Alex,
Thanks. That story really says it all. I am going to use it to send around.
The latest:
June 19, 1999 - Spot Gold $259.30 up 90 cents - Spot Silver $4.95 down 12 cents
Technicals -
The shorts are in big trouble. By today's action it is hard to appreciate that fact. A long awaited Swiss amendment, that was to be utilized technically to allow the pro gold sale faction in Switzerland to begin selling 1300 tonnes of gold, was surprisingly defeated. Gold immediately shot up $5 yesterday as it encountered some panic buying. I know this will surprise you but, lo and behold, Goldman Sachs and JP Morgan roared into action with palms faced out in the pits, selling everything they could. Almost as fast as gold rallied ( the most frenetic upside action in a very long time ), the leaders of the Counterparty Risk Management Group "ensured" a quick retreat. In a few hours gold was trading unchanged. Now that is what a gold capping, risk management group is for. Well done, boys. The rest of your group must be proud of you.
Normally, failed spikish action such as we witnessed yesterday is short term bearish. It may so in this case also, but this is not a normal market. The bullish consensus numbers have been in the teens for 13 trading days- a record - and registering the lowest readings since June 1976. Historically, whenever the gold sentiment has become this bearish, violent moves to the upside have ensued.
To give you an idea of how extreme this has become, I just received an email from a long time gold bug and market follower in South Africa. He informed me that he no longer wanted to receive emails from Midas as he no longer has any interest in gold. After 20 years of enduring analysis, he has thrown in the towel.
The open interest hovers around 210,000 contracts on Comex and the market is loaded with spec shorts. The CFTC Trader Report released after the close on Friday showed specs short to the tune of some 86,000 contracts. That is 8.6 million ounces of gold and a very big number.
Since the market is being held down by some very powerful forces, it is hard to make predictions by using standard analysis. But I will do my best below. I think the shorts days are numbered even though they do think they own the casino.
Silver continues to confound and exasperate. The Comex silver stocks have dwindled to just below 74 million ounces and could go into new low ground at any time. And according to the ever vigilant Icarus ( our futures market eyes and ears ), the figures are even more bullish than meet the eye. She says that 6 million of those ounces are not re-deliverable and much of the remaining inventory is of very poor quality.
Years ago there was a scandal of sorts as a now, out of business metals firm managed to deliver poor quality silver. Since then bundling has occurred - meaning the delivered silver has been taken out of the warehouses, raked over - (the higher quality kept and the pour quality silver returned ). Thus, the silver stock situation is much more bullish than most people realize.
Our year end $9.78 price prediction seems a long way off, for sure, but as I have told you and as I am sure many of you know, the price of silver can explode, and I mean explode, when you least expect it to.
Fundamentals -
Why am I so positive now when the Angolgold's highly regarded veteran trader, Kelvin Williams says " the gold market is ridden with apathy and fatalism"…as a result of planned official sector gold sales? And we get more of the same press releases like this one:
Reuters - June 18 - Cologne,Germany - Leaders at the World Economic Summitt agreed on Friday that the IMF should sell around 10 percent of its gold reserves at the right time to fund a poor country debt relief plan, German said.
"There was agreement in the G7 that gold would be sold ( at the right time ). That means not necessarily at a time when prices are at a record low," Klaus Gretschmann, Chancellor Gerhard Schroeder's chief economic advisor, told reporters.
Or comments like this after the Swiss politicians blocked a proposal that would have allowed the proceeds from gold sales to be used for the Swiss Foundation for Solidarity, a fund designed to help needy people in Switzerland and abroad:
Reuters - June 18 - London - The Swiss National Bank said sales will still proceed, beginning in the spring of next year. "What the parliament has done doesn't change the plans for the sale of gold," said Werner Abegg, an SNB spokesman. "With the new constitution, Switzerland has already de-linked the value of the currency from gold".
The bottom line is the tide is turning. The shorts have been on counting on IMF gold sales, the Swiss gold sale, and leased gold supply to bury the gold market and keep their con game going. By the rejection of the amendment, it is CLEAR that the Swiss sale is NOT a done deal, and if the financial market landscape changes between now and next spring ( a la stock market swoons, etc. ) the Swiss gold sale proposal could be defeated. In that case Bulls 1, Bears 0.
Then there is the IMF sale. It is in serious jeopardy too. We have told you in many Midas's of the serious and growing Democratic and Republican opposition to the IMF gold sales in the leadership of the U.S. Congress and without Congressional approval, the proposed IMF gold sale will not become a reality. The latest from our team:
Nevada senator says sale of IMF gold reserves will not happen
By Scott Sonner
June 18, 1999
ASSOCIATED PRESS
RENO, Nev. - Sen. Richard Bryan is assuring gold producers in Nevada and around the world that Congress will block the Clinton administration's attempt to sell off international gold reserves to help some debt-laden poor countries. "It requires congressional approval. It ain't going to happen," Bryan, D-Nev., said today from Washington.
Bryan, a senior member of the Senate Finance Committee, outlined the dim prospects for the International Monetary Fund gold sale during a confirmation hearing Thursday for Lawrence Summers, the current deputy Treasury Secretary.
Bryan intends to support President Clinton nomination of Summers for the top treasury job, but vowed to block any effort to sell off 10 million ounces of IMF gold reserves.
The selloff would devastate world gold markets already hovering around 20-year lows, and probably hurt the heavily indebted countries the IMF is trying to help, he predicted. Not to mention harm miners in Nevada, which is the world's No. 3 gold producer behind South Africa and Australia. The state had a record output of 8.86 million ounces last year, worth $2.6 billion. But low prices have led to layoffs.
"The recent drop in the price of gold has caused the layoff of over 1,000 mining employees in the state of Nevada alone," Bryan said.
Other high-powered Senate opponents of the IMF gold sale include Minority Leader Tom Daschle, D-S.D., and Frank Murkowski, R-Alaska, chairman of the Energy and Natural Resources Committee.
A White House spokeswoman said today there was no immediate response to Bryan's assurances that Congress would reject the sale.
The plan to sell the gold is intended to raise money for 41 poor countries included in the IMF's Heavily-Indebted Poor Countries Initiative (HIPC).
Those 41 countries have a combined debt of $220 billion, Bryan said. Of the 41, at least 14 produce a significant amount of gold. As a result in the decline in the price of gold, they have lost $150 million in export earnings, he said.
"Not only do you create turbulence in the domestic gold-producing market, you accomplish very, very little for the countries you are trying to help," Bryan said in the telephone interview today.
"I'm not unsympathetic to what they are trying to do. But in effect, you disrupt a whole industry in the process. It just doesn't make sense to me," he said.
Gold prices have been hovering the last week around $260 a troy ounce - the most depressed level since Jimmy Carter was in the White House - and closed Thursday at $259.30 on the New York Mercantile Exchange.
The metal had been trading for $270 just two weeks earlier.
Summers wouldn't say during the hearing Thursday whether the administration would reverse course on the proposed sale. But Bryan thinks he got the message. "This is my third conversation with Summers," the senator said. "I just wanted to send a shot across the bow. This ain't going to happen." End
If the IMF gold sale proposal flops, then it is Bulls 2 Bears 0.
Then there is the natural supply/demand deficit which Frank Veneroso of Veneroso Associates says is will reach 2,000 tonnes per year soon unless there is a sharp price rally. That is 167 tonnes PER month and is probably the big reason the bears had to call in the "English Poodle" brigade to announce the BOE gold sale the way they did. It is hard for most folks to understand this, but the shorts were desperate to hold down the price of gold around $290 and had to put out all stops. And they did! Look at how demoralized the gold world is. The gold manipulating propaganda machine is at work 24 hours today. The press, of which only a few have a clue as to what is really going on, continue to report the "bear" party line. It is having a numbing effect on gold market participants. A bit like being in a concentration camp and listening to the enemies diatribe day after day. It has its effects. Look at what it did to Patty Hearst during her forced captivity.
But the real world is eating up the gold supply at a faster pace than they realized it would. That is why the same crowd has "allowed" no real gold price rallies since the BOE announcement. They know this is the "last hurrah" for them. And I think that is exactly what it is- a last hurrah for the bears. Thus, the supply/demand deficit which is greater that the bears anticipated brings us to:
Bulls 3 Bears 0.
It is time to start thinking about making money, not how do we survive this mess. Yes, the tide is turning. But if you think my analysis is "pie in the sky" type thinking, I present to you excerpt commentary from the renowned John Ing of the institutionally followed Maison Placements Canada:
Psychology is Changing
So, what can change the psychology of the market? First we believe that we are close to the bottom. We expect the upcoming UK auction will actually be oversubscribed by ten times with the auction already factored in the gold price. In addition, the gold producers are lobbying and reminding politicians and central bankers of the importance of the respective gold mines to many of the economies that are seeking assistance from the IMF. Gold is an important revenue generator for Russia, Chile, Tanzania, Peru, etc., and the list goes on. Gold's price decline has now fallen into the political arena. In the United States, the Gold Anti-Trust Action Committee ( GATA ) led by Bill Murphy is shedding light on the transparencies of the gold bullion dealers and the role of the central banks. So with gold's decline becoming politicized, it is only matter of time before sentiment turns.
For some time we have cautioned investors about the perils of the U.S. equity bubble. However recent events suggest that at long last, the interest rate risk is being discounted in equity valuation models and the final chapter of the great American bubble may be at hand. Treasury Secretary Rubin already knows the ending so he has left the building. We believe a classic late cycle monetary tightening is around the corner thereby threatening the current "gold carry trade" as well as the great American equity bubble. Asset price inflation is creeping into the markets as reflected by the recent pick-up in energy prices and commodity prices. The Commerce Department's consumer price index increased by 0.7% in April - the largest monthly leap in 9 years. Quietly, the building blocks of higher inflation are being laid - that and the positive supply/demand fundamentals will accelerate the expected turnaround in gold sentiment. Consequently, we do no anticipate a gradual upturn but an explosive $100 move in the price of gold, sparked by short covering and investor demand.
Potpourri and the Gold Shares
At what lengths will certain Machiavellian individuals and certain entities go to encourage gold sales. This Bloomberg release is a bit unnerving. Does our camp need IMF action to prevent more gold sales?
June 17 - Moscow - Russia may use its gold reserves to repay foreign loans if the International Monetary Fund board in July doesn't approve new loans for Russina, said Viktor Gerashchenko, chairman of Russia's central banks. Russia's Prime-Tass news agency reported. "If we have to use reserves , we'll use reserves," Gerashchenko told reporters.
Speaking of Machiavelli. Federal Reserve Chairman, Alan Greenspan said on Thursday before the Joint Economic Committee in Congress that the decline in the price of gold was more a reflection of a decline in global inflation expectations that the effect of central bank sales.
Two thoughts on Greenspan's comments: 1 ) Does he follow bond markets anymore and why is he considering raising interest rates? 2 ) He has telegraphed to the world one reason why he made his increasingly visible comment, "central banks stand ready to lease gold in increasing quantities should the price rise" and why the gold market is being manipulated lower. And that is that he wants to point to a dismal gold market to show how great a job he has done and how all is relatively OK in the U.S. financial scene.
Is all so well Mr. Greenspan?
London - June 18 Bloomberg -- The Bank of England cautioned commercial banks not to relax lending policies after warning hedge funds seemed to be stepping up their activities after last year's near-collapse of Long Term Capital Management. "More recently, some market anecdote has suggested financial institutions may have been rebuilding their positions this year and hedge funds activity in particular may have picked up," the central banks said in its quarterly stability review.
Melbourne - ( Dow Jones ) - June 17 -- Reserve Bank of Australia Governor Ian MacFarlane said Thursday the Central Bank has some concerns about over-the-counter derivatives trading by global hedge funds.
I find it if of real interest that these comments are hitting the wire services after the rumors of trouble in the U.S. hedge fund community last week.
From Counterparty Risk Management Group member, Credit Suisse; a Bloomberg, June 17 story from Tokyo: "Credit Suisse Group, the sixth largest European bank in terms of total assets, is preparing to dismiss as many as nine employees who blocked a Japanese government inspection of its Tokyo business, said a person familiar with the situation".
To rap it up for the weekend - an email to me from a very well know financial journalist in South Africa:
Dear Bill,
There is a strong rumour to the effect that the day before, or a few days before, the UK Chancellor/Bank of England announced his/its decision to sell 415t of gold through auctions, Goldman Sachs took puts on US $1bn worth of bullion.
If this true, it make for a hell of a story and one I would dearly love to expose. Is there any way in which you can verify the rumour?
Kind regards,……
Any leads for my contact in South Africa would be greatly appreciated.
Midas
Bill Murphy ( Midas )
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