<<within two weeks of August 16 ...>> Ron, this GATA like
article I present here is a slim'ed down vesion of it's
appearance on Le Metropole Cafe's web site. It's pay per
view protected by copyright, so I hope the next knock at my
door is not a law enforcement officer or a messenger with an
injunction order served against me. Please comment, and in
about 10 days us all can observe predictions justified or not.
Move Over Fisk & Gould, James Turk, james@goldmoney.com, August 16, 1999
Copyright c 1999 The Freemarket Gold & Money Report. All rights reserved.
In 1869, Jim Fisk and Jay Gould tried to corner the Gold market, and for
a time, this notorious duo succeeded. It is a fascinating story, that is
relevant to what is happening in the Gold market today.....
... to protect this hoard, Gould paid $2 million to two shameless
attorneys to lock up in litigation the assets of the NYGE and countless
brokers, as well as to defend the pair from the 300-plus law suits
subsequently filed against them. Some of this money also went to Boss
Tweed, who through the Tammany Society controlled New York City's
finances and politicians.....
... why have I related this story ? ... within two weeks of August 16, 1999
another Gold squeeze will start .....
... Consequently, central bank manipulation of the Gold market has limits.
... abnormal conditions now prevailing in the Gold market provide the
opportunity for the spike...the spark is being provided by Goldman Sachs.
This past Thursday, Goldman Sachs responded publicly to its actions
taken over the past few days behind the scenes on the Comex. Goldman
announced that it had given notice to the Comex that it was standing
ready to take delivery of about 473,500 ounces of Gold, about one-half
of the total weight in Comex vaults.....it could take delivery of even
more metal, possibly nearly depleting Comex stocks.
... the reasons behind this move by Goldman ?..... put two-and-two together.
... rumors ... that the big Tiger hedge fund is in trouble.
... investors in hedge funds...are withdrawing their investment
quickly at the first hint of poor performance. Thus, Tiger has been
suffering withdrawals of capital, which has required Tiger to liquidate
investments to provide the funds needed to meet these withdrawals.
Now here is where it gets interesting.
Australia's largest Gold mining company is Normandy Mining (NDY).
According to NDY's fourth quarter report dated June 30th, Tiger owned
11.68% of NDY. At present prices, the face value of that position is
about US$156 million, surely not one of multi-billion Tiger's biggest
positions, but nevertheless, it still is a big chunk of change.
Tiger acquired this stake from another Australian company a couple of
years ago around A$1.75. NDY is now trading at A$1.20, and before the
latest run-up in the Gold stocks was around A$1. But don't shed any
tears for Tiger.
As I understand it, Tiger did what most hedge funds do; they hedged this
position. How? Tiger had sold short Gold bullion, and its gains from
this short position as the price of Gold slid lower have more than
offset the losses on the drop in the NDY stock price. But these are
paper profits, and now the hard part for Tiger begins. How do you unwind
this huge position without eroding your paper profits? Taking profits
becomes exceptionally important when you need the cash to meet investor
withdrawals, as Tiger apparently now does.
The first thing to do is buy the Gold needed to cover the short Gold
position, and here, Goldman once again enters the picture. The metal now
being accumulated by Goldman on Comex will I understand be delivered to
Tiger, to enable Tiger to cover its short Gold position. What I hear is
that Tiger will then unwind its long NDY/short Gold trade. In other
words, Tiger has already purchased this metal on a forward basis.
Goldman is Tiger's broker on this trade, and Goldman will deliver to
Tiger the metal Goldman will obtain from the delivery it is taking on
Comex. Here's where it gets really interesting.
During the delivery of any month, it is the shorts that choose the time
to deliver on their short position. The longs have no option but to wait
for the shorts to decide when to deliver, and normally the shorts wait
until the end of the month This slowness to deliver is understandable
because it enables the shorts to earn interest as long as possible. This
month the shorts must deliver by August 27th, which in Comex terms is
the end of the month. Somehow and from somewhere, the shorts must come
up with 473,500 ounces of Gold bullion, and possibly more if Goldman
takes delivery this month on even more Gold.
No problem, you say, because there is 948,973 ounces of Gold in Comex
vaults? Well, that is true. But who owns that Gold? What if none or few
of those ounces are owned by those who are short the Gold that must be
delivered to Goldman Sachs? In that case, where will the shorts get the
Gold they need to deliver to Goldman?
Therefore, on or before August 27th, which is the last delivery day, one
of three things will happen, AND IT ALL DEPENDS ON WHETHER OR NOT THE
SHORTS OWN THE 948,973 OUNCES OF METAL IN COMEX STOCKS.
1) If the shorts own this metal, they deliver metal to Goldman, and the
Comex stocks will drop by 500,000-700,000 ounces (which is the weight
that I expect Goldman to wait for delivery). The upward pressure on the
Gold price in this case may be muted, and the squeeze in all likelihood
averted for the time being. If so, all the shorts who have driven down
the Gold price to its abnormally low level can continue for now to wring
out every penny from their short position.
2) OR, IF THE SHORTS ARE NOT THE OWNERS OF THE METAL IN THE COMEX
WAREHOUSE, we will get a huge short squeeze as the shorts try to find
metal to meet their commitment. And I do mean HUGE, because there is no
metal in the pipeline not already committed. The high Gold interest rate
is a stark warning to the shorts that metal is not available.
3) Or finally, the market goes berserk because of the short squeeze and
the Comex announces a repeat of what they did to Bunker Hunt, i.e.,
horrendous cash margins and only trading for delivery into Comex stocks
is allowed. This alternative will probably prevent the short squeeze
from reaching its full potential, but the Comex cannot be expected to
act until the short squeeze has already begun. So there is still plenty
of opportunity to make a lot of money on the spike that I expect in the
Gold price.
The potential now exists to make the 1869 short squeeze engineered by
Fisk and Gould look like child's play compared to what is coming up, if
we get alternative #2 above. And my own guess is that we will get #2,
but this is just my guess.
One other bit of info. Apparently, Goldman did not want to take delivery
of this Comex stock (which they obviously knew would bring a lot of
public attention to this move), but Goldman had to tap Comex. The
reason? Goldman could not get their hands on this metal from any other
source! There's nothing in the pipeline of this size not already
committed, so this shortage of metal will add fuel to the fire of any
short squeeze. This shortage of metal also explains why Gold interest
rates are so high because as I have been saying in recent letters, there
is no lender of last resort to the bullion banks.
Without any doubt, it should be an interesting couple of weeks! In
nearly 30 years of commodity trading, I've never seen anything like this
before, but the upside could be spectacular, even bigger and better than
it was for Fisk and Gould.
THE BIG SQUEEZE If I've learned anything over the years, it is to not
underestimate the power of central banks and their willingness to play
'hard ball' to enable them to keep their hands on that power. Witness
the Gold sale by the Bank of England as evidence of my proposition. So
if a big squeeze in the Gold market does occur, will the Federal Reserve
stand idly by? Probably not, because I doubt very much whether the Fed
would like to see the Gold price scoot to $500 per ounce in a fortnight.
We must therefore try to think through the other options as to what
could happen if the Federal Reserve sticks its nose into the Gold
market, if it hasn't already done so (some argue that the Fed already
has its hand in manipulating the current low Gold price). In any case,
some of its options are:
1) The Fed gets its central bank pals to lend metal, throwing to the
wind any concerns they may have about the solvency of their counterparty
and/or about their need for metal as Y2K approaches. This action would
keep the Gold price and Gold's interest rate tame, much like what has
happened since 1996.
2) The Fed gets more central bank pals (like Bank of England) to
dishoard Gold. This option would accomplish much the same as #1 above.
3) The Fed brings in the federal government to intensify its anti-Gold
media campaign. The nameless 'specs' are about to get bombarded with bad
press if Gold begins to rise. The Fed will arrange with the media to get
many quotes from friendly sources talking up what the Fed wants you to
hear. Left unsaid of course will be the huge short position in Gold
established over the past few years with central bank connivance, which
has created today's abnormal conditions in the Gold market and made a
squeeze possible.
4) The Fed gets the federal government to force the IMF to sell some of
its Gold and/or to return Gold to its members, which will then be loaned
and/or dishoarded by them, thereby providing enough metal to postpone
the squeeze. These actions would also allow the abnormal conditions in
the Gold market to prevail somewhat longer.
5) If all else fails, then the Fed asks the federal government to close
down the Gold market and/or to confiscate Gold like Roosevelt did in
1933, thereby providing the opportunity for them to get their hands on
enough metal to relieve the squeeze. This time though, the Fed would
probably get most countries to participate in the closure/confiscation
as well.
But if #5 happens, then I think the implications will be even far
greater than just trying to prevent a Gold squeeze. We will in that case
be witnessing the end of fractional reserve banking, a system fostered
by central banks since the creation of the Bank of England in 1694. In
other words, it will mean the end of the cartel given by governments to
commercial banks to bilk a country's citizens in exchange for the power
that commercial banks, through their ability to create fiat money, give
to governments. What power is that?
Governments survive on fear and power, but they cannot create bullets
out of thin air. So what do they do?
Through their captive central bank and partners in crime, the commercial
banks, governments create money out of thin air to buy bullets. This
observation explains what central banks work so hard to preserve, but
the implementation of #5 above will show how desperate the central banks
have become and how little power they have left to prevent a systemic
collapse. There are parallels to the waning days of the Soviet Union,
which could not in the end prevent the fall of the Berlin Wall, let
alone the collapse of its unconscionable people control system.
In short, banks and governments will no longer have the ability to work
hand-and-glove toward their objectives, extortionate profits for the
banks and unbridled power for governments. And it won't be a pretty
sight.
The ultimate irony? The worst predictions of the Y2K doomsayers come
true, but not because of computer problems and glitches. Rather, the
monetary system built upon nothing but promises collapses because people
finally realize that sometimes promises mean nothing, and if promises
mean nothing, then the money from a monetary system built upon promises
is worth nothing.
Le Metropole Cafe
lemetropolecafe.com
|
