MMV.
Thanks so much. Here is my latest. David Tice of Le Metropole was on CNBC articulating the bear case today. Our Charles Peabody is on fire. Check us out lemetropolecafe.com.
Here is my latest. Bon Soir.
Bill
Midas du Metropole
"The Gold Market and Precious Metals Commentary"
Q. Little Bear is in the 'doghouse'. Which table do you think he'd be under ?
A. Gold, of course. But he is hopeful.
January 14, 1998 - Spot Gold $286. 80 up 40 cents - Spot Silver $5. 165 down 2 cents
Technicals -
Fasten your seatbelt. The bears called in Coxie's army in a futile, desperate attempt to bury the gold price. It did not work. A well known bullion dealer sold hard yesterday, trying to defend its massive short position. The "Goon Squad" has been waiving the bear flag ( see below ) and leading the charge. The specs said yes, and sold heavily too. Yesterday, the open interest jumped 9100 contracts to 181,502 contracts, which is almost 40,000 off the recent lows. The specs are heavily short and the commercials heavily long. That should be confirmed in tomorrow's CFTC report. The gold market has bent, but not broken, again. We suspect the market is set up for a big rally.
The price action of silver continues to impress. Yesterday, it closed on the high of the day and 12 cents off its lows. Today, the shorts bombed it relentlessly, but it came back ten cents off the low again and closed near the high of its daily range. A bearish silver market never does this. If the market were bearish, it would close near its lows - open a penny higher the next day and then tank. The bears tried for two days but could not even close the gap left at $5.04. We now have had a very healthy correction in silver and cleaned out weak longs. The market is set for a move up to $5.80 in the weeks to come.
Fundamentals -
Listened to a Scotia Capital Markets conference call today. It was a very good one and I picked up some very valuable tidbits of information that ties into what we have been telling you at Le Metropole. Before, I wander into what we consider the juicy tidbits, I was surprised how uninspired their analysts were about the upward price prospects for gold and silver for 1999 ( although one does see a rally coming ). Not one was very bullish for any length of time. They viewed gold strictly from a commodity supply/demand standpoint. Absolutely no delving into the issues that we think should propel the prices of both gold and silver much, much higher.
They did make comment about the European Systems Central Bank, which is an association of sorts for the individual european central banks of those countries in the ECB. There is serious discussion about whether the ECB will control their ( ESCB ) gold reserves. If the ECB does control their reserves, it would in effect raise the reserve backing of the euro to 30% from 15% as the ECB has said there will be no gold sales for the foreseeable future. In December, Midas told you that some kind of discussion of this sort was in the works:
Dec. 10 -"We are hearing more and more about a revised, increased gold backing for the euro that might come about in 1999. The number bouncing around is 30 to 35%, up from 15%. Most hot on the idea are the French. There are two reasons for this sort of talk. The first is that a big portion of the euro reserves are denominated in dollars. Many high echelon Europeans think the dollar is tapioca for some time to come. They want a strong euro, not a soft euro. The French, among others, think a more significant gold backing for the euro would be a big plus."
If an announcement such as this is made, which we think has been in the works behind the scenes for some time now, it might be the spark that lifts gold toward our $400 objective. Scotia felt the highest gold would trade this year is $320.
The other tidbit that was very informative was talk that the ECB has started to encourage its underling bullion banks to push lending gold long and restrict shorter term gold lending. In the old days, bullion banks lent gold to producers against their forward production and not to borrowers for speculative purposes. That was before banking became more gogo. Over and over you have heard us tell you of the potential of a gold market blow up because the gold loans are now too big ( possibly 8,000 to 14,000 tonnes ). We made note to you last quarter that the central bankers would start reigning in these loans as a result of realizing how large they had become collectively and as a result of the greater lending scrutiny in general after the Long Term Capital blow up. We have also told you that it was our opinion that Merrill Lynch and Union Bank of Switzerland exited this business because the knew of the lurking danger.
This bit of feedback from Scotia confirms our suspicions that this process would start occurring. The ECB central bankers know the US Fed had to bail out Long Term of their short gold position ( maybe 300 tonnes ). They know they cannot bail out everyone. Greenspan lowered rates dramatically last year to give financial institutions time to get their houses in order. All the central bankers knew they could not let the price of gold rise for the immediate period after the bailout because that event could wipe out many of the borrowers who could not find that much gold in a short period of time ( That was the is why they had to bail out Long Term's short gold position in an off market transaction ).
We have also told you to LOOK for a breaking of the ranks. Not all central banks would sit idly bye forever and let this dangerous situation go on inperpetuum. Enough time has passed since our Fed bailout and it may be they have decided to quietly rectify the situation by slowing down short term gold borrowings. No one, ECB related,individual central bank wanted to act going into the formation of the ECB. Now, it is the ECB doing the acting, and probably breaking ranks with our Fed on the gold issue, to protect their new banking entity.
Do you think we have made too much of the " Goon Squad" issue? We received a copy of "The Barker Letter" from Professor Von Braun today. Here is a quote from it about gold - Jan 14. " The Financial Times of London has reported steady sales from Goldman Sachs"! The Financial Times! Maybe they are receiving Midas?
"They also report that Goldman Sachs is the broker of choice for United States Treasury Chief, Robert Rubin". Barker goes go on to say, however, that the Financial Times does not say Rubin is orchestrating gold selling. But, we do.
There is one other concern that the bullion lenders have to have, as bankers. Their bullion banks borrow short and lend long to producers. If, for any reason, the price of gold takes off, or short term lease rates explode because there is little available gold to borrow ( say in a financial crises ), the bullion dealers could get squeezed into oblivion. And, I mean oblivion. That is why the ECB is probably taking action.
This event should be a precipitating bullish one for the gold market for the rest of this year because it will restrict some aforeto available supply of gold for "the players" to put into the market.
Potpourri and the Gold Shares -
The XAU closed at 68.68 down .84. A move above 70 is needed for the gold shares to regain their bullish momentum. It should be noted that the XAU is acting very well under the bullion and general stock market pressures of the past two days.
The Hong Kong Tael premiums were at 80 cents today which is the highest in quite some time.
Because of unpresendented demand, the U.S. Mint has announced they are out of certain type of coins and won't have any new ones minted until spring. Y2K awarenes has been a contributing factor. Other factors given for this enormous demand was the "economic calamities facing Russia, Asia and South America".
Robby Noel, co- owner of the Patriot Metal Trading group - a precious metals wholesaler - said "the demand for gold and silver coins has gone up sharply because of fears over the Y2K millennium bug and the prospect for runs on cash and because of the perception of instablility in Washington with the Clinton administration". This party is just starting.
Year end precious metals price forecasts:
Company ----------------------------$ gold --------------- $ silver
ABARE, Sydney ---------------------- 295 ------------------4.95
Barclays Capital, London ------------295 av. --------------4.90 av.
Chase Manhatten Int.-----------------310-------------------5.35
Daiicchi Commod Co Tokyo ------------260-------------------4.90
Dresd Klein Benson ------------------310 ------------------5.00
Frankel Pollak, Jo'burg -------------305 av.---------------5.65 av.
HSBS Capel --------------------------310 av.---------------5.50 av.
ING Barings -------------------------250 av ---------------5.00 av.
JB Were & Son------------------------300 ------------------5.45
JP Morgan ---------------------------280 ------------------none
Macquarie Equities Ltd., London -----310 ------------------5.25
NM Rothschild & Sons ----------------315 ------------------5.65
Precious Metals Ltd -----------------288 ------------------5.40
T. Hoare and Co, London -------------340 ------------------5.70
Tokuriki Hontenm Tokyo ------------- 300 ------------------5.00
Virtual Metals London ---------------295 ------------------5.00
Warburg Dillon Read -----------------290 ------------------5.33
Midas du Metropole -----------405 ------------------9.78
Well, what can we say. We are a little more bullish than most. What we must say is that this is one of the most uninspiring forecasts from a group of pros that we have ever seen. To us, this is most encouraging. All of these precious metals firms will be bringing in buyers since they are not very bullish at this point in time. That is why Midas says we will go much higher than ANY of them think is likely to happen. This is the kind of anecdotal bullish material we love to find. Do you wonder why they all look so similar?
The two major Swiss banks ( Credit Suisse First Boston and United Bank of Switzerland ) have broken down technically as their uptrend lines established in September have been broken. They have derivative and Brazil exposure. You are all aware that our own Charles Peabody is calling for a banking crash and is calling for a 60 to 80% drop in the share prices of US banks. This is an extraordinary call and was made as most Wall Street analysts remained bullish on the regional and money center banks. The banking index is reeling and closed down ANOTHER 3 1/2% today. We bring this up in Midas because it is what distinguishes us from the firms mentioned above.
We see gold going to $400 plus because of financial chaos, not because of jewelry buying. We say over and over that we see defaults coming, more Long Term Capitals going down for the count, and a severe credit crunch that will terrorize the financial markets. The stock investors of today know no fear. They will soon. Currencies all over shall come under attack ( the rumor today was that the Brazilian Real may be allowed to float which is contrary to all that they had previously said ). Peabody has predicted a Mexican devaluation. King Dollar is on a precipice and ready to go off a cliff. As this enfolds, gold demand will soar (see coin demand above). The shorts will have to cover. In the last Midas e-mail to you, the headline read, "We got them right where we want them". Sound the bugle!!!
After the close, the Comex silver stocks were reduced 316,584 ounces and stand at 75,904,506 ounces. There is a play on for silver by some substanial buyer. That means we have a big price move coming. We clearly see it. The firms mentioned above do not. They will.
Most of the Wall Street comments dissed the importance of the Brazilian financial breakdown yesterday. Our David Tice did not as he posted his thoughts to you at the Dos Passos Table. Today, the Brazilian market dove another 9.97%. David is the articulator of the bear case in America. We think he is right on and his forecast of a "stock market bubble burst" will also be right on the money.
Midas
Bill Murphy ( Midas )
After graduating from Cornell University, Bill was a starting wide receiver with the Patriots of the old American Football League and has been around the financial and commodities markets ever since. He owned a futures firm in N. Y. that specialized in precious metals and was a contributor to Veneroso Associates, a global strategic investment firm and producer of the 1998 Gold Book Annual.
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