(GATA News) To: Washington, RollCall was just our calling card.
Things are looking up. Just as gold was about to break its downtrend
from the early October highs, Goldman Sachs and Deutsche Bank showed up
this morning to knock gold back off its highs of the day (man are they
obvious). Chase Bank was a good buyer as floor sources say they are
buying for a producer and or producers. There is some size down there
on the buy side.
Chart wise, gold broke out from a mini coil formation which is mildly
constructive. However, a close above $290 basis the Feb. contract is
needed to turn the technicals bullish.
The Commitment of Traders Report was released after the close and it
showed the large specs have moved to the short side again to the tune
of 20, 533 contracts. What is of note is that the total open interest is
only 160,297 contracts, which is a low number. I have been saying for
weeks that the trade does not want to be short (as a rule) anymore and
this latest bit of info says that is the case.
The bullish case for gold is building daily and picking up in pace.
The base metals have been on a tear with nickel and aluminum leading
the way. Now copper has come to life as the March Comex contract closed
at $84.40. Then, of course, we have oil prancing around $27 a barrel as
the Jan. Crude contract closed at $26.75 per barrel. Before the new era
mania took over the financial markets, they used to say that the two
most important commodities to watch for world economic strength were
copper and oil. Well, those two commodities act like pillars of strength.
March palladium closed at $444 - an all time historic high.
The CRB Index has been very resilient in the face of very weak grains
and oilseeds as it finished the week at 205.55.
Bond yields hit 6.41% today before closing out at 6.38%.
The bond vigilantes have said yes, inflation is coming.
The trade deficit hit $26 billion and is climbing. Seasonal factors were
supposed to set it back these past couple of months. Ain't happening.
At some point, maybe after Y2K fears settle down, the dollar is due for
a big dumping.
The U.S. money supply has taken off these past few months. Before gold
manipulation became fashionable, that would have sparked the gold market.
Gold demand is rocking along at record levels.
Gold producers, such as Anglogold, are delivering into their forward sales,
which adds support to the gold price.
The gold monthly supply/demand deficit is over 120 tonnes per month.
The gold loans have risen to 9,000 to 10,000 tonnes. Central banks, now
having wind of this, are leery of further lending. The agreement by the
15 ECB banks is proof of that.
The bank index continues to sink. It was weak all day today, even in the
face of the early hysteria and finished at 749.05 down 4.19 on the day.
That is important because it tells us there is trouble in the banking world.
The Nasdaq and the Bank Index look like they come from two different planets.
... Charles Peabody tells us that the banks are going to be much more
restrictive in their lending in the period ahead. That can only affect
future gold lending too, which we know is slated to become more
restrictive on its own accord. If Charles is right, general credit
deterioration could reduce gold loans to a much greater degree in the
months ahead than now anticipated by the gold market players. That will
further reduce the gold supply hitting the market and be another
positive factor for the gold price.
We know some producers are buying back NOW. Shareholders are putting
pressure on the management of the gold producers to lift their hedges.
Arthur Hailey is being heard round the gold investing world. That pressure
might become unbearable on the next gold price run up. The next move above
$300 should have "slow trigger pulling producers" scurrying to buy back
some coverage.
With all those positives why would anyone want to be short gold at these
price levels? We all forget so easily, but most anyone, who was told a
year ago that long rates would go to 6.4%, the trade deficit would
balloon to $26 billion and oil would almost triple to $27 per barrel
and then asked what the gold price would be, would have said $400.
And that is just what it should be, will be and then it ought to go much
higher than that. The powers that have been manipulating the gold market
lost control of their orchestration once already. They will lose control
again, probably early next year and probably for good.
Don't have to just take my take about a coming healthy gold price. This
is what Allen Gellespie has to say. Allen is a hot shot portfolio manger
for the highly regarded hedge fund, Gotham Capital Management.
Dear Bill,
I have read many of the emails you have posted regarding gold both from
those negatively opposed to gold and those strongly in favor. However,
many of these post have failed to address the economics of gold with the
exception of the debates over the size of the annual supply deficits.
In an attempt to flesh out this market, I thought I would pass along our
research concerning gold. Please feel free to circulate this email.
Macro
Traditional Valuation
In 1900, the US set the price of gold at $20.67 as most people know.
Thus if you take the current price of gold (we will use $280) and divide
it by $20.67 and then take the 99th root (compounding time) and subtract
1 you arrive at 2.67% which roughly corresponds with aggregate economy
growth rates. The same analysis at the peak in the gold market would
have yielded results in the 4.6-5% level. If gold returned to this level
one gets $1861 (a level high enough for a conceivable Gold/Dow Cross
like in the 1930s and 1970s). Thus gold looks significantly below trend
especially considering that US monetary growth rates are well north of
6% in M2, over 20% in the monetary base, over 10% in M3, etc.
The Dollar
Another indication that gold is significantly undervalue in dollar terms
can similarly be seen in the overvaluation of the US dollar as evidence
by the huge negative trade balance that will continue until the currency
is devalued significantly.
Micro - (Particularly Barrick)
Obviously, Barrick has not done its homework here. We started with the
simply assumption that the supply/demand deficit in gold is similar to
silver and going on its 10-11 year (this is what Buffett is looking at).
Once the British decided to sell gold, the market collapsed and we
figured it would fall until it was below the average cost of production
- Barrick in its myopia only looks at its cost of production - a few
that will cost it dearly I think. These levels were as follows - South
Africia roughly $272, Australia & Canada in around $267, and the US
$257. Thus once gold went through $257 and the British were basically
offering gold cheaper on the floor than in production - thus anyone
whose production costs were north of that number could actually lower
their production cost by buying British gold. The most recent auction
"disappointed," we think, because people fail to realize that above $272
- producers produce. The long term picture, however, should be clear for
all traders. You know where the floor is and you have on the extreme
outside an enormous upside - an upside that could put hedgers under.
Thus heding has more downside thaa upside just as gold has more upside
than downside even for Barrick.
Sincerely,
Allen R. Gillespie, CFA
Portfolio Manager
P.S. For the record - This summer I called dozens of gold companies to
share my analysis and the gentleman at Barrick hung up the phone on me
as he didn't want to hear it. Apparently, the company still doesn't -
I will let my analysis and future price action speak for itself and thank
Barrick for the cheap assets.
Here is a good one from one of our camp:
UK Chancellor Brown, answering questions before the House of Commons,
defended the UK's gold sales plan stating that it's policy had led to
greater transparency, price stability and a recovery in the gold price.
Really! Accepting the first point, the other claims are off the mark.
Volatility today is twice was it was prior to the B of E announcement in
May and the wild price swings over the last six months damaged both the
supply and demand sides of the market. Extreme volatility only benefits
speculators and not the real users of the markets. Secondly the price
fell to a 20-year low of $252 following the B of E news, and only staged
a rally after the infamous European Central Bank announcement on the
26th of September.
Potpourri and the Gold Shares
The XAU is lumbering back and finished the day at 87.47 up 1.24.
The latest news on Ashanti is that the banks are set to roll over their
standstill agreement once again. I'll be shocked if they did not get
some covering done on the dip down to $275. In the meantime, it appears
the government of Ghana is not taking too kindly to the rape and pillage
of Ahsanti by certain investment banks.
AGNICO-EAGLE ANNOUNCES
$100 MILLION FINANCING
This fine company is widely known as a non hedger, but even they have to
comply with the Hannibal Cannibals from time to time. This press release
is very revealing:
"The banks have also provided for up to US$75 million of eight-year
credit lines for metal price, interest rate and foreign exchange
hedging. To secure the facility, Agnico-Eagle was required to purchase
downside price protection on a portion of its gold production over the
life of the loan. As a result, the company has purchased put options on
more than 950,000 ounces of gold, representing approximately 20 percent
of current gold reserves and resources at LaRonde's Shaft No. 3.
This is consistent with Agnico-Eagle's policy of not selling the price
upside on any of its future gold production, as put options act as a
form of downside insurance only. Agnico-Eagle remains positioned to
participate 100 percent in future gold price appreciation."
Martin Armstrong can't stay out of the news. Bummer this one. Then
again, most all of his forays into pressville recently have not been
vintage releases for one's scrapbook. It turns out while Martin was
badmouthing gold (and GATA) to us all of us (including his clients),
he was secretly stashing gold away like the most zealot gold bug.
Unfortunately, he stashed while his girl friend watched and she turned
him in. Cad, that dame! Then again, what goes around comes around.
Here is the story for you:
NEW YORK (AP) -- U.S. prosecutors claim Martin Armstrong, the renowned
market forecaster accused of defrauding Japanese investors, is hiding
more than $16 million worth of gold bars, rare gold coins and antiquities.
Armstrong, founder of Princeton Economics International Ltd., was arrested
in September and charged with bilking Japanese companies out of $1 billion.
His assets have been frozen, prosecutors try to find money to repay investors.
Prosecutors filed a motion Wednesday asking the court to hold Armstrong
in contempt for refusing to turn over seven boxes of corporate documents
and assets, including 102 bars of gold, a $750,000 bust of Julius Caesar,
hundreds of rare coins, a bronze helmet and other antiques.
"The value of the missing property is very substantial," said Marty Glenn,
an attorney for O'Melveny & Myers, the court-appointed receiver in the case.
"Given the magnitude of the losses, any dollar we can recover is a dollar
more we have to repay creditors."
Prosecutors believe Armstrong still has the valuables, which he kept in
an upstairs hallway closet of the home in Maple Shade, N.J., where he
lives with his mother and two children, court documents say.
"I observed Mr. Armstrong sit for hours in the hallway outside his
bedroom studying the coins," according to a sworn statement by Tina
Mustra, who was Armstrong's executive assistant and live-in girlfriend.
She also testified that Armstrong called her on Aug. 27, a few days
before FBI agents searched the offices of Princeton Economics, and told
her to put certain corporate records in boxes and to copy certain computer
files onto disks and delete the originals.
"Mr. Armstrong stated that he would come by the Carnegie Center office
over the weekend and remove the boxes," Mustra said in her affidavit,
adding that when she returned to work the following Monday the boxes
were gone.
Last month prosecutors again searched Armstrong's offices and found a
sliver bar hidden in the closet of his office and 22 coins in his desk.
Armstrong's attorney, Martin Unger, said he would fight the contempt
of court motion.
"I just don't think those papers show conclusively that Martin Armstrong
today has anything or control of any of that," Unger said, adding that
it was unclear whether the valuables were corporate assets and subject
to the freeze.
Armstrong has pleaded innocent to charges of fraud brought by the
Securities and Exchange Commission, the Commodity Futures Trading
Commission and the U.S. Attorney. He is free on $5 million bail.
Armstrong, 50, owes almost $1 billion to some 100 Japanese corporate
investors. His companies, including Princeton Economics and Cresvale
International Ltd. in Tokyo, had raised money from investors and
promised to repay the debt, plus interest.
Instead of investing the money in safe bonds, as he promised, Armstrong
made risky bets on currencies and derivatives. Today only $46 million
has been recovered to repay investors. Armstrong allegedly hid the losses,
providing bogus letters to investors that inflated the amount of money
in their accounts. At the same time, he continued to collect performance
fees for managing the money.
Indeed, Armstrong continued to buy coins and antiques while he racked up
huge trading losses.
In March 1999, for example, Armstrong's trading losses totaled $140 million.
Yet just two months earlier he spent $411,461 on rare coins, according to
court records.
"It is rather startling that when the barn is burning down, Armstrong is
out buying coins and antiquities using corporate money," said Glenn, the
O'Melveny & Myers attorney." End
Speaking of startling:
"Former managers of Long Term Capital Management, which was on the brink
of collapse in September 1998, will be launching a new hedge fund on
Wednesday in New York. The fund, called Relative Value Opportunity Fund
is being headed up by John Meriwether, former chief of LTCM.
Mr Meriwether has revived the team that was in place at the time of the
near-collapse of LTCM - Eric Rosenfeld, Richard Leahy, Victor Haghani
and Lawrence Hilibrand - to run the new fund.
The new fund is seeking some $250m from wealthy private individuals.
It has been reported in the US that the minimum investment in the
new fund will be $5m and that Mr Meriwether and his partners will retain
20 per cent of any profits generated?.
The US Federal Reserve brokered the rescue package after concluding the
collapse of LTCM could send shockwaves through the world's stock markets,
already weakened by the Asian economic crisis." End.
The irony in this is that it was the bailout of LTCM by the US Fed and
the bullion banks that tipped GATA off that the gold market was being
manipulated. Most of you know that story by now. Here they are, the same
team, back at it again. Rich as can be with a clean bill of health after
doing so much wrong that they threatened the financial system. That is
American justice for you. Shows what can be done when one has friends
in the right places.
The good news out of that is that we did learn, after much scrutiny,
that the gold market was rigged indeed and the gold price was being
orchestrated down to an unnaturally low price. That was our first clue
the Fed was up to no good in the gold market and at minimum protecting
their brethren by defending one side of a contract. The LTCM bailout
alerted us about the N.Y. Fed/Goldman Sachs connections, etc.
It is now time to take advantage of what we have learned.
Hopefully, sometime next week, GATA's letter will be off to Chairman
Greenspan and Secretary Summers. Legal research strongly suggests that
the Fed/Treasury is required to answer the 11 questions that GATA outlined
in the RollCall open letter. If they refuse to just give us the truth,
then we are prepared to immediately take them to Federal District Court
under the Freedom of Information Act to compel them to give us our
expected answers.
We will go to every Congressman and Senator if we have to request
our answers and find out how to get the truth we deserve. The campaign
is being designed now.
GATA goes to Washington. RollCall was just our calling card.
We will keep you informed of every step along the way.
No more pussyfooting around.
Keep the Faith. Some fun times a comin - and a big investment score too!
Bill Murphy ( Midas )
For new readers, the above mention of GATA is as follows.
Bill Murphy, Chairman, Gold Anti Trust Action (GATA) gata.org
Also, GATA related articles can be obtained at the pay for view site.
Bill Murphy, Le Patron, Le Metropole Cafe lemetropolecafe.com |
