To the Internet Gold Family-GATA and Congress
Midas du Metropole
April 28, 1999 - Spot Gold $282.70 up 70 cents - Spot Silver $5.25 up 8 cents
Technicals -
The market that can never go up. At least, that is what the speculators, in the short term, and the bullion dealers, in the medium term, think. The funds began piling in on the short term again when gold failed to breach $285 on the upside. The open interest has now risen to 204,378 contracts which is a new high for some period of time and is an indication of bearish confidence. The price of oil is soaring ( $18.50 per barrel ), silver has come back strongly and risen 40 cents in just a number of days, bond yields will not go down and the XAU is on a rock and roll ride. Normally, this would be a set up for the speculators to be MEGA long gold. Instead, they are MEGA short. Thus, if there ever was a recipe for the gold price to take off with space ship velocity to the upside ( out of nowhere ), it is now. Practically no one thinks that can happen and that is just why it should.
Silver is more than "jump back jacking". It is "really slam whacking" the silver shorts. Today, silver moved nicely higher even though the silver stocks on Comex were up over 1.8 million ounces on Tuesday night. The market shrugged off that news in stride, and that is what bull markets are all about. Today, they shrank again back down to 77,659,261 oz. Quietly, they are going bye bye. We continue to maintain our very bullish posture and look for a very spectacular upside move in the weeks to come.
Fundamentals -
Feedback to the Café about my trip Washington and meetings with Jim Saxton, Chairman of the Joint Economic Committee, the Staff Director of the Joint Economic Committee, the senior macro economist of the Joint Economic Committee, the Senior Counsel of the House Banking and Financial Services Committee and the Staff Director of the Capital Markets Subcommittee
Washington is in full bloom this time of year and it is extraordinarily beautiful and bustling with activity. One cannot help but be inspired walking around the Capitol while gazing at its majestic buildings and thinking of what they stand for. It is one great country we have here, with all its flaws, and an awesome, proud feeling came over me as I traversed from the Capitol building to the Rayburn Building, to the O'Neill building, etc. America is special because anybody can do anything here. It is a land of individuals and we are very lucky to be living in such an environment. I thought as such as Mitch McConnell, Barney Frank, and other House of Representative Members sauntered by - all just part of the crowd.
My first meeting was with the Staff Director of the Capital Markets group that is investigating Long Term Capital Management. I cannot get into too much about this one, but I can tell you that I almost fell off my chair when he told me that they were investigating Long Term Capital Management for "anti-trust" violations. It was not my place to probe further. But, now we understand why Long Term Capital Management has reacted so expressively to the Gold Anti Trust Action Committee and is sending our attorney a letter. I am sure that we are just a coincidence that happened to show up at the wrong time for them, but no one I have spoken on Wall Street had heard that anti-trust activity is the reason a Congressional subcommittee is looking into their previous operations.
Later on, the Senior Counsel of the House Banking and Services Committee came by and we had a long session about the "the sizeable gold borrowings". He took copious notes. I stressed to him that it was our opinion that a danger had been created by speculative gold borrowers who had become so greedy that we believe that there are now about 3,000 tonnes of these loans out there. And, that the total gold loans may now be 8,000 to 10.000 tonnes. I stressed that the borrowers were making a fortune with virtually interest free money! But, in doing so, they have created a potential banking disaster. If the price of gold were to unexpectedly shoot up and go sharply higher ( like the price of oil did the past two months ), the gold borrowers could not find 3,000 tonnes of gold to pay back their loans, even if they wanted to. Panic could ensue. Major banking defaults may occur and they could have 10 Long Term Capital type, systemic risk problems on their hands, all at once!.
I told him that I was here today to alert the Banking Committee to this potentially very serious problem and that this situation could be likened to the Savings and Loan crisis. After the Savings and Loan crises erupted, it was queried by many as to why someone did not do something about it before it became a crisis. I told the Staff Director that there is no reason for history to repeat itself. NOW, is the time for the Banking Committee to ask the bullion dealers and major financial institutions what their gold books look like; ask them to reveal the gold books ( confidentially ) to a banking or economic committee. If they will not do so, ask why? If they do and we are we are right, somebody had better blow the whistle. If we are wrong, then it was a waste of just a little time and a few phone calls.
We discussed the gold loans issue in great detail. You know much of our reasoning and evidence, so there is no point going into all that. What is important is that at the end of the meeting the Senior Counsel got up grinning and said, "Geez, got a small order here, have to save the banking system".
The next meeting was with Jim Saxton, the Staff Director of the Joint Economic Committee and their senior macro economist.
Jim Saxton is one class act. We had some fun talking about my cousin, Bobo Sullivan, who also has been a force in New Jersey Republican politics for many years as he ran the election campaigns for Bush and Reagan in that State. Jim just got back from a fact finding mission in Yugoslavia and now is also preparing legislation to reform the Exchange Stabilization Fund by introducing the, ESF Transparency and Accountability Act.
"This legislation will end the legacy of secrecy and obscurity at the ESF", Saxton said in his press release. The ESF was established in 1934 at a time when the dollar was pegged to gold, but has survived into the current era of flexible exchange rates despite its lack of clear objectives and its secretive operations".
"This legislation will end the legacy of secrecy and obscurity at the ESF," Saxton said. "We need this kind of secrecy in our nuclear weapons programs, not in our international economic policy, but most Americans have never heard of it. The American people have the right to know how billions of their tax dollars are being used. Excessive secrecy is part of an even larger problem: the lack of accountability to congress or the American people."
I told Jim that GATA was concerned about the lack of transparency in the gold market too and that we felt there were many shenanigans occurring in the gold arena. GATA applauds his efforts, and intended legislation, which could cut off another potential source of manipulation of the gold market.
Most of the discussion was about: 1) what GATA felt was the real reason behind all the IMF proposed gold sale P R commotion and 2) GATA's opinion that gold loans had become so large that they had become a danger to the U.S. banking and financial system.
I went on to say how large we felt the gold loans had become and that if something were to happen to cause the price of gold to rise sharply, and the gold borrowers wanted to get out of their gold loans and pay the gold lenders back with physical gold, that it would be impossible for them to do so in a short period of time without the price of gold skyrocketing. With 1998 mine supply at 2529 tonnes in 1998, it just cannot be done. I followed with what I had told the Senior Counsel of the Banking Committee, that I felt the resulting turmoil could produce 10 "systemic risk problems", not just the 1 that our Fed had with Long Term Capital Management. What would the Fed do in that case?
It was stressed by me that almost no one thought there could be a Long Term Capital Management either; that even the Central Bank of Italy invested in Long Term because of the supposed lack of risk in investing with them. The biggest and the best invested in Long Term. "And look what happened", I told Jim. I then pointed out that it is these same "biggest and best" that are borrowing gold at 1% interest rates and are thus, in effect, short gold to a staggering degree. In essence, they are investing all over the place for practically free ( as long as the price of gold does not go up ). I asked him if he would like to be able to go his bank and take out virtually an interest free loan? Did he think his investment performance would look pretty good if he could do so? That is what I told him I felt was behind all this IMF gold sale talk spewed forth by our administration, the bullion dealers, Wall Street and anyone else who's arm they can twist. I do not think it proper to recant any of his conversation, but I think I can comfortably say that he has a great smile.
All 3 committees want to very much hear whatever more we have to convey on this matter.
Speaking of the bullion dealers. Deutsche Bank, The Hannibal of Hannibals in Lechterland, had a conference call today with renowned dealer, Charles Von Arenschildt, featured as the speaker. Deutsche Bank Securities has one of the largest bullion dealing operations in the world. It was most revealing.
Key points from V.A. and Midas' thoughts:
1. V.A.- The proposed gold Swiss and IMF gold sales are done deals. But that it won't hurt the market much because the Swiss sales will be 5 million ounces and spread out over 10 years or so. And, the IMF sales are already in the market place as far as pricing is concerned. Since this was the first IMF financial activity of this sort in some time, he felt they would be no larger than the proposed 5 to 10 million ounces, regardless of recent calls for higher ounce sales.
Midas- Having visited the U.S. Congress yesterday, I can assure Charles Von A. that they are not a fait accompli. Not if Jim Saxton and a growing anti IMF group gets there way. People in other countries may think just because administrations want something, it will happen. Not necessarily so in America.
The last Swiss vote was very close. The final determination on Swiss gold sales is very much in doubt. However, we would expect Hannibal Lechter to say nothing less than he did. Party line all the way.
2. V. A - Investor demand has been severely curtailed because of this IMF and gold sale talk It has created extreme negative sentiment. But, he said demand and sentiment would pick up later in the year when Y2K fears come into play.
Midas - No S, Sherlock that all this negative talk has hurt the gold market. It surely has scared off investors to some degree. Even Japan ( had to be arm twisting ) came into the "sell IMF gold camp" yesterday.. There must have been 10 major PR releases the past 3 days about the subject. It is clearly an orchestrated effort by officialdom to try and talk the gold price down. Even Jim Saxton readily admitted to that.
3. V. A. - ( in response to the FIRST question by the Deutsche host moderator which just so happened to be about GATA and its "quackish like efforts" ) - V. A. said that there was nothing to it ( this type of jungle story ). There is no orchestration, just dealers all telling their clients to sell rallies at the same time. Coincidence. Just that there are 10 sellers for every buyer for them. He said that they would really like the market to go up and their business would be better if that were the case.
Midas - Maybe true that the bullion department would do better. Who am I to say? But that would dwarf what they are making by investing in today's markets with virtually interest free gold loans. Who is kidding who?
4. V. A. - Gold will trade in a $275 to $290 range until later in the year when we could a big bull move to just over $300. However, there is a danger because of call structures, etc, that if the price of gold could get above a certain point, it might "accelerate".
Midas - That is what GATA told Congress; that there is a real danger here and it has been created by the bullion dealers and some greedy N.Y. investment houses. V. A. says accelerate. GATA says buying panic. This gets complicated, but as we have reported to you before there are thousands of naked calls that have been written ( many of the humongous Y2K calls in the November Comex contract are a good example ). We understand that central banks have significant call option exposure above $315. Then there are the gold loans. Then there are the forward sales by producers that have enhanced their forward sale prices through complicated call derivative enhancements. Naturally, the bullion dealers have encouraged this income producing activity. Some producers, being told there is no real price risk to the upside by the bullion dealers, have loaded up with these "pennies from heaven". However, for every ying, there is a yang. If the unthinkable happens, they all will panic and try to cover these calls and shorts at the same time. Boy oh boy!
5. V. A. Gold demand in the Far East has not recovered much. V. A. said he followed Gold Fields Mineral Services opinion on this one.
Midas - V. A. come on. Sounds fishy to me. You are one of the biggest dealers in the world with extensive contacts in the Far East and you come up with a lame answer like that when questioned by knowledgeable listeners that say gold demand is really improving in that part of the world. We give you a "D-" on that answer. Could it be that you cannot bear to come out with any commentary that is really bullish?
6. V. A. - ( this is the piece de resistance ) The total gold loans by the central banks was about 4,000 tonnes by the end of last year. ( our camp says they are more than double that amount), BUT, "that these loans have all of a sudden risen to 10 to 15% of that amount ( 4,000) in the last 3 months".
Midas - Earlier in the conference, Charles Von Arenschildt stated there has been very little producer activity the past few months. That means that HE says that there were about 400 to 600 tonnes of gold lending to gold borrowers ( speculators ) in just the first 3 months of this year. That is why the gold price has not gone up. The bullion dealers are fostering a potential banking disaster by allowing excessive gold borrowings and THAT IS JUST WHAT WE TOLD CONGRESS. Hoisted on your own petard,C.V.A.
Potpourri and the Gold Shares
There is action in "them thar hills". The XAU has climbed to 72.45 and was up another 3.08 today and, if the gold market is not being capped, is signaling that a big move up in the bullion market should not be too far off. Either that, or as I told my associate, John Meyer, they stock market guys don't know that the fix is in. Love it to be the former.
Our key bullish XAU technical points were 60 and 63. They continue to prove to be right on numbers. Yesterday, the XAU closed above its 200 day moving average of 69 so today's follow through on a dull day in the gold pits was very encouraging.
With all the blustering about IMF gold sales, world finance ministers met in Washington and failed to agree on gold sales by the IMF Fund. There was no mention about gold in their official communique after the meeting. Naturally, this got very little play. I wonder why?
To rap it up. It is ironic that GATA has the attention and encouragement of 3 Congressional committees and can't get one mainstream newspaper to educate its readers to a potential nightmare financial problem. On my way to Washington I looked for Janet Whitman's Dow Jones newswire story that she did on GATA. It was not in the Wall Street Journal, nor the LA Times, nor USA Today, nor the NY Times, nor the Washington Post. Shameful cowardice.
Matt Drudge, John Crudele, Woodward and Bernstein, where are you?
Midas
aka, Jungle Fighter, "Guerilla Squadron"
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