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(2 edits)

I thought maybe you could get around the issue by raising Kobold moral to 3- but you just end up stuck not being able to gather more gold from them at that point since their gather gold interaction decreases their moral by 1 and it costs 1 gold to raise their moral up one.  

The walk-through regarding the solution was a little nebulous.

"Treasure (Gold! Gold!), which can be used to boost Morale and build in your lair (but will lower their morale)."