No doubt you are right. I post the following article below. It seems to have some provocative content,thought this thread in particular might appreciate it.
TM
Gold 'rush' pricing
threatens banks
Short trading, manipulation
to blame, charge some
By Jon E. Dougherty
¸ 1999 WorldNetDaily.com
Several months ago, when Gold Anti-Trust Action
committee chairman Bill Murphy warned congressional
leaders that something was amiss in the gold market,
few listened. And throughout the summer months, when
Murphy's best industry minds were sounding the alarm
that the market price of gold was being artificially
manipulated downward, not many industry leaders,
central bankers and gold bullion bank CEOs heeded
their warnings.
Today, however, Murphy said it is a different story. The
industry is finally beginning to come around after the
price of gold jumped from around $290 an ounce,
where it has been for most of the past year, to its
current level of about $315 an ounce.
And today, he said, there is panic -- or, at a minimum,
"near-panic in the gold loan industry."
At issue is whether some of the world's most influential
central and bullion bankers have attempted to
manipulate the gold market to their advantage, and the
advantage of key investors, by artificially depressing the
price of gold while making short-term loans on millions
of ounces of non-existent gold. For years, this appears
to have been the case, Murphy said, because of the
uncharacteristic "supply-and-demand" behavior of the
gold market.
Murphy voiced his suspicions to WorldNetDaily in
May, saying, "I've been a trader for 25 years, and I
began noticing that the gold market was just not trading
the way it was supposed to."
Over the past couple of years, said Murphy, when gold
reached a plateau of $295-300 per ounce, "I began
noticing that the market price for gold would always
stop (at a certain level), lose, then come right back" to
the previous level -- but never higher. That didn't follow
the established rules of supply and demand, he
explained, and caused alarm bells to go off in his mind,
and in the minds of his industry gurus.
Murphy said this led to an enormous short on gold
futures -- in the neighborhood of 10 tons -- though
banking industry specialists continued to advise banking
executives that short positions on gold were only
leveraged "in the 3- to 4-ton neighborhood."
Now, Murphy said, key banking industry executives are
waking up to the reality that it has become virtually
impossible for the gold mining industry to keep up with
"all of the gold futures contracts that are out there."
Hence, as he and GATA predicted, normal
supply-and-demand forces may now be poised to take
over the gold market as European central banks move
to limit gold leasing.
"Gold bullion (in Australian and Asian markets) was
quoted at $324.50/$326.50 per ounce late on
Tuesday," Reuters reported Oct. 5, "after trading as
high as $331.50 -- the highest in two years amid a need
by holders of big short positions to cover their bets or
face potentially ruinous financial consequences."
In a separate story, Reuters also reported that some
Australian central banks might be short to cover gold
loans.
"As spot bullion failed to stay above the resistance at
around $330 an ounce in late afternoon (yesterday),
profit-taking and fresh buying emerged," said the report.
"A bullion trading source said market talk that an
Australian bank was facing huge losses from recent
sharp gains in bullion prices triggered fresh buying as the
bank would be forced to cover its positions soon."
"Banking sources in bullion markets in Australia said
most Australian banks running gold books were short
'to some degree,'" Reuters said.
"All of what has been occurring in the gold market has
been the result of one-way trading," Murphy told
WorldNetDaily. The recent announcement by the Bank
of England to sell most of their gold reserves, the offer
to buy short loan positions by some of the world's
wealthy, and the announcement by 15 European central
banks that they would cut back on their gold leasing
"demonstrates that all the supply was coming from
borrowed gold," he said.
"All of a sudden, the European central banks were
saying, 'We're going to restrict this borrowed gold and
it's going to affect your lease rates,'" Murphy said.
Consequently, "over the summer, the lease rates for
borrowed gold rose from 1 percent to 3 percent (per
annum) right after the Bank of England's announced
sale."
Most European banks, Murphy believes, were unaware
"of what they were getting into" by shorting so many
gold loans, and the move to restrict further leases of
gold was an attempt to stop the bloodletting.
European banks, he said, were fooled by "the published
figures that there were only about 4,500 tons of gold
loans, but we've been telling people the loans are
actually for something over 10,000 tons." Once the
realization began to spread, he said, "it led to increased
lease rates now of about 5-6 percent."
"If you were borrowing leased gold all summer at $258
an ounce with a 3 percent rate," Murphy said, "and now
all of a sudden gold jumps to $315 an ounce at 5 or 6
percent, what kind of a great loan does that turn out to
be?"
Worse, he said, the "global hedge funds that would be
used to cover these loans are also massively short. The
10 million ounces of gold still out in these 'structured
loans' amounts to more than these mining companies
either have in the ground or can produce in a reasonable
amount of time." Even the Union Bank of Switzerland,
Murphy said, announced yesterday that the hedge funds
are "short 20 million ounces of gold."
As of June 30, West Africa's Ashanti Goldfields was
hedged 11 million ounces of production -- or roughly 50
percent of its reserves -- vs. 8.75 million on March 31,
according to a report by John Hathaway of Tocqueville
Asset Management. Using "conservative assumptions,"
the value of the "hedged book," he wrote, was $290
million.
However, that asset would become worthless "if gold
traded at $325; at $350, the company would begin to
face margin calls," Hathaway wrote. "The Ashanti hedge
book is a bet that the gold market will remain quiescent
and trouble-free. Ashanti's sanguine view is not unusual.
Few in the industry are prepared for a spike in the gold
price, especially one which does not retrace."
"Ashanti's U.S. banker is Goldman Sachs, according to
market sources, perhaps explaining why Goldman was
rumored to be a big buyer of gold options last
Wednesday, following gold's explosive two-day move,"
said a report from TheStreet.com.
Murphy said gold would likely reach a level of "$400 an
ounce in the near term if there is a massive sale or
something, but in essence it will take $600 an ounce to
clear the market -- meaning to get it to a proper
supply-and-demand equilibrium price."
"I believe central banks discovered they had collectively
a gigantic short position" in gold, via exposure to gold
producers, Donald Coxe, chairman of Harris Investment
Management and Jones Heward Investments of
Chicago, told TheStreet.com.
He said some mining companies increased their
so-called hedging activities in recent years to combat the
decline in gold prices.
"The companies essentially took a loan against their
future production and used the cash to maintain current
operations," the report said. "But had the price of gold
continued to weaken, it would have further depressed
the future value of their assets, potentially forcing some
producers into bankruptcy or into the arms of bigger
firms, neither situation being particularly palatable to
lenders."
"If you're a producer whose cost (of production) is
$270, and the price is $250, you're trying to make up
the difference in interest income," Coxe said. "But if gold
is at $220, you're out of business. Central banks looked
into this and said, 'Are these guys good for it?'"
Additionally, finance officials realized they were putting
their own assets at risk -- both in actuality and via their
exposure to hedged producers -- because of the
uncertainty regarding future gold sales, Coxe told
TheStreet.com.
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