GOLD, SILVER, PLATINUM , PALLADIUM &
DIAMONDS
The gold miners in South Africa are contemplating
another industry wide strike that could send gold
prices flying higher.
As gold hit $310 an ounce JP Morgan Chase
analysts decried that the potential for further gains
were small and an over-bought situation had
developed. Gold is now $318 and ounce. So much
for JPM predictions. This sell recommendation came
just before gold reached its former recent high and
was an attempt to manipulate the market. A letter
writing campaign to the SEC, NASD, FTC and the
New York State AG's office demanding JPM
declare its gold and gold share positions is in order.
This will put more pressure on the cartel. We have
contended for 42 years that in situations like today's
markets you can throw charts out the window
except for day trading. They just won't work. We
see the chance of a terrorist attack over the 4th of
July weekend at even money and you can't get that
off a chart nor can you get the affects of
manipulation. Let's force Morgan to reveal their
positions and in this way we can disarm them. If the
world understood that the national value of
Morgan's derivative position was $60 trillion they'd
freak out.
Pan American Silver (PAAS-OTC) has agreed to
purchase Corner Bay Silver (BAY-TOR). Under
the arrangement each common share of Corner Bay
will be exchanged for 0.54 shares of Pan American
plus 0.25 shares of a newly formed exploration
company, "ExploreCo".
Another gold analyst Fidelis Madavo, chief gold
analyst at Schroeder Saloman Smith Barney, said
on 5/22/02 "one day this gold bubble will burst,
there is a lot of concern when that is going to be."
We have had gold shares in a bear market for 22
years and after a year of moderate price
appreciation we are told by Mr. Maduro we have a
bubble. What a nitwit - these stocks are only trading
slightly above book value. In 1968-69 and 1978-80
they sold up to 150 times earnings. Where has this
joker been? From 1930 to 1935 Homestate went
from $58 to $454 a share. There is no overhead
resistance for gold. It hasn't been to the $338.50 to
$341 area since 1999. It's open sailing until the
market tires. As long as supposed professionals like
Mr. Madavo spew such stupidity, gold will keep on
going up.
Obviously silver is not as good and it does not
posses the magical qualities that make gold the
money of last resort, the safe haven of value, but it
carries intrinsic value. When gold runs up in price
silver follows and again that is what is happening.
Although there probably only is 18 months supply
above ground a silver cartel has been allowed to
operate by the CFTC. There presently is no free
market in silver. It is estimated that China sold 64
million ounces last year and it is also estimated that
they produce a surplus of 15 million ounces a year.
Last year all demand fell 10%, but in the future
silver demand for developing digital prints and
medical uses could well offset lower production and
jewelry demand. We believe any shortage of silver
demand could well be offset by investment demand
over the next few years. Once the gold cartel
collapses, so will the silver cartel resulting in
enormously higher prices.
We can see no reason to intellectualize the subject
of the Washington Agreement. We believe if the
agreement is abrogated that central banks will go
right back to dumping gold. Why should pro-gold
forces give up the one positive they have in trying
to maintain a decent price. No agreement means
letting the bullion banks and hedgers off the hook
by allowing them relief in the form of central bank
sales. These are the same banks that planned the
caper in the first place. Central banks will not
accumulate gold under any circumstances. They
have already made their decision to have a world
fiat currency. The whole episode of gold since 1986
has been one of conspiracy. GATA proved that.
There is no way back for central banks. Don't think
for one second central and bullion banks are going
to stop manipulating the gold market or any other
market.
Producer gold hedging shows a negative
mark-to-market of almost $2 billion in the first
quarter. The only company on the plus side is
Placer Dome, who is ahead $235 million. Their
break even is around $345 an ounce. Gold bullion
went from $277 to $303 an ounce during the quarter
or a gain of 9.4%. If gold remains in the $315 to
$350 range for the remainder of the year the
financial situation for Barrick and AngloGold will
look bleak and Placer's situation isn't encouraging.
The top four hedgers Barrick, AngloGold, Placer
Dome and Newmont have 50 million ounces of
hedge commitments, 50%, of which belong to
Barrick. Australia's Newcrest is offside $500 million
with six million hedged ounces and Aurion Gold has
86% of its reserves sold short. They are losing
$250 million. As a result of its inherited hedge
position from Normandy, anti-hedging Newmont is
in the soup. Gold moved too fast for them to exit.
As a result Newmont's debt has not been upgraded
by Moody's. Moody's recognized that there was no
easy quick way out of the hedges except at a huge
unacceptable cost. Making matters worse Newmont
has not been as forthcoming about its hedge
positions, as it could have been, citing concerns
regarding contractual secrecy demanded by their
banks, which is gobbly gook for a public
corporation. They are not in the business of
protecting banking secrets they produce gold. The
public has a right to full disclosure from all these
producers of not only their hedge positions but also
their derivative exposure. A description of exposure
and who the counter parties are. If gold proceeds
higher these facts are of critical concern to
shareholders. Are we to have fresh accounting
fraud scandals and overnight a collapse of their
share prices? We want full disclosure by all hedgers
and if we don't get that immediately then
shareholders should demand that the SEC
investigate these hedgers. If you remember starting
in 1992 we urged shareholders to sue
managements that hedged, but no one would move
forward on the matter. The world should know
exactly what a company's expose is in plain
English. Nine of the top hedgers have $2.4 billion
committed over the next 24 months. If gold rises
their share prices will languish, whereas the shares
of *Agnico-Eagle (AEM-NYSE) AND *GoldCorp
(GG-NYSE), non-hedgers, will flourish.
The Swiss weekly Weltwoche (World Week) says
the price of gold has always been a fever
thermometer for financial markets. On top of
inflation worries and the Middle East conflict, there
has been a loss of confidence into the US recovery
and the US dollar. Aggressive gold purchases by
the central banks of China, Russia and Japan in
order to reduce US dollar dependency of their
currency reserves, have also contributed to the rise
of the gold price. That spells big trouble for JP
Morgan Chase in particular and UBS, Deutsche
Bank, Citigroup, Goldman Sachs and AIG, which for
years have borrowed large amounts of gold from
central banks betting on a steadily falling gold price.
They sold the gold and bought high yield securities.
That gold carry trade is now dead due to low
interest rates and a rising gold price. They like
Barrick, Placer Dome, AngloGold, Newmont and
various Australian producers have to cover their
shorts somewhere along the way and take massive
losses. Once the gold price surpasses the $330
level a chain reaction will probably set in. The
situation is even more precarious as the banks are
also exposed to complex financial derivatives as
part of their gold trading. The banks could therefore
run into another disaster like the collapse of the
LTCM hedge fund in 1998, and that's the reason
they are not willing to talk about their gold
operations.
We agree with Elaine Garzarelli, "a close under
111.50 in the US dollar index is technically
devastating and negates my long term bullish
outlook." Once it breaks gold will go ballistic.
For all of you disbelievers who didn't listen Barrick
is up 70% since November 2000. The remainder of
quality gold shares are up 400 to 700%. Barrick is a
hedge fund designed in 1986 to suppress the price
of gold for central bankers. Any mining company
hedged out over one year has no intention of
reopening the benefits of higher gold prices. All
hedgers should be sold, not bought. We smell a bit
of pity among some pro-gold elements. That we
should help and convince these hedgers to cover
so they won't be destroyed. They deserve to be
destroyed. These are the people who aided central
bankers and caused us billions of dollars in losses
since 1986. Why would we implore them to cover
at these levels? Let them cover at $500 or $600 an
ounce. Do you realize how many lives have been
destroyed by what these gold producers and bullion
banks have done? All these people deprived us of a
free market ? a fair chance. Why should we now be
concerned about their losses? Those who
capitulate have been here before, but have been
absent from the gold front for years, now they
return to assist the enemy in survival. Those who
have been in this sector over 20 years know what
we are talking about. Beware of false prophets and
new comers who really don't under the end game.
We are still in the embryonic stages of the biggest
increase in the price of gold in history. A break
upward over $342 an ounce would signal stage two
of four or five stages. As you are all aware central
banks, bullion houses, government and some mining
companies are working in tandem to make sure this
never happens. The central banks attempted
manipulation of gold prices in the late 1960's and it
didn't work and it won't work this time either.
Artificially suppressed prices, just like price controls,
always end up in prices being higher than they
would have been in the first place. As we stated
two years ago, the overall short position in gold
was 15,000 to 29,000 tons. It was just recently the
rest of the experts caught up with our prediction
and started using a 15,000-ton estimate. We are
faced with an 800-ton a year shortfall of gold
consumption to production and scrap and we
haven't really seen investment demand pick up to
any great degree. Mine production is falling and will
do so for the next six years at a minimum. People
just won't believe it when we go into depression,
house prices plunge, the debt bubble ends in
massive bankruptcies and derivatives wipe out the
banks, brokerage houses and insurance companies.
By then gold will be over $1,000 an ounce. This is
what a flight to quality is all about. Chaos will reign.
Let's see what the bankers' fiat money will buy
then. 75% of the world's financial reserves are held
in dollars. There are going to be some very
unhappy dollar holders out there. Interest rates will
skyrocket as the flight from currencies takes hold. It
will be very man and country for themselves. We
certainly will see the stock market at DOW 4,500.
The question really is will the DOW go to 1,350 and
will we still have a government? As it is
governments have little credibility now. What will it
be like when the economy and market heads down
and gold heads up? Will the elitists be able to
escape the lynch mobs?
London's Independent has declared that it was
Gordon Brown's decision to order the Bank of
England to sell part of its gold reserves costing
British taxpayers $650 million. Tory shadow
Chancellor Michael Howard said: "This episode
sheds new light on Gordon Brown's so-called
reputation for competence. This is an example of
gross incompetence, which has cost the British
taxpayer dear." Finally after four years the truth is
known. When the Bank of England made its public
declaration to sell, Germany, Australia, Switzerland
and Canada were also sellers, which has all the
appearances of coordinated manipulation. They
were desperate and they still are desperate. Unless
central banks are willing to sell-off the rest of their
gold they had best get used to the fact that the price
is going much higher.
Placer Dome has launched an unsolicited offer to
buy Australia's Aurion Gold Ltd. For 17.5 of its
shares for every 100 Aurion shares or US$2.51per
share or 30% over present market value. The
merger would create the fifth largest gold mine.
Aurion has a hedge book position of 86% of its total
reserves, which we find a dubious target for Placer.
A reduction to 60% over the next two years is
totally inadequate in today's gold market. We think
the take-over is stupid and we recommend again
the sale of Placer Dome stock. They remain along
with Barrick and AngloGold and a host of
Australians in the mining hall of shame. What can
management be thinking of? They must have been
lobotomized.
Australian first quarter gold production was 65.7
tons down 4.5% from the December quarter and off
9% from the first quarter in 2001. It was also the
lowest quarterly output since September 1995. This
is the result of little exploration expenditures over
the last five years.
A silver squeeze may be in the making. The
inventory since April 15th has dropped from 103.58
ounces to 73.2 million ounces.
The timeline for the Ashanti hedge book, which
with the assistance of Goldman Sachs blew-up, is
December 31,2002. That's when the margin has to
be covered. Gold should be at $384 an ounce by
then and Ashanti will go the way of the dodo bird.
On 5/29/02 Goldman Sachs recommended the sale
of three gold stocks and was negative on the group.
When asked by CNBC if they owned these stocks
they said they were short and long. We have an
unimpeachable inside source that tells us that they
are 98% short and 2% long. That is why CNBC
refuses to ask real probing questions just softballs.
Open interest in silver increased to 98,766 contracts
on 5/29/02. This gets more explosive every
day.Word out of the Middle East is that gold dealers
may get some hefty margin calls soon on their short
positions. Now that central banks and governments
have sold off most of their gold at the behest of the
US and UK governments the 75% of reserve assets
that they now hold have become their worst
nightmare with a falling dollar. What a double
whammy. You sell gold and then it goes up and you
buy dollars and they go down. How stupid can they
be?
As the prospect of war raises its ugly head
investing in equities or property is not an option in
India and Pakistan. Everyone is getting into gold
even institutional investors.
Try this on for size. The US loses the $1.3 billion a
day it receives from foreigners to finance its current
account deficit. The dollar continues to plunge.
Europe and Asia panic into euros and gold. The US
housing market begins to decline, the debt bomb
explodes and JP Morgan, Citigroup and Goldman
Sachs trigger a derivatives collapse. This is all not
only possible but inevitable. Be long precious metal
assets - they are about to explode.
Bob Chapman
bif4653@comcast.net
kitco.com |
