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I Want to Believe
By Jon Nadler

The automaker rescue plan was agreed upon by US lawmakers overnight, and it gives the Formerly Big Three $15 billion in bridge loans and commits them to forward a restructuring plan within 90 days. A car czar will also likely be named (possibly Paul Volcker) as a result of the agreement. Obviously, the question remains whether the fossilized US auto industry can actually get its act together in three months, when it could not do the same in thirty years' time. Hope springs eternal. Some previously shelved designs and technologies are likely to be dusted off and reconsidered, now that the fuse has burned nearly to its end.

Stock futures and commodities cheered the automotive news, while the dollar fell marginally as indications of a spark of risk appetite held it under the 86 level on the index. In the interim, the story of the global contraction continued to unfold without pause. Chinese exports fell for the first time in over seven years, Japanese machinery orders slumped 4.4% in October, car sales in India cratered by 19% last month, hotels were cutting room rates for the first time in five years, and US consumer spending is seen as taking its biggest hit since Pearl Harbor next year. How is that for a partial list of current woes?

New York bullion prices rose at the opening of the mid-week session, helped primarily by a hefty gain in crude oil values. Gold was ahead by $13.60 quoted at $789.20 an ounce, while silver tried for an assault on the double-digit mark once again with a rise of 14 cents to $9.95 per ounce. The putative IMF mega-dump of 3,000 tonnes did not materialize - in case you were holding your breath. The 'imminent' Comex default is next on the myth-busters agenda. Platinum rose $12 to $824 while palladium gained $2 to $177 per ounce. One would have expected larger gains from the noble metals following the carmaker rescue plan. Maybe they are also waiting for concrete plans, like the US lawmakers.

Speculation that OPEC will successfully enlist Russia to jointly curb production in another attempt to stem the oil price plunge. While some analysts are still talking about $25 oil, other gurus envision a return to $100 based on global economic recovery. When it comes. If it comes. Reality is probably somewhere in the middle. Like around $40 to $50 per barrel.

And now, a return to an old topic that refuses to die. Like desperate mountain climbers attempting to lift themselves by their bootstraps, gold price suppression theorists (A.K.A. tinfoil-sporting writers of fiction) have tried for what seems like ever to incite the masses to slay an invisible monster that is supposedly hovering over them and preventing them from making money. Never mind that according to such a tale, the price of gold would have never been able to rise to above $400 let alone to where it actually went. Never mind that the evildoers would have suffered a dozen violent deaths by now, trying to short a market that basically quadrupled in value. Hey, it sells newsletters and makes for intrigue and romance. More than anything, it keeps hope alive.

Thus, we offer you one take on the matter that comes from a true veteran in the industry - well known to those who have been reading about metals over the years, and to those who attend hard asset conferences. We directed you to a link of his recent debate on the topic, in yesterday's comment. Now, here is Tim Wood's take on the non-issue that is the gold manipulation nonsense.

"Let me demonstrate why the very campaign to assert a conspiracy to suppress the gold price - which, I might observe, rose from less than 250 dollars an ounce to over 1,000 dollars in ounce in just 7 years has damaged gold as an investment class.

FIRSTLY: For two decades after the 1980 price spike, investing in gold acquired a reputation as the last refuge of feeble-minded survivalists.

Let me disabuse you of any notion that it is a position I accept. I am merely reporting a perception made fact. After 2001 there was an opportunity to reform this professional investment bigotry that was stoked by years of soft assets inflated by those great virtues of easy money and profligate credit. Rebranding succumbed to revisionism. The survivalist meme was replaced by a conspiracy mantra.

Not unlike Al Gore’s global warming hoax - where tomorrow’s sunrise must surely be the product of more carbon dioxide in the atmosphere - we now face a situation where any correction in the gold price becomes proof enough of cartelized short-selling. Alternatively, any uptick becomes necessary and sufficient evidence that the price didn’t go high enough.

We surrendered reason for remonstration. We traded the next generation of gold investors into suckers for sub-prime loans, collateralized debt obligations and auction rate securities. Now they’re liquidating, and that money won’t be back for a long, long time. Economists call that an opportunity cost. We should call it an epic blunder.

SECONDLY: Conspiracies not only deplete reason, they deform markets.

It became opportunistic for gold producers to ride the “unhedged” bandwagon even if it ended with a trip over a cliff. So we had many executives boasting about full exposure to the gold price by refusing forward sales of their un-mined gold at an agreed price. That is a very useful and bold thing to proclaim and maintain - just so long as prices move only higher and costs move only lower… There were several counterfeits in this revivalist movement; veiling revenue hedges with arcane footnotes and slippery language.

Those who weren’t brazen enough to bluff panicked and swore off any hedging whatsoever because. It turns out that fashion victims come in all stripes. The net result has been awful for gold bugs. Those darling un-hedged gold equities have under-performed their hype by a mortifying margin even as base metal equities, which have remained heavily hedged, roared higher.

Not one of the dire prophecies about hedged gold producers becoming extinct has come to pass. Now the gold industry has lost access to a good deal of the liquidity, experience, relationships and knowledge that are essential to responsible risk management in all mineral industries.

A consequence is the demolition of gold producer margins. Equity investors are not gamblers, and resource investors should be demanding that producers lay out full-faceted hedging programs that balance risks associated with revenues, currencies, interest rates, input costs and shareholder dilution. In two words, management risk.

THIRDLY: Building on the previous point, conspiracy arguments allowed mischief-makers, book-makers actually, to insert themselves between investors and their money.

In convenient concert with the no-hedge assault investors were lobbied that they should want precious metal equities to clone the minerals they mined. The mendacious argument was that investors preferred maximum leverage. Indeed, but not naked leverage. If investors were so robotically intent on maximizing leverage they would trade exclusively in warrants, futures and options.

Equities are equities for a reason, but some investors took the bait anyway. Lo and behold, when exchange traded funds emerged that were genuinely leveraged to their underlying minerals an unprecedented asset swap commenced, and is continuing. ETFs have filched liquidity and value from equities because they demonstrate superior optionality - if only because they eliminate management risk.

Gold equities were bullied and redefined as a consequence of the conspiracy onslaught. Why weren’t they bullied to stop issuing new shares faster than the U.S. Treasury issues one dollar bills?

FINALLY: The great tragedy of hammering on this supposed conspiracy is the misallocation of so much time and talent. Of course governments and financial institutions affect the price of gold. Gold is money after all! We are not one iota closer to safeguarding private gold holdings in the United States. The first and last effort of true gold bugs should be to build an impregnable barrier against government predation.

Using the full faith and credit of these United States, President Roosevelt in 1933 expropriated private gold. Weeks later, the dollars he paid in exchange for the gold were devalued by 41%. Now that’s manipulation of the gold price!

How much more worthy this conspiracy collective would be if it was directed toward saying “never again, FDR!”. Citizens should never again have to forfeit their gold to their government. A forever campaign of super-heated rhetoric about market players with more clout than you does not do that. We have the opportunity of a lifetime right now to contrast the ongoing credit crisis with the value of hard assets in every family’s portfolio. And we have an unusual opportunity to sweep converts up into a movement that seals gold as a permanent, irrevocable private property right.

I know that I would prefer to safely pass my gold to my children rather than forever tilt at JP Morgan’s empty windmills.

Tim Wood is Vice President, International Investment Conferences

In light of which, you are likely to see today's likely return to $800 gold as a 'triumph' of the efforts of the aluminium squad, and nothing short of the 'dawn' of a new era. Again. This, on the day when a former general in the conspiracy army had predicted nothing short of a gold price massacre by the IMF. Close the X-files, please.

PS: For sale: five fine acres of prime Florida wetland. Includes snakes and mud at no charge. First come, first served.


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