THC,
Thanks so much. You have been a great supporter from the gitgo. None of us will ever forget that. We are gaining ground big time. The latest for this thread from lemetropolecafe.com:
July 8, 1999 - Spot Gold $256.50 down 30 cents - Spot Silver $5.24 up 2 cents
Technicals
Very boring, yet VERY exciting. Today's session was a quiet one as 20 year price lows were extended slightly. Yet, it appears to me that there are real dramatics going on behind the scenes. The lease rates continue to rise, indicating severe tightness in the physical gold market. The one month rate rose 9 basis points to 2.4% while the six month rate rose 3 basis points to 2.22%. It is rare that the lease rates go into backwardization and means there is a central bank sale at the moment, or it means that the pool of borrowed gold is shrinking as central banks reign in their gold loans.
We have been telling the Café for some time now that sources have told us that gold loans will become more restrictive until the rest of the year. This recent tightness just confirms our information. If they stay firm for an extended length of time, it will prove our source is correct in that assessment. In addition, Icarus pointed out to me that the Comex spreads between the contract months also continue to visibly narrow. By itself, that fact means little. However, the open interest has surged to 215,617 contracts. The specs are pouring in on the short side again. If the cash market is really that tight, the gold loan supply is drying up to some extent, and the specs are massively short, upside fireworks could be right around the corner. It is time to be aggressively long gold.
Th silver market does not want to go down and is now trading in the middle of a bullish pennant formation and the silver floor on Comex is generally friendly. The premiums in India remain firm indicating strong demand in that part of the world. Silver could explode above $6 at any time.
Fundamentals
Nickel, aluminum, and zinc are all trading at, or exceeding, new yearly price highs. If you want to see evidence of strong upward price movement in the base metals, have someone show you their charts. They are powerful. Massive bases have been completed and breakouts to the upside are underway.
Oil traded above $20 today and copper continues to hold its recent big price gains. Only great weather in the U.S. Midwest and a strong dollar, that are killing grain and oilseed prices, are holding back commodity prices in toto.
Yesterday South Africa, the world's top gold producer, withdrew support of IMF plans to sell gold reserves to protest the U.K. auction. "The South African government finds both incomprehensible and unacceptable the insensitivity of the British Government and its monetary authorities towards the pleas of gold-producing countries," said Minister of Minerals & Energy Affairs Phumzile Mlambo-Ngouka. "This behaviour and the decisions of other industrialized countries and the IMF on the public handling of gold sales is having the effect of defeating the very objective that they profess to pursue."
Today, the crescendo from South Africa grew even louder, Johannesburg, July 8 ( Reuters ) - South Africa said on Thursday a high-profile delegation will tour European capitals next week to demand a moratorium on central bank gold sales which threaten thousands of jobs and economies in Africa. The South African delegation will include Miambo-Ngouka and possibly Finance Minister, National Union of Mineworkers President James Motiatsi and Bobby Godsell, CEO of giant Anglogold. Other African gold-producing countries such as Ghana, Mali and Tanzania will be asked to join the group.
Tomorrow the IMF will meet to " discuss how to sell part of its gold reserves without the bruising effect on prices seen after the UK sale". More bureaucratic BS I am sure. The IMF could care less about the poor countries and that becomes more evident by the day and by the comments of many of the poor countries they are supposed to want to help. We can only expect more hypocrisy from the IMF and the sickening phrase "we will sell but do not want to disrupt the market". All they have done is disrupt the gold market and they have succeeded to date. If they really want to help the poor and not the investment banks: just announce that the IMF gold sale idea has been put off until gold reaches $350 per ounce. End of story.
"Economics of the Mad House" ( A World Gold Council quote )- Had to revisit this one. The IMF is supposed to be helping Russia out of their economic problems, yes?
Interfax - July 7 - Moscow - Russian banks will not be able to export gold profitably due to the drop in world gold prices. Sergei Brahenko, head of precious metals operations at Moskonmrivatbank, said the drop in prices after the Bank of England sold 25 tonnes of gold from its reserves will hit gold miners hardest . Before, the "critical level" below which gold mining becomes virtually unprofitable was considered to be $280 per ounce, he added………….. Yelena Krasikova, spokesman for Lanta Bank, also said that miners have suffered most from the drop in prices. The current situation is virtually destroying miners, especially since production cost in Russia are objectively higher than in other countries, she said.
All this suffering because of such low gold prices. So what is really behind the "Economics of the Mad House"? Well, we always come back to the same issues and they are the Long- Term Capital Management bailout, the over leveraged positions of the hedge funds, "the gold carry trade" and the fragility of the U. S. bond market.
Speaking of bonds, I spoke with the Café's Charlie Peabody today. Bond guru Charlie has been looking for a sideways, choppy bond market before yields head up towards 7% later in the year. The bond buying by Salomon Brothers today confirmed his suspicions and he now sees 118 to 120 on the Sep futures contract before the big drop comes in the months ahead. He wonders if that now means "they" will "allow" the gold price to rally here as the pressure eases off of bonds.
This Dow Jones story by Stephanie Hoo yesterday may indirectly shed some more light on one of the reasons why the gold market is being manipulated:
DLR/YEN Inability to Rally seen Holding TSYS Back
The dollar's perpetual inability to rally against the yen may be curbing Japanese investors's appetite for U.S. Treasurys, at a time when bonds are generally pressured by improving global growth.
When overseas investors put money in dollar-based assets, they do so in the hopes the dollar will strengthen - or at least remain stable - against their own currency.
But the dollar has shown a tendency to weaken against the Yen this year and especially this past month, as fund managers flow money into rallying Japanese stocks.
For Japanese investors putting money in Treasurys, "the risk is, the value of the foreign asset is going to fall," said Ram Bhagavatula, chief economist at Natwest Global Financial Markets in New York. "It doesn't take much of an exchange rate move" to wipe out returns, he added. End
The two relevant points here: 1) the U.S. government wants money flowing into U.S. bonds not gold so it is doing what it can thru various auspices to discredit gold. 2) a sharp rally in gold will ruin the "gold carry" borrowing crowd just as a similar move up in the yen really hurts those Japanese that invest in U.S Treasuries.
One big difference. The Japanese can sell Treasuries; the gold shorts cannot cover 3000 tonnes of gold borrowing short positions in a brief span of time. It just cannot be done without driving the price of gold up hundreds of dollars per ounce.
Potpourri and the Gold Shares
The XAU set back a bit today closing at 61.88 down 1.00. I suspect 60 will hold and the XAU is headed higher. Maybe much higher.
From David Gleason, the distinguished South African journalist. This is a copy of his column which appeared this morning in the South African Business Report. It is one of the most significant stories on the gold market since the Gold Anti Trust Action Committee came in to being and I hope many of you will send it to the media and to your favorite gold companies:
8inside track/gleason
It is almost impossible in this dark week for the gold mining industry to discuss anything other than the apparently grim future for this most lustrous of metals. Gold has been on a hiding to nowhere ever since it reached those dramatic (and ill-judged) heights in 1980.
And, ever since central banks were persuaded that they should sweat their gold assets, the bullion banks - led significantly in recent years by Goldman Sachs - have been enjoying a wonderful feast. Gold's imbroglio started more than a decade ago when gold producers figured that the clever thing to do was to sell all or part of their future production, so entrenching price levels a few months out. Since there wasn't a gold futures market at the time, one had to be created.
So here was the opportunity (opening?) for smart merchant/investment banks. The bigger and stronger among them persuaded a few central banks to “lend” them some of their gold reserve (at a lease rate which has averaged a tad over 1%) which they could sell into the market, invest the proceeds at 5%, while providing gold producers with the ability to lock in prices. If, in this process, the investment banks could also drive down the price of gold - so that when the time came to return to central banks the gold they'd borrowed, they could buy it back cheaper in the market - well, so much the better.
A side-effect, however, was that once central banks made it clear they would not only entertain the idea of lending their gold but would also sell some of it, was to give investors the jitters. They began to desert bullion and gold shares. That made gold producers increasingly anxious. And that encouraged a new concern of the part of central bankers. This is a circle not of virtue but of anxiety which can easily turn to panic.
Given our commitment to free and open markets, you can't condemn a man for making for a profit. It is the manner in which profits are made and taken which attracts attention.
Powerful US investors now believe the so-called “bullion banks” have “conspired” to drive down the price of gold and it is now in their interests - because they are said to have taken on such huge short positions - to keep it down. This is probably the reason some of the banks - specifically Goldman Sachs - are able to offer five-year lines of credit to inconsequential North American producers. The only conclusion to be drawn from lending of this kind is that Goldman Sachs must be satisfied the risk element in the loans is virtually zero. How does any bank arrive at that position? Because it knows or is very confident that it is able to influence profoundly what might otherwise be an uncertain feature.
It is at times such as these that it is most difficult - and most required - to keep a cool head and remain confident in the knowledge that all cycles turn (even the unprecedented Wall Street bull run will end - one day). In bullion's case, what is needed is a financial crack of some kind - like the imminent collapse of Long Term Capital Management in the States last year. It was rescued by a consortium of leading US banks when it held short positions, it is said, of about 300t of gold.
That was when the metal was expected to rally sharply. When it didn't, the non-event attracted attention. Now it is being said that LTCM escaped because of an “off-market” transaction - in other words a rigged trade to ensure gold wouldn't suddenly reverse course and accelerate. The 14 financial institutions which got together to bale out LTCM have since been asked by the US General Accounting Office for detailed information on how this was effected. And the same institutions may soon be challenged by angry bullion investors who want to know how the Counterparty Risk Management Group, led by Goldman Sachs (which has already complained about me) and J P Morgan to manage financial sector risks, can be deemed anything other than a cartel whose actions violate the Sherman and Clayton anti-trust acts.
In all this it is worth remembering that Federal Reserve chairman Alan Greenspan, who significantly hasn't sold off an ounce of American gold, recently told the US Congress House Banking Committee that “Gold represents the ultimate form of payment in the world.”
Maybe not now but no one should doubt that there will come a turn of the screw.
Another goodie from our friend Marshall Auerbach of Veneroso Associates who had this Letter to the Editor published in the Financial Times today: Sir:
Why is it that anyone who dares to criticize the Bank of England gold sale is dismissed as a loony conspiracy theorist? The fact is that neither Gordon Brown, nor the Bank of England have yet been able to provide a coherent rationale for the sale and the manner in which it has been carried out. The argument that the proceeds are going into higher yielding assets is suspect. The Bank of England currently lends out the gold which it holds and derives an income from that. 40 percent of the proceeds of the gold sale are earmarked for Euros, which has performed as badly against the dollar as gold so far this year, and yields about the same as gold loans. 20 percent is earmarked for yen assets, which yield less than gold loans. The balance is going into the dollar at a time when the US is on the verge of experiencing a record current account deficit (as a percentage of GDP), thereby rendering the greenback very vulnerable to price weakness in the event that ex ante savings are no longer there to finance the current debt position. And why does the Bank consistently resort to accounting subterfuge when speaking about the sale from the perspective of portfolio diversification? No other central bank in the world measures its gold reserves on a net basis. On a gross basis, the UK's gold holdings are well below that of any comparable European country and will be the lowest following completion of the sale. Maybe this is wise. If so, why does the Bank not come out and say so, rather than resorting to a deliberate accounting deception? Furthermore, why front-run the IMF sale, which the current government has championed so ardently? If debt relief is the real issue, why not arrange this through bilateral government write-offs, which would be far less destructive to the very countries which the UK is ostensibly seeking to help? And if the ultimate aim of the gold sale is to liquidate an "anachronistic" relic and ensure its ultimate demonetisation, why not just come out and say this? If the UK monetary authorities were able to answer any of these questions with a degree of clarity and rationality, then the criticisms leveled and concomitant conspiracy theories would disappear in a flash.
Yours truly,
Marshall Auerback
Veneroso Associates
From Café member, David Baker - This is a great read from the Daily Telegraph (UK) (two articles)
The golden opportunity that we all richly deserve
SO you couldn't rustle up $104,480 for a Bank of England gold bar? Tough. The only consolation is that next time the winning bid may be lower, given the way the price took a dive after the results of the first auction were announced yesterday.
As a lesson in how not to do it, this whole process takes some beating. You wait until the price has fallen to its worst for nearly 20 years, and then announce you are going to dump your holding at whatever the market will fetch, thus ensuring that its value falls still further.
You then fix the minimum lot at a level which is far too high for any normal individual to contemplate. This saves you the bother of having to deal with the public, but also ensures that there is no opportunity for sentimental buyers to pay a premium.
The result is general opprobrium. Gold has always stirred emotions, which is why it has been considered a store of value for so long. It is not only the vested interests of the International Gold Council who feel uneasy at replacing indestructible metal with other people's paper promises in the heart of the central bank.
Recent history has proved that reserves are of precious little use in propping up the currency of a mismanaged economy, since central banks can no longer dictate the value of their currencies to the market.
Just think of how it might have been, with a little thought. What better way to celebrate the millennium than by privatising the nation's gold reserves? Those ingots which are part of the Bank's history could be turned into coins, each one with its certificate of origin, and offered to the people. In the event of emergency, gold is far more use buried in Britain's back gardens than it can ever be buried under the blank walls of the Bank.
It is going to be hard enough, heaven knows, to find anything to mark the millennium which might have some chance of holding its value; a one-ounce coin, containing gold worth ?170, could be sold for a modest premium. Not only would the coins hold the premium (unless the market was mismanaged) but it would bring in thousands of buyers who would never consider holding bullion, perhaps on behalf of godchildren, nephews and nieces.
To cap it all, the Chancellor is obliged, under European Union rules, to scrap VAT on gold coins, and has already announced that the tax will go on January 1.
It is not too late for the Treasury and the Bank between them to show some imagination. After all, there is still quite a bit of the stuff left in the vaults. Come on Gordon, give us the chance to buy our gold - otherwise the people might think the real motive for the sell-off is merely political spite.
--------
THE price of gold was $289 an ounce on May 7 when the Government broadcast its intention to auction the bulk of Britain's bullion reserves. Yesterday, the Bank of England sold the first block of 25 metric tons at the price of $261 an ounce, a fall of almost 10 per cent in value in two months. This fiasco was utterly predictable, and was in fact predicted by almost every dealer, analyst and banker with knowledge of the trade. By alerting investors of his plan to flood the world market, Gordon Brown single-handedly engineered a price collapse that has so far cost every man, woman and child in this country ?7, and done great damage to gold producers in the Third World. Even if one accepts the New Labour mantra that gold is nothing but a "barbarous relic", this method of divestment is willfully stupid.
It is hard to see why the Chancellor is so hell-bent on his campaign against gold, unless his mind is already fixed on Article 30 of the Constitution of the European System of Central Banks in the Maastricht Treaty. This states that members of the Economic and Monetary Union must lodge a proportion of their foreign reserve assets with the European Central Bank, and gives the Governing Council of the ECB the statutory power to decide what that proportion might be. If Britain is to join the euro, great shipments of British gold will have to be transferred to Frankfurt in perpetuity, with no guarantee that they will ever be returned. This must surely put Labour on spin alert. The idea of such a final forfeiture of national wealth would not sit well in middle Britain. Better to get rid of the metal first, and instead send paper wealth to Frankfurt.
No doubt other countries have been selling a portion of their gold reserves in order to get a better return, mostly on foreign bonds, but Britain is already light on bullion. Mr. Brown's claim that he merely wishes to diversify our reserves with a minor portfolio adjustment is not only disingenuous, it is the opposite of the truth. The proceeds will be invested in euro, dollar and yen government bonds, further concentrating our holdings in these three currencies. The bonds may perform well enough over time, but they are unlikely to repeat their stellar performance of recent years. If inflation returns, as it usually does, those bonds could lose a great deal of their value. The same could happen to the US dollar. The last time that Labour auctioned off our gold, seduced by the obsolescence fashion of the early 1970s, the metal promptly jumped twenty-fold in a space of six years, and bonds crashed.
Ultimately, US, Japanese and German treasury bonds are nothing more than promissory notes made by heavily mortgaged nations. Gold alone is nobody else's debt. End
The strangest commentary came from the highly regarded Gartman Letter. This is what Mr. Gartman had to say today:
"Finally, Her Majesty's government in the UK responded to reports made by a Tory member of Parliament ( Mr Quentin Davies ) that the Bank of England's gold auction was done primarily to "save the bacon of firms that are running…short positions" in the gold derivatives markets. The Treasury's spokeswoman, Ms Patricia Hewitt, called such report "nonsense…and wild rumours." We've no doubt that several firms are indeed quite heavily short of gold, including Goldman Sachs ( having inherited a short position from Long Term Capital Management ) and Barrick ( having accumulated a large short position over the past several years to hedge its gold production going forward. ); however, this is the UK we're talking about, and not the former governments in Nigeria, or Indonesia or Cameroon where corruption is rampant. We may be naïve, but we find it preposterous to believe that an MP would even broad the subject on the floor of the Parliament. We congratulate HM's government for putting the rumours to rest swiftly and succinctly.
An open letter to Mr. Gartman,
From Bill Murphy, Gold Anti Trust Action Committee Chairman
Dear Mr. Gartman,
You have told your readership that GFMS condemned our investigation into the manipulation of the gold market and that you agreed with their condemnation. Do you also condemn Newmont Mining, Homestake, Ashanti, Placer Dome, Gold Fields and Anglogold for "demanding" a similar investigation?
Part of our investigation is trying to determine if Long Term Capital Management was let out of a"borrowed gold position" in an off market "rigged" transaction. That could very well be a violation of anti-trust laws. And of all people, you say in your own commentary that such a transaction has occurred. What gives?
And finally, what did you expect Her Majesty's government to say from the gitgo? Oh, yes the sale is part of some sort of collusive activity! Do you recall President Nixon, " I am not a crook" or President Clinton "wagging his finger" denying any Monica Lewinsky involvement? Did you believe them too? Remember the embarrassed grin on former Clinton Press Secretary, Mike Mc Crary?
You have a very good reputation, but you sure are missing the boat on this one.
If you care, it would be my pleasure to get you up to speed and explain to you a good bit of what we know is going on here and will start by sending you this Midas. You might also like to know that I spoke with a major gold producer today and they are in "battle station mode". That letter to Prime Minister Blair was not sent to the head of state of England with nothing to back it up. The CEO's that sent the letter are very conservative people and very proper. You can be sure that was just a warning salvo; ie, "do something about the mess you have created or face the consequences". Along that line, Prime Minister Blair cancelled a 3 day overseas trip today to "work on the Northern Ireland problem". As far as I know the Northern Ireland problem has been around awhile. Perhaps, Mr. Blair has another, new big problem to deal with.
All the best,
Bill Murphy
Rap up: The Canadian Broadcasting Company called today and wanted to know about GATA as they heard about the letter that was sent to Prime Minister Blair. They said that if only a portion of what we are saying is true, it will be a bigger scandal than "Watergate" because people are being devastated all over the world by this one.
Midas
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