OCTOBER 2005

Breaking from MoneyNews.com

NewsMax.com's email financial news service - MoneyNews - reports that Federal Reserve Chairman Alan Greenspan believes the U.S. has "lost control" of the federal deficit.
 
France's Finance Minister revealed Greenspan's remarks Saturday after a meeting with the Federal Reserve Chairman.Some now believe Greenspan has serious worries about the U.S. economy and will continue a maverick course at the Fed until his scheduled departure on January 31.

The James Joyce Table
Midas du Metropole
Topic du Jour

September 14 - Gold $449.40 up $3.70 - Silver $6.98 up 5 cents

"How Is Everything?" "Everything Is Fine!"… Stepford Wives, Result: CRASH!

"History records that the money changers have used every form of abuse, intrigue, deceit, and violent means possible, to maintain their control over governments, by controlling money and its issuance." -James Madison

GO GATA!

(When I refer to The Stepford Wives, it is about a movie which came out in the 1970’s about a suburban group of US housewives in Connecticut who were robotized by their husbands and were always talking about how fine everything was. Here are snips from a review of the recent remake of this cult movie:

"It turns out that Stepford’s husbands have conspired with chauvinistic scientists to replace all the wives with computerized android duplicates.

"Joanna soon discovers that most of the other housewives are vapid creatures who exist only to please their husbands and clean their houses. It’s the swinging seventies, but all the wives wear hats and gloves, and demure high-necked, ankle-length dresses. Their makeup and hair is absolutely Barbie-doll beautiful at all times, whether they’re baking brownies or scrubbing a toilet bowl…

"When the formerly-feisty Bobby succumbs to the lure of cooking, cleaning and coddling, Joanna figures out that the perfectly beautiful, perfectly coifed, perfectly deferential wives have chips-for-brains. And she’s next."

My point in having fun with this is that this is what the Orwellians/PPT/Gold Cartel have done with American investors. They are treating them like they have "chips for brains" (back in the ole days us guys would have used a slightly more vulgar slang on the for brains comment). With their massive market rigging operations they have created an illusion that everything is OK … no need to even think, little can go wrong. The PPT crowd will take care of everything.

This is why the cretinous bums are so desperate to keep gold from exploding through $450 and then making 17-year highs. Besides setting off all kinds of bells and whistles and perhaps some derivatives bombs down the road, it will begin to short circuit those "chips." The American investor will see gold exploding and finally realize all is NOT FINE … and then is likely to start reacting accordingly.)

It’s Wednesday morning with The Working Group on Financial Markets going into Greenspan Put operation mode … and doing it in desperado-like fashion. The scenario:

*Gold was due $2 higher, yet came in $4 higher. In 7 years I cannot recall this sort of surprise super strong gold opening during a period when The Gold Cartel was attempting to orchestrate one of their patented moving average liquidation programs. They have defended the $449/$450 level for a reason. They are petrified what an exploding gold price could do to precarious derivatives positions in the US and to real estate related interest rates. Clearly the word has gone out to all cabal operatives to sell bullion at these levels.

*Greenspan meets with the 14 largest credit derivatives players in the US tomorrow. Good timing. You can be sure gold will be discussed privately and not allowed to be discussed publicly, just like what occurred with the PPT meetings to prevent the LTCM blow-up from contaminating the rest of the financial markets in 1998.

*The US retail sales number released at 8:30 was the worst in four years and continues a slew of disappointing economic numbers, calculated BEFORE Katrina. The dollar began to swoon when the PPT sounded their counter-attack bugle. Back up the dollar went.

08:30 Aug. Retail Sales reported (2.1%) vs. consensus (1.4%); ex-Autos reported 1% vs. consensus 0.5%
Prior Retail Sales 1.8%; ex-Autos revised to 0.5% from 0.3%.

If the retail sales number was not bad enough, the August industrial number was also worse than expected (some trend these negative US economic numbers have been:

09:15 Aug. Industrial Production reported 0.1% vs. consensus 0.3%; Capacity Utilization 79.8% vs. consensus 79.8%
Prior Indus. Production 0.1%; Capacity Utilization revised to 79.8% from 79.7%.

*Iraq is a horror show with Americans still in denial of what the eventual consequences will be as a result of this folly.

05:12 2 car bombings in Iraq
One car bombing in a Shiite neighborhood in north Baghdad killed atleast 81 people, according to BBC, and wounded at least 100 after driving into a crowd in the Kadhimiyah district at about 8 am localtime, according to CNN. A second blast killed 11, according to SkyNews, citing Reuters.

*With all this lousy news, news which will surely worsen in the months ahead due to Katrina, the bonds and US stock market are slightly higher with the market open a half hour. The message to the markets from the PPT is more of the same: No matter what the news is we can control the markets via our derivatives operation and we can spin the news to make everything OK.

This is:

*More of their same Matrix-like operation.

*Treating the American investing public like The Stepford Wives. "How is everything?" "Everything is fine!"

*How crashes occur. The Orwellians can only fend off reality for so long. 1987 and 1929 come to mind in that regard.

I see developments the way Adrian does:

Bill,
The PPT is desperate this AM. Since May we have the left shoulder and head of a massive head and shoulders in the DJIA, S&P and Nasdog. Yesterday’s fall started the completion of the right shoulder. The PPT with lousy Iraq news, lousy retail news, Ophelia about to hit the East coast etc etc they are trying to prevent the formation of the right shoulder. May be a bridge too far?
Cheers
Adrian

*Just out – the oil inventory numbers, showing a substantial build in gasoline inventories. Not even the Planet Wall Street crowd on CNBC believes that one. An Adrian encore:

Bill,
Now we know that the PPT is absolutely terrified of the right shoulder forming…the DOE report confirms it. Having gasoline stocks go UP 1.9 million bbls when 10% of the countries refining capacity has been offline for 3 weeks is nothing short of pure fabrication and fantasy. The magnitude of this bold face lie indicates that the needle is in the red zone and the lights on the dash are all flashing.
Cheers
Adrian

Meanwhile, how many times does gold have to surge in the first 10 minutes to an hour, only to be stopped dead in its tracks for the entire rest of the Comex trading session, before the dingbats in the mainstream finally note this is not natural market action? No market trades like this year in and year out without constant official interference and price manipulation.

The gold market has now been open 3 hours on the Comex and Goldman Sachs and JP Morgan Chase are bombing it, as reported to me by one of the GATA ARMY.

Oh yes. If that weren’t enough of The Gold Cartel’s playbook modus operandi to report to you, the PM Fix was $449.30. As soon as the surge in physical market gold was accommodated in London and the Fix concluded, the cabal went after gold on the Comex and it was taken down $2.

The market is now closed and, while $450 was not allowed to be breached, The Gold Cartel had their hands full. Gold stormed back up. More and more investors realize the reasons to be long gold are more than compelling. They are going off the charts.

We are right back to where we were Monday night with gold sitting right below $450 and ready to rocket. Gold should blow through $450 and roar higher. Yet, there are the crooks to contend with. Whether the bad guys get theirs tomorrow or not, they are doomed.

Some possible very bullish news to bring your way on silver. Silver has been too quiet and acted too mysteriously for far too long. Silver is the one market which is most likely to erupt out of the blue and go ballistic with no apparent reasons showing on the surface. One clue something is up is that a significant buyer of the $10 DEC silver calls emerged. That same buyer sold DEC $7 puts.

The silver open interest rose 973 contracts to 115,475, while the gold open interest fell 352 contracts to 321,200. While there was some spec gold liquidation, that was countered by fund buying on the dip to match The Gold Cartel’s selling.

From here on in the COT figures will become very pronounced with the Commercial short position growing and growing as the specs pile on the long side. At some point we will get our long awaited Commercial Signal Failure, which means The Gold Cartel gets blown out of the water as the desire to own gold overwhelms their ability to manipulate and suppress the price. MIDAS speculated a couple of weeks ago that the aftermath of Katrina would be too much for the price managers and end up to be the tipping point which did them in. We are getting close.

Why Is the Yellow Metal Not Taking Off?

By George Kleinman and P.V. Ramanathan
Khaleej Times, Dubai
Monday, September 19, 2005

http://www.khaleejtimes.com/Displayarticle.asp?

Our June 27 article in Khaleej Times (entitled "A Silver Opportunity") called for higher gold prices. We have been consistently bullish on gold for quite some time now. While gold prices have been generally buoyant, we have not seen any of the significant spikes that one would normally associate with a potentially highly inflationary background of galloping energy prices and runaway deficits.

Gold closed around $459 this past Friday (Sept. 16) with a monthly change of +4.3 percent and a one year change of +13.53 percent. In fact it has only just regained its March 11 high of $458.5.

Why is gold so slow in going up? Here is an interesting insight from Doug Casey.

After the price of gold spiked over $850 in January 1980, gold production increased substantially -- and it stayed up, even with the steep falloff in gold prices. Production has gone from about 1,200 tonnes per year in 1980 to its current level, over 2,500 tpy.

Where did all that new gold production come from? Aside from the dramatic increase in price incentive in 1980, new technologies
have matured, such as heap leaching and satellite prospect identification. In addition, since the collapse of communism, manyprospective areas of the world have opened to modern exploration.

Another economic factor keeping the price of gold down recently has been producer hedging. This is a particularly complex part of the puzzle, but in a nutshell, when gold was falling, as it was from 1980 to 2000, many big producers, starting with Barrick,"hedged" against decreasing prices by selling large portions of their future production at substantially over the then-current prices. Since gold is a "carrying charge" market, it's usually possible to sell several years forward at a price reflecting current interest rates and storage costs. In the mid 1980s, when gold was, say, $400, it meant they could sell three years out for, say, for a little over $500.

When time came to deliver, the metal might actually have traded for only $350. That was a very smart thing to do -- at the time. What wasn't so smart was failing to recognise when gold bottomed out and prices started rising again. The producers have started de-hedging in the last couple of years but still have massive short positions. By some estimates, to the order of 1,700 tonnes of gold -- almost half last year's entire gold supply from all sources -- is still sold forward.

Obviously, gold sold forward in the last five to seven years at prices considerably below today's is costing these companies a fortune, but the big impact on price may come from the bullion
banks. Why? Because they could borrow gold from central banks for nominal interest rates (0.5 to 1.0 percent), sell it on the open market (believing they will be able to return it when they take delivery on futures contracts bought from hedging mines), and invest the proceeds, conservatively, to clear a 4 to 5 percent profit margin.

This had the effect of increasing the global supply of gold, basically adding already produced (borrowed) reserves onto the production/supply side of the scales.

Another purely economic factor holding the price of gold back may simply be traders selling every time gold approaches $440. How can one say that?

In part because you can see gold retreat time and time again, as it approaches $440-$450. As Jon Nadler, a senior executive with
Kitco.com, explains: Traders, not being long-term-oriented folks, are not
waiting for gold to go to the moon. They are perfectlyhappy to buy in the
$417-$430 range and sell the
moment they can make $20-$30 per ounce.

In addition, investor fascination with real estate is drawing
capital from other investments, even undervalued ones like
gold. Why did investors focus on real estate, rather than
gold, after the tech bubble burst, the dollar started falling, and broader
equities markets started trading sideways? It
could be attributed mainly to the fact that gold was in a secular bear
market from 1980 to 2001.

As a consequence, a whole generation of investors grew up thinking of it
as an investment "dog" as well as a monetary anachronism. Strong growth in
the past of the U.S. economy
and the years of low interest rates have spawned a complacent mentality
among most Americans. Given the record levels of
debt among individuals and the federal government, this
feeling of prosperity must be a form of mass delusion.

Rising interest rates are already putting the squeeze on
credit card and mortgage holders with variable interest
  rates. That could get very ugly, very quickly. Though we
are seeing the beginnings of a change in attitude, most institutional and
retail investors still think putting
capital in gold and other precious metals is a little loony.

When the housing bubble bursts, stocks, bonds, and the depreciating dollar
won't provide a refuge. The herd is going
to head into commodities in general, and gold in particular. Gold is,
after all, the crisis commodity.

The Gold Anti Trust Action Committee (GATA, www.gata.org)
feels a scandal is brewing. Central banks may not be able
to control the price of gold, as was the case before 1971,
but they have the motive, means, and appearance of
influencing it. The United States in particular, since
its dollar has in good measure replaced gold as a reserve
asset around the world, has an interest in seeing low gold prices, and a
quiet gold market.

Why? Because the value of the world's fiat currencies, particularly the
dollar, rests mainly upon the confidence
of the public.

Unfortunately, confidence is not a stable foundation upon
which to build the world economy. Like any attitude,
confidence can change overnight.

Governments want to maintain confidence at all costs, and
the one thing most likely to destroy it and set off a
full-scale monetary panic, is a runaway gold price.
Therefore, it's quite logical that they will make every
effort to suppress the price of gold.

How? The key component of GATA's claims is that the central banks are
lending gold to bullion banks and still keeping
the gold on their books as reserves. In these "swaps," each
bar of gold essentially gets counted twice, exerting a
negative pressure on the gold price when the borrowed
gold gets sold on the open market.

There's no question that bullion banks are selling borrowed gold -- what
makes this the stuff of a "conspiracy" is that
GATA says the central banks are not being truthful about
whether or not they are counting gold not actually in their vaults as
reserves.

Specifically, GATA chairman Bill Murphy says the central
banks are reporting an aggregate of about 31,000 tonnes of
gold held in reserve but have only about half as much in
their vaults. The amount of gold they actually have on
hand may be as little as14,000, or even 12,000 tonnes.

Murphy says the International Monetary Fund claims that
it "recommends" that swapped gold be excluded from reserve assets.
However, some central banks report otherwise. For example, a footnote on the
central bank of the Philippines
web site contradicts the IMF's claim: "Beginning January
2000, in compliance with the requirements of the IMF's
reserves and foreign currency liquidity template. ... Gold
swaps undertaken by the BSP with non-central banks shall be treated as
collateralized loans. Thus, gold under the swap arrangement remains to be
part of reserves."

The European Central Bank, the Bank of Finland, the German
Bundesbank, and the Bank of Portugal also confirmed in
writing to GATA that swapped gold remains a reserve asset
as per IMF regulations. So clearly there is a disconnect here.

Summarising the GATA argument, in their own words: "GATA believes that the
implications of IMF accounting procedures
for reversible gold transactions are very significant.
Clearly deceptive accounting, countenanced by the IMF,
has allowed official sector gold to hit the market without
a corresponding drawdown on the balance sheets of central
banks. This has made it impossible for analysts to ascertain
the exact size of official sector gold loans, swaps, and deposits. The
unwillingness of central banks to provide
even a minimum level of transparency suggests that total
gold receivables are substantially larger than the accepted industry
figure of approximately 5,000 tonnes. Macroeconomist and former World Bank
consultant Frank Veneroso contends that 10,000 -15,000 tonnes of gold have
left central bank vaults
via loans, deposits, and swaps."

Would central bankers really lend out gold to people who are selling it,
in return for a measly 0.5 percent interest?
The jury on this is out. Let us wait and watch responses
GATA gets from them. If what GATA says is true, bullion banks could be in
trouble every time gold spikes. If they can't replace the gold they've sold
from new mine production,
they'll have to get it on the open market, and that could
wipe them out. And if the bullion banks go bust, what will happen to the
central banks if GATA is right?

Fear of that outcome could certainly drive them to lend even more gold to
the bullion banks, adding selling pressure
whenever the price of gold goes up, making the hole they
are digging deeper each time.

Whether or not there's any deliberate price manipulation
may be hard for GATA to prove.

We are obviously providing all this as background information. We will
continue to maintain our stance that trend is your friend. On the charts, we
now have a weekly close above
$453. We now look for an orderly progress to $475. Stay
tuned.