September 2006


Jay Taylor, editor of J. Taylor’s Gold and Technology Stocks Letter, was interviewed about mining stocks for an hour Monday on “Market Call Tonight with Michael Hainsworth” on Canada’s ROB-TV, and you can watch the show at the ROB-TV archive here:

Click the play arrow once again after the intro
Duration: 46 m 34 s

Coeur d’Alene, Idaho (Platts)–25Sep2006

Whether or not the price of silver, along with gold, is being
manipulated to the downside by bullion banks and big
Wall Street traders was the subject of some disagreement at
the 4th annual Silver Summit in Idaho last week.
However, analysts told Platts they were unanimous on one
point: the silver price is headed seriously upward, fueled both
by fundamentals and near-historic levels of investor and
speculator interests.

“I am rabidly bullish on silver, and as we digest the first stage
of this bull market, we are poised to reach new real-time price
highs,” said Sprott Asset Management’s John Embry, adding that
he expected silver to be more volatile than gold but, in the end,
to outperform the yellow metal.

Embry continued: “As we slide down the slippery slope of credit
expansion, we will see further erosion of faith in fiat money.
The Federal Reserve will be faced with a monetary policy either of
deflation or hyperinflation as debt piles up. Hyperinflation will be
the more likely policy, and far from being a relic, silver will
re-assert itself as money.”

Embry referred to a Sprott-issued report in 2004
entitled “Not Free, Not Fair” in which he suggested that
in leasing gold banks and other major traders had conspired
to suppress the gold price. At the Silver Summit he declared
there was similar “obvious price fixing” in the silver markets.
“The silence of the silver-mining companies in the wake of
these manipulations must end,” he said.

CPM Group’s Managing Director Jeffrey M. Christian said
he could find no evidence of silver price manipulation, but said
market forces would drive the white metal’s prices much higher
than current levels in the near term, should investor or speculator
interest top 150 million oz.

“The silver market is shifting from 16 years of persistent net
sales from inventories to net purchases for addition to inventories,”
said Christian. “Investors are buying silver. The iShares silver ETF is
only a sideline, a consequence, of the surge of investor interest in silver.”

According to Christian, the Indian government sold 35-mil oz
of silver in 2005, but sales could decline to 32.5-mil oz in 2006.
“Silver was legally re-exported from India in March and April 2006
after stocks of unsold new imports built up there,” said Christian.
“The silver went mostly to dealer holdings in London, where the
metal will be available for delivery into the silver ETF.”

Christian likened current market conditions to those of 1979,
when silver shot up to nearly $50/oz and the silver-gold ratio
dipped below 10:1. “This represents investors buying more silver,”
he said. Total silver bullion inventories, meanwhile, have fallen from
more than 2-billion oz in 1986 to nearly zero now, he noted.

–David Bond, newsdesk@platts.com

On average, one millionaire leaves France every day. They leave to escape France’s onerous taxes. France has a wealth tax which comes in on top of income, capital gains, inheritance and social security taxes — this can cause the tax bills of wealthy individuals to outstrip their income.

Two million affluent American households gain nothing from the Bush tax cuts. This is because they are ensnared by the Alternative Minimum Tax.

Offshore tax havens help the wealthy avoid paying between $40 billion and $70 billion in taxes each year. The IRS complains that an armada of professional advisors help the wealthy dodge taxes and the IRS is hard-presssed to keep up with their strategies.

Russell Comment
The income tax is a product or a result of the central bank system
. If the US government issued its own money instead of issuing debt, there would be no need to tax its citizens. The Federal Reserve has caused the US to be loaded with debt. The Federal Reserve has been an unbelievable boon for bankers and a never-ending curse to US citizens. A curse? Yes, via inflation and taxes, both of which rob workers of the fruits of their labor.

If the above is true, how is it that the citizens of this great country put up with the Federal Reserve? Easy, very few people understand how money is created in this country, and that includes our law-makers in DC. Nothing remains more of a mystery to the average citizen than our central bank system. People complain about taxes, they complain about inflation, but they never move their butts to ask, “How does the system work? And who does it work for? And why doesn’t the US government issue is own money, instead of issuing debt?

The cental bank system is the greatest fraud ever perpetrated on the American public. It was installed through the ignorance and laziness of Congress. And it exists through the ignorance of the US public. The rationale for the Federal Reserve is never even questioned. It’s legitimacy has never been debated before the Supreme Court. It’s establishment was never legitimized by a Constitutional amendment. Its existence is a disgrace and a curse upon the nation.

So in the end, maybe taxes and inflation are what we deserve. And when did you last question our money system, or, for that matter, our money?

By Laurel Brubaker Calkins and Thom Weidlich
Bloomberg News Service
Tuesday, September 26, 2006

Andrew Fastow, Enron Corp.’s former finance chief and architect of the fraud that led to the energy trader’s bankruptcy, said company banks, including Merrill Lynch & Co. and Credit Suisse, were in on his scheme.

“In many instances, the financial transactions in which I engaged related to Enron were done with the knowledge of senior management, some of Enron’s banks, and others, and were done primarily to meet Enron’s financial reporting and credit-rating targets,” Fastow said in a declaration filed in an investor securities-fraud case in Houston today.

Fastow, 44, singled out Merrill Lynch, Credit Suisse, the Royal Bank of Scotland Group, and Barclays Plc. in his declaration, which investors cited in their suit to help recover an estimated $30 billion in stock and bond losses. Fastow, scheduled to be sentenced today for the fraud, has previously refused to testify, citing his right not to incriminate himself.

Fastow created off-the-books partnerships used to hide debt and inflate income, he admitted when he pleaded guilty in 2004 to two crimes related to the Enron fraud. After disclosing the misstatement of its income in 2001, the Houston-based company filed the second-largest bankruptcy in U.S. history after WorldCom Inc.’s. More than 5,000 people lost their Enron jobs.

Fastow testified against Enron’s former chief executive officers Kenneth Lay and Jeffrey Skilling, who were convicted of the fraud in May. Lay died in July. Skilling, 52, is appealing.

Merrill Lynch spokesman Mark Herr and Carolyn McAdam, a spokeswoman based in Edinburgh for Royal Bank of Scotland, said they had no immediate comment. Victoria Harmon, a spokeswoman for Credit Suisse in New York, declined to comment.

Peter Truell, a spokesman for Barclays Capital in New York, declined to comment. Barclays was dismissed from the suit in July. Investors have asked the judge to reinstate the bank in time for the case’s April 2007 trial date.

The banks “worked to solve certain of our financial problems,” Fastow said in his statement. “We told certain banks of our financial objectives and they, in many instances, created solutions utilizing complex financial structures.” Some of the transactions made it “difficult for an investor to understand Enron’s true financial condition” and were “deceptive.”

The banks presented structured-finance transactions “in response to the problems we described to them,” Fastow said in the statement. “In many instances, the banks primarily devised the financial structures, which contributed to Enron achieving its financial reporting objectives.”

Fastow described leaseback transactions undertaken with Barclays in which the bank was assured that it wouldn’t lose its equity in the deals. Fastow claimed he had seen bank documents that described the transaction as a “trust me” deal and that Barclays “agreed to go forward on the basis of explicit verbal support from the company’s treasurer.”

Fastow said he saw bank documents stating “Barclays would rely on assurances from Enron’s treasurer that Enron would make up any shortfall in the equity return.”

In December 1999, to meet financial reporting goals, Enron arranged the temporary sale of Nigerian energy barges to Merrill Lynch, guaranteeing to repurchase them in six months, Fastow said.

“Based upon my discussions with senior Merrill executives, I believe that Merrill understood the impact this transaction would have on Enron’s financial statements, that the guarantee provided by me would likely change the accounting treatment of the transaction, and that the only reason for the transaction was to receive the desired accounting and financial-reporting treatment,” Fastow said in his declaration.

In June 2000 an Enron off-books entity created by Fastow bought the barges.

* * *

* * *

Gold Sales Fall Well Below Limit
Set in Central Banks’ Agreement

By Kevin Morrison
Financial Times, London
Wednesday, September 27, 2006

European central banks have been big sellers of gold over the past six years but this year they appear to have lost their desire to sell the metal even though gold prices have been much higher.

Signatories to the Central Bank Gold Agreement, mainly European central banks, are estimated to have sold 400-420 tonnes of the 500 tonnes they are permitted to sell each year under the latest five-year pact.

Yesterday was the end of the second year of the second five-year pact and was the first year that official sales have fallen below 500 tonnes since the first pact — introduced to steady the price of gold — started in September 1999.

Philip Klapwijk, executive chairman of GFMS, the metals consulting group, said the shortfall was likely to be repeated over the next three years of the current agreement.

“When you look at the signatory countries it is hard to see who is going to step in and take the sales up to 500 tonnes,” he added.

France accounted for about 30 percent of CBGA sales, up until the end of July, followed by Switzerland (15 percent), the Netherlands (14 percent), the European Central Bank (12 percent) and Portugal (9 percent). Other sellers included Spain, Belgium, and Austria.

France is forecast to sell a maximum of 344 tonnes by September 2009 while the Netherlands is expected to sell another 43 tonnes over the next three years. Switzerland has no plans to sell more gold.

No other signatories are likely to step in either. With the exception of about nine tonnes of gold coin sales in the past two years, Germany, the biggest holder of gold among the signatories, has not sold any of its 3,423.5 tonnes of gold, after a dispute between the Bundesbank and the German finance ministry. Likewise, Italy has given no indication that it plans to dispose of any of its 2,451 tonnes. GFMS forecasts that the shortfall from the gold sales pact could be as much as 855 tonnes over the five years of the current pact.

“I can’t see the renewal of a new agreement, because what is the point? Most of the signatories would have sold what they wanted to,” Mr. Klapwijk said.

Even though European central banks are reducing their gold sales, there has still been no sign of other central banks purchasing, with Mongolia’s purchase of nine tonnes of gold this year being the largest central bank buy order.

Mr. Klapwijk said European central banks, which account for about 43 percent of world central bank gold holdings, will be in a different situation in 2009 compared to today. “In 1999, they had too much gold and the price was looking wobbly. In three years’ time, they would have sold what they wanted to, and prices should still be reasonably firm,” he said.

However, CBGA signatories have made a late rush in offloading gold in the past two months, contributing to the 7 percent decline in gold prices over that period. Until the end of July, signatories to the CBGA had sold only 331 tonnes, according to GFMS.

Gold was trading at $591.10 a troy ounce yesterday. Bullion prices have dropped about20 per cent since reaching a26-year peak of $730 in mid-May.

David Holmes, director of precious metals at Dresdner Kleinwort, said the decline in gold prices from their peak was a reflection of speculative investors exiting commodities markets.

He said the shortfall of central bank gold sales would normally have been positive for gold prices, as central bank gold sales have traditionally helped fill the gap between gold mine output and fabrication demand.

He said high gold prices this year had triggered a slump in global gold jewellery demand. GFMS has forecast that gold mine output this year will drop below jewellery demand for the first time since the early 1980s.

GFMS is forecasting gold jewellery demand to fall 18.6 per cent to 2,205 tonnes this year, less than projected gold mine production of 2,524 tonnes.

“The impact of lower central bank gold sales has been neutralised by the drop in jewellery demand, and lower gold sales in the future are unlikely to have an effect on prices until there are signs of a pick-up in jewellery demand,” said Mr. Holmes.

* * *

By Laurel Brubaker Calkins and Thom Weidlich
Bloomberg News Service
Tuesday, September 26, 2006

Andrew Fastow, Enron Corp.’s former finance chief and architect of the fraud that led to the energy trader’s bankruptcy, said company banks, including Merrill Lynch & Co. and Credit Suisse, were in on his scheme.

“In many instances, the financial transactions in which I engaged related to Enron were done with the knowledge of senior management, some of Enron’s banks, and others, and were done primarily to meet Enron’s financial reporting and credit-rating targets,” Fastow said in a declaration filed in an investor securities-fraud case in Houston today.

Fastow, 44, singled out Merrill Lynch, Credit Suisse, the Royal Bank of Scotland Group, and Barclays Plc. in his declaration, which investors cited in their suit to help recover an estimated $30 billion in stock and bond losses. Fastow, scheduled to be sentenced today for the fraud, has previously refused to testify, citing his right not to incriminate himself.

Fastow created off-the-books partnerships used to hide debt and inflate income, he admitted when he pleaded guilty in 2004 to two crimes related to the Enron fraud. After disclosing the misstatement of its income in 2001, the Houston-based company filed the second-largest bankruptcy in U.S. history after WorldCom Inc.’s. More than 5,000 people lost their Enron jobs.

Fastow testified against Enron’s former chief executive officers Kenneth Lay and Jeffrey Skilling, who were convicted of the fraud in May. Lay died in July. Skilling, 52, is appealing.

Merrill Lynch spokesman Mark Herr and Carolyn McAdam, a spokeswoman based in Edinburgh for Royal Bank of Scotland, said they had no immediate comment. Victoria Harmon, a spokeswoman for Credit Suisse in New York, declined to comment.

Peter Truell, a spokesman for Barclays Capital in New York, declined to comment. Barclays was dismissed from the suit in July. Investors have asked the judge to reinstate the bank in time for the case’s April 2007 trial date.

The banks “worked to solve certain of our financial problems,” Fastow said in his statement. “We told certain banks of our financial objectives and they, in many instances, created solutions utilizing complex financial structures.” Some of the transactions made it “difficult for an investor to understand Enron’s true financial condition” and were “deceptive.”

The banks presented structured-finance transactions “in response to the problems we described to them,” Fastow said in the statement. “In many instances, the banks primarily devised the financial structures, which contributed to Enron achieving its financial reporting objectives.”

Fastow described leaseback transactions undertaken with Barclays in which the bank was assured that it wouldn’t lose its equity in the deals. Fastow claimed he had seen bank documents that described the transaction as a “trust me” deal and that Barclays “agreed to go forward on the basis of explicit verbal support from the company’s treasurer.”

Fastow said he saw bank documents stating “Barclays would rely on assurances from Enron’s treasurer that Enron would make up any shortfall in the equity return.”

In December 1999, to meet financial reporting goals, Enron arranged the temporary sale of Nigerian energy barges to Merrill Lynch, guaranteeing to repurchase them in six months, Fastow said.

“Based upon my discussions with senior Merrill executives, I believe that Merrill understood the impact this transaction would have on Enron’s financial statements, that the guarantee provided by me would likely change the accounting treatment of the transaction, and that the only reason for the transaction was to receive the desired accounting and financial-reporting treatment,” Fastow said in his declaration.

In June 2000 an Enron off-books entity created by Fastow bought the barges.

* * *

* * *

Gold Sales Fall Well Below Limit
Set in Central Banks’ Agreement

By Kevin Morrison
Financial Times, London
Wednesday, September 27, 2006

European central banks have been big sellers of gold over the past six years but this year they appear to have lost their desire to sell the metal even though gold prices have been much higher.

Signatories to the Central Bank Gold Agreement, mainly European central banks, are estimated to have sold 400-420 tonnes of the 500 tonnes they are permitted to sell each year under the latest five-year pact.

Yesterday was the end of the second year of the second five-year pact and was the first year that official sales have fallen below 500 tonnes since the first pact — introduced to steady the price of gold — started in September 1999.

Philip Klapwijk, executive chairman of GFMS, the metals consulting group, said the shortfall was likely to be repeated over the next three years of the current agreement.

“When you look at the signatory countries it is hard to see who is going to step in and take the sales up to 500 tonnes,” he added.

France accounted for about 30 percent of CBGA sales, up until the end of July, followed by Switzerland (15 percent), the Netherlands (14 percent), the European Central Bank (12 percent) and Portugal (9 percent). Other sellers included Spain, Belgium, and Austria.

France is forecast to sell a maximum of 344 tonnes by September 2009 while the Netherlands is expected to sell another 43 tonnes over the next three years. Switzerland has no plans to sell more gold.

No other signatories are likely to step in either. With the exception of about nine tonnes of gold coin sales in the past two years, Germany, the biggest holder of gold among the signatories, has not sold any of its 3,423.5 tonnes of gold, after a dispute between the Bundesbank and the German finance ministry. Likewise, Italy has given no indication that it plans to dispose of any of its 2,451 tonnes. GFMS forecasts that the shortfall from the gold sales pact could be as much as 855 tonnes over the five years of the current pact.

“I can’t see the renewal of a new agreement, because what is the point? Most of the signatories would have sold what they wanted to,” Mr. Klapwijk said.

Even though European central banks are reducing their gold sales, there has still been no sign of other central banks purchasing, with Mongolia’s purchase of nine tonnes of gold this year being the largest central bank buy order.

Mr. Klapwijk said European central banks, which account for about 43 percent of world central bank gold holdings, will be in a different situation in 2009 compared to today. “In 1999, they had too much gold and the price was looking wobbly. In three years’ time, they would have sold what they wanted to, and prices should still be reasonably firm,” he said.

However, CBGA signatories have made a late rush in offloading gold in the past two months, contributing to the 7 percent decline in gold prices over that period. Until the end of July, signatories to the CBGA had sold only 331 tonnes, according to GFMS.

Gold was trading at $591.10 a troy ounce yesterday. Bullion prices have dropped about20 per cent since reaching a26-year peak of $730 in mid-May.

David Holmes, director of precious metals at Dresdner Kleinwort, said the decline in gold prices from their peak was a reflection of speculative investors exiting commodities markets.

He said the shortfall of central bank gold sales would normally have been positive for gold prices, as central bank gold sales have traditionally helped fill the gap between gold mine output and fabrication demand.

He said high gold prices this year had triggered a slump in global gold jewellery demand. GFMS has forecast that gold mine output this year will drop below jewellery demand for the first time since the early 1980s.

GFMS is forecasting gold jewellery demand to fall 18.6 per cent to 2,205 tonnes this year, less than projected gold mine production of 2,524 tonnes.

“The impact of lower central bank gold sales has been neutralised by the drop in jewellery demand, and lower gold sales in the future are unlikely to have an effect on prices until there are signs of a pick-up in jewellery demand,” said Mr. Holmes.

* * *

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