If You Love Gold, You'll Love This! [Andy]

By Bill Murphy

Sunday, August 15, 1999 Spot Gold $261.70 Spot Silver $5.31

Technicals

Uptown we go. Would you believe that gold closed higher every single day this past week? The gains were small but steady. Gold has broken out of a classically shaped saucer pattern to the upside, which is normally a very bullish technical development. The bullish consensus has risen only to 27 percent, which is low but represents a 10-14-point jump over the many week nadir of 13-17 percent. The COMEX Commitment of Traders Report released after the close on Friday was fairly bullish too, as the speculators are still very bearish with large specs showing a net short position of 55,000 contracts as of last Tuesday. Small specs switched to the bull side showing a net long position of about 6,000 contracts.

The 20-year bear market in gold has ended. The price of gold will go much higher than most people think, and the risk/reward ratio of being long gold right now is as good as it gets. The price of gold should double over the coming year or twoeasily. Silver continues to mark time and was hurt a bit this week by the soybean pullback and the unwinding of long silver/short gold spreads.

The bullish consensus in silver is very low too at 34 percent, and that is constructive for its near price movement. The base in silver is massive and can support a move up to our price objective of $9.78. Patience is called for, but patience will be well rewarded.

Fundamentals

For weeks now I have stressed that this is the time to be aggressively long gold, silver, and the precious metals shares. During this time I have also presented to you my reasons. Recent developments are strengthening that analysis almost daily. Excitement is in the air. I can feel it. Something big is up. First, let me go over Goldman Sachs taking delivery of half the gold in the New York Mercantile Exchange warehouses. Goldman has taken delivery of some 473,600 ounces as of Friday, and we understand that Goldman is in line to take a good deal of the remaining 3,500-plus contracts that remain open over the next two weeks. Goldman thus has taken 95 percent of the deliveries that have been posted for the August COMEX contract. That is very unusual. When queried, Goldmans spokeswoman, Kate Baum, said, We are seeing strong physical demand. The Cafes John Brimelow, head of international equities research at Donald & Co. in New York, told Bloomberg News, People smell a rat here. I agree with John. Let us review a chain of events. I will be brief since many of you know the deal. New Cafe members who wish to be fully up to speed should review recent Midas du Metropole commentary that is in the library at this table.

Starting May 6: The price of gold is about to break $290 to the upside. The Hannibalsbullion dealersspread the word to their clients that the price of gold will NOT break past $290. The next morning there is a surprise announcement by the Bank of England that it will be selling 415 tonnes of gold. Goldman Sachs is seen to be selling gold in quantity almost every day on the COMEX after the Bank of England announcement.

The Gold Anti-Trust Action Committee immediately calls the Bank of England gold sale announcement a foul ball. So do others. The gold market manipulators have had their way for some time. They have been arrogant about what they have done and the way they have gone about itas their manipulation most likely has been going on for years. They did not count on their schemes being uncovered, nor for opposition to their grand plans to pop up. They were wrong. In addition to GATA, this is what I mean by that.

In one of the most unusual alliances in history, leading Republicans, Democrats, and the Black Caucus in the U.S. Congress got together on the issue of gold sales by the International Monetary Fund and will not let the gold sale proposal pass. That was a big blow for Goldman Sachs and the rest of the Hannibals, as they will not be able to cover their massive short positions by buying cheap gold from the IMF stash. That has been a shock to them.

The collusion crowd has been counting on two other sources of supply. One is from the proposed Swiss gold sale, but recent reports show that supply from that source is now far from certain. And even future Bank of England sales may be altered in some way. Last week Midas told you that sources have told us that there have been serious government-to-government negotiations to do something about future British gold sales.

Well, look what we have here all of a sudden:

Capetown, August 13 (Platts) -- South Africas talks with Great Britain about organizing its planned gold reserve sales so as not to harm gold prices are likely to pay off, the minerals minister said in parliament Friday. There is an ongoing dialogue between us and that country, and we believe it is going to pay off, Mineral and Energy Affairs Minister Phumzile Miambo-Ngouka said.

Keep in mind that our camp thinks that the gold loans have risen to 10,000 to 14,000 tonnes and the monthly supply/demand deficit is at least 150 tonnes. (This means that the shorts need to come up with 150 tonnes of gold supply every month to hold down the price of gold. Without that supply the price must rise to a higher supply/demand equilibrium point. Mine supply was 2,529 tonnes last year and might go down this year, not up. All of a sudden gold supply sources that the shorts were counting on probably will not be there.

For new Cafe members, it will be helpful to refer to previous Midas commentary or recent emails about the incestuous relationship among Goldman Sachs, the New York Federal Reserve, Britains chancellor of the exchequer, Gordon Brown, and Great Britains prime minister, Tony Blair.

Then these events.

Goldman Sachs has an initial public offering and becomes a public company in June close to the top of the stock market bubble. Former Goldman Sachs CEO and U.S. Treasury Secretary Robert Rubin resigns on July 4. Around the third week in July Goldman Sachs has a hurried conference call for its clients announcing that it expects the price of gold to average $275 for the year, which insinuates the gold price will rally. But Goldman Sachs does not suggest that the price of gold will rise to any great degree. (No reason to spook the market while you are scrambling to cover your butt.) This conference call is important. Goldman Sachs knows it has been seen buying gold on the COMEX. It is now a public company. It probably cannot maneuver as it could in the past; that is, a few days later Goldman Sachs will be standing to take delivery on as many gold contracts as it can get their hands on and it will become known. Through its analysts and spokesman, Goldman had led the gold bear parade on the way down. All of a sudden it is buying up all the August gold contracts the shorts will give them. Questions will be askednot just by the likes of us, but by the Commodities Futures Trading Commission, which admitted recently that it had contacted the major gold players. Routine surveillance.

Sure! No one can remember the last time that the CFTC said it was even talking to anyone about the gold market. The CFTC made the routine surveillance story public because it had to. Prior to that announcement, Midas du Metropole was informed by a source that a gold market investigation going on. I told the Cafe what I could. The press got wind of it and queried the CFTC. The CFTC was then forced to make an innocuous statement to the wire services.

Heat on Hannibal has been the Cafe war cry for many weeks now. The tightening of the gold spreads, the rise in the interest rates, the CFTC investigation, GATAs relentless exposing of the gold market manipulation, and Goldmans scrambling for gold supply by taking delivery of the August gold contracts is evidence that the heat is indeed on the Hannibals.

On top of all that and during this period there is a secret bank meeting in Philadelphia. There are rumors of an emergency Fed meeting and rumors that famed hedge fund Tiger had to be bailed out, as it has incurred significant losses accompanied by substantial redemptions. (Our sources say there is more to come as the last day in August is the last day in this period for investors to pull their dough out of Tiger. Will it be Redemption Day?

The swap spreads (a liquidity baromenter) blow out to decade highs, the TED spread goes to levels that signal danger, bond yields rise to 6.27 percent (unthinkable eight ago), Iridium goes bust, General American Life Insurance Co. cannot meet payments, and so on. That tells us that all is not well in financial land and, in fact, all could be really sick as an overleveraged financial system comes to grips with rising interest rates that few have prepared for. At the same time, there are trillions of dollars of derivative plays out there that just as few have a handle on.

Now what else do we know?

GATA has two recent converts. First there was Roger Kebble, chairman of JCI Limited in South Africa, who expressed his opinion hat the gold market was manipulated. Now another stalwart of the gold industry, Robert Champion de Crespigny, chairman of Normandy Mining Ltd. in Australia, saying the same thing.

GATA Secretary Chris Powell sent me the following the other day: Robert Champion de Crespigny was interviewed Aug. 12 on the Australian Broadcasting Co.s late-night television talk show, Lateline, along with Haruko Fukuda, chief of the World Gold Council, and Tony Warwick-Ching, a consultant with Virtual Metals, a company that analyzes the precious metals market. If you have Real Audio, you can hear the Lateline program via the Internet at:

http://www.abc.net.au/lateline/stories/s43566.htm

Heres Chris summary of Chairman Champion de Crespignys comments:

* Investment banks are making a fortune manipulating the gold market.

* Many important investment advisers have substantial conflicts of interest when they advise their clients against gold.

* The price of gold will revive because in the end well have a much more transparent market.

* The Bank of England is selling its gold against the wishes of the British people.

* The price of gold will strengthen quickly when people see whats going on in the market and the market becomes more open.

* Im certain golds going up. It will be as quick as oil was recently.

Now these comments are very surprising, for only recently Midas quoted Robert Champion de Crespigny for saying the following right after the Bank of England gold sale announcement:

The Bank of England gold sales could have a positive impact for the precious metal, accelerating the closure of weaker high-cost mines around the world.... This gold will keep on coming out, it will come out at market price, and the worst of production will drop off.... The commentators that are saying they expected someone to bid above gold, thats an absurd thing for this amount of gold. It is very much in line with what you would expect if you knew the industry or this quantity.

Champion de Crespigny also said he was not opposed to the Bank of Englands method of sale, an announced auction, saying the gold price was strongly affected by sentiment and could be badly hit by sudden and unannounced large sell-offs. We need time to get used to this bidding type process, which I think is not a bad way to go because it is exactly the same (way) as the government sells treasury bonds.... I dont see (the Bank of Englands sell-off) as a disaster at all. Sherlock Holmes Im not, but one can discern a big change here. Have all you Cafe members been sending this esteemed man in Australia what Midas and GATA has had to say, especially the bit about oil? I mean, that is exactly what I just said a few days ago in my Midas headlined, The Gold MarketBe Aggressively Long. This is getting good.

Let me at least take a stab at being Detective Columbo on this one.

The common thread here is Goldman Sachs.

Tiger does a mess of business with Goldman Sachs (that is well known) and Tiger owns or owned 10 percent of Champion de Crespignys Normandy Mining. Perhaps the good chairman knew the reason behind the Bank of Englands sale. Until recently Normandy has been among the most formidable of hedgers.

(A Cafe member and very highly esteemed member of the gold community has a revelation on all of this. Since he has quite an interesting story coming out soon, I will say no more except that you will want to know what he has to say, and the Cafe will alert you to his newsletter.)

But something got the good chairmans goat. Could it be that Tiger, because of its redemptions, has to sell Normandy stock? Could it be that the good chairman knows that Tiger hedged its stock purchase by borrowing gold and shorting it and has to cover now? Reports have come to us that Tiger is short from 200 to 350 tonnes of gold. (That is called a Texas Hedge; i.e., shorting much more than one need to for proper hedging purposes.) Was the purported extra gold borrowing put on to finance other things?

Could the physical market be so tight that Goldman Sachs has to find gold anywhere it can (either for its own account or for clients) and now has to undergo some sort of humiliation as to be seen cornering available gold by taking delivery on as many August COMEX futures contracts as it can, when that is the last impression it wants to create for the firm?

Why has the good chairman suddenly changed his tune and made a 180-degree turn on the Bank of Englands gold sale, etc.? Why is he so bullish now? What does he know that the public does not know? Say you were himwhat would you do or say to the public for image-building purposes, knowing what is really going on behind the scenes? I deduce that Champion de Crespigny does know something significant about the gold market and it is VERY bullish; that is the explanation for his remarkable statement on Australian television.

Meanwhile, back at the ranch, we have Barrick Gold, championed by the hypocritical Peter Too Much Munk, who speaks out of both sides of his mouth. PR is his game and part of his fame. GATA is going to give him some of the PR he craves, but it will be about his bullion dealer sympathies: Without a doubt, Barrick is another Hannibal in sheeps clothing.

Months ago it came to my attention that Barrick CEO Randall Oliphant had told a respected journalist doing a story on the gold market that GATA was a bunch of nuts. Over and over I have considered his strident words about a volunteer group that is trying to help his own shareholders. I have spoken to Randall in the past, and he seemed to be a good fellow, but this feedback I received was sinister and provocative. (Randall was promoted to Barrick CEO from CFO.)

What to think? A U.S. source had told me that 10 months ago Barrick and Normandy opposed a proposal to mint a millenium coin that would have spurred gold demand. The two companies were going the same way then. But now something is happening here, as Barrick and Normandy are no longer on the same wavelength.

Voila! From the Financial Times on Friday:

Randall Oliphant, chief executive of Barrick, the Canadian producer, says that while it is impossible to forecast gold prices with any certainty, he notes that central banks will more likely be net sellers of gold rather than buyersover the next 10 years. And that represents a significant shift in the market. The industry is somewhat in denial, Mr. Oliphant says.

Placer Dome, North Americas fourth largest producer, has recently joined the ranks of the more pessimistic producers. Following the Bank of Englands decision to sell more than half its gold, the company said it would review its long-term pricing assumptions. The company said the months-long review was prompted by the realisation that bullion would not rebound as quickly as the company had initially anticipated.

Industry sources say the average total cost of gold production, including depreciation, overhead, and exploration expenses, is about $320-$330 per ounce. At that cost, between 20-40 percent of gold production is uneconomical at current prices.

More than half the industry is under water at these prices. I wouldnt be surprised to see total mine supply drop by 20-40 percent within five years, says one industry insider.

The industry has already seen a number of smaller mergers and acquisitions in the past year. Homestake, the U.S. producer, acquired Argentina Gold, while Barrick snapped up Sutton Resources. Franco-Nevada and Euro-Nevada, the Canadian mining royalty groups (mining venture capitalists), merged this year, while Australias Normandy entered into a partnership with TVX, the struggling Canadian group. Barrick and Newmont also swapped assets in February. Some analysts expect to see more asset swaps, as well as joint ventures and facilities sharing agreements in the coming months, as the industry attempts to cope with the depressed market.

But Mr. Oliphant says asset swaps and joint ventures are little more than Band-aids and they wont help struggling companies endure a prolonged price slump. He says it is only a matter of time before large-scale consolidation hits the gold industry.

Everyone is running numbers to look at how they would match with other companies, says Mr. Oliphant.

The most often talked-about combination involves Newmont and Barrick, North Americas two largest gold producers and companies that could generate important synergies from their assets in Nevada and Peru.

Newmont, the continents largest, is widely seen to be the most vulnerable of the big gold producers, due to its $1.2 billion debt and its small hedging position. On the other hand, Barricks strong financial position makes it the most likely acquirer in the current environment.

But Barricks dilemma is that its position as the lowest-cost producer would be eroded if it were to make any acquisition.

Nonetheless, Mr. Oliphant is not ruling out the possibility of merging with another large producer if the right opportunity comes along. And while Newmont says it does not feel a lot of pressure to merge, the company is keeping an open mind with regard to mergers. Big mergers, if and when they come, might not be limited to North America. At least one top gold executive says he has been approached by South African and Australian producers that have expressed interest in merging with a North American group.

It is not clear which of the big producers would be the first to merge. What is increasingly apparent, however, is that is the industry is slowly coming to the realization that more dramatic measures may be required if they want to survive during a prolonged price slump.

Now something has caused Barrick and Normandy to dramatically diverge in their directions. From this article one can see Barricks motive in cheering on the lowering of the gold price and positioning itself to pick up the pieces after the decimation of the rest of the gold industryespecially when one reviews Barrricks hedge book. The following information was provided by Ted Butler:

Barricks annual gold production is roughly 3.5 million ounces, or approximately 5 percent of total annual world production. As of March 31, 1999, the company held a reported physical short sale position of 12.5 million ounces, or approximately 18 percent of world annual production. This is gold borrowed from central banks (additionally, Barrick is short millions of paper ounces of gold and silver equivalents, as well as a sizable physical short silver position).

The 3.5 million-ounce annual gold production is equal to 35,000 contracts on the COMEX, the worlds leading precious metals futures exchange, or what would be the equivalent of 17 percent of total open interest. The 12.5 million-ounce physical gold short position of Barrick is the equivalent of 125,000 contracts on the COMEX, or an astounding 60 percent of total open interest.

The flows in the OTC market are much greater than those on the COMEXsome say five to 10 times greater. That must be taken into account when it comes to the percentages, but the gross numbers are revealing, especially for Barrick shareholders. A source told me Friday that a well-known fund manager was looking to buy shares in gold companies. At last contact, we heard he was shying away from Barrick because of the size of its hedge position.

Maybe GATA is a bunch of nuts, but if we are right about the gold market and the price takes off to the upside, Barrick could look like the bunch of nuts.

Goldman Sachs is scrambling to find gold for someonealmost 500,000 ounces so far. What if there is not enough physical gold around to satisfy the shorts? Physical goldnot paper gold available at a future date. No, NOW gold! How easy will it be for Barrick to cover its shorts to enhance shareholder value on a substantial move up in the gold price?

Loop back to the derivative risk questions that are haunting the financial markets. Many of the gold producers have these magical high prices they are receiving for their future gold production. The bullion dealers have sold them derivative packages that require the producers to write calls on their future production -- in some cases maybe much more than their production. The call open interest on COMEX and in the OTC market has soared in the past couple of years.

The producers are happy to sell paper gold at such high prices, especially amid todays gold price depression. The Hannibals have gotten them to think that the gold price is not going much higher in the years to come, so the producers go along with the dealers feeling very smug about the transactions.

The problem will come when the gold price takes off. If the herd tries to cover these massive gold loan borrowings and, in many cases, naked calls, there will be a gold-buying panic the likes of which the world has never seen.

Some gold producers could go belly-up in this type of scenario. We have been told that $315 gold is the number to watch. Zillions of calls have been written around that strike price. A move north of $315 could bring on that gold-buying panic. Very interesting times are ahead.

I began with Goldman Sachs in this segment of the Midas and will end with that firm. In my opinion it has set the scene for a dramatic move up in the gold price. The Hannibals are losing control of their gold market manipulation. I was just sent an email about a Kitco gold site posting by The Gambler. He says it all. Here are some excerpts: So what about gold now? Its just getting started. As I have been saying, watch the 30-year interest rate, the dollar, credit spreads, etc. Theyre confirming the growing risk in financial markets.

The gold lease rates, contrary to what many have said on this forum, are not going up because the specs are borrowing gold to short it or because some producers are borrowing to sell it. As a lot, the Aussies are buying back as their dollar gains against the American dollar; the same with South African and Canadian producers.

Gold lease rates are climbing because of the growing risk to the financial banks. The simple key to understanding this is that banks borrow the gold for short periods and lend it for long periods. The central banks are aware of the growing risk of not getting back their gold and are winding down their leasing. Some producers have been having problems repaying their loans and their books are looking bad. Several banks are in hot water. These banks, unlike the commercials, will not be bailed out by the central banks.

One of my sources told me two weeks ago that a big bullion bank has liquidity problems and is trying to cut a deal with several major producers to borrow more than 55 tons to return to the central bank lender. This loan would be over about five years, depending on the gold price.

It gets worse. As I wrote several months ago, there are more hedge funds similar to Long-Term Capital Management and the Tiger Fund that have liquidity problems. I posted this bit about liquidity problems some time ago. This particular big bullion bank in big trouble has lent more than 425 tons of gold to SEVERAL hedge funds. Of course the hedge funds cannot come up with the gold; thus the growing crisis. Yes, gold lease rates are up for a reason. And Goldman Sachs is NOT buying gold to short it. A liquidity crisis is coming and they know about. Gold is going up.

Stay away from heavily hedged producers such as those in Australia. Let them suffer the consequences of their stupidity and greed. Purchase unhedged gold companies to prosper in the coming gold short squeeze. Agnico Eagle is a good one for starters.

I agree with this analysis. Dont bet against The Gambler.

Potpourri and the Gold Shares

In my Jan. 20 Midas du Metropole essay, called Scandale Gold, I noted that 12 major banks chaired by Goldman Sachs and J.P. Morgan in early January formed the Counterparty Risk Management Group with the intent of enhancing best practices in credit and market risk management. The policy group will develop standards for strengthened risk-management practices.

It was upon this discovery that GATA was formed. GATA co-founder and Cafe member Chris Powell sent me a note saying that what I was writing about regarding the gold market manipulation seemed like a violation of the Sherman and Clayton Anti-Trust Acts. Would General Motors, Ford, and Chrysler be allowed to do the same thing the founders of the Counterparty Risk Management Group, Chris pondered. Chris suggested that we stop complaining about the collusion against gold and do something about it. So we did!

The Bank of England gold sale alerted many gold market observers that GATA was right after allthat the gold market was being manipulated. Unfortunately, most Toms, Dicks, and Harrys (not you, Sir Schultz) are AFRAID to talk about the entities doing the manipulating. The manipulators are powerful folks.

Let me just say that these blueblooded banking firms that every one kowtows to are not Little Lord Fauntleroys. Since GATA was formed, Counterparty Risk Management Group Chairman Goldman Sachs has been subpoenaed by the Justice Department for anti-trust violations in a securities underwriting scandal. Counterparty Risk Management Group member Credit Suisse is being kicked out of Japan for financial violations and unethical conduct. And now the other Counterparty Risk Management Group chairman, J.P. Morgan, is the subject of this story in The New York Times:

Sumitomo Sues J.P. Morgan for Role in Copper Debacle.

August 14. By Timothy L. OBrien.

J.P. Morgan & Co., one of the most prestigious banks in the nation, has been sued by the Sumitomo Corp., one of Japans largest banks. Morgan, which prides itself on being on of the countrys most cautious lenders, is the only bank to have been singled out by United States regulators for its role in the scandal. In 1997 the Federal Reserve Bank of New York reprimanded Morgan for lax controls and supervision in its commodities lending business.

Morgan is a leading provider of the complex financial instruments known as derivatives and has been an aggressive advocate of looser regulatory controls over the lucrative products.... Morgan structured the loans to Mr. Hamanaka as derivatives, which allowed him to account for them as trades rather than simple loansa move that may have allowed him to borrow money more freely. J.P Morgan, in one series of transactions alone, loaned Mr. Hamanaka roughly $535 million disguised as complex derivatives transactions, Sumitomo said in a statement released last night. When those transactions came due, Mr. Hamanaka was secretly forced to pay J.P. Morgan almost $1.2 billion to satisfy the debt representing an effective interest rate of 150 percent.... These were plainly usurious loans provided for the sole purpose of supporting Mr. Hamanakas illicit copper trading.

Counterparty Risk Management? Talk about the fox in the chicken coop. Weve got three of them here. All three Counterparty Risk Management Group members are bullion dealers. (Hannibal The Cannibals.)

Do I need to say any more?

Midas

Phew! [Andy :) ] END-

-- Andy (2000EOD@prodigy.net), August 16, 1999

Answers

Looking good, Andy, but don't get your hopes up to high just yet. Remember, some of these people are REALLY tricky and despicable, possibly manipulating the price of gold to get one more big plunge so they can shake the goldbugs' confidence while they buy it all up. (Next to the gold manipulators, double Decker looks like Jesus.)

-- King of Spain (madrid@aol.com), August 16, 1999.

http://www.kitco.com/gold.live.html

-- (downtoday@kitco.com), August 16, 1999.

Brown deserves gold star for his sell-off Source: The Guardian

It may be a long way from the vaults of Threadneedle Street to the gold mines of South Africa but if you believe the protests of the country's bullion producers the two are inextricably linked. Gordon Brown is accused by them of triggering a collapse in the gold price by ordering the Bank of England to sell half of the nation's gold reserve and invest the proceeds in foreign government bonds. The gold producers say his crime is twofold: to have threatened the livelihoods of thousands of poor, black miners and to have jeopardised plans by the International Monetary Fund to sell some of its gold reserves to fund debt relief for the the Third World. Do the charges against the chancellor stack up?

On the first count, Mr Brown is most definitely not guilty. It is true that his announcement of gold sales in May does appear to have had a negative impact on sentiment in an already fragile gold market. The price has fallen by almost $30 ( pounds 19) an ounce since then.

But the reaction seems quite out of proportion to the reality of the event. After all, the amount of gold sold so far, 25 tonnes, represents just 3% of daily turnover and 1% of world output. Something else must be depressing the price.

The gold price has, in fact, been on a downward trend for many years, ever since Richard Nixon's unilateral decision in 1971 to assert the dominance of the dollar by ending its convertibility to gold. Other governments were obliged to follow suit and float their currencies. And so began gold selling by central banks.

From the reaction of South Africa's gold producers, you would think that Britain was the first central bank to reduce its gold holdings. Yet in the 1990s alone, Argentina has sold 124 tonnes, Austria 334 tonnes, Australia 167 tonnes, Belgium 707 tones, Canada 510 tonnes, the Czech Republic 56 tonnes, Luxembourg 10 tonnes and the Netherlands 560 tonnes.

The Swiss are also in the process of scaling down their huge gold holdings. Mr Brown was merely following a long-term trend established by others. Unlike some of the countries who have sold gold secretly in recent years, Mr Brown pre-announced his intentions. To some that was a naive mistake, giving speculators a one-way bet. But the sales would very quickly have shown up in the monthly reserves figures, turning a rumour mill which may have caused an even bigger drop in the gold price. It was far more honest to be open and transparent about gold sales than conduct them covertly to the benefit of market insiders.

The market insiders themselves have a lot to answer for on the collapse of the gold price. Acutely aware of the long-term downward trend, producers have been hedging their profits for many years by selling production forward for a guaranteed price, thereby flooding the market with excess supply.

Citing figures from the mining journal World Gold Analyst, Andy Smith, gold analyst at [Mitsui] in the City, says the six mining companies who wrote to Tony Blair to protest at Britain's gold sales ran a hedge book of over 900 tonnes at the end of the first three months of 1999.

`Add two more non-signatories, and the top eight mining companies run a combined hedge book of almost 1,500 tonnes, more than the proposed 1,300 tonnes of Swiss sales. Quite a lifeboat against spot market storms,' says Mr Smith.

The bleating of hypocritical gold producers should, therefore, be ignored. As Anne Pettifor, director of Jubilee 2000, argues in a forthcoming article in Public Services International, the industry, led by the Chamber of Mines, effectively sustained the apartheid regime throughout its near 50-year grip on the black majority of South Africa. It ill behoves the gold producers to be complaining about job losses among poor blacks now, when they have been exploiting them for decades.

`This is nothing more than a blatant attempt to use workers and the poor to shield shareholders from market forces,' says Ms Pettifor.

The second charge against Mr Brown, that he has scuppered plans for debt relief, is tenuous. It is true that Britain's gold sales do seem to have become a rallying point for the forces trying vainly to prop up the price of the yellow metal.

That could prove to be a political miscalculation. Apart from the producers, these pro-gold forces include republicans in the United States Congress who are now threatening to block the International Monetary Fund's plan to sell 10m ounces of its gold reserves to help finance the enhanced version of the Heavily In debted Poor Countries debt relief initiative - agreed by the group of seven at their summit in Cologne in June. Why this should be the case is hard to fathom.

Only a year or so ago, when Congress was threatening to withhold funds to replenish the IMF's reserves, republicans were arguing that the IMF should be using its resources more productively.

Now, suddenly they have turned full circle. It seems that the republicans' true motivation is to bash the IMF, a symbol of world government which is anathema to the party's isolationist tradition.

Even if the republicans succeed in their goal of blocking IMF gold sales, there is no reason to put the HIPC initiative on hold. The treasury insists that there is a very strong political wind blowing behind the initiative which suggests that a way will be found to plug the financing gap which is threatening to open up.

The IMF gold is expected to raise about $2.5bn, a not insignificant amount, but Jeffrey Sachs, the Harvard economist, has argued that the fund could cover its share of debt relief without selling an ounce.

The IMF currently values its gold holdings at $4.9bn, when the present market value is more than $32bn. Professor Sachs told the Committee on Banking and Financial Services of the US House of Representatives on June 15 that the `IMF could revalue the gold on its books to market value, and thereby recognise a capital gain of around $27.4 bn.

According to the professor a `complete write off of all IMF claims' on the poorest countries could become affordable.

So Mr Brown has a clear conscience. He is neither to blame for the suffering of black miners nor the question mark hanging over the HIPC initiative, even though his decision to be open and transparent about gold sales has given others the opportunity of naming him as the enemy of both. Rather than be attacked for his decision, he should be congratulated. By restructuring the nation's gold and foreign currency reserves, he has reduced the taxpayers' exposure to a dud asset and created an opportunity to earn a decent return from more lucrative investments.

William Hague, the Conservative leader, has attempted to make political capital out of the episode by accusing the chancellor of precipitating a decline in the gold price which has wiped pounds 500m off the nation's balance sheet. Yet the continuing loss to the public purse of holding too much gold is likely to be higher.

The treasury estimates that if it had sold gold on the scale now being proposed in 1979, it could have invested the proceeds elsewhere and earnt an income of pounds 4.5 bn between then and now.

Far from postponing the next British gold auction, planned for September, as the gold producers would like, Mr Brown should press ahead without any regrets - apart from one. That he didn't do it earlier.

(Copyright 1999)

_____via IntellX_____

Publication date: Aug 16, 1999

-- (getbothsides@1st.com), August 16, 1999.

More...

Le Metropole Members,

The highly regarded James Turk has served commentary at the Kiki Table entitled, "Move Over Fisk & Gould." You will enjoy it.

This morning there was an article in the Financial Times entitled, "Banks attack UK's gold sale." The subtitle read, "G10 nations warn sell-off may raise fresh doubts over metal's role in reserves." The gold market sold off early on this story, but then recovered late in the day to close off a mere 60 cents.

I corresponded with James Turk about the FT story and he told me, "There is a war going on, and the shorts just escalated it."

"This has obviously been planted in the FT by the shorts ( the FT has always been a mouthpiece for the Bank of England ) , so whoever got the BoE to sell bullion, also got the FT to publish this article. While some may read the article to be ostensibly bullish to Gold, it's real impact is bearish because it is the first shot in what appears to be a new propaganda campaign idea by the shorts - get the market to believe that Gold is going hopelessly lower so the big holders who have been 'strong hands' will also sell. Note that there is no mention that the BoE is considering canceling the sale, only that their "way forward" has been established."

"The shorts are threatening to bring out the 'big guns', i.e., sales by unnamed G7 countries. Is it a bluff?"

"When it comes to central bank duplicity, anything is possible, so I've never taken much comfort from the statements by Trichet, for example, that France has no intention to sell their Gold reserves. Things are getting VERY INTERESTING!!!"

James then went on to discuss and update the Goldman Sachs delivery story which he covers in his commentary at the Kiki Table:

"Still unable so far to find out who owns the bullion in Comex warehouse, but the dealer community assumes that it is owned by the shorts delivering to Goldman. But I question this assumption. Though the dealers assume this, no one I've spoken to has been able to provide me with any hard evidence to convince me, so I'm still leaning toward the view that Goldman knows something. They seem to be running for cover anywhere they can get it. Maybe Goldman already knows who owns the Comex metal."

"One last point. Comex stocks are normally owned by the commercials. They hold the metal for normal inventory purposes, and can use the metal for meeting Comex margins. Very rarely do they take or make delivery ( and never do it in the large-size quantities that we are talking about now ) because it is so relatively expensive to do so in New York City ( compared to other depositories where they hold metal ) so Comex metal rarely comes into play in the physical market. Also, Comex bars are 100 ounce ( 3 kilobars are also permitted ) , because these smaller bars are geared more for Comex's primary market, individuals. These small bars are in contrast to 400 ounce standard international delivery bars used everywhere else ( the gold lending market is conducted in 400 ounce bars ) ."

"In any case, is some commercial now prepared to deliver to Goldman? Anything is possible, but this delivery would be against the CFTC commitment numbers which show the commercials net long, and therefore bullish on Gold's prospects here. My conclusion is that it is unlikely the commercials are delivering to Comex, but we'll find out within the next two weeks."

Late in the day, I spoke with a gold producer who told me knew a bullion dealer who was busy as a bee turning 400 ounce bars into 100 ounce bars for Comex delivery purposes.

In addition, I learned that Goldman Sachs was buying October $265 calls on Comex and October $262 calls in the OTC market.

All in all, the gold market IS VERY tight regarding gold of certain specifications. That does not mean the market gets squeezed. But, it does tell us that a lot is happening behind the scenes and someone is very nervous about it.

As a result of our GATA efforts, the CAFI has developed gold sources all over the world now. We are being fed information by people who want to see GATA succeed. It is first rate information and it will be served to you.

The internet has become a formidable foe for the "Hannibal" crowd.

A HREF=" http://www.lemetropolecafe.com/scripts/products.cfm"

Le Metropole Cafi/A

All the best,

Bill Murphy

Le Patron

-- Andy (2000EOD@prodigy.net), August 17, 1999.

More... the London Daily Telegraph...

Passing the buck for that raid on the golden eggs

Source: The Daily Telegraph London

THE Prime Minister told the House of Commons less than the whole truth about the nation's gold. Asked last month why his government was selling it, he answered: "We sold gold on the technical advice of the Bank of England."

So that was all right, then. The House could relax. We were talking about the gold in the Bank's vaults, and the Bank would know best what to do with it. As for all this talk of a secret agenda - something to do with the euro, or with secretive banks running short positions - the conspiracy theorists could get back into their boxes.

Even at the time it sounded fishy. The gold in the vaults is the state's, not the Bank's. It forms part of the official reserves, which are the Treasury's responsibility, with the Bank acting as its agent in the market. If the Treasury suddenly opted to sell half the gold reserves, the Bank would be left to make the best of a bad job. This is evidently what happened. Asked for its advice, the Bank suggested a series of auctions. That would be consistent with the Prime Minister's words, though not with the impression that they gave. The decision to sell was taken at his end of town, the policy was made there, and all that the Treasury will say is that it was a rebalancing act. That, too, can scarcely be the whole story.

As for the notion that Eddie George would recommend this clearance sale, not even the Prime Minister could make it plausible. Mr George has not spent 37 years in the Bank's service to become the Governor who tired of sitting on golden eggs and kicked them out of his nest. It is now plain that he opposed the decision to sell and resisted it, but the call was not his to make.

To the House of Commons Treasury committee, he carefully described it as a sensible portfolio decision. He likened the reserves to a pension fund, managed by the Bank for the government. The trustees might ask for a different spread of investments - less gold, more bonds - in the hope of a better performance.

Trustees can be like that, though even the dimmest pension fund trustees would see a case for buying at the bottom and selling at the top. They would not wait for their investment to reach a 20-year low before announcing a panic sale and driving the price down against themselves. Long-termist trustees would recall that in the previous 20 years, gold was as good an investment as they could have held.

In any case, the reserves are not there as some sort of adjunct to the National Insurance Fund, with a promise that if they do well we shall all get another fourpence a week on our pensions. They are there to underpin our currency and credit. Even the worthiest promises on paper cannot always do that, but gold's worth is not dependent on anyone's promise.

The Governor's opposite numbers have made the point for him. Alan Greenspan told Congress that there should be no sales at Fort Knox. Gold, he said, still represents the ultimate form of payment. Jean- Claude Trichet of the Banque de France put it more dramatically: "One does not sell one's family jewels."

His bank holds gold as a token of monetary sovereignty, as a sign of long-term confidence in the currency, and because gold suits its purposes. Even so, it believes that central banks need to co-operate in managing their gold. Mr George has just become the chairman of the central bankers' club which meets from month to month in Basle. He can expect some sideways looks at its next meeting.

A concern of his at home must be the future of the London market. As the world's biggest market in gold bullion, it contributes to the critical mass of financial services on which the City must depend. For historic and operational reasons, this market has always been close to the Bank of England. Now it knows that there will be a SALE sign at the Bank until further notice. Its customers know that, too, and so do its competitors. Gold no longer comes to this country on the Union-Castle liners, and the market could go anywhere. Mr George, who understands the ways of markets, can work that out for himself. No wonder he winced when he was told to put up the SALE sign.

He must sometimes wonder what Gordon Brown's idea of an independent Bank of England is. It has been given hawks and doves to set interest rates once a month, but it has lost its watching brief over banks, and has been dismissed after three centuries of managing the government's debt. Now the gold in its vaults has to go. Independence has its limits.

We are all left to wonder what prompted these gold sales. To say (as the Treasury does) that we were over-exposed to gold and held too much for our own good is unconvincing. Our gold reserves are not in the first division. France's are four times as big as ours and Germany's are bigger still. Quite soon New Zealand will beat us at gold-holding as well as at cricket.

It may be that a New Labour Chancellor would naturally frown on gold as an archaic store of value, and sell it, just as Labour chancellors frowned and sold in the 1960s when the price was one- seventh of what it is now. He was certainly advised in the Treasury that we should have sold gold twenty years ago. (In these decisions, hindsight always helps.)

Best of all, selling gold would be a policy initiative, at a time when he could use one. He had brought in yet another budget, but his budgets had come to lack novelty value, and after two months the shine had worn off the arithmetic. Other ministers and other departments were making the running. Suggestions, please.

Sir Humphrey Appleby, that archetypal mandarin, had given the textbook solution: "Something must be done. This is something. Therefore we must do it." Selling the gold reserves was undoubtedly something. All that remained was to feed the new policy out as a written answer to a planted question. After all, we don't want MPs asking questions that we haven't planted.

The Prime Minister's experience bears that out. Now, when Parliament returns, he can no longer hope to pass the buck or the gold bar to his technical advisers. He owes the House rather more of the truth.

-- Andy (2000EOD@prodigy.net), August 17, 1999.

Geez, Andy! 16 pages! Gonna hafta brush up on my evelin woods. You probably won't change anybody's mindset on this issue, I know my mind is made up. But, I thank you again for all your hard work in collecting and presenting these MASSES of data.

-- Pinkrock (aphotonboy@aol.com), August 17, 1999.

You're welcome.

A lot of "little guys" have bought gold at say $350, and have been thoroughly shafted by the elite.

I'm just trying to say - hang in there, this is what is happening behind the scenes, your time will come...

(maybe :) )

NIL ILLEGITIMATI CARBORUNDUM!!!

-- Andy (2000EOD@prodigy.net), August 17, 1999.

Thanks Andy!

-- Mitchell Barnes (spanda@inreach.com), August 17, 1999.