate and irreparable injury for which Blanchard is without adequate
remedy at law.


Defendants Have Caused Antitrust Injury to Plaintiff Holmes

77. Plaintiffs adopt by reference and incorporate all previous allegations in all
preceding paragraphs as if fully set forth herein.

78. Barrick's short selling arrangement with J.P. Morgan has depressed the
price of gold damaging Holmes' as a partner in a gold mining enterprise while Barrick's
profits are increased through short sales.

79. Barrick, through its unlawful dealings and manipulations in the gold
market does business in such a manner as is detrimental to the spirit of fair competition
and as such does irreparable and continuing harm to Holmes, and Holmes is entitled to
injunctive relief under 15 U.S.C. § 26.

80. As a direct, foreseeable and proximate result of Barrick's illegal and
anticompetitive conduct and its unlawful combination with J.P. Morgan, Holmes has and
will continue to be damaged by a market manipulated by the Defendants. Unless the
activities complained of are enjoined, Holmes will continue to suffer immediate and
irreparable injury for which Holmes is without adequate remedy at law.


Defendants Engage In Unfair Trade Practices

81. Plaintiffs adopt by reference and incorporate each of the above paragraphs
as if fully set forth herein.

82. The Louisiana Unfair Trade Practices and Consumer Protection Law,
L.S.A.-R.S. 51:1401, et seq., prohibits unfair or deceptive methods, acts or practices in
trade or commerce.

83. Barrick and J.P. Morgan and other bullion banks with which Barrick has
contracted pursuant to the "Premium Gold Sales Program" have engaged in unfair and
deceptive trade practices for the purpose and with the effect of manipulating the price of
gold in interstate and foreign commerce. As a direct consequence of such unlawful trade
practices by Barrick and J.P. Morgan, Blanchard and Davies have been and continue to be
damaged, including the loss of tremendous amounts of business from current and
potential customers and/or the loss of investment income. Defendants' unfair trade
practices have devastated the market for investment gold, with a resultant reduction in
profits for Blanchard and Davies. Moreover, Blanchard's ability to grow and develop
business opportunities has been impaired by Defendants' unlawful trade practices, and
Davies has been impaired in his ability to earn investment income from his purchases of

84. Barrick, through intimidation tactics, including defamatory statements and
litigation and/or the threat thereof, has engaged in unfair trade practices in an attempt to
disrupt and impair the business dealings of Plaintiffs and others similarly situated.

85. An injunction prohibiting Barrick, J.P. Morgan, and the ABC Company
Defendants from engaging in further unfair and unlawful trade practices is appropriate
under the circumstances.


Barrick Has Libeled, Slandered, and Defamed Blanchard

86. Plaintiffs adopt by reference and incorporate all previous allegations in all
preceding paragraphs as if fully set forth herein.

87. A cause of action for defamation arises out of violations of Louisiana law,
including Louisiana Civil Code Article 2315.

88. Barrick has, through the allegations made in its Libel Notice and Press
Release, both of late January, 2003, made false and defamatory statements concerning
Blanchard and its representatives that were distributed through mail wire, and

89. It has done so through its own fault, with malice, and by means of
unprivileged publication, in an attempt to intimidate and injure the good name and
reputation of Plaintiff Blanchard.

90. Barrick, conspiring and acting in concert with others, has engaged in a
long-standing pattern and practice of threats, intimidation, and defamation of its critics
employing mail, wire, and telecommunications, and has employed litigation and the
threat of litigation in United States and foreign courts to silence its critics.

91. The false statements made by Barrick, the world's largest gold producer,
were intended to undermine the credibility, reputation and sales of Blanchard, the largest
retailer of gold bullion and rare coins in the United States.

92. As a direct, foreseeable and proximate result of Barrick's conduct,
Plaintiff Blanchard's good name and reputation has and will continue to be damaged and
Plaintiff will continue to suffer immediate and irreparable injury.


Barrick's Actions Constitute Malicious Prosecution and Abuse of Process

93. Plaintiffs adopt by reference and incorporate all previous allegations in all
preceding paragraphs as if fully set forth herein.

94. Causes of action for malicious prosecution and abuse of process arise out
violations of Louisiana law, including Louisiana Civil Code Article 2315.

95. Barrick has filed a Libel Notice in Canadian court and intends to
commence a civil action against Plaintiff Blanchard, as well as two of its employees, with
no other purpose or intent but to inflict harm on the Plaintiffs in order to intimidate them,
pervert the course of the litigation before this Court, and deprive them of their rights, and
has done so in the absence of probable cause for such proceedings and with malice
therein, resulting in injury to Blanchard.

96. Barrick, conspiring and acting in concert with others, has engaged in a
long-standing practice of threats, intimidation, and defamation of its critics employing
mail, wire, and telecommunications, and has employed litigation and the threat of
litigation in United States and foreign courts to silence its critics.

97. As a direct, foreseeable and proximate result of Barrick's conduct,
Plaintiff Blanchard has been and will continue to be injured and suffer immediate and
irreparable injury.


98. WHEREFORE, Plaintiffs respectfully request that Defendants be cited to
answer and appear herein and that upon final hearing, the Court grant Plaintiffs the
following relief:
(a) An injunction terminating all Master Trading Agreements, spot deferred
contracts and all other contracts through which Defendants manipulate the market for
gold as alleged herein, and enjoining Barrick, J.P. Morgan and ABC Companies from
entering into such contracts in the future;
(b) For an award of damages compensating Blanchard for Barrick's
dissemination of defamatory, slanderous or libelous communications;
( c) For an award of damages compensating Blanchard for Barrick's threatened
and actual malicious prosecution and abuse of process;
(d) That Plaintiffs recover the costs of this suit, including their attorneys' fees,
as provided by law; and
(e) That the Court grant any such other relief as the Court deems just and

Respectfully submitted,

Gold -- Sharefin, 22:35:33 03/10/03 Mon

Kondratieff theory for gold in a deflationary "winter"

As a subscriber to Prechter's ( Financial Forecast
Services, I decided to pose the question directly to them about their
forecast for "below $200/oz" gold. Specifically, I asked them why they
are so sure the late 90's low of $250/oz wasn't the bottom. Below are
both my question and their response.

Gold -- Sharefin, 22:20:30 03/10/03 Mon

Renminbi can take gold to $500/oz

The 2003 Prospectors & Developers Conference now underway in this unusually frigid city got off to a cracking start with a presentation from Donald Coxe of Harris Investment Management in Chicago who predicts that China's currency has a significant future role to play in determining the gold price.

Coxe's message was heart-warming for miners and their investors - the industry outlook is the best it has been in decades, especially for gold.

Coxe's predicted heavyweight alternative that will further underpin gold? China's renminbi, which is presently excluded from the US dollar index.

“China is spending unbelievable amounts of money to suppress its own currency. We know how this story ends because we have the example of the yen.”

That example was an attempt by Japan to maintain its competitiveness by buying Treasuries and Deutschmarks to keep the yen cheap. Eventually the West grew tired of this game at its expense and threatened Japan with trade barriers if it did not float its currency.

China doesn't have that option under World Trade Organization rules where competitive currency devaluations are treated as subsidies that demand penalties.

“At some point the renminbi will float and it is undervalued by some 40-50%. When you move that into the US dollar index it will be currency number three or four and that will be enough itself to get gold to $450 or $500 per ounce,” said a confident Coxe.

He predicts that gold will hold its value and disparages those who hold “mystical views” about gold being worth thousands of dollars an ounce.

“We are in the early stages of a major bull market in gold, meanwhile institutional investors still haven't cottoned on to it. What we do not have are any of those signs of a market top. When gold ran up to $389 an ounce, there were small-scale speculators taking big positions on Comex; they set a record.”

“Gold stocks as a per cent of global indices are very near their all time lows so there is enormous upside room. For institutional investors, currency is a huge component of what they do. Gold stocks give you a form of portfolio insurance against the declining dollar. That is their fundamental driver.”

Coxe was contemptuous of any claim that the price of gold is manipulated as suggested by the Gold Anti-Trust Action Committee. “Gold is doing exactly what it should according to 68 years of history and one year of recent history. The people that are giving us this kind of story are bereft of a knowledge of history and overwhelmed by a sense of conspiracy.”

Gold -- Sharefin, 22:13:08 03/10/03 Mon

Gold reserves face depletion in 10 years - Barrick

Barrick vice president for exploration, Alex Davidson, warned in a presentation at the PDAC here that the gold mining industry has invested so little in exploration that current reserves could be depleted in ten years.
The situation affects non-South African producers most acutely since they cannot rely on deep reserves being activated by higher gold prices.

”Given that most mining projects require 5-8 years from discovery to production, [the industry] is not currently funding exploration at a level to replace reserves,” cautioned Davidson. “We also need to attract more speculative capital back into the industry to fund junior exploration which has historically provided a pipeline of new projects.”
Davidson believes a gold price of $350 per ounce over at least five years is required to “put the economics in place to sustain exploration that will bring us the best discoveries - low cost, long life properties - that sustain the industry.”

“Some companies have doubled production through consolidation, which has doubled the ounces required to replace production, not to mention trying to grow reserves,” Davidson said.

The implication is that the industry faces a scramble to rebuild its reserve life profile, without which it will lose serious investment attention. Davidson foresees increasing investor focus on organic growth, especially as doubt grows about the value delivered through mergers and acquisitions.

Davidson said: “One thing is for certain, the current state of affairs in exploration spending is untenable for the health of our industry. Big companies need to spend more on exploration or at current production rates reserves will be depleted in ten years.”

War -- Sharefin, 21:28:47 03/10/03 Mon

War and the Economy

The National Bureau of Economic Research dates the peak of the last business cycle at March 2001, and has yet to call a trough, which is to say it hasn't yet observed an end to the contraction or the beginnings of an economic recovery.

The number of months we have traveled from the end of the last peak to the current day is 24. The NBER has used its method for dating business cycle pronouncements on peaks and troughs since the 1850s. The average period of contraction runs 8 months. The current downturn is the longest on record since the Great Depression, and next month it will become the second longest since 1882.

This is another way of saying: folks, this is getting serious. Yet what is Washington talking about? Not the decline in employment, savings, the dollar, nor the increase in debt, deficits, government spending, and prices. No, Washington wants war with Iraq. It plans to spend at least $100 billion to bring it about, in a year in which the deficit will balloon to $400 billion plus and American incomes and payrolls are under serious strain.

Fiat vs Gold -- Sharefin, 05:40:58 03/10/03 Mon

Buffett intrigue: Is he buying gold?

Just hours after Warren Buffett took his annual bash at stocks and derivatives, bullion investors Tuesday speculated the famed financier was buying gold.

"This could be the gold story of the decade," said James Turk, a veteran of the gold-trading world. Turk, owner of transaction service, stated in mid-February that he had heard Buffett, one of the world's richest people, was buying gold. Join the discussion.

Buffett, in prepared comments Tuesday ahead of his Berkshire Hathaway annual report to shareholders, made no mention of owning gold. In 1998, however, he told the world he and his partner, Charles Munger, had bought 4,000 tons of silver, a revelation resulting in a brief frenzy for that metal.

Fiat -- Sharefin, 05:38:37 03/10/03 Mon

Market's an inferno, and then you ...

Inflation, the falling market and a Buffett bombshell

Investors, instead of curling up inside their highly mortgaged cocoons, are registering alarm at the incessant declines of their holdings. They appear to be heeding, albeit slowly, the warnings of solid researchers such as Barry B. Bannister at Legg Mason Wood Walker. Bannister, embarking on a series of reports on the outlook for inflation the next 12 years, says simply, "We do not see a sustained change in direction that consistently favors equities until around 2015."
At the heart of sensible researchers such as Bannister is the belief that an accelerated pace of inflation, and America's $30-plus trillion of debt floating around the globe, will sink stocks and most bonds and other paper assets. Not the coming war in Iraq. Not terrorism, politics or sightings of hostile globs from outer space.

Fiat -- Sharefin, 22:44:47 03/09/03 Sun

Investor Communications Urges Public Companies to Make Comment to SEC Regarding Proposed Rule Change Issued by the DTC to Prevent Companies From Exiting DTC's Electronic Clearing and Book Entry System

The growing group of OTC Bulletin Board companies that began exiting the DTC's electronic clearing and book entry system in 2002 in favor of Certificate Only holdings include GeneMax Corp, Ten Stix Inc, Midas Trade, Hadro Resources, and Vega Atlantic Corporation, among others. Other companies, including Intergold Corporation have applied for or expressed their intent to withdraw from the DTC's electronic clearing and book entry system. These companies are opting out of the DTC system to combat the Naked Short Selling abuses made possible by the electronic transfer system, which is flawed and allows US $ billions in trading abuses to occur. In the absence of regulations preventing stock manipulation through naked short selling, companies must forge their own solutions that include exiting the DTC's electronic clearing and book entry system.
Naked Short Selling: Under a naked short sale of stock, short positions are not declared, shares are not borrowed to cover the short sale, and shares are sold without delivering the stock to the purchaser. Naked short selling results in the undermining of real shareholder ownership by naked short sales of stock and resulting failed deliveries of real certificates that artificially inflate share ownership and devalue the trading prices of shares in the marketplace. Unscrupulous brokers and market makers may conspire to manipulate and devalue the price of securities in this way. ICI has started the National Association Against Naked Short Selling. For information regarding naked short selling, and further updates on the activities of the organization, please register to receive news releases at

Why Exit the DTC?: The basis for moving to a certificate only share transfer system has nothing to do with short selling but instead with "naked short selling" where shares sold are never borrowed, never delivered by the seller, but where the seller collects money for the stock they never delivered in three days. The 3-day settlement system run by the National Securities Clearing Corporation ("NSCC") does not ensure that shares that are sold in a transaction are ever delivered. This takes place routinely in the U.S. Securities industry.

Advantages of Certificated Share Transfers to Curb Naked Short Selling: In a "certificated" or "custody only" issue, the purchasing broker demands the certificate representing the customer purchase on settlement day. When the short seller refuses, the buy-in process commences. This process is more difficult and expensive for the naked short seller, since one short position is typically owed to many different firms. The exit from the electronic clearing and book entry system of DTC alone will not prevent naked short selling, but is one of many elements required to help combat naked short selling.

Periodic Ponzi Update PPU -- $hifty, 20:56:15 03/09/03 Sun

Ponzi Chart

Periodic Ponzi Update PPU

Nasdaq 1,305.29 + Dow 7,740.03 = 9,045.32 divide by 2 = 4,522.66 Ponzi

Down 91.64 from last week.

Thanks for the link RossL !

One more month and the Ponzi Chart is 3 years old!




Gold -- Sharefin, 20:34:45 03/09/03 Sun

Is gold tactic illegal or astute?

In a David and Goliath antitrust battle that is drawing intense interest among gold investors, a retail dealer is going toe-to-toe in an increasingly bitter legal fight with one of Wall Street's most prestigious investment banks and a Canadian mining giant.

The allegation: The bank and the mining company have colluded to drive down the price of gold to the detriment of individual investors.

Kaplan says Barrick has done nothing worse than fulfill its responsibility to shareholders by effectively managing risk.

"What Blanchard is accusing is that Barrick was smart, was savvy, and made billions of dollars from it," Kaplan says. "Well gee, I never knew that being smart, that being savvy, was illegal."

Ryan agrees that Barrick has been smart.

"But just because something seems intelligent or smart or savvy from the outside doesn't make it the right thing to do," he says.

"Five years ago everyone was saying the same thing about Enron."

Gold -- Sharefin, 20:29:20 03/09/03 Sun

Amid Gloom, Gold Glitters

Grab your bullion. Gold is about to bounce back, according to top advisers. Fresh off hitting multiyear highs a month ago, gold is now down about 10%, to $350 per ounce. It seems that foreigners--who continue to soak up our music and movies--are increasingly avoiding our currency. The current geopolitical instability isn't helping matters, and most of the close watchers of the shiny yellow metal say it all translates into a bright future for gold.
Tom O'Brien, editor of The Gold Report, points out that the recent pullback in gold and gold-stock prices has been on much lighter volume than the huge run that took the metal to a $385-per-ounce close last month. "Markets don't top on high volume," says O'Brien, who likens the bull market under way now in gold to that in technology stocks in the late 1990s. "This is just like Microsoft, Dell or Cisco was in 1999--up on huge volume and then a consolidation on lighter volume, only to come roaring back with a vengeance."
One of the most intellectually entertaining and passionate editors in weekly publication is Richard Daughty of The Mogambu Guru. Daughty calls himself the "angriest man in economics" and devotes a large portion of his weekly letter to verbally mutilating the Fed for rampant inflation of the money supply. He sees this as more fuel for the gold fire. "There is no way, as in no freaking way in hell, that gold cannot rise in price eventually, and with enough rise to completely offset the roaring inflation in the money supply that we have been seeing for years now," says Daughty. "If you are not buying gold at these prices, then you are not competent to manage money or make economic commentary."

Gold -- Sharefin, 20:20:42 03/09/03 Sun

Gold to Average 8% Higher, Drop in 2004, Bureau Says

Gold may average 8 percent higher this year because of concern about a war with Iraq, before falling as an improving global economy boosts demands for other investments, Australia's government commodity forecaster said.

``The outbreak of the conflict is likely to result in an immediate upward spike in the gold price - possibly to levels above $400 an ounce for a short period of time,'' the government forecaster said. Still, ``a war with Iraq will be short lived and the war premium component of the gold price is likely to quickly erode.''

Global demand for gold from jewelers is expected to increase by 296 metric tons to 3,600 tons in 2003, and to rise by a further 301 tons next year to 3,901 tons, the bureau said.

``This increase in fabrication consumption is expected to come primarily from growth in demand in two key consuming countries: India and China,'' the government forecaster said.

Demand from jewelers is expected to exceed combined mine and scrap supply by 370 tons in 2003 and 696 tons in 2004, the bureau said.

Gold -- Sharefin, 20:18:20 03/09/03 Sun

Newmont's hedge book bites back

After months of wondering what nasty surprises might be lurking in the hedge books of the world's major gold miners, the market is now getting a look at the industry's first bonafide hedging disaster.

The situation now unfolding at Newmont Mining Corp.'s Yandal project in Australia is enough to send a chill through any investor who's ever wondered what might happen if a heavily hedged producer lost control of its derivatives exposure. In the case of Yandal, Newmont might be forced to walk away from an otherwise profitable mine that produces about 650,000 ounces of gold each year.

Standard & Poor's cut its credit rating on Newmont's Yandal operations by three notches to junk status yesterday, after reviewing the project's hedging exposure, released by Newmont last week. The project's credit rating now sits three levels below investment grade, and its outlook has been lowered to 'negative' from 'stable.'
Newmont has said it plans to slash its hedge book, and cutting Yandal loose may be just the way to do it. Abandoning the three Australian mines that make up Yandal would cut the size of Newmont's hedge book by more than half, Mr. Cooper said.

For now, the management at Yandal can only hope the price of gold crashes, or the Australian dollar surges against the U.S. greenback. Failing that, they can hope that their counterparties agree to restructure their hedging contracts rather than force the company into bankruptcy. But at the moment, none of that seems particularly likely.

Gold -- Sharefin, 20:12:46 03/09/03 Sun

The idiot's guide to hedging and derivatives

Ismail is a successful mule trader in Peshawar. Every year Ismail delivers 30 mules to the Kabul Mule Market and gets $40 per mule. This year however, the Khyber Pass is full of warlord militias, so Ismail is not sure he can drive his mules to market without losing a mule here and there. Also, the demand for mules in Kabul seems to be dropping. Maybe he'll only be able to sell 20 mules, or, God forbid, 15, and then be forced to feed and water the rest of them on a money-losing trek back home. In other words, it's a scary market and Ismail is worried about feeding his family. What Ismail needs is to limit his risk with an Enron derivatives package.
First he pays $2 per mule for a Khyber Pass Derivative, so that any mule killed or stolen by warlords will be reimbursed at the rate of $20 per mule -- half the going market rate, but still better than taking a total loss. Next he sells Enron Mule Futures. For $28 per contract, he guarantees delivery of a mule in three months time. He sells 15 of these, figuring that a guaranteed $28 mule sale is better than showing up in Kabul and discovering that the mule buyers have been killed by stray bombs.

Meanwhile, at the Enron Mule Trading Desk in Houston, eagle-eyed yuppies are studying the worldwide mule markets and starting to have their doubts about those $28 delivery contracts. Mule use is dropping all over Afghanistan, even as the mule count is dwindling. Better resell eight of those 15 contracts to a European commodities broker for $24 each, then make up that $32 loss somewhere else while cutting the company's exposure in half. But how to hedge the risk on the other seven?

See, it's simple when you know how it works. Ask Arthur Andersen.

Gold -- Sharefin, 20:09:17 03/09/03 Sun

Gold's (almost) chastened stock promoters

Newsletter publisher Bob Chapman remains out of circulation and sight after securities authorities subpoenaed several people in connection with the promotion of Renaissance Mining. It was a timely reminder about the vultures descending to feed off the gold boom.

Gold -- Sharefin, 20:05:35 03/09/03 Sun

Gold stocks hold at key value levels

Gold -- Sharefin, 20:03:44 03/09/03 Sun

Royal Gold fights back after Barron's sledging

Don't look in the rear-view mirror when valuing gold companies and don't forget that all gold company investments require some suspension of logic and rationality - what else explains the fact that negative discount rates best predict gold stock prices?

Gold -- Sharefin, 19:58:34 03/09/03 Sun

Is Buffett In Gold

Warren Buffet, the chairman of Berkshire Hathaway and the world's wiliest value investor, could be planning his next foray into the gold market, says Mitsui Metals analyst Andy Smith.
In a note titled “Is Buffet in Gold?”, Smith says Buffett may well have changed his mind on the merits of bullion, which the market sage famously shunned in a speech given at Harvard in 1998. “It gets dug out of the ground in Africa, or someplace. Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head,” Buffet said in his speech.

Smith says this dismissive view was “rabidly, rationally, and correctly anti-gold”. So what might have changed in the investment universe to alter Buffett's view on gold. “Well, this planet, perhaps, in the interim,” says Smith.

Buffett's reincarnation as a gold bug would also lend serious credibility to the metal's status as a safe-haven asset, given that his investments spin out $5 billion in cash each year. Buffett also staked 2 percent of Berkshire Hathaway's assets on silver in 1998, taking a 4,000 ton long term bet on the metal's future.

Here is a selection of his quotes: time bombs; madmen; mark-to-myth; daisy-chain risk; dominoes toppling; it pays to minimise links of any kind; linkage, when it surfaces, can trigger serious systemic problems; derivatives genie is now well out of the bottle; toxicity; alert to any sort of mega-catastrophe risk; derivatives are financial weapons of mass destruction, carrying dangers that while latent, are potentially lethal; hangover may prove proportional to the binge. Music to the ears of any hardened gold bull, despite the fact that bullion doesn't score a single mention.

“True, the ‘G' word does not appear. Except between every line,” says Smith.

War & Oil -- Sharefin, 19:52:09 03/09/03 Sun


In the first instance, Mr. Simmons was discussing his email correspondence with a senior assistant to former secretary of energy Bill Richardson. The senior assistant informed Mr. Simmons in 1999 that she was accompanying Secretary Richardson on a visit to every OPEC country. Mr. Simmons told her that if he was undertaking such a tour, he would ask each country what was their spare oil capacity. Upon returning to the United States, the senior assistant called Mr. Simmons and told him that she was quite shocked by the responses to this question. In country after country, she was told that they were already pumping at or near capacity. For practical purposes, OPEC has no spare capacity.

Several of my associates have suspected as much. But in this interview, Matthew Simmons verifies the fact that OPEC is already pumping at or very close to full capacity. This means that to meet growing demand, oil must be found somewhere else. And OPEC most probably cannot increase output to cover a crisis such as the Venezuelan strike, or the disruption of Iraqi oil production in the event of another Gulf War. In fact, it was only a year after Secretary Richardson made his OPEC tour that world oil production appeared to peak, beginning the cycle of rising oil prices and tanking economies which we have been in since. Though Matthew Simmons did not spell it out, this is the clearest indication to date that we are at peak oil production.

The second revelation was more political than technical. Matthew Simmons states in this interview that he advised the Bush campaign and the subsequent Bush administration of the energy situation. This admission makes it very clear that George W. Bush and his administration knew about the approaching energy crisis before even stepping into the White House. Thus, as we have said at FTW, oil depletion has loomed in the background of every decision made by this administration and every action undertaken.

Auspec -- Sharefin, 19:50:46 03/09/03 Sun

Meeting them at the bottom....(:-)))

He also alluded prior that just as gold spiked that he was long & going longer & hence his anger when gold sold off.

Methinks too many people are putting him on a pedestal......
Gurus hoisted on high always come back to earth.

As to the numbers required to push physical.
What of all the fiat FRNs that are speculativly bet on the rise in the price of gold stocks.

It never ceases to amaze me how goldbugs are betting on gold rising when the rise they are seeking is a signal that fiat is going out the back door.

Many have cursed the fiat rise in nasdaq stocks whilst the goldstocks were humped into the ground.
Now that fiat is failing they are choosing to stake their wealth on fiat vehicles yet again.

Historically stocks cop a flogging after maniac market speculation like we've seen & yet the goldbugs are voting with their feet through fiat vehicles for gold to go higher so their speculations will yield them a profit.
And haven't we heard them squeal of late when their stocks didn't go up with gold - unbelieveable, unheard of.(:-)))

The time for speculation was when the bubble was heading ever higher.
Now that the bubble has burst it's now the time for wealth preservation & fiat paper is not the place to be.

Goldbugs are shooting themselves in the feet by speculating on gold stocks as opposed to securing their wealth in physical.

Now I can well guess that some traders will dis this comment but the race has only begun & gold has a long way to go.
So we have to wait & see but my thoughts are that fiat gold holders will miss out on the majority of the run of gold.

That their fiat vehicles will follow other fiat vehicles.

Too much speculation & greed for profits, fool many who come to feed at the golden trough.

Buy physical & squeeze the bastards.(:-))))

Sharefin re Comex -- auspec, 10:50:47 03/09/03 Sun

A COMEX contract is for 100 troy ounces. 22,000 contracts would entail 2,200,000 ounces of gold at approx $350 per ounce for a total of $770,000,000 if delivery was actually required. It would be controlled ON THE MARGIN for $2100 {?} per contract or $46,200,000. This apparently is not chump change because they make chumps of all who won't take delivery.

CRIMEX is the Western market's price setting mechanism for the world POG. From memory.......up to 200,000 contracts are at times in play. Also from memory......fewer than 5% of these contracts actually entail settlement in physical gold. This thus allows fiat gold or paper gold to be bought and sold totally apart from the underlying fundamentals for physical.A mere billion FRN's or less would very likely cause your mentioned "dislocation" of physical gold and CRIMEX paper gold. That $1B narrows down the field somewhat, no? Smile. Not that many folks qualify and those that do are likely to know the consequences of their actions. Check w the heirs of Edmond Saffra if necessary. Gold is NOT a casual toy.
CRIMEX does continue, as you eloquently state, as gold investors avoid physical gold. This is the only thing that allows it to continue. It will end anyway, sooner or later, by large players such as Hung Fat, Dr No, J. Sinclair or just the worldwide ants doing what ants do.
Simply having Sinclair covering our back, playing their margin games on our behalf, is most comporting. As he exclaimed.....he met them at the "bottom" the other day and turned the market upwards. He's that big of a player and he's not alone by any means.
let the games continue.....

Fiat -- Sharefin, 09:53:11 03/09/03 Sun

Berkshire Hathaway 2002 Annual Report

Gold -- Sharefin, 09:51:38 03/09/03 Sun

The Gold Volcano

Earlier Gold Volcano articles


Gold -- Sharefin, 09:49:10 03/09/03 Sun

Russell On Global Affairs & the Markets

Gold -- Sharefin, 09:47:07 03/09/03 Sun

Gold Charts

Gold -- Sharefin, 09:34:33 03/09/03 Sun

Financial Sense Audio Files - Ferdinand Lips - Gold Wars

Gold -- Sharefin, 09:29:19 03/09/03 Sun

A Guaranteed, Golden Opportunity

Fortunately, Mr. Faber includes, "In particular, equities in resource-rich emerging economies should outperform equities in the industrialized economies of the West." This is in addition to gold and oil and commodities in general.

Speaking of gold, Mr. Faber says that he thinks that gold could drop to even $280 an ounce and still be in a bull market. Man, that would be soooooo sweet! Imagine an opportunity to buy more gold at only $280 an ounce in today's monetary and fiscal environment! A rise in the price of gold is guaranteed! Guaranteed, I tells ya! GUARANTEED! There is no way, as in no freaking way in hell, that gold cannot rise in price eventually, and with enough rise to completely offset the roaring inflation in the money supply that we have been seeing for years now. And are seeing lots more of, right now. And are getting promised more and more of the same for the foreseeable future.

So, for gold NOT to rise in price is to believe that demand, and supply, will always remain constant. I laugh with scorn. And, for gold not to rise in price is to believe that price inflation does not follow monetary inflation. Again, my scornful laugh rings in the ear, which makes a kind of irritating, weird buzzing after awhile. And, for gold not to rise in price is to believe that the price of gold will not follow general price inflation. My scornful laugh now rises to such intensity that voices are heard exclaiming, "Hey! Cut out that scornful laughing! We're on the phone!"

Anyway, these are just too, too many strange, bizarre things that you must believe, which are so contrary to common sense and the last four thousand uninterrupted years of human economic history. If you are not buying gold at these prices, then you are not competent to manage money or make economic commentary.

Oh, to be young again, and have another thirty or forty years to accumulate and hold gold, and to start off the whole time by being able to get it at only, what is the current price, $345 an ounce? Wow! It would be like Fate herself reaching out and touching your beautiful, young head with a magic touch of her enchanted finger, and hearing her say, "I like you. Here is a gift, which will make you rich, to show my love for you."

You want to set up a little something for your grandchildren and be guaranteed to go up in price? Gold. Your gift of Enron stock didn't turn out as planned. But gold will.

Gold -- Sharefin, 09:15:09 03/09/03 Sun

Barrick/Blanchard: Seeks $200M In Damages - ABX

Barrick Gold Corp. has started legal proceedings against Blanchard and Co. in the Ontario Superior Court of Justice.
In a news release, the gold producer said the proceedings relate to a series of "false and defamatory statements" that Blanchard and its chief executive, Donald W. Doyle, Jr., have published since mid-December concerning Barrick.

As reported, Barrick served a formal libel notice on Blanchard in January.

Barrick said it seeks damages of $100 million, aggravated, exemplary and punitive damages of $100 million, a permanent injunction restraining the defendants from repeating, disseminating, publishing or causing to be re- published the defamatory statements complained of, and a mandatory injunction requiring the defendants to remove or cause to be removed all of their defamatory statements from Web sites or other locations on the Internet.

Barrick said "we value highly our reputation for carrying on business in a proper, ethical and lawful manner and will not tolerate the dissemination of false statements that are harmful to our reputation, business interests and stakeholders."

As reported in December, Blanchard filed an anti-trust lawsuit against Barrick and J.P. Morgan Chase & Co. (JPM), accusing the two companies of "unlawfully" combining to actively manipulate the price of gold and making $2 billion in short-selling profits "by suppressing the price of gold at the expense of individual investors."

Auspec -- Sharefin, 09:13:45 03/09/03 Sun

I'd like to see the goldbugs dump their paper gold stocks & options et all & buy physical.

It's been all to evident of late that the manipulations of the markets are holding back the gold shares.

Now if only the goldbugs would shift vechiles from fiat to physical then you'd see the real price respond.

My guess is that eventually the fiat price of gold will dislocate from the physical price & those caught with the paper will miss out & those holding physical will benefit.

So should goldbugs be complaining of manipulated stocks & lack of profits when they could be tindering the fire?

Now if Mr Gold was buying real bullion - real ounces instead of the fiat stuff how many ounces would that 22,000 contracts be?

Big Player Taking on the Gold carteL? -- auspec, 11:37:23 03/08/03 Sat

Why Doesn't a Really large Player Take On the Gold Cartel?
How{e} many times have you heard that question in the last 5 years or so?

Quoting from James Sinclair as per Friday's Midas commentary:

"The reverse head and shoulders will rebuild and complete and bury TW-COT. By the way it was me you ran into at the low today. Now you have gotten my competitive spirits up. In the last go around I bought 22,000 long from you. This time it may have to be orders of magnitude greater than that."

"But hear me, JPM, ML, SB & GS, I am going to bury you at your own game. You cannot scare me because I am better at this than you are. Money means nothing whatsoever to me. It is the game that counts, so now the opposition to your fraudulent derivatives has taken on a new life - mine. Get ready to see $400 at your back."

Comments: James Sinclair has been a major gold FORCE for DECADES. He was a LARGE player in the 70's and knows this market about as well as one could. He has recently {last couple years?} come back into the paper/physical gold market after sitting out the long gold bear market since 1980. In the last gold bull he earned the moniker "Mr. Gold" for good reason. His words should NOT be taken lightly as he has the confidence/ego, technical expertise and the financial wherewithal to back them up. Looks like an in-your-face challenge to me and it stirs the heart.

Dr. No, Hung Fat, Mr. Gold and the "ants" around the globe will be more than these blokes can handle. The massive buying that comes in when the market is threatened on the downside is most comforting. They've got our back {smile}. Time to act accordingly.

Let the games continue..............

Quoting from Sinclair again:

"In the last go around I bought 22,000 longs from you. this time it may have to be orders of magnitude than that."

Just for fun......let's parse what this man is saying. When he says "the last go around" I really don't know if he is referring to 20 plus years ago or recently. Let's say it was recent for calculation purposes. 20,000 longs at a minimum margin requirement 0f $1400 {?} would equate to over 30 Million dollars behind this trade. Not exactly chicken feed.

"Orders of magnitude" means more than one order of magnitude. Lets say he's referring to two orders of magnitude or approx 60,000 contracts. New COMEX margin requirement of $2,100 ? That's the tidy sum of $126 Million FRN's, not exactly chump change. You might call that putting your money where your heart is, no? 60,000 contracts is a VERY significant number of the total CRIMEX contracts. Tough to play games "at the margin" when such savvy forces set their feet in stone against you.


{trusting my math is correct here}

Gold -- Sharefin, 04:30:19 03/07/03 Fri

Gold is Shining Again

It is difficult to argue with gold. To men everywhere, gold is a desirable economic object. It can be used for the manufacture of jewelry and ornaments. It is a corrosion-resistant element, the most malleable and ductile metal, ideal for plated coating on a wide variety of electrical and mechanical products. It is a good thermal and electrical conductor. It is durable and storable, can be easily hidden from partakers and predators, and readily shipped to other places. Gold is very marketable. In fact, gold may be the most marketable commodity around the globe.

The value of gold is determined by the same considerations as that of all other economic goods. Individuals give it value according to the enjoyment and satisfaction they expect to get from its possession. Economists explain this fact in terms of utility and scarcity. Value rises or falls in accordance with the utility which people ascribe to an object and the scarcity they perceive. Like that of any other economic good, the value of gold changes according to changing perceptions and situations. This must be emphasized because there are many goldphiles who wax eloquent about the eternal, immovable value of gold. They obviously have never experienced, and cannot think of, a situation in which basic essentials that sustain or safeguard human life do soar in value while that of gold in any form plummets. In fact, in desperate situations people may prefer a pound of bread to an ounce of gold, essential clothing and shelter to a pound of gold and, when their lives are at risk, their lives to a ton of gold.

The supply of gold is plentiful. For thousands of years it has been mined and accumulated; very little is consumed or lost. Existing supplies in the form of coins, jewelry, decoration, and plated coating are greater by far than current production. No matter how much gold is produced in South Africa or Russia, current output is rather negligible when compared to the quantities in individual possession throughout the world. This characteristic, in which it differs from all other metals, reduces the risk of sudden changes in quantity and, therefore, sudden changes in its value. Even silver, which has many characteristics similar to those of gold, is subject to great changes in production and consumption that may affect its value.
For the federal government the dollar standard has been a magical guide to cheerful spending and soaring debt. It released the Federal Reserve System from the shackles of gold and set it free to finance federal deficits no matter how large. In 1971 the federal government deficit amounted to $23.033 billion and the federal debt stood at $409.5 billion. By now, the 2003-2004 federal budget calls for expenditures in excess of $2.1 trillion and a debt of some $7 trillion. Since 1971 the American dollar has lost almost 70 percent of its purchasing power and is losing more every day. It makes it difficult to project future debts and deficits, but it is likely that the dollar standard will disintegrate if foreign investors should ever lose their confidence in the U.S. dollar.

For the American people the world dollar standard has been, and continues to be, both a welcome boon and a dreaded affliction. It is pleasant and beneficial as it permits the Federal Reserve System to engage in massive credit creation that generates unprecedented trade deficits now running at a rate of over half a trillion dollars a year. At some five percent of gross national product (GNP), the trade deficits actually have lifted the levels of consumption of the American people while they depressed the levels in creditor countries. Moreover, the dollar standard has enabled the U.S. Treasury to place much of its new debt with foreign investors and thereby shift much of the burden of debt to foreigners.

The dollar standard also has been a dreaded affliction as it allowed the Fed to depreciate the American dollar every year and finance a frightful expansion of government functions and powers. Dollar savings have lost some 70 percent of purchasing power while the number of government rules and regulations probably has risen by a similar proportion. Many economists are convinced that the current pattern of Treasury deficits and Federal Reserve money and credit expansion is not sustainable. They call for large tax increases or drastic spending cuts that would allow the Federal Reserve to decelerate its money fabrication. But they also are aware that large tax increases at this time of economic stagnation and rising unemployment would depress economic activity even further. Spending cuts, on the other hand, probably would bring relief to the ailing economy but undoubtedly would be unacceptable to the political forces that benefit from the spending. They usually cite old notions and theories that advocate deficit spending as a panacea for economic evils and difficulties.

The huge budget deficits may yet be solved in another way: the Federal Reserve may continue to cover them with new money and credit, which may depreciate all dollar debt as fast or faster than it can be added. A five-percent inflation depreciates the purchasing power of a $7 trillion federal debt by $350 billion a year. At the 1980 rate of inflation of 12.5 percent the federal debt would shrink by $875 billion in purchasing power, and at the 1990 rate of inflation of just 6.1 percent by $427 billion. But such a solution may cause a crisis of confidence in the integrity of the American dollar and precipitate the end of the dollar standard.

For most of a generation the almighty dollar has been a great object of confidence and trust throughout the world. It brought honor, friends, influence, and possession to the United States. As a symbol of power and prestige it answered all things. Although we do not know what the future has in store for us, we are fearful that the age of the world dollar standard may some day draw to a close. Huge federal government deficits and chronic Federal Reserve inflation may destroy it. The deficits force the Fed to generate ever more money and credit which in turn weaken and erode the dollar's trustworthiness in the eyes of the world. Its present weakness toward many other currencies, such as the euro, the Swiss franc, and the British pound, is an early symptom of the erosion.

No other currency, national or international, can conceivably take the place of the American dollar. They all suffer seriously from the same ideological malady: they are the creation of political concern and authority. Whatever we may think of gold, it always looms in the background, beckoning to be used as money, as it has been since the dawn of civilization.

Gold -- Sharefin, 04:16:39 03/07/03 Fri

A Bear Case Overview

There is strong evidence that America's economic trends and outlook may be far more serious than has been generally reported in the national media. Prudent investors need to be aware of the full spectrum of bear case arguments, even if it is hard to prove the validity of certain trends or understand when or where they might reach a "tipping point" where they could fully impact the economy and market. All of that having been said, this report explains why I think it is likely the market will continue to significantly decline over the next couple of years or longer.

Symptom suppression and feedback distortion.
Critics charge that in the late 1990s the Fed and U.S. Treasury intervened to artificially build a strong dollar and suppress the price of gold and silver to mask underlying economic problems and disguise inflation, and now we are beginning to experience pent up whip-lash as the smoke-and-mirrors act begins to unwind. Among other things, an artificially strong dollar increased demand for the exports of third world countries struggling to pay their debts to major U.S. banks. As part of this pattern, the U.S. bailed out Mexico in the mid-1990's following the Peso crisis. An artificially strong dollar and artificially low inflation rates also helped fuel the greatest speculative stock market in history and make money for major Wall Street firms.

Misleading inflation reports.
The topic of inflation can be complicated by the process of netting out pockets of deflation resulting from cheap imports from China and lower cost chips from the microcomputer chip revolution with pockets of inflation elsewhere, such as in basic commodities, consumer durables, and asset prices (stocks and real estate). But step back and look at the big picture, and Jim Rogers sees plenty of snake oil in the way "inflation" is being presented overall to Americans. Go to his archives at, click on "articles," scroll down to "22 March 2002 They Are Lying To Us Again." (This was published in a summer 2002 issue of Worth Magazine).

How policymakers may have put the gold and silver barometer of inflation to sleep for a while.
John Embry, chairman of investment committee for the Royal Bank of Canada, has accused the Fed and U.S. Treasury of artificially suppressing the price of gold through coordinated central bank sales. You can find his internal report that got leaked to the public by clicking on 'The Embry Report" archived at Chris Temple's National Investor "Other Experts" web site at:

In Dec 2002, Blanchard & Co., the largest retailer of physical gold in America, filed a $2 billion anti-trust law suit against Barrick Gold Corp and J.P. Morgan Chase for "unlawfully combining to actively manipulate the price of gold" and making $2 billion in short-selling profits by suppressing the price of gold at the expense of individual investors.

James Sinclair, lauded by Forbes magazine as a successful CEO of a precious metals trading company and gold mining firm, accuses the Fed and Treasury of using an Exchange Stabilization Fund and other tools to manipulate gold as well as currencies. He provides a brief history of the ESF, created by Congress in 1934, and some insight into how it manipulates markets in his Dec 5, 2002 guest editorial "What is the Difference between Stabilization and Manipulation?" Go to and type the title of the article in the search box.

...a quick editorial remark...
when the price of gold steadily declined under the pressure of central bank sales and other influences from 1996 to 1999, it threatened to put half of the world's gold mining companies out of business. Back in 1996, many investors responded to Alan Greenspan's comment about "irrational exuberance" regarding overall stock market valuation (the Dow then was at 6500) by seeking to diversify into gold as a safe haven, only to see it collapse underneath them as internet stocks without earnings kept moving up. "Prudence" was punished and recklessness was rewarded. This is a theme I will return to later in my comments in the "grid-lock" section about social values getting turned on their head. Ironically, back in 1966, during his more Bohemian days as a member of Ayn Rand's inner circle, Dr. Alan Greenspan wrote a paper titled "Gold and Economic Freedom" in which he stated towards the last two paragraphs: "In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value...The financial policy of the welfare state requires that there be no way for the owners of wealth to protect themselves. This is the shabby secret of the welfare statists' tirades against gold. Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statists' antagonism toward the gold standard."

So in other words, if John Embry is correct, Alan Greenspan's Federal Reserve policy has been a major adversary of gold, yet in his younger years Dr. Greenspan was an ardent supporter of gold. Ayn Rand's laissez faire, libertarian capitalist philosophy is generally against big government and Fed intervention, yet Dr. Greenspan's Fed has presided over one of the most proactive Feds in history in terms of money expansion and support for deficit Federal spending. This dovetails with a theme I reinforce at the end of this report about the need for the American people and their policymakers to resolve inconsistencies, establish credibility, and sort things out. (Jim Rogers thinks Greenspan's policies as Fed Chairman have been a disaster, as pointed out in his excellent 22 Oct 2002 article "For Whom the Closing Bell Tolls" archived at

Fiat -- Sharefin, 03:58:03 03/07/03 Fri


Gresham's law says that bad money tends to drive out good money. Well, whether we like it or not, whether we want to believe it or not, the U.S. dollar has become bad money. Despite proclamations from Washington about a strong dollar policy, I see no reason to believe that the dollar won't continue to decline, that we won't continue to borrow like beggars and put Band-Aids on gaping wounds in our fiscal, monetary and tax policies. That is, until the day when our creditors say enough is enough. And that day may not be far off.

Ted Butler -- Sharefin, 01:05:58 03/05/03 Wed

A Very Interesting Trade - COMEX silver options

I'd like to discuss a recent trade in COMEX silver options, that appears very interesting.

The trade in question is the kind of speculation I occasionally do for myself. Mind you, the last thing I want to do is to encourage folks to speculate in silver. Speculation involves voluntarily embracing extra risk, above and beyond the normal risk of a prudent investment. This is not something most folks are suited for. Besides, the risk/reward ratio in owning real silver is so spectacular, that it is not necessary to juice up the transaction with leverage. But still, this trade caught my attention.

Here are the facts of the trade, then I'll speculate on what it may mean. On Feb. 27 and 28, what looked to be a single buyer, initiated a purchase of over 6000 call options in the December 2003 option series. About 1500 were bought in the $6 strike price, and over 4500 were done in the $7 strike price. 6000 contracts equals 30 million ounces. The options expire on Nov. 24. The total premium paid, or cost, of the options was about $2 million. In my memory, this was the largest single option transaction in the 20 year history of the COMEX silver options market. Of course, the buyers and sellers are anonymous.
The speculation gets interesting if the buyer was not speculating, but bought the options as protection against a silver price advance, because of an existing short position. For instance, Barrick Gold comes to mind. This is in the ballpark amount of what they said they were interested in financially settling. Or it could be one of the big concentrated commercials shorts who have been manipulating the silver market for years, and has decided to cover. In any event, since the trade makes sense to me, as a good speculation, it makes extra good sense as price protection to an existing short. While it's true that $2 million is a lot of money for an out of the money option, if silver crosses $6 or $7 by Nov. 24, it may not be a lot of money when compared to the profit an option position of this size (30 million ounces) could generate. At $10 per ounce, these options would be worth well over $100 million. If silver got to $15 by the end of November, the options would be worth $250 million dollars. Not bad for a $2 million bet. Or a $2 million insurance premium for an existing short.
My point is that under certain pricing levels of silver, totally unexpected stresses will appear on the silver derivatives landscape. This is not dissimilar to the recent warnings of Warren Buffett about derivatives in general. If this recent option transaction was a transfer, in effect, of the silver short "Hot Potato", by Barrick or a concentrated short, and we do move into the money on these call options and most silver call options, it will be like dumping rocket fuel on an existing supply and demand fire. Like I said, this was a pretty interesting trade.

Interesting read -- Cyclist, 21:52:06 03/04/03 Tue



By: Ed Henry

Inside Washington, there's a war going on that is not being covered by anyone. While the Bush administration is determinably marching to war, buying and strong-arming leaders of friendly nations to go against the democratic will of their people and coming up with the up-front bounty to pay others like Turkey, it has been six days running since we hit the national debt ceiling.

On Thursday, February 20, 2003, the federal government closed the day $25 million below the debt limit and it has been holding there ever since. It should be noted that the cash interest paid investors requires approximately $500 million per day plus the normal expenditures under the new fiscal 2003 budget finally approved a week or so ago. At least, we are not running on "continuing resolutions" any more, last year's budget.

This means that Secretary of the Treasury John Snow is running in all directions to put together money to operate the government. Coming in all the time are personal and corporate income taxes, payroll taxes, excise taxes, and so forth, but we've never been able to live within those limits. In the last sixteen months, the Bush Administration has borrowed an additional $638.7 billion, averaging about two billion a day. It is absolutely impossible to do this now.

Previously, a situation like this has been preceded with great fanfare, fear, and journalistic bugaboo, but today there's nothing. The media hasn't even noticed, probably because their Mayberry sources are keeping their mouths shut. No one wants to talk about a shortage of money while others are questioning the cost of war and not thinking about what it has cost us already.

Worst of all, there is no legislation pending to raise the debt limit, nothing except a bill that's been around since January 7th and a budget proposal from the President for fiscal 2004 that contains the idea of eliminating the debt ceiling altogether. Congress, the Speaker of the House, and probably the Majority Leader of the Senate have all received memos from Snow urging them to act quickly, but it seems to fall on deaf ears. Nothing has even been scheduled for discussion of the debt limit.

It could be that the democrats and some of the republicans are deliberately holding out to teach Bush a lesson and perhaps avenge what the republicans did in 1995 when we had threats of default and government shut downs with "nonessential" employees taking a paid-later vacation.

You should all remember Newt Gingrich with his "contract with America" in his pocket claiming that he didn't care if the government went bankrupt and former Secretary of the Treasury Lloyd Bentsen detailing the national and international disaster default would entail. The national debt stood at $4.9 trillion at the time. That was seven years and $1.5 trillion ago.

The fact that we've reached the debt limit doesn't mean that all financial activities have stopped. The government is still selling securities on the "bond market" and as long as these new issues do nothing more than replace securities maturing at the rate of about $5 billion a day, everything will be all right. They could theoretically hold below the debt limit forever if the Treasury merely replaced these maturing securities and did not spend more than the tax money coming in. Do you think our government could do that? Not a chance. Not even in peaceful times.

So how are we going to conduct a war and an occupation with the credit card declined? Do you think Tony Blair is going to come to our rescue with some pounds sterling?

All the other times we've been at the debt limit with Congress doing its grandstand balking, we were warned that the Treasurer would raid the Federal Employees (FERS) retirement money. But the Federal Employees Retirement Insurance trust fund is in exactly the same position as the Social Security trust funds-no money, just a load of junk bonds or claims on future tax receipts that will be in the Treasury's general fund someday paid by tomorrow's taxpayers. The Pay-It-Again Sam scam with interest added.

The one place where there's some real assets to grab is the Federal Employees Thrift Saving Plan trust, one of the few real trust funds that the government operates. Standing at about $44 billion in assets, this is the source of temporary money for John Snow. But the holdings, investments that returned 17 percent last year despite the economy, must first be liquidated.

Not all of this money is in stocks, but you can bet your boots that most of it is. Thus, you can expect some surprises at the New York Stock Exchange as the government begins to dump billions in stocks. Of course, the news media will report this as something else since they never know why stocks go up or down and most of their guesses are off the mark. But now you will know.

Gold -- Sharefin, 23:55:14 03/03/03 Mon

Perth Mint - Allocated and Unallocated Storage

Gold Corporation, the owner and operator of The Perth Mint, does not use client metal for short selling transactions, derivative activities, or leasing outside the group. The Corporation is not a bullion bank and does not provide project financing or bullion lending/derivative services to mining companies. The unallocated metal is utilised solely in the Corporation's operations in Perth, which have significant inventories and processes.

The Corporation's business mission is to provide investors with one of the world's safest locations for precious metal storage, especially in an environment of increasing global financial/corporate risk. Use of unallocated metal outside of the Corporation's operations is not consistent with this mission. It would introduce an unacceptable level of risk and compromise the Corporation's growing international reputation as a safe haven depository.

Fiat -- Sharefin, 23:49:17 03/03/03 Mon

Apocalypse is nigh, Buffett tells Berkshire faithful

Warren Buffett is poised to issue his most doom-laden forecast for the state of the world economy yet, including a damning verdict on the derivatives industry he fears could cause a global financial crisis.

In the upcoming annual letter to shareholders of Berkshire Hathaway, Mr Buffett drops his usual folksy style to warn that banks do not understand the hidden risks lurking on their balance sheets.

He labels derivatives "time bombs, both for the parties that deal in them and the economic system" and "financial weapons of mass destruction, carrying dangers that, while now latent, are potentially lethal".

The views of the world's second richest man are closely watched and his apocalyptic vision will do little to steady nerves on Wall Street or in the City of London. Extracts from his annual letter, to be delivered on Saturday but posted on yesterday, reveal that he has little optimism for the stock market.

Until now vague warnings about the pyramid nature of derivatives contracts have led to bland assurance from banks that there is no threat to their stability.

Gold -- Sharefin, 19:32:45 03/03/03 Mon

Gold stocks valued below spot price

Not six months ago, gold miners were the stock market's biggest money-maker. Now they're the new whipping boys.

Investors are treating mining companies as if the price of gold were 10 percent lower than it actually is, says a veteran metals-watcher. This is a rare occurrence in an industry whose share movements the past 18 months have magnified gold's gains by a factor of three or more.
In the face of that skepticism, veteran gold watchers are steadfast. Analysts who have followed bullion since its heyday of the late 1970s and early 1980s deliver what looks like a unanimous verdict: the gold rally is merely on pause and will resume later this year.

Global researchers say the strongest theme for the metal may be a shift by countries, Russia and China among them, to reduce their reliance on dollar-linked paper assets (mainly U.S. Treasury securities) as the main source of their foreign reserves.

"In Russia, the deputy finance minister said dollar reserves should be cut to 50 percent from 70 percent, and gold reserves more than doubled to 10 percent," says Adrian Day, a Maryland fund manager.

First Deputy Finance Minister Alexei Ulyukayev's gold bulletin in Moscow rang bells among commodity researchers, who generally credit central banks with setting long-term trends in the accumulation and disposal of physical assets such as gold.

James T.S. Tu, director of investment management and research at commodities specialist Gerstein & Fisher in New York, says central bankers are becoming convinced their dollar assets will decline under the weight of America's record-high trade deficits and Washington's willingness to triple its deficit spending in the next five years.

"They know the dollar will go down because of unsustainable deficits, unrestrained money supply, a weakening economy and the terrorist/war threat," Tu tells me. "Central banks will be the biggest gold supporters." The increased purchases of bullion will come from countries with large trade surpluses today, such as China (2 percent reserves in gold and a $102 billion trade surplus with the United States in 2002) and Japan (1.7 percent gold reserve). Resource-rich countries that will benefit from a commodity boom, such as Saudi Arabia (7.3 percent gold reserve), also will increase their central-bank gold holdings, Tu says.

Such countries' gold portions of foreign-exchange reserves fall far short of those in developed countries. The United States has about 56 percent of its foreign-exchange reserves in gold, France has 51 percent and Germany has 39 percent. "Central banks design policies that they stick to day after day, year after year. They rarely change direction. Now they're moving away from dollars and into euros and gold," says the Gerstein & Fisher director. "It will last years."

Fiat -- Sharefin, 19:26:51 03/03/03 Mon

Avoiding a 'Mega-Catastrophe'

Derivatives are financial weapons of mass destruction. The dangers are now latent--but they could be lethal.

Charlie [Munger, Buffett's partner in managing Berkshire Hathaway] and I are of one mind in how we feel about derivatives and the trading activities that go with them: We view them as time bombs, both for the parties that deal in them and the economic system.
Another problem about derivatives is that they can exacerbate trouble that a corporation has run into for completely unrelated reasons. This pile-on effect occurs because many derivatives contracts require that a company suffering a credit downgrade immediately supply collateral to counterparties. Imagine, then, that a company is downgraded because of general adversity and that its derivatives instantly kick in with their requirement, imposing an unexpected and enormous demand for cash collateral on the company. The need to meet this demand can then throw the company into a liquidity crisis that may, in some cases, trigger still more downgrades. It all becomes a spiral that can lead to a corporate meltdown.
In banking, the recognition of a "linkage" problem was one of the reasons for the formation of the Federal Reserve System. Before the Fed was established, the failure of weak banks would sometimes put sudden and unanticipated liquidity demands on previously strong banks, causing them to fail in turn. The Fed now insulates the strong from the troubles of the weak. But there is no central bank assigned to the job of preventing the dominoes toppling in insurance or derivatives. In these industries, firms that are fundamentally solid can become troubled simply because of the travails of other firms further down the chain. When a "chain reaction" threat exists within an industry, it pays to minimize links of any kind. That's how we conduct our reinsurance business, and it's one reason we are exiting derivatives.
The derivatives genie is now well out of the bottle, and these instruments will almost certainly multiply in variety and number until some event makes their toxicity clear. Knowledge of how dangerous they are has already permeated the electricity and gas businesses, in which the eruption of major troubles caused the use of derivatives to diminish dramatically. Elsewhere, however, the derivatives business continues to expand unchecked. Central banks and governments have so far found no effective way to control, or even monitor, the risks posed by these contracts.

Charlie and I believe Berkshire should be a fortress of financial strength--for the sake of our owners, creditors, policyholders, and employees. We try to be alert to any sort of mega-catastrophe risk, and that posture may make us unduly apprehensive about the burgeoning quantities of long-term derivatives contracts and the massive amount of uncollateralized receivables that are growing alongside. In our view, however, derivatives are financial weapons of mass destruction, carrying dangers that, while now latent, are potentially lethal.

Fiat -- Sharefin, 09:42:19 03/03/03 Mon

How Real is the Threat of Deflation to the Banking Industry

The recession that began in March 2001 has had a generally benign effect on the banking industry, which remains highly profitable and well capitalized. The current financial strength of the industry is an important buffer against the effects of economic shocks. Nevertheless, the Federal Deposit Insurance Corporation (FDIC) routinely considers a number of economic scenarios that could develop over the next several quarters to evaluate factors that could result in the erosion in the financial health of individual banks or the industry. One such scenario that could present a major challenge to the banking industry involves deflation. This paper outlines the current debate over deflation, focusing on its potential effect on the banking industry.

Fiat -- Sharefin, 09:34:33 03/03/03 Mon

Stephen Roach - When Shocks Matter

Not all shocks are alike. Nor do they exert comparable impacts on macro economic performance. Shock analysis has two critical dimensions - the magnitude and duration of the shock itself, as well the pre-shock condition of the affected economy. On both counts, the oil shock of 2003 is extremely worrisome. That leads me to conclude that the risks of renewed recession in the US and in the US-centric global economy are high and rising.

There are times when it pays to be overly-simplistic on the global macro call. This is one of those times. Three key points are most obvious to me insofar as the cyclical prognosis for the world economy is concerned: First, in a US-centric world, the global call is basically a call on the US economy. Second, the US is in the midst of a classic oil shock. And, third, that shock has occurred at a point of maximum vulnerability - when a US-centric industrial world had slowed to a virtual standstill. The conclusion is inescapable: The recession warning model that I have long advocated is now flashing a serious alert for the US and for the US-centric global economy. A stalling economy lacks the cyclical immunities that cushion it from an unexpected blow. A stalling economy that has been hit by a shock is a recipe for recession. Unfortunately, it's that simple.
No two shocks are alike. But their macro impacts can be categorized rather neatly. If a shock hits a rapidly growing economy, it usually doesn't inflict much pain. But if a shock hits a slowly growing economy that is hovering near its stall speed, then it can easily take on the role of the “tipping point” - the event that pushes the economy back over the cyclical edge. It is the latter set of circumstances that applies to the current economic prognosis. For the second time in three years, the recession alert needs to be taken quite seriously. In my view, renewed recession is a clear and present danger for today's US economy. It is also the key risk for a US-centric world.

Fiat -- Sharefin, 09:31:05 03/03/03 Mon

Fear In Check?

Fear Factors...There is absolutely no question that significant equity bear markets bottom in the height of investor fear. Fear that is often irrational. Fear that is often an emotional mirror image of the lack of logical thinking that helps drive the euphoria seen at equity bull market tops. As you know, there is a subset of technical analysis devoted entirely to the apparent study of human fear. Tools such as options related volatility indices like the VIX, VXN, QQV, etc., put-call ratios, sentiment indicators, the commitment of traders report, specialist short sales, and the list goes on and on. In the current environment, many a characteristic defining the moment such as declining volume, the clear downside bias of the equity averages, and collapsing consumer confidence is being rationalized as heightened near term investor "fear" over geopolitical events - specifically the Iraqi situation. This rationalization leads many to the conclusion that once this source of fear is alleviated, uncertainty will give way to stability and renewed confidence. As always, we suggest digging a bit below the blaring media bullhorn headlines of the day in trying to get an understanding of the nature of investor emotions at any point in time, whether characterized by emotional fear or euphoria.

Where've You Been? We've Looked For You Forever And A Day...For long time readers of CI, you know we've been looking for a collapse in consumer confidence at some point during the current cycle. It's happened during every economic and significant equity market troughing experience of the last four decades at least. Given the excesses of the immediate prior period, we simply could not see any other ultimate conclusion to the cycle of consumer emotion. When the January Conference Board Consumer Confidence Index cracked 80 as of the January reading, we related in our discussions that never in the last thirty years has this confidence index broken 80 to the downside and not ultimately ended up in the mid-50 to mid-60 range shortly thereafter. This go around, it happened post haste. For a good while now we have been projecting a potential bottom in the mid-50 to 60 range, based largely on what you see below. At long last, we've entered our target zone. And it has seemed like it has taken forever and a day to finally arrive.

Gold -- Sharefin, 09:23:23 03/03/03 Mon

Gold Is on the Rise, So What's Bugging Barrick?

THE economy is in the doldrums. The stock market is a mess. War looms. Terror threatens. In other words, it should be time to celebrate at companies in the business of mining gold, long a haven in periods of investor anxiety.

But one of the industry's largest players, Barrick Gold of Toronto, hasn't been popping any Champagne corks of late.

After years of top performance, Barrick's stock price has slid, falling nearly 11 percent over the last year, as prices for gold have soared nearly 18 percent. Randall Oliphant was recently shown the door as chief executive and replaced by another longtime Barrick executive, Gregory C. Wilkins. Now, Barrick has been sued by a gold dealer and gold investors who say its success of the last decade relied on manipulating gold prices.
Still, for gold bugs, who approach investment in gold with a fervor bordering on religiosity, the use of any such hedges, which entail the sale of borrowed gold into the spot market, is a heresy that damages the marketplace. Hedgers, led by Barrick, have warred with nonhedgers for years.

Recent events have only fueled the debate. With a strategy described in exotic terms like "off-balance sheet position" and "fixed-forward contracts," the hedge program sounds the way the kind of toxic ploys used by Enron did. For conservative gold investors, they are the equivalent of the investment bogyman.

"As a percentage of Barrick`s total assets, its off-balance-sheet assets make Enron look like a champion of full disclosure," said Donald W. Doyle Jr., chief executive of Blanchard & Company, a gold dealer in New Orleans that is the lead plaintiff in the suit against Barrick in Federal District Court there.
The hedging strategy also now faces a legal challenge. In the federal lawsuit filed late last year, Blanchard and the other plaintiffs accused Barrick of using its hedge program to manipulate gold prices in violation of federal antitrust laws.

In essence, the lawsuit says Barrick and J. P. Morgan Chase, which has participated in the hedge program for years, used the strategy to force down prices, allowing them to profit at the expense of other market participants.

"If you look over the past six years, you will see that when Barrack's hedge position has gone way up, the price of gold has gone way down and vice versa," said Mr. Doyle of Blanchard. "Barrick created an anticompetitive environment through the manipulation of the price of gold, and they did it with the knowledge and assistance of J. P. Morgan and perhaps some of the other bullion banks."

With the hedge program bringing future sales of gold into the immediate spot market, Mr. Doyle said, Barrick had the ability to cripple any rally in the price of the commodity. Because the program also allowed it to profit in markets that left competitors in poor shape, he said, Barrick was able to use its competitive advantage to acquire other companies, fueling huge growth.

Gold -- Sharefin, 09:08:18 03/03/03 Mon

2003 Global Resources Conference

Lots of companies reports archived.

Fiat -- Sharefin, 08:53:02 03/03/03 Mon

Top manager predicts a depression

Today, O'Higgins won't touch a Dow stock or almost any other stock at current prices.

Because he is looking for a depression to begin soon or to be already in progress. ''Perhaps the greatest deflation and depression of all time,'' he says, ``Following the greatest speculative boom [in stocks] of all time.''

It'll begin as the Baby Boomers wake up and realize that the stock market's downturn over the last three years has wiped out almost half of their nest eggs.

''When you say it can't be like 1929 through 1931 [when stocks lost 89 percent of their value], ``you're right. It could be worse,'' he says.

Boomers and consumers will begin to save more money when they realize that the bull market is firmly over. Stock gains in the future will not bail out an investor if he has put too little money away.

People today have higher levels of debt -- for consumers, government and corporations as a percent of Gross Domestic Product -- now than at any time since 1929, he notes.

The depression will not end until that debt is liquidated, he says.

When consumers decide to save more, they'll stop spending. And the economy's main support will collapse.

After that, you can wait and watch for the Dow Jones Industrial Average, currently just under 7,900, to sink by another 24 percent to 6,000. And that's his best-case scenario.

It could go as low as 3,100, if the stock market goes back to its normal range throughout the last century for the dividend yield, which is the figure you get if you divide a stock's dividend by its price.

Right now, O'Higgins is only interested in gold, which he sees as undervalued and heading up because of deflation. ''Because it's real money, because it has held its value for thousands of years, because it's not subject to the manipulations of government or central banks or dishonest corporate executives,'' he says.

What's more, gold goes up when stocks go down. In 1929-1932, he notes that gold rose 69 percent. And indeed, in the last 12 months, it is up 20 percent. Yet its price is still far below what it traded for in 1980: $850, or roughly 2 ½ times higher than today's roughly $350 an ounce. Global supplies of gold, too, are dwindling.

A gold stock, Newmont Mining, is the only stock he owns today and he's betting against the rest of the market. His strategy is risky, not diversified and, well, daring.

Periodic Ponzi Update PPU -- $hifty, 20:58:16 03/02/03 Sun

Ponzi Chart

Periodic Ponzi Update PPU

Nasdaq 1,337.52 + Dow 7,891.08 = 9,228.60 divide by 2 = 4,614.30 Ponzi

Down 69.26 from last week.

Thanks for the link RossL !




ChartsRus -- Sharefin, 19:24:22 03/02/03 Sun

No charts for my website as my PC is broken & being repaired.

Meanwhile here's my favorite gold chart.
It's the CRB Precious Metals index:

Auspec -- Sharefin, 19:22:19 03/02/03 Sun

No wonder some people think goldbugs are half deranged.(:-)))


GOLDONOMICS 102 -- auspec, 13:59:19 03/01/03 Sat


Much has happened in these last couple years……even some clarity. Update time.

GATA BOYZ keeping their poise…..Midas, the Poet, Zelotes, Esquire and the Professor {sans Ginger}, + a rag tag group of Patriots, not Acts 1, 2 or {Monica} missiles. POG set nearly FREE contrary to wants of Fed, UST, IMF, ESF, BIS, BB's, CB's, ABX, CNBC or the WWF {World Fiat Federation not the credible WWF}. Store THIS deeply……… please. 2002 is a good year for Juniors, but not W's. TB & the Ag Boyz have the COMEX “covered”…… the HUNT is nearly over. COMEX approacheth TOCOM. AG & the Printers press ahead fool speed w a new affinity for bananas. IRA's & 401K's gone away in USA, Dow & Duck out of “luck” …..CFR, USCIA, FBI and Homeboyz are new growth stocks, insider ownership only. Taking away IRS recruits. Hard to get good elitists these days. Enron, AA and HUD form a new Bermuda Triangle. CPI, PPI and the American populace all under control. Ask the pols or the polls. WTC “puts” left unclaimed but CIA looking into it. GI Joe meets Taliban Johnny in Guantanamo-ACLU not invited..keeping the Pigs @ Bay or vice versa. David Copperfield {damn metals again} gives lessons to ObL. Geraldo strikes out and strikes out. GWB & the Empire strike first, U R 4 US or agin us……all else neutered. Oiling up for WAR or versa vicca. Pipelinestan is newest C. Asian country…oil & dope reign & flow. Al Qaeda & Iraq both contain Q's as does John Q Public…….Axis of evil fo' sho'. Der Homeland is secured for all but terrorists and Constitutionalists. OPEC disses the $, flirts w the euro. US$ becomes the evil of 2 lessors. JPM contemplates its navel and guguplex but retains its elitist calls. GS awaits its turn. America for a New Century bypasses protocol, bypasses Congress & bypasses our hearts. The bad news is….the UN is irrelevant. The good news is the UN is irrelevant. Jorge will not debate Saddam….he only debates delusional morons. Algore is MIA {Missing In Appreciation}, Bob Chapman is AWOL. Lack of freedom on the net……? Nyet, nyet.

In other words…… haven't really missed too much.


ESF -- auspec, 11:20:07 03/01/03 Sat

The following question was asked at one of the hard money chat sites:

"Is this ESF fund the same one that is used to manipulate the price of gold? If it is the same one what would that mean for the price manipulation scenario?"

Yes, it is the ESF that is largely suspected of suppressing gold and, contrary to my prior statement, it does have a type of financial accountability on an annual basis. Entirely smoke and mirrors but accountability nevertheless.

Funds are used "at the margin" to move/control markets.....a little bit can go a long way. Couple points. You could pretty much rest assured that "don Carlos" will not stay in a box and play by anyone else's rules or even his own changing rules. He will use ANY tool at his disposal to achieve his goal. Many can likely confirm this analogy. The US isn't EVER going to run out of paper and as long as paper still holds weight {paper weights, smile}.....they will use it for their means. ESF paper, HUD paper, SS paper or plain old AG to USCIA paper.

What eventually breaks the gold bank? Tis a confidence game, played at the COMEX margin for the most part, but the gold ants are a multitude. The "lilliputians" as Belgian used to say at USAGold. Gold still has to be actually delivered here and there as opposed to the simple accounting rearrangements on COMEX. Tight physical markets are inevitable, at least the way the current market appears. Can they continue to dig up "tranches" of gold to knock the gold market back down towards a level where the shorts have the possibility of surviving? So far, yes, but w greater and greater levels of strain and desperation {both of which are palpable}. Smart money is known for its keen sense of smell, shall we say, and smart money will act accordingly.

They've played out their CB gold holding lies over the last 8-10 or more years and they've been found out. The CB's DON'T have the gold they claim to have. At least not in the vaults like it is supposed to be. We apparently have a new category of CB gold called "deep storage". Whether this is gold yet to be mined or gold in the Indonesian jungle {the black gold theories} is anyone's guess. Just the mention of this new category is a loud statement that current gold holdings are not what they appear to be.

The German Bank issues are pretty keen. Many will remember that there are credible claims that the German vaults of gold are now empty, having been "swapped" with US authorities. Sounds like lots of banking problems to me.

What is in process of breaking down the gold cartel players? It IS the dollar for sure. So goes the goes gold. The dollar HAS to be sacrificed because the presses are lubed and greased to run overtime to keep the depression/deflation scenario at bay. The confidence game is over when the confidence goes and the confidence is going, going......
Dollar negatives ABOUND. That is sufficient reason to hold gold and it will eventually dawn on more and more ants and queen ants all across the globe.

Contrary to the game we played as the long run "rock" breaks scissors AND "paper". They gotta lotta paper but they're running outta rocks. Too many of em "gotten off" during the Clinton years apparently.......

Rocks......get em before they're hot.

auspec aka Rockspec

how to buy Pt 1 oz x 10? -- sherwinlui, 03:56:59 02/28/03 Fri

how to buy Pt 1 oz x 10? 100 new? eagle / Maple leaf? + ship to HK?

Gold -- Sharefin, 21:59:17 02/27/03 Thu

MEGA CHANGES: Telling Story

Gold is an incredible market. It's so cyclical that it's sometimes uncanny and we're often amazed at the consistency of these cycles and this month was no exception.
Gold shares usually lead gold and many moved sharply higher in 2002, rising 41%. That's in sharp contrast to stocks, which were down 25% on average. Gold shares are pointing the way and they're telling us that gold is headed higher too. Interestingly, the stock market and the U.S. Dollar are now reinforcing this as well.

Most important, something very big is happening. Not only are we talking about major trends, which normally last a year or two, but we're also talking about MEGA SUPER trends, which generally last several years.

Gold -- Sharefin, 21:44:25 02/27/03 Thu

Portfolio analyst sees gold prices retesting their recent highs

The price of bullion can rise back to its recent high of $380 (U.S.) an ounce and may advance into the $400-$500 range over the next 12 months, portfolio analyst Robert Cohen says.

"We still are very bullish on gold, because the factors that have driven individual rallies [in it] in the past or bull markets [in it] in the past individually are actually happening simultaneously this time," said the senior portfolio analyst for Toronto-based Dynamic Mutual Funds Ltd.

Among those bullish factors, he said, is the U.S. current account deficit, which now equals 5 per cent of U.S. gross domestic product. In the mid- to late 1980s, when the current account deficit reached 4 per cent of GDP, the trade-weighted U.S. dollar declined significantly and gold climbed to close to $500 an ounce.

Gold -- Sharefin, 20:44:03 02/27/03 Thu

PM: Other currencies can be benchmarks in international trade

PUTRAJAYA: The international community should be encouraged to use other currencies or even gold as the benchmark in international trade because the domination of the US dollar in global transactions is distorting the world's economy, Datuk Seri Dr Mahathir Mohamad said.

Even the economy of the United States had been affected, the Prime Minister said.

“When we put too much value on a certain currency, it becomes very powerful and that currency actually works against us,” he said.

He added that since no nation would like “just one single policeman in the world,” the Euro, yen or even gold should be used for transactions.
He said he had read an article which pointed out that the United States was actually living on borrowed money and that it always faced a huge deficit.

Despite that, he said, the US economy continued growing at a tremendous rate for the past 10 years while Japan, which had made a lot of money and had very healthy reserves, was facing economic problems.

“This is a contradiction. Why is this happening?

“It is simply because we are giving value to the US dollar which it doesn't really have.

“There is nothing to back the US dollar other than people's belief in it,” he added.

Gold -- Sharefin, 20:41:49 02/27/03 Thu

Frank Holmes Talks of Gold and much more

Holmes: We created that fund years ago because we were trying to figure out who were the largest buyers of gold in the early 1990's and why. The answer to these questions took us on a fact-finding mission to Asia. It was really interesting because in the early 1990's it was predominantly the Chinese and then the Indians from India who were the largest consumers of bullion. There appears to be a rotation between the Chinese and the Indians as the largest consumers of gold. Also, they purchase gold as 24-karat simple jewelry with very little mark-up as compared to North Americans, who predominantly buy 14-18 karat gold with a huge mark-up. And now it looks like the Chinese are once again taking over as the predominant consumers of gold. So that is why we formed this fund.

Do you know what they call the bird of China? It's the construction crane. They are everywhere. It is amazing to witness the amount of construction, new highways and skyscrapers being built everywhere. Another amazing fact in Asia, in particular with the Chinese, is that they have a 30% savings rate. Combine this with the demographics of just over 300 million people under the age of 20 who are rapidly learning English and do not know of Mao. However, they know about America. Further, the Chinese have a very strong family tradition and a natural cultural attraction towards gold. A recent and incredible statistic was that the industrial production numbers for China last quarter were 14%. The GDP was 8% last year. And you have more than the total population of America learning English!

Here is another very interesting fact. Last year from the G-3 countries, which are Germany, America and Japan, all had very weak economies. Why were commodity prices ­ the CRB up 20%? So what we have is a second economic engine, that being China. This is what took place in the 1960's with Japan. They are taking any commodities they need to build out their infrastructure. So I think the Chinese are very significant. And I think it was interesting that the very day that gold broke through $330, that key resistance level, was the day that the Chinese could once again legally buy gold bullion.

Taylor: So you think that is what got the gold market through that critical resistance level?

Holmes: I really do. It hardly got any notice. There was one story on Reuters that quoted one store manager in Beijing saying they sold 70 kilos of gold in that one day. You have 1.3 billion people who have a very high savings rate and who believe gold is a very important component of it. I think gold is the new vehicle for savings in China, and in addition the country has just announced they have acquired 600 tonnes of gold. They have a massive current account surplus. They are pegged to the U.S. dollar. So gold is a nice hedge against the dollar.

War -- Sharefin, 20:38:12 02/27/03 Thu


Oil and the Great Game

"The Great Game" is the name given by participants and historians to the battle between England and Russia in the 19th century for control over India and contiguous nations. This phrase is now commonly applied to the Middle East as well, because of its oil.

This is not about a low price for oil. If that were the issue, then there would not be United Nations controls over Iraq's export of oil in its "oil for food" plan. Such restrictions reduce the flow of oil, thereby keeping the oil price higher. This war is over the control of oil at the margin. The price of oil is highly volatile. It responds dramatically to relatively small increases or decreases in the supply of oil. What oil retailers want is price stability. This is true of all oligopolies. This includes the oil cartel of the wholesalers (OPEC) and oil cartel of the retailers (the major oil companies -- "Seven Sisters"). They see the unhampered free market as somehow de-stabilizing. They want an alliance between big government and themselves. This is what they now possess, and have for 70 years.

Richard Russell -- Sharefin, 20:28:55 02/27/03 Thu


Gold -- There's nothing more frustrating than sitting through the early (accumulation) phase of a bull market. And that's where we are in the gold bull market. Big money that is accumulating gold does not want higher gold in this area. And the question is -- is gold being manipulated to the downside?

I suspect that the answer is yes. When you're dealing in the money market you're dealing in by far the biggest market in the world. Daily transactions in the currencies dwarf the daily transactions in stocks. And currently, tectonic movements are taking place in the world of money.

Furthermore, I suspect that large interests are accumulating gold, and the last thing they want is for gold to move higher while they're in the process of accumulating the metal.

This from today's Wall Street Journal, page C16 under "Currency Trading."

"News that Russia plans to move more of its reserves into the euro at the expense of the dollar fueled declines in the dollar against the European currencies.

"Russia's candid admission yesterday that it will cut the dollar portion of its foreign-exchange reserves to 50% from 70% and raise the euro slice to 30% from 25%, is feeding a growing sense in currency markets that such diversification by central banks is only set to gather steam.

"While not hugely significant in and of itself -- Russia's roughly $47.8 billion in foreign currency holdings are just one-tenth the size of Japan's -- the unusually frank statement of intent from the Russian authorities has fueled questions in the currency markets as to whether other banks might follow suit."

Russell Comment -- The three paragraphs above provide just a hint of the giant movement in currencies that lie ahead. While the US is the dominant military power in the world, this is not the arena where the coming struggle for power will be played. It will be played in the economic arena, and the measure of success or failure will be seen in the movements of the various currencies and gold.

Again, I warn subscribers that the coming battle for world power is just beginning. The battle will obviously include the US and China with Russia and India both very much involved.

The battle will be played out over a period, not of weeks or months, but of years. In the light of this coming long-term struggle, the daily and even the weekly and monthly movements of currencies and gold may prove to be insignificant. I'm talking about an historic struggle that will reshape the world and extended period of time.

As for you and me, we take our long-term positions and wait. Patience will pay-off in this coming battle for world power-leadership and investment survival.

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