February 11, 1999 - Spot Gold $287.60 up 60 cents - Spot Silver $5.55 up 7.5 cents
Technicals -
Quack! Gold continues to piddle around as the specs continue to lean on it and the commercials continue to buy it. It is the same old story. The gold market is bending, but not breaking. The bigger picture technicals are bullish. The long term RSI is upward sloping and does not confirm the move below $290. The chart looks like a massive head and shoulder bottom pattern with the right shoulder looking like an elongated bullish, flag formation, that could portend quite the move to the upside.
The gold trading volume on Comex has been nothing to speak of and the open interest has been fairly steady in the low 183,000 area. We still see a pop to the $300 area in the short term. The wait has been a tedious one.
Last night, Midas received a call from John Brimelow that someone was noticeably marking down the silver price in Australia. Someone wanted to make it appear that the price of silver was about to fall out of bed- as it was announced in the late afternoon that the Comex silver stocks had gone up some 600,000 plus ounces.
In the last Midas, after noting that silver hit our short term $5.80 target almost to the penny, we suggested that silver was technically overbought and corrective action would be natural. We also suggested it would not be the first time a big time trader, who was in fairly good control of this market, sold some of his position as the price approached the $5.80 area and then put some of his physical silver into the Comex warehouses to make it look as if the silver market was weakening. Our guess was that after Mr. Strong Hand knocked out some weak hand specs, this big time operator had a plan to buy back the part of his position he sold. Thus far, we must say, that is exactly what it looks like is happening.
If our own assessment is on target, the silver setback has basically run its course and, after some backing and filling, we should see new highs for silver in the weeks to come. We still see $9.78 by year end.
Fundamentals -
There are some of us that believe the price of gold would be between $400 and $500 today if it were not for unnecessary forward selling by producers and the incredible, long term short positions built up by speculators. The speculators continue to lease ( borrow ) gold and sell it into the marketplace as the gold loan rates are low ( say 1% ). They are borrowing this gold under the cover of the producer forward selling and comments from central bankers like Alan Greenspan, who winks at them by saying publicly that "central banks stand to lease gold in increasing quantities should the price rise".
That set up reinforces the speculators concept that they can borrow gold with impunity. They are being led to believe that there is virtually no risk in having to pay back their principal at much higher gold prices. Much higher gold prices would make a cheap loan, a very expensive one, and would most likely end the gold carry trade, just as a higher yen has suffocated yen speculative borrowings
Take a premier producer like Barrick Gold Corporation for example. They have been providing cover for the specs up till now. This is how it could all change. As a guesstimate, they could now book some $800 to $900 million in hedging profits by buying back their forward sales at present day gold prices. All that buying would boost the price of gold as there already is a natural supply/demand deficit that is greater than 1,000 tonnes. After they were done buying, they could announce that the buy back had been completed. Other producers would then most likely follow suit and buy in their hedges too, as Barrick is a leader. All this buying would turn the technical systems bullish, and the black box gold buying would kick in to boost the gold price up even further.
Right about then, the gold lease crowd would be mighty nervous. Most likely, many of them would also decide to cover. The "in crowd" hedge funds would certainly get a drift of what was going on and some would put on monster long gold positions to take on the 3,000 short position that the specs ( the borrowers among them ) now have on.
This is not wishful thinking. All Barrick has to do is shake a tail feather and get off the pot. Do you think Barrick shareholders would object to that scenario that we have just laid out?
In Barrick's recent conference call, they made mention of cajoling the central banks for greater transparency in their gold dealings. If Barrick is serious that they would really like a higher gold price, why do they not show some leadership? They could probably orchestrate it themselves.
Instead, Barrick tells us about their new "premium gold program" - a fancy word for hedge - and a need to sell forward to enhance the project economics of their new project Pascau in Chile. This is a 20m oz project that a US$350/oz. (this is where they need the hedging) gold price is needed to make it work and a US $950m investment generates only 10% internal rate of return. This opens up a number of questions?
1) Why would any sensible company go to the trouble and risk of developing a gold project 4,600m high up in the Andes for such a meager return?
2) Why would any sensible central bank lend gold to help finance the development of another 20m oz. which would hit the market and keep prices low thus depressing the value of their existing oz.?
3) How does Barrick grow its profits without this project in a flat gold price? - isn't it time for them to take action that will boost the gold price for the benefit of their present shareholders?
4) Barrick, amongst others, criticizes central banks for selling their gold out of reserves when they are effectively doing the same, hypocritical?
To: Peter Munk, Chairman - Barrick Gold Corporation
From: Bill Murphy, Chairman - Gold Anti-Trust Action Committee
In behalf of the GATA committee, we invite Barrick Gold Corporation, a significant leader in the gold industry, to support us in our effort to focus on various injustices that have devastated your gold industry and have left goldstock shareholders completely demoralized. We would be happy to come up to Toronto to explain our course of action to you and so that you may get to know us as individuals.
Thank you for your consideration.
If any of the www.lemetropolecafe.com members are Barrick shareholders ( or are unhappy shareholders of any gold stocks ) and agree with our approach, we would appreciate it if you would send our request for support to Chairman Peter Munk.
Potpourri and the Gold Shares -
The XAU closed at 63.16 down .59 and showed no signs of life today.
The silver lease rates are still very firm at 3.19% for the one month rate and 4.63 for the six month rate. Compare those to the gold lease rates of .77 for the one month and 1.1 for the six month. The silver market is much tighter and in much stronger hands than most observers understand.
The Australian and Canadian dollars look very healthy from a technical standpoint. That might bode well for us as these countries are very commodity based. Perhaps this is a tip off of a commodity turnaround coming fairly soon. You would not know it by the action of the CRB Index which made a new low today to around 187 and change.
The quack of the Merrill Lynch duck is louder by the day. We made mention in the last Midas commentary that the US Mint cannot mint gold coins fast enough. Demand has stampeded supply. After the Long Term Capital Management fiasco, Merrill Lynch ceased its gold coin sale operations. A Le Metropole member explained to you, also in the last Midas, that he could not understand why they stopped coin sales, as business was booming.
Another Le Metropole member who lives out west was very surprised himself. He knows that sales in Oregon, for example, have skyrocketed. Oregon has no sales tax. They have buyers coming in from Washington, California and Vancouver by the droves to buy gold coins. Closing Oregon down makes no sense.
Then, one more Le Metropole member sent us even more food for thought. "Merrill Lynch has exited the entire retail gold market - true, but only from the buy side. They continue to take orders to sell. Their position is that the coin market was always a loser for them. They say their willingness to take sell orders is as a service only. Of course, if you are taking no buy orders, but still accept sell orders, which side of the market are you supporting?"
The NASDAQ had a record day today. How did your gold stock do? If it were not for the greedy manipulation by the gold borrowing speculators, the price of gold would be on its way to that equilibrium price of $400 to $500 per ounce. That is the general price that will be required to ration fabrication and investment demand for gold against the supply that will be available.
I do not know about you, but Midas is mad as hell and is not going to take it any more.
Randall Oliphant, Chief Financial Officer of Barrick Gold Corporation, is going to on as a guest on Canadian Investor tomorrow afternoon ( February 12 ). It is CBC's Roundtable Discussion Online Discussion Forum. It says that if you have questions or comments for Randall, you should email them to: newsworld@toronto.cbc.ca. The web site address for newsworld is: newsworld.cbc.ca
Randall Oliphant is a fine man. Just like Peter Finch bellowed that great line out the window in the movie, Network, GATA asks you to stand up and be counted. Send an email to Randall at CBC and let Barrick Gold know where many of us gold shareholders are all coming from. Let Barrick know we have tremendous grass roots support via the internet. Let him know that you want Barrick to take a strong stand against the forces that are REALLY suppressing the price. Ask Randall to tell Mr. Munk, there is an army out there that daily is growing very rapidly and watching what Barrick does and not just what they say.
GATA would like you to notify any gold shareholder you know, that is not happy with the status quo, to send Randall Oliphant an email for a call to action. After all, Barrick is responsible to its shareholders and they are of us. The internet is changing the world. Through this powerful medium, all of us are going to change the gold world too.
You may think this is too big a battle for us-fighting the Wall Street Giants, etc. You might say it is a David against Goliath sort of thing. David won.
Midas and the Three Cyberteers
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.
|
