Gold is now the Theatre of the Absurd. Once again we see the only thing that counts in the end is what The Gold Cartel has in mind for the market. With the Fed in a pickle and out of ways to give Wall Street the spin it wants to hear, the cabal forces went to work again today to break gold ahead of the ensuing perfunctory Fed comments.

For those pundits out there who still think the gold price is about the weakness of the dollar and especially the euro, please take note of what of took place today and to the real story. As I write this, the euro is up .40 and gold is down $.80. This is after gold was already clobbered yesterday with the dollar essentially flat. I repeat. The Gold Cartel does what it wants, when it wants, and uses the action of the dollar to hoodwink people as to what they are actually doing behind the scenes.

No doubt about it. The gold industry is now in crisis mode as mining costs continue to escalate and The Gold Cartel sits on the price. Only a handful of gold companies can make decent profits at these prices. The exploration companies, which will be the name of the game in the near future, are suffering because there is no point finding gold only to lose money by mining it out of the ground. Thus, many of the smaller gold companies are almost back to where they were at the bottom of the market in 2001.

GATA understood this coming emergency months ago when we decided to hold Gold Rush 21 in The Yukon on August 8^th and 9^th. We decided something had to be done. Not just talk, but action. Well, it seems GATA is not alone:

5/3 JOHANNESBURG ( Dow Jones ) --AngloGold Ashanti Ltd ( AU ) chief executive Bobby Godsell has called for a crisis meeting to tackle the problems facing South Africa's gold industry, Business Day newspaper reported Tuesday.

The call comes ahead of annual wage negotiations in which leading producers have urged for restraint from labor unions.

"Ten years ago we formed a gold crisis committee and perhaps we should do it again," said Godsell.

South Africa's gold output slumped to 342 metric tons in 2004, the lowest total since 1931.

Godsell said the industry was battling increases in costs, particularly labor, steel and fuel. Leaders of other major gold producers supported Godsell's call for a crisis summit to be held.

-END-

Bobby Godsell: all you have to do is get on a plane and come up to The Yukon this summer to learn more about what might be done to end this crisis. You will be interacting with some of the most prominent and knowledgeable people in the industry. I would hope Café members would call their gold companies and let them know Bobby Godsell agrees with GATA that there is a gold industry crisis and a summit is needed.

Whether they agree with GATA at this point is not the issue. They ought to at least hear us out and become more aware of why we say what we do and listen to prominent folks who agree with us. Certainly, we would love to give Mr. Godsell the opportunity to address this international conference, should he wish to attend. AngloGold has supported GATA in the past, so this would not be an inventing the wheel sort of thing. If he cannot make it, we certainly hope he will send an emissary to report on the goings-on.

The gold open interest fell 3230 contracts, which figures with and confirms yesterday’s MIDAS commentary. The Gold Cartel took gold down early, inducing the funds to sell as they covered some, which why is the OI went down what it did.

The euro gold was taken down again until very late in the day. Over the past many months, every time the euro gold price has broken out, it is thrashed soon thereafter. The Gold Cartel’s patterns of keeping gold under control have never been as blatant as they have been lately.

Silver is holding just where it is supposed to from a technical standpoint. The silver open interest fell 455 contracts to 106,809.

JUST IN: The awaited Fed announcement:

14:16 FOMC raises funds rate by 25 bp to 3.0%
Maintains "measured" pace language in statement.
* * * * *

14:20 Follow-up: FOMC maintains "measured" pace language, notes signs of slowing and inflation risk
The FOMC included this new phrase in its statement: "recent data suggest that the solid pace of spending growth has slowed somewhat, partly in response to the earlier increases in energy prices". However, the FOMC also noted increased concern about inflation, by removing these two phrases: "Though longer-term inflation expectations remain well contained" and "The rise in energy prices, however, has not notably fed through to core consumer prices".
* * * * *

The announcement came out just as anticipated by MIDAS and the Planet GATA camp. They raised the Fed Funds rate as everyone expected and said nothing of importance about their future intentions. This HAD TO BE as their modus operandi these past years has been to give Wall Street what it wants to hear. Overemphasizing inflation would spook Wall Street as would too much a focus on the increasingly slowing economy.

There was some MINOR emphasis on inflation; however, this was neutered by their $8 takedown of the gold price the past two days. Recently on CNBC we have seen comment after comment saying gold’s subdued price indicates inflation is not a real problem.

This is both pathetic and sickening beyond belief after all these years. The Gold Cartel and Orwellians force the price to where they want it to go to elicit just this sort of commentary. Even the brain dead ought to be able to see through these trite shenanigans.

As long as The Working Group on Financial Markets and The Gold Cartel are going to play these childish, deceptive games and are allowed to get away with this fraud, they will lead to the ruination of America. In this country, Joe and Jane Average continues to operate on perceptions of the true state of the US economy and its future based on market manipulation schemes which are leading to further misallocation of resources.

There is one major point which, in the end, will prove to be inexcusable. The Gold Cartel has taken away the key fear indicator for the average investor. Not only for Joe and Jane in America, but even the sophisticated investor who lives on Planet Wall Street. The gold price is universally looked at as an inflation and fear indicator. By artificially suppressing the price, they have added enormously to investing complacency out there in US financial land. It is like removing the iceberg warning instrument system on the Titanic.

This market manipulation scheme and deliberate deception of the US investing public will end very badly.

The CRB lost 3.20 to 299.69 as oil fell to $49.50, down $1.42.

The dollar was flat at 84.46 and the euro ended up .16 higher to 128.93 after the Fed announcement.

Indian ex-duty premiums : AM $3.37, PM $3.82, with world gold at $429.15 and $428.50. Taking all the reporting cities together, adequate, and ample, for legal imports. Mitsui-Sydney remarks of yesterday’s trading:

"Physical interest was strong in Asia, especially India where wedding season demand provided noticeable support."

India supplied an interesting news item today:

"NEW DELHI, May 3 (Reuters) - India makes adjustments in the composition of its foreign exchange reserves to diversify currency risk…a minister said on Tuesday. India's reserves, the sixth largest in the world, are at a record high of $142.55 billion and consist mainly of the U.S. dollar, the euro, pound sterling and the yen…He said that euro had developed into an important unit with the Reserve Bank of India making it an intervention currency a few years ago."

Almost as interesting as the remarkable (and true) observation by the Asian Development Bank’s senior economist:

"ISTANBUL, May 3 (Reuters) - Asia's foreign exchange reserves have soared beyond "optimal" levels and policymakers need to plough the money back into the region, the Asian Development Bank's top economist said on Tuesday…."They have grown far beyond what is (the) optimal level….This is mercantilism at its worst. The reserves must be ploughed back into Asia and not sit in North America,"

In case there was any doubt that Central Bank behaviour is the key to analyzing gold, the ECB’s weekly statement disclosed an E528 Mm fall in gold holdings last week. At the E329.759 book value currently applied, this is 1,601,169 ozs, or 49.8 metric tones, the biggest weekly number ever.

In all probability this is partly the 43 tonne sale by the ECB itself announced some weeks ago showing up in the official data at last. Still, it still implies that the ECB more than doubled its weekly selling pace as gold tried the upper $430s last week, and there remains the question of when the rest was sold. (My guess is during the previous attempt on $440 in mid March, when the open interest gyrations were stunning.) It looks increasingly reasonable to argue that ECB gold sales are in large part motivated by price management, rather than proceeds maximizing considerations – possibly in Euro.

Yesterday’s action is generally agreed to have been a massive fund selling exercise, with many important overseas markets closed. ScotiaMocatta said:

"The opening price of 433.00/433.50 proved to be the high for the day as funds were good

sellers on the Comex. Initially the move lower was slow as scale down physical buying was noted, however…when 431.00 was touched…Resting stop loss orders were triggered off forcing gold as low as 428.10/428.60 before finding any support."

Volume, at 48,872 lots, was not really heavy, but more important, the open interest decline was small, only 3,230 lots (10.05 tonnes) despite the stops triggered. This suggests a fair amount of short selling.

Shorts would have been encouraged by the CFTC data, which showed a huge 25,000 lot increase in the net spec long. ANZ points out this is back to the December peak. Another observer comments that this level has never been maintained for more than two weeks.

Clearly, if the gold price was determined by Western speculators, the outlook would be ominous. As it is, the physical market will abruptly limit the profits of the bears, and in all likelihood the ECB or some other of the price-keeping Central Banks will be called back into action before the summer.

A very vivid illustration of the abruptness of the cost explosion in the mines can be found in latter portion of

http://www.resourceinvestor.com/pebble.asp?relid=9492JB

CARTEL CAPITULATION WATCH

For many months MIDAS and many other fine contributors to this column have pointed out how the US economy was weaker and inflation was far greater than Planet Wall Street was reporting. We continually made note of the fact that rising commodity prices, especially oil, would have an impact. How can this JUST be dawning of late on the Planet Wall Street crowd?…….

US economic news:

10:00 March Factory orders +0.1% vs consensus (1.2%)
February revised to (0.5%) from +0.2%.
* * * * *

12:00 F F reports unadjusted April sales (1.5%) (9.40 +0.18)
F does not report adjusted sales, but StreetAccount calculates adjusted sales were (5.2%) vs a First Call consensus of (3.4%).
* * * * *

12:06 F Follow-up: F reports weaker than expected April adjusted sales (9.42 +0.20)
Some are mistakenly comparing the (1.5%) unadjusted sales figure to the consensus of (3.4%). The correct comparison is the adjusted figure which we calculate at (5.2%). On an unadjusted basis, car sales were flat year/year and truck sales were (2.4%).
* * * * *

(Chrysler sales were better than expected)

13:46 GM GM reports April sales (7%) vs First Call (4%) (27.74 +0.58)

13:48 GM Follow-up: GM reports April sales (7%) vs First Call (4%) (27.74 +0.58)
Car sales were +7.5% while truck sales were (17%). GM revised its Q2 production schedule as follows: GM North America unchanged at 1.25M; GMEurope 500K vs prior 503K; GM Asia 390K vs prior 387K; GM LatAm, Africa, MidEast 207K vs prior 200K. Total revision +7K.
* * * * *

What inflation?

Hi Bill,
Well, I woke up to the following headline in today's USA Today,

"Inflation fears may be overblown" - "From a maker of fly-fish rods to a seller of plus-size clothing, businesses are finding hard to raise prices. So as the Fed meets today, many economists hope it won't read too much into a recent uptick in inflation numbers."

How my, isn't amazing how everything is always so wonderful? No doubt that the propaganda master Joseph Gobbels would be very envious of this media campaign!

I suppose it is really very simple. The US Government is broke, mired in un-winnable wars, while dealing with a rapidly slowing economy and rising levels of inflation. What is the Fed's remedy? Print money to buy all the financial problems (i.e. GM, Ford & AIG), while using its great derivative machine to hide the mess by manipulating the financial markets to maintain an appearance of calm and stability. To me, this headline suggest we may have just hit the fast lane of the Hyperinflationary Interstate Freeway. Pedal to the metal, baby!

Cheers.

Nick Ferris
J-Pacific Gold Inc.
nferris@jpgold.com
www.jpgold.com
1-888-236-5200
TSXV Symbol: JPN
OTC BB Symbol: JPNJF

Steve Forbes proves GATA’s point once again to those who ask what The Gold Cartel’s motive is for manipulating and suppressing the price of gold:

Bill,
Steve Forbes was the guest on Bloomberg TV this morning.

Much of the conversation was around the Fed's meeting today, and how they are doing with regard to the job of 'managing' interest rates.

Steve's position, which he states several times over the course of the interview, is that we do have a mild problem with inflation now, and the Fed is not doing the right thing in raising interest rates so slowly. The inflation, according to Steve, is due to the excess liquidity in the system which the Fed must drain to solve the problem (although he never does say how the Fed is supposed to 'drain' the excess liquidity, especially with the Treasury independently conducting its own repos that are now greater in total than the Fed.)

But what was almost shocking, and he said it several times and kept making the point, is that the Fed should target the Price of Gold to determine if their actions were being effective. Specifically, until the Fed gets the price of gold below 400 the Fed can be said to be 'behind the curve.

Can't get much more blatant than that. If the price of gold drops below 400 Forbes says the problem is fixed. Or in other words, are you having angina pains? Here's some morphine to make them go away, problem solved, case closed.

You can't make this stuff up.
Jesse

Lease rates since then have actually eased somewhat in precious metals.

Gold is still in backwardation out to the 3 month term. Silver has eased in the near terms as have platinum and palladium.

The commercials (which include the bullion banks behind the leasing) have managed to first cap gold and silver and now manipulated a sell off by the spec funds, even though OI in this cycle never did reach extreme levels.

What does this tell us? Either gold and silver are at extremely critical price levels relative to the US dollar and TA or the precious metal bull is over. The gold shares are saying it's over. I say it's the former. Both gold and silver are nearing the apex of massive horizontal triangles and we are seeing an attempt to break these markets down. The alternative is $500 gold and $10 silver by Xmas. For gold, the bottom of this critical triangle is $424 and for silver it's $7.80. Meanwhile the US dollar is nearing massive resistance at FOREX 85. In short (sorry) we are at a critical juncture for these markets.

Why are the gold shares doing so poorly? Simple, if you take the FOREX inflation out, gold in 2000 dollars is at $295/oz and silver is at $4.72/oz.

That means unless a mine is extremely high grade or low cost, none of these operations is making money. Gold and silver are well below cost of production and gold mines are simply giving away shareholder value in order to sell down the price of their own product even further. When gold mines sell gold at below cost, they are actually working for the Federal Reserve, not shareholders. No wonder most of these large gold producers have a representative of a bullion bank sitting like a fat toad on their boards of directors.
Regards, Rhody.
http://www.kitco.com/market/lfrate.html

Evans New CEO of Financial Lobbying Firm

By MARTIN CRUTSINGER, AP Economics WriterTue May 3, 1:59 PM ET

Former Commerce Secretary Donald Evans, a close friend of President Bush, will become the chief executive officer of the Financial Services Forum, a lobbying group for the country's biggest financial service firms.

Evans' new position was announced Tuesday by the forum, which is composed of the chief executive officers of 18 of the largest financial service companies in the country including Citigroup, Goldman Sachs, J.P Morgan Chase & Co., Allstate Insurance, American Express and American International Group.The forum had been a key player promoting Bush's proposal to partially privatize Social Security by allowing younger workers to set up private investment accounts which would provide a fresh flow of investments to Wall Street. However, in March the forum became the third business defection in a month from business-led coalitions backing Bush's plan.

In an interview with reporters, Evans rejected the suggestion that the forum's withdrawal from the broader Social Security coalition represented a drop-off in support for Bush's proposal.

In his new role, Evans said, "I will be out there applauding the president and his leadership and talking about how important it is that our entitlement plans be reformed."

Asked if creation of private accounts was critical, Evans said, "All the options ought to be on the table. The president has laid out a number of ideas and they all ought to be on the table."

The Evans' post as chief executive officer is a new position at the forum.

The group also announced on Tuesday that Rob Nichols, currently Snow's top spokesman at the Treasury Department, will become president of the forum on June 1, succeeding former congressman Rick Lazio, who was the Republican candidate defeated in 2000 by Sen. Hillary Clinton in the New York Senate race.

Meanwhile, the White House announced the president will nominate Robert Kimmitt, currently the head of global policy at Time Warner Inc., as deputy Treasury secretary, the No. 2 position at the department. Kimmitt, if confirmed by the Senate, would succeed Samuel Bodman, who earlier this year became secretary of energy.

John Hussman, highly regarded money manager:

One of the areas in which we've observed price weakness recently has been among precious metals stocks. Indeed, weakness in this group has been the main source of the modest -3.36% decline in the Strategic Total Return Fund since its most recent high on November 22, 2004. Though a periodic sideways lack of progress is neither unexpected nor of concern, it's a little bit tedious – particularly when it emerges as a result of a single group. Why not just sell the gold stocks and be rid of them?

The short answer is that there's a good possibility that precious metals shares may produce stellar returns over the coming year. Last week, I added modestly to our precious metals positions in the Strategic Total Return Fund, to just short of 20% of net assets. In the Strategic Growth Fund, I increased our exposure to nearly 5% of net assets, which I view as a sufficient overweight relative to the market for a diversified stock fund.

Probably the simplest way to emphasize conditions in the precious metals shares is to examine a simple valuation indicator that is, surprisingly, nearly as useful as much more sophisticated indicators: the ratio of the spot price of gold to the Philadelphia XAU Index. On Friday, spot gold closed at 434.39, while the XAU closed at 83.51. That put the Gold/XAU ratio at 5.20.

To put some historical context on this measure, since 1974, the Gold/XAU ratio has been greater than 5.0 about 15% of the time. When the ratio has been this high, the XAU has followed with annualized gains of 89.6%, on average – a figure that remains high even if the data is split into multiple samples. When the ratio has been greater than 4.0, the XAU has followed with average annualized gains of 27.4% (though the finer profile of returns has been sensitive to other conditions such as interest rates, economic trends, and inflation). In contrast, when the ratio has been less than 3.0 (meaning that the gold stocks are very elevated relative to the actual metal), the XAU has declined at an annualized rate of -36.6%, on average.

Importantly, the return/risk profile for precious metals shares is strengthened further if the economy is experiencing weakness. For example, when the Gold/XAU ratio has been greater than 5.0 and the ISM Purchasing Managers Index has been less than 50 (indicating a contracting U.S. manufacturing sector), gold shares have appreciated at an average annualized rate of 125.6%. In contrast, when the Gold/XAU ratio has been less than 3.0 and the Purchasing Managers Index has been greater than 50, precious metals shares have plunged at an average annualized rate of -49.9%.

Given increasing evidence of a potential economic slowdown, there's a good likelihood that precious metals may remain in a very favorable set of conditions for perhaps a year or more, first by reason of unusually favorable valuation measures, and subsequently by the combination of moderately favorable valuation measures combined with economic weakness.

Unfortunately, against the favorable profile of expected returns, it's important to emphasize that precious metals are among the most volatile industry groups in the market. For that reason, any given expectation for potential returns has to be tempered by risk considerations. It would be one thing to have an expected return potential of say, 50% for the S&P 500, which in context of typical market volatility, might warrant a leveraged investment position. It's another thing entirely to have that expected return potential in an industry with several times the volatility as the general market.

As usual, the size of our investment position is aligned not simply with the expected return, but with the expected return per unit of risk. In that context, I am very comfortable with a 20% exposure to precious metals shares in the Strategic Total Return Fund, and about 5% in Strategic Growth. If we observe some combination of better valuation and/or economic weakness, those exposures might increase by a few percent.

That said, these comments are intended only to articulate part of my thought process in establishing our moderate positions in precious metals shares, and should absolutely not be used as investment advice, or as any suggestion that investors should establish additional or aggressive investment positions in precious metals elsewhere.

-END-

To the nitwit analysts in the mainstream gold world:

The dollar was flat the past two sessions, yet gold was taken down $8 right before the Fed meeting. It should surprise NO ONE that the Fed hinted to the obvious re inflation was of some concern. Only the clueless could have failed to have seen this fact for a very long time now. The Fed, which is running out of spin room and is having to acknowledge our watered-down government reports, had no choice but to give it some attention as to maintain any sort of credibility.

The Gold Cartel, knowing what the deal was in advance of the Fed pronouncement, bashed gold to temper the remarks by the Fed. Now if gold rallies $8, as I expect it to do, the price will only rise to where it was on Friday night.

Yet, you dingbat mainstream gold analysts will say nothing. You are beyond hopeless and are either the dumbest, or the most disingenuous group of analysts ever assembled. You make the discredited NASDAQ internet analysts of 2000 look like the pillars of society.

***

The above was all written before this Monty Python bombshell hit the tape:

JUST IN:

15:57 FOMC says it inadvertently omitted part of statement
The line we previously noted had been removed regarding long-term inflation expectations remaining "well contained" was apparently intended to remain in the statement.
* * * * *

15:59 Follow-up: FOMC says it inadvertently omitted part of statement
Note that two lines had been removed regarding inflation, and that the other line apparently was intended to be removed; that line was "the rise in energy prices, however, has not notably fed through to core consumer prices".
* * * * *

The Theatre of the Absurd just went Broadway. What, are you kidding me? The CNBC so-called Fed pundits have made a point for years how every word is massaged and put in their comment to reflect exactly what they want to get out there to the public. Now, we are led to believe the most carefully worded pronouncement anywhere, anytime was a goof? Give me a break!

Wall Street and the Orwellians must have thrown a fit and told them to change their statement, as the original statement was not playing out right. Somebody sure did. One thing is for certain. This plays right into those of us on Planet GATA who cite the extent to which the US financial markets are managed.

The Working Group on Financial Markets strengthens the dollar when our stock market is in trouble, even as our economy weakens. They keep the long-term interest rates under control in the US through their Tinsley Put operations and Caribbean Pirate accounts. The PPT props up the stock market at strategic times by utilizing the stock futures markets. And, of course, the Grand Daddy rig of all is their continued manipulation of the gold price.

You would hope the changing of this Fed statement would show ANYONE with a noodle of a brain out there what is really going on here in America and to what degree they will stoop to affect market direction. The DOW was down 40 and sinking into the close with 4 minutes to go when they announced the change in the statement. It closed UP 5 at 10,257. This may be the grandest PPT Hail Mary play of all time for speedy results. The DOG rose 4 to 1933. Unbelievable! What a farce! Talk about loss of credibility and integrity. Nothing new to us. Maybe it will wake up some of the comatose ferrets on Planet Wall Street.

With all this crud, the best news of the day receives second billing. For the second day in a row the gold shares have defied the bullying down of gold’s price by the cabal. Yesterday, they were flat on a $5 drop. That could have been a fluke as they are so oversold. However, today’s rise (the HUI gained 2.93 to 180.71 and the XAU rose .92 to 84.57) with gold down another $3 should confirm the bear gold share move is over. Any student of the market has to note how they held up to another a sizeable fall in the gold price. It is a technician’s dream. I suspect it was The Gold Cartel in there covering their short gold share positions.

This is a day for the financial market history books. GATA’s too. My oh my!

Our sensational days cannot be too far off.

GATA BE IN IT TO WIN IT!

Appendix

Hi Bill:
You may recall my article to you last week (posted to Midas on Wednesday, April 27th) that I called my "Oblique" view on gold using the XAU to GOLD ratio. Last night Richard Russell provided his readers with a very similar view coming from John Hussman. Hussman looks at the ratio in the inverse and so his 5.0 equates to my 0.20. We are currently above his 5.0 and consequently below 0.20 in the inverse. We did hit (intra-day) just slightly sub-0.19 levels late last week after you posted my comments, as I had anticipated.

Hussman's comments on this relationship below provide some very interesting statistics regarding the ratio. I was happy to see someone with Hussman's credibility taking a positive stance on gold mining shares in light of the gold:XAU ratio and backing up his observations with strongly encouraging statistics.

All the best,
David.