The Treasury and Fed 1988-The Treasury and Fed 1999-re gold
Thank you MD for your support,
March 23, 1999 - Spot Gold $284.40 down 10 cents - Spot Silver $5.11 unchanged
Midas du Metropole - lemetropolecafe.com
Technicals -
Might as well chuck this part of the Midas for now, or just call it "Manipulations". What good is technical analysis when the colluders jerk the market around and do whatever they want with it, while pocketing money from bears and bulls alike. This is a disgrace to free markets.
Out of habit, we will note that $285, former key support is now a resistance point. The lack of volatility in the gold market is very noticeable and very understandable from what we know that is going on.
It now appears that the liquidation in silver has run its course. The open interest has gone down some 25% to a little over 75,000 contracts, the bullish consensus is below 30 and a wall of worry ( a bullish event ) will now have to be climbed on a price advance. Twice the bears thrust silver below the $5 mark, but it never closed below $5. The Indians come out with baskets wide open to fill them with as much silver as they can when the price of silver retreats into the $4's. With the CRB surging back to over 190, we see the price of silver going right back up again and still headed for $9.78 before the end of this year.
Fundamentals -
A big fundamental issue discussed around the world by President's Clinton of the U. S. and Chirac of France, among others, has been the subject of IMF Gold Sales. It is our opinion, and also that of others, that the real damage of this kind of repeated public commentary is the demoralization of the gold industry and its participants. "Why fight all of this?" is the cry that we are starting to hear everywhere. Thus, the PR campaign to diminish the role of gold and its upward price prospects has worked to date.
At the Abare Outlook conference in Canberra, Australia, Abare's senior research analyst, Christopher Allen, predicted that," gold prices will remain low this year and average about $295 per ounce. ."… He then goes on to say that expects a modest price recovery in 2000, but then " real gold prices will return to their historically easing trend."
Robert Guy, Director of NM Rothschild & Son of London, then goes on to say at the same conference that a sale by the IMF was very likely as the "proposal has broad international support".
Almost all of the mainstream investment houses have similar dismal price outlooks. These firms and individuals have wide followings and big investment money listens to what they have to say in toto. If you believe their spiel, why bother taking a serious look at the precious metals companies or the shares of those companies. Seems like a cruise to nowhere.
It would be a nowheresville trip if it were not for the many positive factors that gold market has going for it ( which we have presented to you many times ) that are not discussed by the "bear syndicate".
We sent out one of our own headlines over the weekend that said the IMF sales are in real doubt and are not a certainty. We know that this is the case after talking to the Staff Director of the Joint Economic Committee in Congress. That are putting together a serious campaign to take on Rubin and the Treasury on this issue. The IMF requires an 85% majority of the total voting power of the organization in order to authorize gold sales. The U.S. controls 17.5 % of the total voting power and for it to vote in favor of the sales, U.S. Congressional approval is required. A strong effort to confront the IMF and its policies could easily defeat this proposal that has received such headlines.
The last time the IMF sold gold, the price of gold was over $700 per ounce and that was 20 years ago. What would that equate to today? The gold sale made sense then as they were selling into a gold bubble. Selling gold at the depression levels of today makes no sense. Because of own trade deficit and national debt situation, an attack on the dollar in the future is inevitable. The U.S. should be accumulating gold at these price levels to bolster the case for a strong dollar when that inevitable attack occurs, not disposing of U. S. gold in an ill conceived IMF gold sale.
We told you that the Joint Economic Committee opposes IMF gold sales and, in simplistic terms, suggests that certain interest rates that the "poor indebted countries" now pay, be reduced. Net, net that would accomplish the same effect as selling gold, since only the interest from bond investments as a result of the gold sale would be given to the "poor countries".
The role of gold in the IMF was reviewed in 1995 according to a Yorkton Securities report. In that report they noted that in 1995 the Executive Board of the organization stated that "it was determined that the use of the Fund's gold must take into account the need to maintain and possibly strengthen the organization's balance sheet. With this in mind, the Executive Board stated that the fund's policy on gold should be governed by:
1. As an undervalued asset ( approximately US $40 per ounce ), gold provides a fundamental strength to the Fund's balance sheet.
2. The Fund should continue to hold a significant holding in gold to meet unforeseen contingencies.
3. As the second largest holder of gold in the world, the Fund must take care to avoid causing adverse impacts on gold holders, gold producers and the gold market.
4. Any sale of gold should strengthen the Fund's balance sheet. Therefore, the proceeds of any sale of gold should be retained by the Fund an only the income derived from the investment of those profits would be used for current operations."
This Midas du Metropole was sent to the Joint Economic Committee in Congress to reinforce their own agenda and to let them know that through GATA, we intend to expose the real reasons this gold sale has been proposed and the shameless collusion that is going on between the NY bullion dealers and certain investment houses to hold the price down. We intend to tell the Committee that we believe that the gold borrowings by these speculators may exceed one year's mine supply and that these loans are so sizeable that they have created a potential financial market instability in the event that the price of gold rises quickly and unexpectedly.
Based on the on IMF's own executive Board's statement in 1999, it is inexcusable to propose a gold sale in this environment. As a result of reviewing their own declarations, we think U.S. officialdom knows a sale will not occur- not after these types of reports are circulated to the Congressional opposition to the IMF ways of operating. But, they are also well aware of how negative gold talk propaganda can be effective in this type of demoralized gold market. GATA is going to do its best to combat the negative propaganda with a counter attack of some positive propaganda of our own in the very near future.
Potpourri and the Gold Shares
The XAU continues to meander, but 60 support has held like a rock. Today it fell 1.42 to close at 61.14.
AP - Baghdad - March 23- Iraq has abolished restrictions on the import of gold as it is encouraging Iraqis residing abroad to bring in as much as possible, according to a ruling by the central bank issued Tuesday. Gold brought into the country will now be exempt from tariffs.
Sources tell us that the Swiss, Germans and French banks have some bad derivative exposures and also some large LDC bond trading losses. This could easily explain the orchestration of the recent negative gold comments made by top officials of each of those countries. Le Metropole's, Charles Peabody, has been warning of a derivative blow up this spring and a banking crash since late last Fall.
Our source also says," It also explains the VERY LARGE INCREASE in lease gold supplies from European central banks starting about March 2 and very noticeable after March 8. Several bullion bankers commented on "loan liquidity".
Have times changed much over the years since Greenspan took over as caretaker of the Federal Reserve? Are there big banking problems lurking behind the scenes as a result of the many Big Banks ( all kinds ) mismanagement and incredible arrogance and greed? A big Café supporter ( Icarus ) and Café member sent me this 11 year old article that was in a prominent newspaper. We have not been able to identify the author, but I have taken most of the commentary from the article for your perusal. This piece was written some time after the 1987 stock market debacle. I cannot help but think it tells us something about what is going on behind the scenes in the gold market of today. -
"WHO'S CALLING THE SHOTS? I recently had dinner with former Fed Governor Wayne Angell, and asked him several questions about gold. Of particular interest to me was the disposal of 548,000 ounces from the Fed's stock in the period immediately following the October 1987 stock market crash.
For those readers not familiar with the details, 190,000 ounces of gold were sold from the US Gold Reserve during the 10 week period immediately following the crash, and a further 358,000 ounces were sold in January and February 1988. The size of this transaction and its eye-catching timing have always in my mind warranted further inspection ( i.e., the dishoarding occurred when everyone was nervous whether the financial system was about to disintegrate because of the stock market crash and the big drop in the Dollar to new record lows; you will recall that the gold price was inching over $500 per ounce in December 1987, which as being regarded as a harbinger of more trouble ).
Will a similar huge dispersal occur if the Dollar goes into another tail-spin?…or if stocks start heading south at the rate of 100 or more Dow points per day? Will more gold be dishoarded in an attempt to keep it price below $500 per ounce?….or below $400 per ounce.
Mr. Angell's response was that the Fed does not intervene in the gold market, whether, spot, futures, forwards, or options. He was unyielding on this point. However, he never did answer why 548,000 ounces of gold were dishoarded. It seemed to me that either he was not aware of this dishoarding, or if he was, he wasn't saying."
The author went on to say that" if the Fed had intervened to dishoard gold, it would be in the transcripts of the meetings of the Federal Open Market Committee.
The author took up the challenge and went through transcripts from August 1987 ( to coincide with ALAN GREENSPAN'S appointment as Fed Chairman ) through the second quarter of 1988.
"It began with the "Prefatory Note' to the transcript: advising the reader that "a very small amount of confidential information regarding foreign central banks, businesses, and persons" has been deleted because disclosure under applicable provisions of the Freedom of Information Act." Therefore, if the Fed sold gold to a foreign central bank, would the transaction be recorded or deleted?
After perusing the documents, I found the word, gold, mentioned only once, and that was in the August 18th, 1987 meeting. I never found any mention of gold, including the period immediately after the October 1987 crash and during the period that the 548,000 ounces were being dishoarded. I found the absence of the word gold particularly interesting since the gold price was rising to $500 per ounce, and the mention of gold in the August 18th meeting showed that the FOMC members were sensitive to its changes in price. In other words, the silence after October 1987 was DEAFENING.
While I did not find the information that I had hoped to explain the 548,000 ounce dishoarding, I did run across one interesting paragraph. Unfortunately, the transcriber missed the key words that would give this paragraph real meaning. The following is the exact record from the transcript, as spoken by Mr. Sam Cross, the Fed's manager for Foreign Operations ( the person responsible for watching the Dollar's rate of exchange and conducting the Fed's intervention in the foreign exchange markets ).
" On the question of ( unintelligible ), the Federal Reserve does have the legal authority to intervene and the Treasury does have the legal authority to intervene. But there are a number of statements and letters and so forth to the Congress which indicate that from the point of view of the Federal Reserve, we will operate in cooperation and coordination with the Treasury on these matters, given the Secretary of the Treasury's role in international financial policy. And it is important that we not act in direct violation of Treasury's stated views, or if we did, it would be such a major event that we would feel it necessary to tell the Congress. So, basically we have operated for many , many years on the basis of trying to work these matters out with the Treasury."
"Now what could he have been talking about? Unfortunately, there are no clues in the comments immediately before or immediately following this quote, but that doesn't stop one from guessing as to what it could have been all about. For example, go back and read the quote and use the words "intervention in the gold market" to replace what was reported as unintelligible by the stenographer. It gives the statement an entirely new meaning.
You might say that I'm stretching the point by choosing the words "intervention in the gold market" to complete the above quote. However, it is logical that the missing words in the above quote actually relate to gold.
Though the US gold reserve is an asset of the Federal Reserve, it is actually owned by the Treasury. The Federal Reserve owns US Treasury Gold Certificates, which give the Fed a claim to the Gold. For example, the Fed presently owns US Treasury Gold Certificates worth 261.6 million ounces ( which are carried on the Fed's balance sheet at the $42.22 per ounce so-called official price of gold ). And it is no secret that gold policy has come principally from Washington since President Roosevelt confiscated gold from American citizens in 1934. So maybe the answer to the 548,000 ounces lies with the Treasury, not the Federal Reserve.
Did the words missing from the above quote have something to do with gold? Who really knows, which is actually a very sorry commentary on our monetary system. It took the Freedom of Information Act ( FOIA ) to find out what our servants in government are doing, and even then, we still don't know. But it may be that the answer to the 548,000 ounce dishoarding lies with the Treasury. Maybe I'll see what I can get from them under the FOIA." -
I have read this article over and over and cannot help but think about the following:
1. The debut of Alan Greenspan as Federal Reserve honcho, this story, and the aftermath action of gold after the Long Term Capital Management bailout. Just substitute a price of $300 today instead of $400 or $500. Eerie.
2. Alan Greenspan's quote, " central banks stand to lend gold in increasing quantities should the price rise". Midas will add to that quote, "or even if the price does not rise because will we not let it do so."
3. Alan Greenspan's comment to London's Teddy Butler Henderson in 1971 over lunch that he would use every means possible at his disposal to prevent a Kondratieff Wave crash in the stock markets if he became head of the Federal Reserve.
4. The comments in this article about the Treasury and the Federal Reserve working together on this issue.
5. Our constant commentary the past 4 months about the activity of Goldman Sachs. Treasury Secretary Rubin used to run Goldman Sachs.
6. The deletion or the injection of the "unintelligible" key phrase. What a coincidence! I wonder what the name of that stenographer is?
7. The similarity from the Feds viewpoint of the 1987 stock market crash crisis and the "systemic risk" crisis before and after the Long Term Capital Management bailout. What "systemic risk" is still lurking out there that officialdom is trying to cover up.
8. The recent world wide commentary to talk down the price of gold. Why now?
This is an umbrella kind of story. But in light of the recent, orchestrated gold bashing pronouncements by officialdoms around the world and the clear manipulation of the trading of the gold market in New York by the bullion banks and certain highly visible banking and investment institutions in that city, this story paints the scene for the "whats" and "whys" of today in the gold market.
Let us hope that stories such as these and the investigation by GATA help to open Pandora's Box into the true goings on in the gold market. It is about time someone exposes cover ups in the financial markets before a really big, derivative debacle develops and serious financial chaos ensues. A "systemic risk" problem like the one that enveloped Long Term Capital Management was not even on ANYONE'S radar screen one year ago. For every action, there is a reaction.
By allowing price fixing shenanigans to occur and by manipulating markets so that real problems are not faced squarely in the eye for all to see, some very important people and some very highly regarded financial institutions, may be fostering unforeseen financial disasters that will also suddenly appear on the radar screen from out of nowhere.
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.
Disclaimer notice: Midas du Metropole does not look like an investment advisor, nor is he one. Any comments about any gold and silver shares by Midas or any of the Cafe members are for your information and entertainment only. They should not be regarded as advice and should be treated like comments passed on at any other Cafe. We are only relating as to what we like for our own accounts. |
