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Midas du Metropole
"The Gold Market and Precious Metals Commentary"
Midas Update Special - "Blood in the Water"
The gold market recovered very smartly from an $11+ deficit today to close unchanged on heavy 100,000 plus volume. It was a remarkable comeback considering the stunning gains of the past two weeks. It would suggest that the gold market will explode in price, unless the central banks intervene!
The big news of the day was an Ashanti conference call. While the price of gold has rallied sharply, their stock price has collapsed. Investors are bewildered and furious. How could this be happening? Gold bulls wait for years for a move like this, suffer for all that time, joy of joys finally occurs and the investor gets rewarded by having his investment go into the toilet. The Ashanti shares were halted from trading today. I fear for the worst tomorrow for that beleaguered firm.
It is just not right, or fair.
Unfortunately, what GATA railed about for the past 8 months is coming to pass. What you see happening now is what I told three Congressional committees would happen when I visited them this past Spring in Washington. Long time Café members know all of this. If you are a new member, you can check all this out at the Matisse Table Library.
First, the Ashanti conference call. It was pathetic. In essence, this is what goes. Last week, they released information to the public that led investors to believe they restructured their hedge book. The impression was that they had reduced their exposure to an advancing gold market and all was well. That produced a sigh of relief from wary investors. Ashanti, and their ilk, have touted their brilliantly thought out forward sales programs to the analyst and investing world for years. Now, it has gone awry.
They are only partly to blame. It is the bullion dealers, "The Hannibal Cannibals," that have caused this mess. Perhaps, you thought my categorizing Goldman Sachs as "Hannibal Lecter," the flesh eating deviant in the award winning Oscar movie, "Silence of the Lambs," as a bit extreme. Goldman Sachs is Ashanti's primary bullion dealer. If you are an Ashanti shareholder, how do you feel about my assessment of Goldman, et al, now?
Here is one email I received today from a first class money manager:
"I have taken my loss on ASL. A shareholder class action suit, of which I would be willing to be a plaintiff, could be used to discover the transactions, contracts, actions, etc. of Goldman Sachs et al. On the conference call in progress, ASL states that the counterparties to the hedges are also 75% of the working capital revolver that is in place, seventeen total parties of which Goldman Sachs is the apparent lead."
We will look into this.
As I tell the press, Goldman Sachs shows up everywhere we turn. They have for a year now. Methinks we are on a collision course. They have messed up the gold market for some time now and are making it hard not to think that we will meet face to face some day as serious adversaries.
One more time I will STRESS the FACT that the Hannibals (Goldman, Chase, Deutsche Bank, J.P Morgan, AIG, etc.) have been feeding (either intentionally or unintentionally) disinformation to the gold producers, the press and the investing public. They have feasted off this disinformation for years. May I say it once again: this is one of the great financial scandals of all time.
Ted Arnold, of Pru Bache, is a well known "Hannibal" apologist. This is what he expounded today and naturally the press ran with it. GATA is really gaining ground with the press regarding our story about what the gold market is really about these days, but not with the mainstream U.S. press. I have now stopped calling them and that includes CNBC.
"PRU-BACHE: GOLD SALE MORATORIUM WILL BE MARKED BY "CHEATING"
London--Oct 5--"The current state of robust health in the gold market is merely a reprieve from an ultimately oversupplied market, according to a report by Ted Arnold, analyst at Pru-Bache. Arnold argued that the central banks who were signatories on last week's gold sales moratorium will remain "very overweight gold" and will "eventually cheat" on the agreement. "
APOLOGIST RUBBISH
Am I blowing smoke here about my disinformation claims? NO! NO! NO! I can GUARANTEE YOU that it will be revealed in the months to come that an "independent study" of the gold loans will acknowledge that the gold loans are at a minimum 7,000 tonnes. Just yesterday, Jamie Sokalsky of Barrick Gold told the press that the gold loans were 4500 tonnes. This is a disgrace. HE IS FLAT OUT WRONG and THAT IS WHY THE GOLD PRICE IS DOING WHAT IT IS DOING. If any of you are Barrick shareholders, give him a call and see if he will debate me on this issue. He cannot win the debate and I will prove it to him if he will meet me.
Of course, we think the gold loans are greater than 10,000 tonnes, but to blow Barrick out of the water, all I need is 7,000 tonnes which is 65% greater than they tell the public and their own shareholders. I am quoting their own Chief Financial Officer when I make my claims. How can this be?
It can only be that they are talking their own "predicament" or they are not very smart. They have been praised around the world. They called GATA a bunch of "nuts." Were they trying to discredit us because they knew we were right? Peter Munk is supposed to be this big shot, superstar whizmobile and revered in the money management world? Is he? Martin Armstrong was thought to be, too.
I want to be very careful here. I am not trying to sling mud. Rather I am trying to get the truth out there, not hurt anyone. (last week I implored the U.S. mainstream press to get out story out so the "little guy" would not get hurt- none responded.) It has been said that Barrick has been a glorified hedge fund, not a mining company. It does not take a genius to win bets if a game is fixed. For a year now, I have told anyone who would listen that the gold market was being manipulated. Did Barrick know what I knew? I am no rocket scientist, yet it was clear as day. Did they think that the omnipotent Goldman Sachs and the other "Hannibals" would never lose their grip on their "collusion?"
Perhaps, Barrick had too much confidence in the "Referee" who fixed the match. Time will tell. What I do know is that they are being besieged by shareholders to reveal what their true upside gold market exposure is.
Back to Ashanti:
They entered into a temporary standstill agreement with hedging counterparties not to make margin calls on options issued by the company.
Reuters: "Like most gold producers, Ashanti hedged part of its production using a combination of forward sales and options built on the assumption of a continuing slide in gold prices which have been declining steadily for years."
One has to wonder who gave them the impression that the gold price could only go down!
This is the down and dirty of how I see it. It is a bleak picture. In their conference call today, the investment world was made aware that for every $10 gold rises, Ashanti gets another $100 million margin call. OK, they don't have to pay. But, the agreement is only for days to a month.
If Ashanti does not have to meet the call, that means incredible stress is visiting the bullion dealers. Will they tell every client it is OK not to pay margin calls? How much money do they have to take care of everyone? When will they start blowing clients out of the water by BUYING in their market exposure? The only way out for Ashanti is a "hope trade" that the gold price will go down. As all commodity traders know, when that is your only hope to get out alive and it is made public, the market vultures will eat you alive. It is not just Ashanti that is suffering, it is all the forward sellers that entered into all these "structured deals" that the bullion dealers talked, conned, or forced them into. Cambior is floundering too. There will be many others.
How could this have happened? Simple. The Long Term Management "genius type strategy program" failed once again. Another "Black Box" blew up. Ashanti did not take into account for the fact that the gold market could conceivably rally $75 in four days. It was not in their "models." Their brilliant "stress tests" never took this into account. The volatilities on their calls they wrote went through the roof and now is causing these big margin calls. They never thought it could happen. Neither did the Nobel Prize winning partners at Long Term. Here we go again. Alan, HELP!
What is important to understand is that we are only talking about one gold producer here. What about the many others that have made the same mistake? Every gold company in the world that has substantial hedging programs in place is in emergency board meetings now and being besieged by their shareholders.
The situation is explosive! All is not well for Ashanti or for any of the other gold producers that have no idea of what hand they have been dealt by the "business oriented," short sighted bullion dealers.
As this Ashanti news is spread, the pressure to cover forward sales will intensify. In that kind of environment, the price of gold can do ANYTHING. If we see $390 gold, we will probably see $450 gold in blink because of all the outstanding Comex options.
I am pressed by many Café members about what to do about how to evaluate the gold producers for investment purposes. Especially about the minefield problems of the big hedgers.
My thinking is this. Go to pros who know what they are doing. Two Pros that understand what is going on right now are John Hathaway of The Tocqueville Fund and Caesar Bryan of The Gabelli Gold Fund. They both have a keen understanding of the dynamics of the gold market at the moment and are well suited to handle coming market developments.
As I suggested yesterday, junior gold companies and exploration companies that have gold reserves and gold resources in the ground are going to flourish. Many are priced now at bankruptcy prices. They are about to go up at the pace of the internet stocks.
My market trading instinct tells me that the gold price is going to explode. There is no telling how high it can go. There is a big caveat that all must be on the alert for. The European central banks do not want to unleash market chaos. They are in meetings now trying to figure out what to do and how to get away with it.
They know the bullion dealers and market manipulators are in trouble. I suspect they will try and calm things down by making some announcement. The specs are very long. It might have a short term effect negative effect. Any big bull market can get trounced early in a monster move.
No matter, it will not last. It is clear that a multi year precious metals move is underway. I cannot stress enough that it is time to look at the little guy gold companies. They were given up for the mortuary two weeks ago. They are priced at bargain basement or bankruptcy levels. They will go up 3 to 5 to 10 to 20 to 30 times in price over the coming years, in my opinion. Sound bizarre? Internet stocks did that and they do not even make any money. What do you think some of these smaller gold companies will be worth when the price of gold is $600?
Midas |
