(GATA) We move closer to the day of reckoning. Our faith will be vindicated.
Date: 1/23/00
From: LePatron@LeMetropoleCafe.com
Le Metropole members,
David Morgan has served commentary at The Kiki Table entitled,
"Engineering the gold price." David has a BS in engineering
and an MS in business. His presentation is an enjoyable attempt
at a mathematician's view of any possible paper price of gold.
The Kiki Table
Discussion du Jour: Potpourri
David Morgan
Capital Appreciation Management Inc.
colbertwa@earthlink.net
January 23, 2000
Engineering the gold price
... look at the upper and lower boundaries in the physical universe.
... a quantity that does not exist; that is zero
... a quantity that cannot be defined exactly; that is infinity.
... from nothing to everything all known possibilities are covered.
How can this possibly help us to determine the price of gold?
... prior to the hyperinflation of Weimar Germany a bellhop was given
a gold coin as a tip. He saved this coin (Gersham's law) and continued
about his business. During the worst of the hyperinflation this same
bellhop bought the entire hotel at which he was once employed, for that
same gold coin he had saved earlier. Will it ever happen again,
probably not, the next time entire blocks of hotels might be purchased.
[END]
Reginald H. Howe of www.GoldenSextant.com has served commentary
at The Dos Passos Table entitled,
"IMF's Off-Market Gold Sales: Toward the New Order?"
The Dos Passos Table
Discussion du Jour: Guest Speaker
IMF's Off-Market Gold Sales: Toward the New Order?
By Reginald H. Howe
www.GoldenSextant.com
row@ix.netcom.com
January 22, 2000
Speaking this week in Gabon, Michel Camdessus, the retiring managing
director of the International Monetary Fund, revealed that the Fund.....
Originally the IMF, with the support of Britain and the United States
but not that of several European countries, particularly Germany,
proposed to sell some of its gold reserves to finance its so-called
Heavily Indebted Poor Countries (HIPC) and Enhanced Structural
Adjustment Facility (ESAF) initiatives. The income from investment of
the proceeds of these sales was to be applied to fund these initiatives.
However, given the relatively small amount of income likely to be
generated, there were suspicions in many quarters that the scheme had
an important ulterior purpose: namely, to help balance the growing gap
between annual gold demand -- in excess of 4,000 metric tonnes -- and
new mine production -- around 2,500 tonnes. Gold bugs, of course,
smelled manipulation aimed at capping the gold price.....
... as a result, the IMF advanced and secured approval of an alternate plan
to fund its HIPC-ESAF initiative. This plan replaced the proposed gold sales
with certain off-market transactions in gold.
These transactions, which involve settlement of certain obligations
coming due to the IMF by member countries, operate as follows.....
... Accordingly, the amount of gold involved in any single transaction
will be that amount which at the current market price equals the member's
obligation. The IMF explains further:
"The net effect of these transactions will be to leave the IMF's
holdings of physical gold unchanged. No gold will be released to the
market, and thus there will be no impact on the supply and demand
balance in the market.....
Taking Camdessus at his word, it appears that now more than 40 million
ounces are committed to the plan. The IMF's total gold stock exceeds 103
million ounces (3200 tonnes), making it one of the largest official gold
holders in the world. More information on its gold holdings and policies
with respect thereto can be found at:
www.imf.org/external/np/exr/facts/gold.htm
... the IMF can.....
... It cannot.....
... or engage in any other transactions in gold (e.g......
... nor can it use its gold as .....
The IMF's second off-market gold sale, involving....
... term SDR refers to the IMF Special Drawing Right, which is essentially
an accounting convention of the Fund. The SDR is a weighted composite of
the currencies of the U.S., Britain, France, Germany, and Japan, which
today means the dollar, euro, pound and yen. Its value is determined daily
by the IMF on the basis of market rates for its components. The SDR interest
rate is adjusted weekly on the basis of certain domestic short term rates
in the five specified countries. SDRs can be used in transactions among
the Fund, its members and 15 other "prescribed" institutional holders,
presumably including the BIS. However, while the IMF can create international
liquidity by allocating SDRs to its members, it cannot allocate SDRs to itself
or prescribed holders.
In essence, the IMF's off-market gold sales are.....
Although I have read speculation that some IMF gold may be reaching.....
... if ever there was a situation of eating one's cake and having it too,
these current off-market gold sales would seem to be it. Of course, once
all the IMF's gold is revalued to market prices, only further increases in
the gold price itself will support creation of additional SDRs in this.....
A good argument can be made that the European Monetary Union's ultimate
vision is not a euro fixed to gold but a euro regularly measured against
gold at market prices. Under a system of this sort, the euro could serve
as the domestic currency of the EMU countries without the rigidities of
the classical gold standard. It could also serve as a major currency,
possibly the dominant currency, for settlement of private international
transactions and for international finance. But gold would resume its
role as the international standard of value -- the yardstick for all
currencies. It would also become the principal component of most
nation's international monetary reserves and, at market prices, the
standard medium for settlement among national governments (i.e., central
banks) and international monetary authorities. The days of one nation's
paper currency serving as the world's principal international monetary
reserve would be.....
The beginnings of a system of this sort can already be glimpsed in both
the EMU's practice of marking its gold reserves to market quarterly and
the Washington Agreement affirming that gold will remain an important
part of the Euro area's international monetary reserves.....
... In hindsight, this IMF program well could be perceived as another step,
however small, toward restoring gold to a major role in the international
payments system.
... In the long run, institutions operating in this manner are likely to
find that it is more in their interest to have an honest, free-market price
for physical gold than an unrealistic price subject to manipulation in
largely paper markets such as the COMEX, TOCOM, and LBMA.
Increasingly these large official holders of gold should come to realize
that rising gold prices are not always a harbinger of rising prices or
proof of bad monetary management. Instead, they can be at times an
indicator of rising general productivity relative to gold, and in that
context an opportunity for a fundamentally benign upward revaluation of
existing gold stocks in accordance with market dictates and to the
benefit of gold holders.
Put another way, if the IMF.....
Why, then, should the IMF fight it?
Indeed, why should any large official holder of gold, except of course
the United States, which now enjoys "the exorbitant privilege" of printing
its way out of its international deficits?
Le Patron's Editors note: Because the IMF website is quite large,
the article posted at The Golden Sextant web site includes working
URLs to specific IMF pages.
[END]
Marcia Peters has served commentary
at The Man Ray Table entitled,
"Lease Rates Tell Tales."
Newcomer Marcia Peter's perceptive, compelling analysis elucidates
the reasons investors (that are looking for a grand slam winning)
should stick with their gold investments.
Well done Marcia.
The Man Ray Table
Discussion du Jour: Asia
Marcia Peters
January 22, 2000
Raleigh, North Carolina, U.S.A.
marcia@nckodokan.com
Lease Rates Tell Tales
Gold has long been available for lease. Recently, leased gold has played
an important role in the practice by some gold mining companies of
shorting their own product, to the detriment of shareholders. While this
practice may have started innocently as a means to hedge risk in a down
market, for some it quickly degenerated into an orgy of speculation,
with some mines betting against as much as a decade of future production.
By leasing gold very cheaply, then shorting it, they hoped to profit
from the difference between today's price and a lower future price.
Other participants in leasing include hedge funds, bullion banks,
and others who seek to manipulate the market in order to protect these
powerful interests who positioned themselves to profit from a continued
decline in the price of gold.
These disgraceful practices, often discussed on the pages of Gold-Eagle
and by crusaders such as Bill Murphy of the Gold Anti-Trust Action (GATA),
have recently been exposed and discredited.
Yet the market manipulation continues.
In his January 21st commentary, Murphy observed that gold lease rates
are "the lowest I can recall" (see Figure 1).....
Maybe so, but by graphing the data over time and noting correlations
with recent events that are known to affect warehouse gold supplies,
we may gain more insight about the gold market's dynamics. In fact,
a graph may reveal additional predictive powers for the lease rate,
far beyond those normally ascribed to it.
... be able to more accurately predict when the price of gold will lift off.
Figure 2. Gold Lease Rates.....
... even more striking is the.....
Notice that at certain times.....
Let us examine a hypothesis that might account for these differences:
... In effect, gold lease rates can give us an unprecedented window on
the manipulators' inside knowledge.
Naturally short-term rates are.....
... as a group indicates a clear and present shortage of physical gold.....
Timing signals arise when rates diverge.
Let's examine an example of divergence.
During the month leading up to the third BoE action.....
Figure 3. Rates before and after 3rd BoE auction.....
So from this perspective, an alternate interpretation of today's
low-but-divergent rates (Figure 1) is that players in the gold market
are rather certain about the availability of physical gold.....
... they are quite uncertain.
The near-term certainty reflects the.....
One couldn't ask for a clearer picture of the coming short squeeze.....
This interpretation is supported by recent changes in open interest data.
Again quoting GATA's Murphy, "The gold spreads continue to widen
(back months gaining on nearby months) and our floor sources think
that is a bullish signal the open interest continues to shrink (down
another 2,973 contracts yesterday to 145,564 contracts outstanding)."
Options force data, based on tracking total puts minus total calls,
researched by a regular Gold Forum contributor, also supports.....
Together, these indicators (lease rates and open interest) suggest that
gold prices will remain in a range for.....
... but everybody knows that eventually, the game is up.
At that time, gold lease rates will again make a dramatic ballistic
ascent, as they did in late September of 1999. Gold will hit an
out-of-the park grand slam home run with the bases loaded.
Buy your season tickets to the gold extravaganza of your lifetime now,
because at game-time, even the scalpers won't have any seats left to sell,
at any price. No one, not even the most knowledgeable insiders, knows exactly
when this will occur, but it will surely happen.
We goldbugs' faith in the natural economic laws of supply and demand has been
sorely tested, but with each reduction in the supply of easily-mobilized
physical gold such as tomorrow's BoE auction, we move ever closer to the
day of reckoning.
Our faith will be vindicated.
Be there, or be square!
Copyright 1998 Le Metropole Cafe
All the best,
Bill Murphy
Chairman, Gold Anti Trust Action (GATA) gata.org
Le Patron, Le Metropole Cafe lemetropolecafe.com |
