>>>> FWN reports "Friday's Commodity Futures Trading Commission Commitments of Traders report appears to have raised more questions than answers. The report showed virtually no change in speculative shorts, a highly unlikely scenario given a 24.5% rally in gold prices over the reporting period. This has spurred the CFTC to review the data."<<<<<<<<<
MARKET REPORT(10/11/99): Day Eleven of the Big Breakout....Gold down in the early going on profit taking -- that means the brokers are having to make good on those calls..........................This is Columbus Day in the United States and Centennial Precious Metals' offices will be closed. Japan is also on holiday...............Britain's Lonmin Plc offered to acquire Ashanti Goldfields after the Ghana-based mining company defaulted on margin calls with a consortium of counterparties -- among them some of the largest banks and brokerages in the world. The banks agreed to forestall margin calls in the hundreds of millions to keep the mining company from going under. Reuters reports this oddity in financial history: "Ashanti is a victim of a leap in gold caused by European central banks' decision to cap official sales of the metal That flipped its derivatives book, designed to protect it against a fall in prices, from profit into loss." To my knowledge, Ashanti is the first gold mining company in history to attribute its demise to a bull market in
gold.................................The potential Ashanti/Lonmin merger helped drive gold down in London this morning as it appears that couterparties, at least with respect to Ashanti, are temporarily taken off the hook. I emphasize the word "potential" because Lonmin has made its acquisition conditional on Ashanti resolving its hedge book crisis. To put the situation in some kind of meaningful perspective, the Lonmin offer valued Ashanti at $600 million. If Ashanti had been forced to close its hedgebook, the loss would have been $570 million, according to a Reuters article this morning. The margin call was put at $270 million. This is more than a simple liquidity squeeze; Ashanti is deep under water. With Lonmin asking for resolution on the margin call issue before acquisition the unresolved question remains: Who's going to bail Ashanti out? And what happens
the next time the gold price ratchets up? And this merger talk might buy time for Ashanti, but it might not end in happy resolution...............Says one London dealer: "One assumes there will not now be panic buy backs. There was talk last week that if one of the counter parties wanted to push through (with margin calls) there could be buy backs and that everyone would be a buyer.".........At least until the next Ashanti style debacle surfaces..........London traders put support at $315....................Since Britain announced the sale of gold from its central bank, the pound has been in near free fall. Now the other shoe has dropped, wholesale prices are up 1.7% -- that translates to a 20.4% annualized rate. Inflation nearly always follows currency depreciation -- a relationship not lost on American investors. We have registered our concern on these pages in months past that Britain might end up the first G7 victim of the Asian contagion style inflationary depression. Watch out for higher interest rates in Britain and their consequent effects on the equities markets. As is the case with your American counterparties, I would advise our British friends to make their way to the
nearest gold dealer's for a conversation about adding a little gold to your portfolio mix.. Unfortunately, we, as yet, do not do business in UK though we can establish safe, insured storage for you in the United States....................... FWN reports "Friday's Commodity Futures Trading Commission Commitments of Traders report appears to have raised more questions than answers. The report showed virtually no change in speculative shorts, highly unlikely scenario given a 24.5% rally in gold prices over the reporting period. This has spurred the CFTC to review the data."............ If the report is accurate, I would have to say that there is plenty of built up price potential still in this market for the short-run. More bad news on the mining, hedge fund front and the scramble for metal could begin in earnest..............That's it for today, fellow goldmeisters........Have a good day.USAGOLD
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