Peter,
Again you could be right :-)
Here's the full text for ALL:
5:50p EST Sunday, February 6, 2000
Dear Friend of GATA and Gold:
I know that we're all hungry for gold market commentary
this weekend, so here's GATA Chairman Bill "Midas"
Murphy's latest analysis at www.LeMetropoleCafe.com.
Please post this as seems useful.
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
* * *
THE YEAR OF THE GOLDEN DRAGON
By Bill "Midas" Murphy
www.LeMetropoleCafe.com
February 4, 2000
Spot Gold $310, up $23
Spot Silver $5.56, up 32 cents
Friday's Action
There is no point in reiterating in detail what set up
the fireworks in Friday's gold market, as it is covered
in the Feb. 3 Midas commentary. Suffice it to say that
Murphy's Law made its way onto the financial scene in
typical fashion for the big gold shorts. That is,
everything that could go wrong for them is doing so at
the worst possible time.
Rumors continue to circulate that Hannibal Lecter
(Goldman Sachs) and one of the other Hannibal Cannibals
(Deutsche Bank) have suffered massive trading losses as
a result of the sudden and sharp yield curve inversion
and swift move up in the bond market. It has hurt
financial institutions that were "long" the short end
of the curve and "short" the long end -- or the 30-year
Treasury bonds. It also hurt financial institutions
that were short Treasuries as a part of routine hedging
practices.
A Cafe member who is a European bond dealer tells us:
"Persistent rumors are flowing in that three players
are caught in playing mortgages against the govvies in
the 30 years in U.S. dollars with a probable loss of 2
billion USD."
Another plugged-in Cafe member told me Friday morning
that he knows for a fact that a UBS asset-backed
mortgage package went under water to the tune of 5 or 6
points. Massive losses have been incurred. If it
happened to UBS, it happened to many banking firms,
according to our connected Cafe member.
Simply put, UBS put together a package of mortgages by
buying them with the intention of selling the package.
To hedge its interest rate risk, UBS sold 30-year
Treasuries. When the Treasuries soared unexpectedly in
price before the mortgage package was sold, the hedge
went under water.
Some financial institutions such as Goldman Sachs may
have more complicated problems as a result of the surge
in Treasuries. Word from another informed Cafe member
is that Goldman was massively short gold with the
"carry trade" on. Reportedly Goldman sold millions of
ounces of gold borrowed from central banks and took the
proceeds and invested in a yield curve play of some
sort. It appears that Goldman also got caught going the
wrong way in the trade by being short Treasuries.
That fits. On Wednesday and Thursday I reported to you
that Goldman Sachs was by far the big gold buyer. That
is when the losses in the yield curve trade began to
accelerate as Treasury bonds soared in price. If
Goldman Sachs was getting out of a credit market trade
gone bad, it would make sense that it had to buy back
some gold shorts too.
On Friday, when I sent out the bulletin about massive
buy stops just above the market, I mentioned that our
sources said Goldman was going to sell gold into those
buy stops. Since the floor knew of these stops, it is
now obvious that Goldman planted that story, as they
were not sellers at all. Later in the day Goldman was
buying gold call options in frantic fashion.
More bad news for the shorts came Thursday night when
the following story was distributed by Bridge News. It
was an extremely bullish story for the gold market
that, astonishingly, most of the wire services did not
even bother to send out. Certain bullion dealers we
know and other gold industry people had no knowledge of
this:
"Milberg Weiss Announces Class Action Against Ashanti
Goldfields Co. Limited.
"Notice is hereby given that a class-action lawsuit was
filed on February 3, 2000, in the United States
District Court for the Eastern District of New York on
behalf of all persons who purchased the common stock of
Ashanti Goldfields Co. Limited Inc. between July 28,
1999, and October 5, 1999, inclusive (the 'class
period').
"If you wish to discuss this action or have any
questions concerning this notice or your rights or
interests with respect to these matters, please contact
www.milberg.com.
"The complaint charges Ashanti and certain of its
senior officers with violations of the Security
Exchange Act of 1934.... The complaint alleges that
defendants issued a series of materially false and
misleading statements concerning the company's hedging
strategy, ostensibly designed to protect Ashanti
against fluctuations in the price of gold. The
complaint further alleges that defendants' statements
during the class period misrepresented and concealed
the true risks presented in the company's hedging
strategy, ostensibly designed to protect Ashanti
against fluctuations in the price of gold. The
complaint further alleges that defendants' statements
during the class period misrepresented and concealed
the company's exposure to the volatility in the price
of gold. On October 6, 1999, the complaint alleges,
Ashanti announced that its hedge book had turned
'negative' by over $450 million and that the company
would be required to meet massive margin calls, which
it did not have the capital to meet. In response to the
company's belated disclosures, the price of Ashanti
common stock fell over 56 percent to close at $4.125
per share on October 6, 1999."
This is a major development for the gold industry and
it was barely reported except by the likes of the Cafe
Thursday night. Tack that on to the other under-
reported announcement last week that the European
central banks may be required to send 747 tonnes of
their gold to the European Central Bank as part of
increased reserve requirements. The Cafe reported on
this bullish development too, while the mainstream
press and commonly quoted gold analysts went comatose
and barely gave it wire service/press mention.
This is potentially very bullish news because this
decent amount of gold will not be available for sale or
lending in future years as the gold bears have claimed
would be the case.
The Ashanti lawsuit is extremely bullish news as it
puts senior gold producer executives and board members
on notice that they might be sued personally if overly
aggressive hedges damage a stock price in a sharply
rising gold market.
The theatre of the absurd played out again behind the
scenes with this scenario: Esteemed boards of directors
of heavily hedged gold producers are choking because
the gold price is exploded, something they should be
thrilled about. Think of how incomprehensible that
would be for any other industry that sells a product.
In Thursday's commentary I pointed to how the yen move
in 1998, the gold move of last September, and the
recent bond market moves have been violent,
unprecedented, and ruinous to certain financial firms.
It appears that the derivative-related blowup of Long-
Term Capital Management and its subsequent bailout did
little to stop the derivative trading frenzy for firms
seeking greater and greater profits. Greed and hubris
thrive.
Few market participants were prepared for the lightning
speed in the yen, bond, and gold moves. That is why
there was so much pain for those on the wrong side of
the trade. If there is anything to this "new era"
market talk, it is that the trillions of dollars of
derivative trades out there are causing certain markets
to move with force and speed like no one has ever seen
before or is prepared to deal with.
Market meltdowns or meltup, are likely to occur with
even greater frequency. The leading candidate now is
gold.
Same basics that long-time Cafe members are aware of:
There is a 120-tonne monthly supply/demand deficit at
$285 gold, with around 10,000 tonnes of gold already
lent out by central banks.
The big shorts have been counting on producer forward
sales every month to fill the monthly supply/demand
gap. But Placer Dome just announced that it will
deliver into forward sales as they come due but not
sell forward anymore as has been the company's
practice. Gold shorts can color that future gold supply
gone. Barrick Gold may do the same. The pressure will
be on other producers to follow suit.
The reason for the pressure on hedged gold producers
could not be more obvious. Press reports credited
Placer Dome's announcement as the reason for Friday's
$23 rally in the price of gold. Does that mean that if
five other major gold producers announce the same sort
of restriction of hedging, the gold price will rally
$115?
If just one announcement can have that dramatic effect
on the gold price, shareholders will scream for all the
heavily hedged producers to do the same thing.
Gold share prices soared on Friday. One has to wonder
what has taken the producers so long to make moves such
as Placer's. Do shareholders of gold producers want
their companies to reduce hedging and have their
investments double or triple in value because of
soaring gold prices? Or do they want what they had the
past couple of years: big hedges on the books and share
prices in the dumpster?
The pressure on Barrick Gold will be immense when it
makes a financial presentation to analysts Monday.
Placer President Jay Taylor said Friday that "the
industry needs to do its part" -- in essence, Reuters
reported, "issuing a challenge to other producers to
rethink their hedging stances."
If just Placer Dome's announcement can move the price
of gold up that much, then how can Barrick tell
financial analysts that it will not change its hedging
policy? My guess is that if that happens, many
financial analysts will just go home and sell Barrick
stock. It would be a disastrous decision by Barrick and
probably would be made only if the call comes in from
Washington to do so, which would be further evidence of
U.S. government meddling in the gold price.
One more thing. Let us bring back Ashanti and its
hedge book with its hundreds of millions of dollars in
losses. What is to be done about that? If Ashanti's
hedges have not been covered, its losses are mounting
again. How many other Ashantis or Cambiors are out
there? There have to be other overly hedged and
therefore exposed gold company blowups ready to surface
on the next sharp rise in the price of gold. With the
class-action lawsuit having been brought against
Ashanti, top brass at these companies are going to
freak when they realize the implications of the
lawsuit.
That is just one more reason why Barrick's executives
better get their act together and start making
decisions that at least look responsible. If they do
not follow Placer on Monday and curtail their hedging,
and the price of gold still explodes, creating hedge
problems for Barrick along with a faltering Barrick
share price, the Barrick bigshots will be in scalding
water.
That is a no-brainer, and the Bushes and Mulroneys and
other big names on the Barrick board will be getting
their own wakeup call, if they have not gotten one
already.
Barrick Chairman Peter Munk is supposed to be on CNBC
on Tuesday morning. That should produce a smile.
Here is some additional input from the www.kitco.com
web site about what Barrick will do on Monday:
"Copyright ¸ 1999 Gambler/Kitco Inc. All rights
reserved.
"There's a rumor that Barrick is suspending their
hedging activities, as posted by GATA. This is
completely true!
"I was hoping to post this information on Tuesday but
was too busy.
"I had lunch with a client/friend of mine who has a
brother in Barrick management. The brother told his
sister to buy Barrick calls because an announcement
would be made the following week about the suspension.
"The real news is that not only has Barrick decided to
suspend its hedging, it has reversed course and has
been COVERING a portion of its forward sales. The last
gold price rise in September spooked management and of
course inspired investor dissension.
"The brother could not be more specific about the
amount covered and was very uncomfortable spilling the
beans that they had covered.
"A similar situation occurred back in January 93 when a
different client/friend and I were having lunch with
her brother, a vice president of Upjohn. He encouraged
his sister to buy calls, as Upjohn was going to make an
important announcement concerning an AIDS inhibitor
drug. I bought thousands of out-of-the-money calls, but
the announcement didn't come until a week later on CNBC
and it turned out that Upjohn didn't get the FDA
approval. So sometimes even hearing the news from the
horse's mouth is no guarantee."
It is not just Placer Dome that has issued a challenge
to other gold producers:
"Gold Fields slams industry hedge addiction.
"By Darren Schuettler
"Johannesburg, Feb. 3 (Reuters) -- Gold Fields Ltd.,
the world's second biggest gold producer, said on
Thursday it was insane for companies to keep major
hedge books that had depressed gold prices and made new
projects uneconomic.
"Gold Fields, which bought back the bulk of its hedges
last year, also urged institutional investors to
pressure companies to ween themselves off hedging.
"'I don't think hedging is appropriate at the level and
the scale it has developed in the mining industry,"
Gold Fields Chairman Chris Thompson told analysts after
releasing the company's quarterly results.
"'To sell ounces in the ground at $270-$280 (an ounce)
when the price of replacing them is $350 (an ounce) or
better is just insane."
"Thompson has publicly criticized the industry's
hedging practices since Gold Fields repurchased most of
the 1.8 million ounces committed to forward sales and
call options.
"The company still has about 200,000 ounces of forward
sales required for its Tarkwa gold project in Ghana.
"Thompson said he was not opposed to hedging to protect
particular assets or if it were required by lenders to
fund a project. But the industry's level of hedging was
out of control.
"'When it gets to a scale where the top 10 mining
companies in the world have over 70 million ounces
hedged ... it has led to a lower and lower gold price.
"'If we collectively continue to do that, we're going
to ensure that no new mines are developed and ... you
actually have to write down reserves."
"Gold Fields had seen its mineral reserves fall to
about 74 million ounces from more than 90 million due
to the lower gold price, he said.
"'I think it's time the institutional investment
community point that out to the mines, that they
shouldn't do it. It's not in our interest.'"
"Thompson said the industry should take a broader view
of the market. 'It involves looking at overall industry
and community attitudes to gold and the image of
gold.'"
"He said it was still very difficult for the public to
buy gold, noting that the recent UK gold auction was
largely restricted to institutions.
"'There is a lot we need to do as an industry to start
to look at making gold available to the public and
create a market for it,' he said."
This kind of talk is what Barrick is going to hear from
the gold fund managers attending its financial meeting
on Monday.
Three days ago most establishment gold analysts were
all neutral to bearish about gold. You could find nary
a soul in the media citing bullish gold market
commentary. Now the establishment crowd is scrambling
to come up with reasons for the new bullish scenario.
Placer Dome's announcement is about the best they can
do.
Normal markets do not trade as gold has done recently.
Trade into oblivion in the $250s; explode $84; go back
to dullsville trading $50 off its October highs; and
then trade up $23 in a day out of nowhere.
If you don't understand or start from the premise that
the gold market has been manipulated by certain bullion
dealers and, most likely, the U.S. government, then you
are clueless about what is going on here.
Unfortunately, that encompasses almost all of
mainstream gold analysts and gold market press. We know
that is the case because even the possibility of a gold
market manipulation is seldom mentioned in most
publications and they won't even print the name "GATA."
As proof for what I am saying, note what two recent
gold price runups have in common. Both involve events
that affected the bullion dealers. The first runup was
due to the surprise Washington Agreement that limited
European gold sales and lending, and the second was
accompanied by the omnipresent market talk that two of
the most important bullion dealers involved in the
manipulation (Goldman Sachs and Deutsche Bank) had
massive bond trading losses because of the swift
inversion of the yield curve.
As I reported Friday, Goldman was buying gold futures
and gold options in panic fashion. Why?
>From Cafe member John M.:
"I heard from the guys at Bema Gold that they heard
that a fight broke out between Goldman's traders and
another group of traders. Goldman was trying to buy
Gold and the other group, possibly Mitsu, was trying to
keep a lid on the price and knock it. But fighting on
the commodity floor may be normal, I don't know."
The bullion dealers have been manipulating the gold
because for years they have been making a fortune with
the gold carry trade. Borrowing gold from central banks
at 1 percent interest, selling the gold in the physical
market, and investing the proceeds in the financial
markets. Rumors surfaced yesterday that the Goldman
carry trade was blowing up.
>From a Cafe member in South Africa:
"Strong rumors abound that Goldman has taken over the
Ashanti hedge book and has started to dismantle it."
Goldman Sachs was Ashanti's main investment adviser and
received very bad publicity in the Financial Times for
its conflict of interest there, so who else do you
think is on the hook in the end for Ashanti's problems?
Remember, way back in October and days after the
Ashanti blowup, I reported to you that Ashanti Chairman
Sam Jonah told a Cafe colleague that "Goldman is
squeezing our b's."
Time and time again you have heard me say that $290
gold was key, because most of the gold loans were
rolled over at around that price, or a bit less, over
the past two years. A move above that price by more
than $10 makes the gold loans expensive. A $50 move up
is a catastrophe for the gold loans. At $310 gold the
gold carry trade is already becoming a bummer, as
happened last fall before the market was cajoled back
down by the orchestrators.
That means that, for the moment, the manipulation crowd
has lost control again -- maybe for good this time. If
I am right, only a staggering central bank bailout will
save big gold shorts.
Can that happen, a la the obviously politically
inspired Bank of England announcement? Sure, but GATA
is breathing down their throats this time. Congress is
starting to be all over this scam. If the U.S.
government increases its role in the gold market
manipulation, there will be hell to pay down the road.
Someone will most likely have to pay a price for the
ruse by going to go jail at some point.
Just today GATA received this:
"I am an investor who has a number of positions in the
precious metals. Thus I have an interest in the success
of GATA in regard to the possible manipulation of the
gold market. To that end, I may be able to assist your
efforts.... I represent my friend Speaker Hastert in
the Illinois General Assembly.... I know Denny is a
very busy man, but I can probably arrange time for you
and possibly other GATA members to meet with him and
prevail upon the speaker of House of Representatives to
get answers for the questions you have raised."
That is on top of Senators Lieberman, Dodd, and Gramm
and other congressmen all asking the same questions and
looking for answers.
It is not just Congress that has been made aware of
collusion in the gold market. Dow Jones Theory guru
Richard Russell said this on Friday to his subscribers:
"Remember this -- rising gold is the LAST thing the Fed
wants to see. Rising gold, though nobody seemed to have
noticed it today, will be in the financial headlines if
it continues. Rising gold is the market's way of saying
that inflation is in the hopper. Greenie knows what
rising gold means, and if gold continues higher, you
can most definitely expect higher rates out of the Fed.
Rising gold is a red flag waving under the nose of the
Green man.
"Can the Fed stop gold from advancing, maybe through
sales of futures via the Exchange Stabilization Fund? I
don't think so, not if the primary trend of gold is
actually in the process of turning up. The situation is
now very interesting. And gold, it seems, has finally
awakened from its long, long sleep."
This from hawkeye Marshall Auerback in London:
"Read what the largest bond fund manager in the world,
Bill Gross from PIMCO, has to say in his Feb. 3
commentary about Greenspan underwriting stock markets.
See particularly Pages 3-4 on their web site:
pimco.com:
"'Stocks and therefore bonds are the object of policy
and not the tools of implementation.'"
Bill Gross virtually says that Greenspan has rigged the
bond and stock market. This is extraordinary copy. If
Gross is correct, is it not clear that government is
manipulating the gold market too?
Gross'sstatements are to the stock and bond market what
GATA's statements have been to the gold market.
Almost lost in the commotion on Friday was that silver
rallied 32 cents to close at $5.56. The sky could be
the limit for silver as I have been saying for a year.
This strong rally is of particular note because it may
signify that the manipulation crowd is in trouble. On
the late-September runup, silver went higher but with a
great struggle.
Silver was no great shakes Friday either until the
Placer Dome news broke. Then it rocked. That is what
makes me think that some members of the collusion crowd
knows the jig is up and may have decided to abandon
their silver scheme of selling silver on rallies so as
not to encourage buying in the gold market.
Not only was silver strong but the CRB closed in high
ground at 213, a new high for the move. March crude oil
closed in contract high ground at $28.70 per barrel
with the crude products just as firm. The average
hourly earning index and prices-paid component are also
on the upswing. All of this has inflation watchers
rightfully concerned.
This will make any manipulation of the gold market and
holding down the gold price more difficult.
So what does all this mean for the gold price and for
the share prices of the gold companies of your choice?
Many of you are concerned that Friday's move up will be
just another blip.
Let me begin by prefacing what my thoughts are with
this email from Cafe member Peter S.:
"Recently I've noticed that the lease rate is very low,
0.5 percent, which suggests that plenty of gold is
available for lease (possibly from the U.S. Treasury)
but there are few takers.
"As memory serves me, this is quite the opposite of the
last spike in gold, which occurred when lease rates
were much higher. This suggests that the latest gold
spike is due to a dearth of lessees willing to take the
risk of runaway gold prices, while the first spike was
due to the perception that the amount of leased gold
was going to dry up. This is an important difference
that in no small part has come about as the result of
GATA and LeMetropoleCafe. You have changed the market
perception in a major way."
Pete is right-on. The risk of borrowing gold becomes
more apparent by the day. Who cares if the lease rate
is 0.4 or 1 percent? None of that matters if the gold
price can go bonkers to the upside in hours and thereby
turn a 1 percent gold loan into a 25 percent gold loan
-- or worse, due to having to pay the gold back at a
higher price than it was borrowed at.
The "such a deal" gold loan is becoming a dinosaur. The
supply hitting the market from those trades will
disappear.
That is a big blow to the manipulation crowd. Things
are going to get more painful for them.
There is no reason we could not see $365 gold this
coming week. Why not? Friday's action was more
explosive early in the move than in late September.
That may or may not happen, but I stick with my big-
picture outlook. It is my opinion that a fair
supply/demand equilibrium price for gold today (with
the manipulation game players exiting stage left) is
around $600 per ounce. That is the gold price I expect
to see flashing on the scoreboard before the end of the
year if the manipulation buggers have to run for the
hills.
As for the price of silver, $9.78 was my silver price
target all last year. Since the current price just
above $5 has held, too much silver has been devoured at
too cheap a price. We could see $12 silver this year.
The investment game plan all along has had that price
in mind as a realistic target. It will come. And that
is why I stayed with my favorite gold and silver
investments all this time. The risk-reward ratio does
not get any better.
The Gold Shares
On Tuesday an analyst for Deutsche Bank (one of the
Hannibal Cannibals) analyst DOWNGRADED Placer Dome. And
Placer Dome soared 24 percent the next day.
Great call!
Until Friday the gold shares were being given up for
mortsville. Nobody wanted them. My how things change in
a day. Well, not really yet. But very soon gold shares
will be the "in" thing.
One reason for the horrible performance of the gold
shares is that big gold funds are being dismantled
while portfolio managers who invested in gold shares
are being fired. For example, an entire six-man crew in
the Ohio State Pension Fund was let go. They loved the
future for gold shares -- Homestake in particular --
and were canned for it.
I have had many queries the past two months. What is
wrong with Homestake? What was wrong was the money
managers who inherited the Ohio State Pension Fund gold
share equities. They were selling since $10 and drove
the price of Homestake down to just above $6. Nothing
wrong with the company, just the misinformed judgment
of those who have just fired those portfolio managers.
That is another anecdotal sign of a major, major bottom
in the gold shares.
I am partial to the junior golds and smaller gold
companies. Many are at near-bankruptcy prices. Even
with Friday's dramatic gold price rise there was
relatively little interest in the smaller gold stocks,
with some players using the gold price rally to unload
shares into. Because of mainstream press reports, the
investing public does not believe that a big gold
market move can happen. Boy, are they in for a
surprise!
Investors will have 10- and 20-baggers in their
portfolios if they locate the right smaller gold
companies. The share price moves up of the quality baby
gold stocks will make the moves of some of the Internet
stocks look rinky-dink.
More on that in future "Midas" reports.
There are so many good juniors out there. My favorite
is still Golden Star Resources (GSR) on the AMEX. The
highly regarded generalist money manager, Julian Snyder
of Snyder Capital Management in San Francisco, told CBS
Market Watch last week that GSR a triple, or would be
fairly priced at $3 with gold at $300. He felt GSR
would be a $10 stock if gold went to $400.
Well, gold is now at $310 and GSR closed Friday at only
1 7/16. By Snyder's rationale, that makes GSR still 100
percent undervalued as of Friday's close.
I am even more bullish on GSR than the conservative
Snyder is.
There is also a little gem in Canada -- Wheaton River
Minerals Ltd. Its share price has outperformed that of
almost all the smaller gold producers over the past
year. This debt-free company is turning in handsome
profits (19 cents per share) and yet sells for only
about 2.5 times earnings. It is a profitable gold
producer in Canada and is going to swing into operation
in Costa Rica soon. A class operation.
For a pure exploration play, there is Samex Mining
Corp. It has been aggressively acquiring gold
properties in South America.
>From a recent corporate press release:
"The property is drill-ready and Samex and Chalice are
planning a drill program, the details of which will be
announced in a forthcoming news release. The Sora Sora
property lies within the Oruro-Patacamaya polymetallic
mineral belt, one of the richest precious metals
regions in Bolivia. This belt was exploited for silver
and gold in the Inca period and, on a much wider scale,
during Spanish colonial times. The property is situated
along the Coniri Structural Trend, which also hosts the
world-class Kori Kollo gold mine, 60 kilometers to the
southeast."
I met Jeffrey Dahl, vice chairman of Samex, last year
on my trip to Vancouver on behalf of GATA. He's a very
sharp guy and a big GATA supporter. I received this
email from him this week:
"We've just received our Alain Despert 'GATA' print.
Wow! The picture on the web site hardly does it
justice. This is a REAL work of art. It communicates so
very well the struggle that free-market proponents are
up against over gold. But the light has begun to
penetrate the dark recesses of the banking world,
exposing the imbalances that have been engineered to
extort inequitable returns for a select few. We thank
you for your tireless and often unrecognized efforts to
reveal the truth. Please keep up the solid efforts; the
rewards will be great. We are proud to display the GATA
flag in our office."
>From Cafe member THC in Japan:
"Happy Chinese New Year! It may be interesting to note
that we just entered the year of the Golden Dragon! I
wonder what this will bring about in the gold market.
Good luck to all in the new year."
-END-
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