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THE
ROCKET SCHOOL OF ECONOMICS


Time WILL Tell!
by Professor von Braun

September 15th, 2000

Over the last 6 weeks gold has continued a sideways move, trading during that time in a relatively tight range. So what else is new? Well there are a few surprising things appearing in the gold market at present, not the least of which is the price. Oil continues to climb, Tony Blair does an impression of the Great Pretender while Britain comes to a halt, the Bank of England has another gold "auction" set for Tuesday the 19th, and the Euro goes to a new low along with the Aus dollar. Saddam Hussein has decided to use the Euro as the "official" reserve currency.

Meanwhile in the land of the cheese with holes in it, the illustrious Swiss bankers continue to sell their 160 tonnes of gold per the Washington Agreement. One needs to keep an eye on the Swiss as they may still have 50 tonnes to sell and coupled with next week's BOE sale downside pressure seems likely.

Gold stocks don't exactly look like bundles of joy here either. Most of us are aware that the gold mining world is getting smaller and smaller. There are over 30 bankrupt mines in Nevada and over 1400 people within this state have lost their jobs in this industry in the last twelve months. State and county tax revenues have also decreased accordingly. Three years of falling gold prices is taking its toll.

Production is falling. New projects are on hold. Even some mining companies have succumbed to dubious accounting practices when it comes to reporting cash costs and reserve valuations. Even reserve numbers are suspect; after all, how can you value reserves in the ground at $325 when the gold price is $275? But this is the New Economic Age, so I guess anybody can play.

Gold Field Mineral Services (GFMS) even went so far as to issue a press release on Sept 5th, telling people how pleased it was that the World Gold Council (WGC) had confirmed GFMS's data when it came to the subject of gold lending. I am sure they were pleased and no doubt relieved that their findings had been confirmed by no less an outstanding body as the WGC. After all what if they had been wrong? Goodness gracious!

Now the WGC, for those of you who don't know, gets the majority of its funding from mining companies and in essence is a spokesperson for the gold mining industry. However it needs to be remembered that as such it will say what it's told to say, just like politicians--and contributions to their campaigns tend to influence what's said. The name of the World Gold Council is itself misleading by virtue of the fact that it sounds extremely official, as of it were similar to the World Bank or the United Nations or the International Monetary Fund. WE are the World Gold Council!! UH?

Now to have ones data confirmed by the World Gold Council must have been a great relief to GFMS. It's a bit like Mr. God appearing in Rome and saying he agrees with the Pope. This would be a great public relations coup for the Pope, but tough on the Methodists.

GFMS has been concerned about the activities of a "vocal minority" who it seems have had the audacity to question GFMS's previous work relating to official sector lending in the gold market. How dare these outrageous upstarts make such ridiculous claims about things they obviously know absolutely nothing. Shame on them!

The GFMS Managing Director Philip Klapwijk went on to say: "We welcome the commissioning by the WGC of this study into an area where recent suggestions of misinformation have created an unfortunate degree of uncertainty in the gold market. The independent confirmation of data that GFMS have compiled and reported over many years, will no doubt put many minds at rest."

Well Mr. Klapwijk good sir - a few pointers from another "uninformed member of the vocal minority".

The unfortunate degree of uncertainty you refer to probably has come about as a result of price action in the gold market, not as the result of a vocal minority expressing an opinion. Certainly there are quite a few holders of gold mining stocks that have and are experiencing uncertainty in relationship to their investments. There are even a few who are quite livid actually.

That's what happens when share prices decrease in value. Perhaps you are familiar with Ashanti and what happened to them when the gold price surged in September of 1999. Could this happen again? Well I guess we will get to find out if gold ever exceeds $330 per ounce again won't we? If a speculative short position of less than 400 tonnes caused an $80 price rise and wiped 80% of the value of Ashanti's market capital, as well as hitting Cambior for a six, what would increased demand for a lessening supply of physical metal do?

I am reminded of the episode in history when Neville Chamberlain returned to Britain and said "peace in our time". Would you have been a supporter of his as well?

History is riddled with officialdom, or quasi-officialdom making statements that later turn out to be completely erroneous. It is also riddled with instances of "vocal minorities" turning out to be correct. You may even be familiar with the Firestone tire debacle in the US at present. Are you aware that officialdom sat on the tire defect information for over two years and it was a Texan television reporter who made it public? What has this got to do with the gold market you may well ask?

Well who did the former employee of GFMS who was conducting the WGC sponsored study talk to that you don't? Confirmation usually means that parties independent of your sources were contacted and able to verify your findings. Did this indeed take place? Or did Ms. Cross talk only to people familiar with your work, people who perhaps supply you with data that allows you to present your world gold supply figures. Do you know the meaning of the word whitewash? It's an American term that refers to covering something with a cheap form of paint usually applied at great speed. Are you aware that Ms Cross revised her numbers downward after speaking with Goldman Sachs, even though the original numbers had been confirmed by people she had spoken to at other bullion banks and they still see no reason to change them?

Is it likely that the fox would admit to the farmer that he has been stealing chicken's? Come now Mr. Klapwijk.

The WGC has, as its stated mission, the aim of maximizing the off take and retention of gold including:

"Influencing positively the attitudes and behavior towards gold of actual and potential public and private sector holders of gold."

Certainly the decline in price since Feb 1996 suggests that WGC has failed miserably in its stated mission and as a mouthpiece for the promotion of gold--for any purpose whatsoever--apart from a mass liquidation, it has a lot of work to do.

Given the conflicting approaches to the gold market by its members, some who are fully hedged, others who have no hedging, it would be difficult to decide a strategy any way. Barrick wants the gold price under $300; Homestake wants it at $350.

To quote further from your press release, - "the WGC study confirms the view held all along by informed sources in the market, that the outrageous claims made by a handful of conspiracy theorists could not be substantiated and were plainly wrong."

One would hope that these "informed sources" are not the same ones advising the WGC how to achieve the aims in its mission statement.

To have a quasi-official organization confirm ones work may sound like a great idea at the time but not if it turns out that you are both wrong and the "outrageous vocal minority" you refer to turns out to be right. Time will tell.


The Prof can be contacted by email at profvonb2@aol.com

Copyright by Professor von Braun. All Rights Reserved. Reprinted at USAGOLD by permission.

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The Rocket School of Economics -- The Lecture Series Index

  • 22 May 2009 -- An Often Overlooked Issue!
  • 28 Mar 2009 -- Problematic Banking Systems!
  • 14 Nov 2008 -- What Exactly is an Asset?
  • 23 Aug 2008 -- Through the Looking Glass?
  • 02 Aug 2008 -- Compounding to the Downside!
  • 26 May 2008 -- Back to Basics Again!
  • 31 Mar 2008 -- The Broken Watch -- Part 2.
  • 27 Mar 2008 -- The Broken Watch -- Part 1.
  • 06 Feb 2008 -- The Financial Equivalent of Faulty Towers.
  • 10 Dec 2007 -- Monetary Systems & Productive Assets.
  • 14 Feb 2007 -- Divorced from Reality
  • 06 Sep 2006 -- Gold, Bankers, the Trade Deficit and Unsettled Transactions
  • 19 Jun 2006 -- When is a Reserve Not a Reserve?
  • 31 May 2006 -- The significance of August 15, 1971.
  • 08 Apr 2006 -- Keep Your Eye on the Ball!
  • 30 Mar 2006 -- What came first?
  • 11 Mar 2006 -- An Unanswered Question.
  • 08 Jan 2006 -- Where have all the projects gone!
  • 11 Dec 2005 -- Gorillas, Rising Gold Prices and Depreciating Paper Currencies!
  • 23 Oct 2005 -- Custodial Risk.
  • 16 Sep 2005 -- An Inherent Flaw.
  • 08 Aug 2005 -- Central Banks and 'Reserves'.
  • 31 Jul 2005 -- Central Bankers, Actors and 'We'.
  • 17 Jul 2005 -- Unintended Consequences! -- Part 3.
  • 07 Jul 2005 -- Unintended Consequences! -- Part 2.
  • 25 Jun 2005 -- Unintended Consequences! -- Part 1.
  • 14 Jun 2005 -- The Two Greater Fools Theory.
  • 03 Jun 2005 -- Real Money, Funny Money and YOU -- Part 4.
  • 30 May 2005 -- Real Money, Funny Money and YOU -- Part 3.
  • 26 May 2005 -- Real Money, Funny Money and YOU -- Part 2.
  • 21 May 2005 -- Real Money, Funny Money and YOU -- Part 1.
  • 09 Nov 2002 -- Carrying a Big Stick.
  • 17 Sep 2002 -- Wishful Thinking!
  • 27 Jul 2002 -- Gold Bugs Beware -- part 2.
  • 10 Jun 2002 -- Gold Bugs Beware!
  • 06 Apr 2002 -- Currencies versus Gold.
  • 26 Jan 2002 -- Bear Market Strategies.
  • 01 Jan 2002 -- 2002 -- A Perspective.
  • 20 Oct 2001 -- The Storm Clouds are Gathering.
  • 30 Sep 2001 -- What to Say?
  • 01 Jul 2001 -- ...Said the Fly to the Spider.
  • 14 Jun 2001 -- Upward and Downward!
  • 28 May 2001 -- Volatility Time, Again!
  • 14 May 2001 -- The Coming Bull Market in Gold Stocks?
  • 24 Feb 2001 -- High Hopes, Wishful Thinking & The Absurd
  • 20 Feb 2001 -- Who Put the Holes in the Swiss Cheese?
  • 22 Jan 2001 -- US Dollar Admits Identity Crisis!
  • 16 Jan 2001 -- Dear George W.
  • 24 Nov 2000 -- The Bubble Has Burst
  • 11 Nov 2000 -- The Media, Bull Markets & the Gold Price
  • 02 Nov 2000 -- Gold Stocks
  • 29 Oct 2000 -- Oh The Tangled Web We Weave ...When We Set Out to Deceive
  • 24 Oct 2000 -- A Mystery!
  • 16 Oct 2000 -- A Peso Here ...and a Few Thousand Pesos There
  • 10 Oct 2000 -- The Unfolding
  • 30 Sep 2000 -- What's Wrong with THIS Picture?
  • 25 Sep 2000 -- Buy Gold Now!!
  • 23 Sep 2000 -- The Times, They Are a' Changing
  • 15 Sep 2000 -- Time WILL Tell!
  • 27 Aug 2000 -- SS "Paper Assets" Begins to Take on Water
  • 06 Aug 2000 -- The Indian Summer
  • 26 Jun 2000 -- A Yellow Brick Wall
  • 22 May 2000 -- The King IS Naked
  • 30 Apr 2000 -- Goodbye Yellow Brick Road
  • 18 Apr 2000 -- Beware the Ides of March, April and May
  • 08 Apr 2000 -- Really, Sir Aldot!
  • 25 Mar 2000 -- Where To From Here?
  • 18 Mar 2000 -- The Gnomes of Zurich
  • 12 Mar 2000 -- The "New" Economy??
  • 06 Mar 2000 -- Two Questions
  • 04 Mar 2000 -- Iceberg Dead Ahead!
  • 28 Feb 2000 -- The Wizard of Oz
  • 06 Feb 2000 -- Here We Go Again!!
  • 15 Jan 2000 -- Comments on the Gold Market
  • 29 Dec 1999 -- No Raw Ingredients Required
  • 28 Dec 1999 -- No Way Out
  • 14 Dec 1999 -- Ho, Ho, Ho!
  • 07 Dec 1999 -- Greenspan's Bubble
  • 03 Dec 1999 -- Early Warning Signs


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