Silver had trouble holding $6, however, like gold, it was firm all day long, selling off modestly on the close. Like gold, the silver open interest is very low. Yesterday on its surge, the open interest only rose 138 contracts to 86,922.

Still room for 88,000 spec longs to take gold through $430 and 36,000 spec longs to take silver back above $8.50.

Oil closed up 19 cents to $39 per barrel.

Indian ex-duty premiums: AM $3.03, PM $0.11, with world gold at $387.90 and $392.20. Below, and well below, legal import level. India reacted with more that the usual unenthusiasm to abrupt jumps in the world gold price ($9 up this afternoon on the previous morning.) The rupee exacerbated the response by falling to a 5 1/2 month low against the dollar, with Indian sentiment damaged by noises the new Government is making about higher taxation. The discreet qualities of gold are likely to be increasingly valued by affluent Indians in the future, a reverse of what was generally expected before the election.

Prices on the Shanghai Gold Exchange have slipped to a narrow (10-20c) discount this morning.

TOCOM responded to finding world gold $4 higher on the opening with no excitement. Volume did rise 21% but only to equal a wretched 14,911 Comex lots, while open interest was static (+89 Comex lots). The active contract was up 5 yen, but world gold slipped $1.65 from the NY close. There appears to be no Japanese initiative in gold at present. (NY traded yesterday 41,981 contracts; open interest rose 2,759 lots.)

Obviously, however, someone is supplying initiative, with the perennially bearish Barclays commentator complaining of yesterday:

JB

CARTEL CAPITULATION WATCH

The US stock market continues to meander. The DOW finished up 38.89 at 10,416, while the DOG gained 3 to 1987.

June 18 (Bloomberg) -- The U.S. current account deficit widened to a record $144.9 billion in the first quarter as Americans bought more foreign-made goods, a government report showed.
The deficit, the broadest measure of trade because it includes investments, follows a $127 billion gap in the previous three months, the Commerce Department said in Washington. The gap is equivalent to 5.1 percent of the nation's $11.5 trillion economy, matching the record reached a year earlier. –END-

GATA’s Mike Bolser:

Hi Bill:
The Federal Reserve today added $7 Billion in temporary repurchase agreements, an action that moved the repo pool up to $38.88 Billion and kept the pool's ma rising in a linear mode. The DOW's 30-day ma has clearly turned upward and in my opinion will regain a strong upward trajectory as the Fed announces its rates decision next week. Greenspan's purposeful ambiguity has fully obfuscated the picture of how large the rise will be at this point. No one knows for sure so the "market" may be "surprised".

Gold is rising nicely, almost as if a giant hand had been removed form it, while the dollar is falling in concert. The $6 rule or more precisely, the never exceed the first standard deviation rule is always in effect. The viscous counter attack started Monday was needed by the Fed since they were "surprised" by the huge PPI numbers and had to sequester them...again. With such a hard attack on gold we can guess that the PPI numbers were equally as bad because the Fed was forced to change their careful gold retreat plan. Expect more brainless Wall Street and CNBC propaganda attempting to convince us that bad is good.

During any retreat the enemy can deliver sever damage if they set careful ambushes. We are just exiting one of those ambushes but we must always be wary of another trap.
Mike

Chuck checks in for the LATE EDITION:

So far this last decline and bottoming process is echoing the one in 2002. Take a look. If so, we should move up to about 225 on the HUI followed by one more setback and then move up in earnest. It is a pretty remarkable similarity including the pessimism and disbelief although I think it is much higher this time.

We are obviously ready for a financial "event" here. Even this week the market lifted each day in the last half hour while the golds sold off each day at that time.

GSS was interesting obviously some of the massive shorts got scared but was not ready for the move. But it sets up a break out target for it, perhaps when there is some resolution of the IAM takeover. The unconcern in the stock market is matched by the degree of fear in the gold market. Fascinating!
Chuck

Commentary from a Café favorite, The King Report:

Bill Gross (Pimco) the world’s largest bond manager in yesterday’s FT: "Too much debt, geopolitical risk and several bubbles have created a very unstable environment which can turn any minute. More than any point in the past 20 or 30 years, there's potential for a reversal. We have become a levered global economy, specifically in Japan and the US. With all this consumer debt, business debt, government debt, smaller movements in interest rates have a magnified effect…"

Inflationary pressure is building in the pipeline. Intermediate goods prices rose 1.1% in May. Core intermediate prices rose 0.9% after rising 1.1% in April, which was the largest rise since 1/95. Core intermediate good prices are +5.1% y/y, the highest increase since when October 1995.

Crude goods prices soared 2.8% in May after rising 3% in April. Core crude goods prices fell 3.8% in May but are still +22% y/y.

Ed Hyman’s (ISI) latest report is full of charts and details that show the economy might have peaked a month or so ago and inflationary pressure is building. That’s our view and prognostication. We must now watch the data and see if the stagflation keeps intensifying as Easy Al replays the ‘70s.

Derek VanArtsdalen from San Antonio:

Good morning, Bill—
Here's a quick update for your readers on the technical side of the gold/silver picture. So far, gold is tracking almost tick for tick with the U.S. dollar, although that may well change at some point for reasons you've discussed many times in "Midas." As you've said, gold will likely begin outperforming all fiat currencies on the planet and seems to be in the early stages of preparing for that.

In the meantime, no one can argue that the dollar's action has pretty well dictated what gold has done in the last few years. Oil, of course, is now also heavily involved in the equation. So, let's take a look at the charts...

First, here's a 3-year chart of the U.S. greenback:

So, I wouldn't put much faith in the smaller one that's forming now. In fact, the internal indicators are growing stronger, not weaker (red lines). As several writers have pointed out, we're only one major terrorist event from plus-$50/barrel oil. Good luck on re-election, Mr. Bush...

Now let's look at the price of gold itself:

THE ALCHEMIST

BY AL THOMAS

Fake Money

Reach in your pocket and take out that big roll of bills. Depending on how many of them you have you feel pretty good. BUT did you know they are not worth the paper they are printed on? Huh? Let me explain.

Yes, those bills are legal tender because those guys in Washington passed a law stating they must be accepted for payment. They are Federal Reserve Notes and it states right on the bill, "This is legal tender for all debts, public and private ". That is OK, but if you go to the U.S. Mint will they redeem it in gold or silver? Years ago they did, but not since 1971.

Al most everyone has bought stock in a company. The company issues shares and each share represents a portion of the ownership in that company. It is against the best interests of the stockholders to issue additional shares unless something of equal value is added. Why?

Let ’s keep it very simple. Suppose the company is worth $100,000 and it has issued 100,000 shares of stock. The stock has a book value of $1.00 per share. If the officers of the company decide to issue another 100,000 shares to hire security guards (like soldiers), lease (not buy) an airplane, increase the accounting staff (these folks do not increase production) and pay the executives more (who will produce the same amount as they are now) you will notice that all these expenses do not add to the company ’s profits. The value of all shares is now 50 cents per share because the value of the company has remained the same. $100,000 divided by 200,000 shares is 50 cents per share.

What has all that to do with your money? You have seen in the paper that the Federal Reserve Bank (it is neither Federal nor maintains a reserve) has had an auction for Treasury Bills. Sir Al an Greenspan has authorized the printing of those T-Bills. With just paper and ink he has created billions of dollars of debt for the government. And who is the government? YOU. Each time the Fed turns on the printing presses to sell government bonds it effectively dilutes the value of the money you have. That is called inflation. Unless the productivity rate of the country increases by a like amount it devalues your
currency.

Should you care? What it amounts to is everything will cost more because your money represents less. This is monetary inflation and has nothing to do with the supply of goods. Yet some day (who knows when) those bonds will have to be redeemed. The idea of the central government is to keep watering down the money so they can pay off the debt with cheaper and cheaper dollars. This is a method of creating money instead of raising taxes yet you are paying for it.

Throughout history there have been scores of private and government banks that have issued fake (fiat) money and in every case they have failed and the holders of the fake money have lost. Will that happen this time? I would not bet against it.

-END-

Regards,
Derek

I sat with my boss in a sweltering but fashionable downtown eatery in Toronto in mid August 1987 having lunch – with two chaps who were the book runners for my number one client, a major bullion bank and at the time the biggest derivatives dealer in the word. One of them was a Polish immigrant, a Ph.D. in mathematics who had been recruited from then DOW 30 constituent Honeywell. While he spoke in slightly broken English, this guy was not only a genius but had represented Canada as an Olympian as a sailor. These were indeed ‘heady times’. The DOW had just broken the magical 2000 level and 5 year mortgage money was available at approximately 10% in Canada if you were on friendly terms with your local bank manager. In those days 10% money intuitively made most business deals work. Over a nice bottle of wine talk quickly turned to ‘the markets’, interest rate in particular and in a larger sense the general equity markets.

It was after a couple of ‘jars’ of wine and some banter about the equity markets that our Ph.D. friend, in his broken English informed us, "there are going to be days when the [stock] market [DOW] goes down 4 or 5 hundred points". The other three of us sitting at the table stared at him in disbelief laughing at him like he was full of crap. Given that that the largest one day movement in the DOW Jones to that point in time was about 28 points we asked him what his reasoning was for such a bold prediction. His answer was [again in broken English], "the incorrect assumptions in portfolio insurance". So, the three others of us are starting to feel our wine a little bit and we question our Ph.D. friend a little bit further. We asked him pointedly just what it was that ‘was wrong’ with the assumptions in portfolio insurance? His reply, "Simple, portfolio insurance constitutes computer generated equity trades. The more the markets move in a given direction, the more the computers will exacerbate the move in the same direction-thus the market will drop 4 or 5 hundred points easily in one day." That produced chuckles and a retort of, "By the same logic it seems the market might equally be susceptible to a 4 or 5 hundred point rise in one day?" As I’ll never forget the reply was [again in broken English], "Empirical observation I have made, things never seem to ‘crash’ up." The other three of us were dumbstruck. We asked him what made him so certain of his convictions on the equity markets? His reply, "I’ve modeled it all in my computer. It is certain to happen given the right conditions." This guy had ‘modeled’ the equity market in a computer program he created in his spare time, for fun, and determined under which circumstances it would catastrophically ‘fail’. He equated this exercise he had undertaken to a car company like FORD testing a new model in a wind tunnel for aerodynamics.

By now you must all be wondering what any of this has to do with where we are today? The answer – the analytical mind of Jim Sinclair. I wonder if Jim ever speaks with a Polish accent in broken English? Never the less I keep getting this déjà vu feeling all over again – a lot of folks who should know better have not been around the block a few times and cannot see with the clarity of Jim Sinclair. I know history tends to repeat itself [most chartists would agree], and I know I’ve seen this movie before. This should give us all reason to be deeply concerned.

Rob Kirby

South Africa’s gold production decreased by 8,3%, to 84 616,5 kg, in the first quarter of 2004, versus the same quarter in 2003, the South African Chamber of Mines said in a statement yesterday.

On a quarter-on-quarter basis, total gold production fell 10,2% as the annual effect of the December holiday period and the significant fall in the rand gold price plus domestic cost pressures placed the industry under stress, the chamber said.

For South African Chamber of Mines member gold-mines, the average grades recovered fell by 7,2%, to 4,4 g/t, in the first quarter and tons processed through the mills decreased by 2,8%.

Despite the spot gold price rising 16% year-on-year, to $408/oz in the first quarter of 2004, the further 18,7% appreciation in the rand exchange rate, to R6,77 a dollar, in the same period meant that the rand price of gold fell a further 5,9%, to R88 873/kg, the chamber said.

The average increase in total production costs, excluding capital expenditure, rose by 18% year-on-year in the first quarter of 2004 as a result of a number of administered price increases, such as the 18% increase in water costs, and high price increases in other input areas, such as steel.

Chamber of Mines chief economist Roger Baxter underlined that many of these cost increases are outside of the scope of control of the mining sector.

-END-

The gold/silver shares continue to fall further behind the moves up in both gold and silver. The XAU closed at 86.03, up 1.69.

The HUI failed to close above its 50-day moving average of 191.05. It has not done so since April 13. It also could not take out its downtrend, finishing at 189.38, up 4.58.

Placer Dome’s recent exploration success in Nevada is creating a stir. Below is a map with the location of J-Pacific's projects in Nevada's Cortez Mining District. J-Pacific's current projects in the District are noteworthy particularity in light of the current market chatter concerning Placer Dome's activities at Cortez Hills and ET Blue.

j-pac cortez property map.jpg

Star of the week was Samex which popped a bit more than 60%, closing at 83 cents, up 10 cents on heavy volume. Congrats to geologist Rob Kell who has worked his butt off coming up with the goods.

Over the past couple of weeks I have brought to your attention from different sources that two North American gold refiners were reporting unusually firm premiums. Comex, thanks to the price managers, had gone disconnect with the physical market, the real gold market. The market became so firm the past few days, The Gold Cartel could only cap the price rise, not hold it back.

With the cash market this strong and the specs on the sideline in a relative sense, yet poised to enter the buy side, the cabal troops are going to have a heckuva time keeping gold from taking off. With the geopolitical situation a horror show at the moment, one which is likely to worsen further, gold is likely to rise faster and go further than most market players can envision at the moment.

GATA BE IN IT TO WIN IT!

Appendix

California files major suit against Enron over energy price manipulation
(17/06/2004)

LOS ANGELES (AFP) The US state of California sued collapsed energy giant Enron, accusing it of massive market manipulation and fraud during a series of crippling power outages in 2000 and 2001.

The suit, filed by California's top legal official, Attorney General Bill Lockyer, seeks restitution, damages and the return of unjust profits that he said could total "hundreds of millions of dollars."

The complaint was filed in Alameda County Superior Court, near San Francisco, on behalf of the people of golden state that almost ground to a halt amid a series of rolling power shortages during the crisis.

"At the same time this corrupt enterprise successfully lobbied its friends in the federal government to block price caps and blame California, it was robbing our businesses and consumers blind," Lockyer said.

"Enron was the architect of a rip-off scheme that bled billions of dollars from our state's economy. They may be bankrupt, but we will hold them accountable. Grandma Millie is California. I am her lawyer, and she seeks
justice," he said.

The suit came less than three weeks after a series of recorded telephone conversation between Enron traders showed that the company deliberately starved the most populous US state of power in order to hike energy prices.

"They're (expletive) taking all the money back from you guys? All the money you guys stole from those poor grandmothers in California?" asked one laughing Enron trader on the tapes obtained from the US Justice Department.

"Yeah, grandma Millie, man," said another. "Yeah, now she wants her (expletive) money back for all the power you've charged right up, jammed right up her ass for (expletive) 250 dollars a megawatt-hour."

The apparent revelation of deliberate market manipulation at California's expense has national significance as top Enron official Kenneth Lay is a friend of President George W. Bush, who said during the crisis that he would not cap California's skyrocketing energy prices.

Lockyer's suit asks the court to fine Enron 25,000 dollars for each alleged commodities fraud violation and 2,500 dollars for each alleged violation of the state's Unfair Competition Law.

The suit is the latest step in a three-year-old investigation into the power crisis that lumbered California with massive energy bills that significantly
deepened its financial crisis.

"While the state reeled from the combined impact of sky-high power prices, supply shortages and rolling blackouts, the Enron defendants enjoyed massive, unprecedented profits, and extracted millions of dollars in ill-gotten gains from utilities and their customers," the suit said.

©AFP