Lorne,
Thanks, as always. Here is the latest Midas du Metropole. I wish it were not so, but I only have time now ( due to the incredible demands to produce fast ) to talk to those that want to help. This, is some strange sense, is WAR. The irony is the generals know what the war is all about. The privates are probably good friends of ours.
"The Gold Market and Precious Metals Commentary"
May 25, 1999 - Spot Gold $270.30 down $1.90 - Spot Silver $5.055 unchanged
Technicals -
Gold continues to make 20 year lows led by the unending barrage of selling in the physical market by Goldman Sachs ( joined today by Morgan Stanley ). The funds were also heavy sellers of gold during this session. Goldman Sachs has been relentless with their selling since right before the BOE announcement and have not let up since. The bullish consensus is 21% and the last CFTC Commitment of Trader's Report shows that the large specs are short over 8,000,000 ounces of gold,.......
Enough!
Rip up "commodity techncial analysis 101". Bring in a new textbook. Professor Midas Murphy here. Your Café commentators have been saying for weeks that there are big problems out there behind the scenes that would soon surface. When the first "systemic risk" problems surfaced late last summer, the Fed had the luxury of stepping on the gas and cutting interest rates. But now the Fed has announced the bias is to tighten, not loosen, and is in somewhat of a box.
It is our guess that many of the problems that prompted the rate cuts last year are still prevalent. As we have been reporting to the Cafe, we believe the practically interest free gold loans are being used to try and reduce the pain of some of the problem investments. As Charles Peabody and David Tice have been telling you, some big banks and big investment houses have some big problems. That is being reflected in the swooning of the banking shares which are now going straight south. According to Charles, the leverage in the financial system that caused the problems late last summer, were never removed from the system. They were just shifted from the hedge fund "Long Term" types to the money center banks, the broker/dealers etc. They ( the Credit Suisse, Bank America types ) are the new vulnerables.
We suspect problems, the Fed knows the problems. That is why they could not afford to let the price of gold rise above $290 and called on the "English Poodle Politicos" to drop their bomb shell about selling BOE gold when they did. That is why Goldman Sachs continues to bomb the market and demoralize any bulls that are left. It is a no prisoner philosophy.
We told you two weeks ago that the word was out in London was that it has been discovered that Goldman Sachs has a 1,000 tonne short position on its books. Writers such as John Dizard of the New York Post have decried such talk. They do not think this possible.
Well, at this point in time I thought it time to divulge to you that we have been told for many months now that the Fed has a trading account at Goldman Sachs. That came to Professor Midas Murphy from a reliable source. There has been much speculation around town about plunge protection teams, etc. out there, so this should be no REAL shock. However, it would not surprise us that this 1,000 tonne position gold short position that we are told is there, has something to do with our own Fed and can explain why Goldman Sachs can continue to bomb the gold market. And I do not want to hear it that it is not possible:
Chapter 3 FEDERAL RESERVE SYSTEM
354. Transactions involving gold coin, bullion, and certificates
"Every Federal reserve bank shall have the power to deal in gold coin and bullion at home or abroad, to make loans thereon, exchange Federal reserve notes for gold, gold coin, or gold certificates, and to contract for loans of gold coin or bullion, giving therfor, when necessary, acceptable security, including the hypothecation of United States bonds or other securities which Federal reserve banks are authorized to hold."
All we can tell you at this point is that GATA is investigating this matter and it has, in part, to do with who is behind the Federal reserve banks, etc. Do you know who stands behind the Federal reserve bank?
The stock market is becoming unglued. The internet stocks looks like they finally have put in a "Hello earth, we're coming back" call. This may be the long awaited correction our camp has been waiting for. Our Fed may know a substantial correction is coming too and, having no other bullets to shoot, is orchestrating an assault on the gold market in a desperate, band aid attempt to prevent some new "Long Term Capital Management" type financial problems from surfacing.
That is Professor Midas Murphy's take on the gold market now. The desperate bears are winning this skirmish, but we are going to win the war and win it big. It is only a matter of time now before this gold market manipulation outrage is exposed and "the allowed price" of gold will go back to just "the free market price" of gold. My guess is that price is about $500 per ounce.
Fundamentals
By all counts the demand for physical demand for gold is robust and there are more reports of Australian producer buybacks. The problem- you guessed it.
Reuters - London - May 25: "Spot gold rose more a dollar as European business began helped by a combination of Middle East physical demand and what looked like mine buyback activity, one London dealer said.
Increased gold lending volumes prompted talk of firmness having come from miners closing out forward hedge sales and their counterparties having lent the metal back to the market".
In a bit of repeat commentary, the big sellers early today in the cash market were Goldman Sachs ( once again ) and Morgan Stanley. Our take on the gold market is very clear. Unless something is done to break up the cartel of bullion dealers that are terrorizing the gold market in a collusive manner, or some outside market factors come into play that force them to cover their outrageously large short gold positions ( which fortunately could happen very easily ), the price of gold will go nowhere. The gold producers, other gold companies, gold stock shareholders and believers in free markets must fight back. If not, here is what we have to look forward to, and speaking for GATA, we will not stand for this. A note to me from café member, Doc:
" I suppose you already got the message that Goldman Sachs' commodity analyst was badmouthing gold this morning on CNN. He said with all the central bank selling (didn't mention any of them buying) and the trend toward electronic currencies, that gold would remain in a down to neutral price range for the next TWO YEARS and then maybe go to $350 in the third year."
It does not have to be this way. That is what GATA is all about. Gold industry: get off your butt and fight back. If you do not, and accept Goldman Sachs' version of the next two years, there is no reason for investors to back your companies by owning your shares. It is a complete waste of time and opportunity cost of capital. If it sounds like I am angry, I am. We will do our part as best we can. It is about time you do the same. This industry has become one big "Titanic". Many of the gold companies are responding to the bullion dealers assaults like they have "battered wife syndrome". It is a sad sight. Icebergs are upon us.
Bullion dealer ally, Bank of England Governor Eddie George, defended a decision today by the government to sell more than half of its gold reserves. Reuters - London. " It's a straightforward portfolio decision and it's a perfectly reasonable portfolio decision. Britain has 43% of its net gold and foreign exchange reserves in gold and that is a very big exposure to a single asset," George told a parliamentary committee.." I think the market will absorb the impact of what was a very sensible portfolio decision," he added.
He said the decision to sell had been announced in a very transparent manner designed to minimize the uncertainty in the gold market and so that the gold market could trade on the basis of knowledge of what the government's intention was.
Hokus pokus talk. But surely transparent. A political decision was made by the English to make sure the price of gold did not rise above the key $290 "gold carry trade borrowing point of the bullion dealers" and to make that the price would tank when the first pre gold sale announcement in over 20 years was made.
He went on to say," People get emotionally attached to gold and we have seen quite a lot of emotional reaction." Mr. George, if I might say so myself, people are emotional because your type of BS about all of this. It is an outrage. Yes, we are emotional, but, I suspect, not so much because we are attached to gold itself, but what the debasement of it represents and because of the hypocrisy of statements such as yours and the timing of your BOE announcement ( and what that more than implies ).
The Café's John Brimelow did some digging on your statement, Mr. George, and listened to the audio of your interview. When asked whether the BOE gold sale was 1) your decision 2) you were involved 3) you were consulted ( which is a euphemism for being told ), your response was "consulted". When asked who made the asset allocation decisions on the "bank reserves", your answer was the government ( or the politicians ).
Even bullion dealer apologist, Andy Smith, poopooed your bank reserve comments, Mr. George. Thus, you have given new meaning to "balderdash".
George Milling-Stanley of the World Gold Council stated that gold demand was up 28% year-on-year. U.S. investment demand for gold is also continuing to break records and rose 141% last quarter. The reasons for the surge in gold buying are fears of a severe stock market correction and Y2k problems.
A local coin dealer in Dallas was on TV yesterday expounding that his gold coin sales are going through the roof and were up 100% just this past month over last.
Yet, the price of gold drifts into oblivion.
Potpourri and the Gold Shares
Food for thought. In 1929 the Dow was 17.4% above its 200 day moving average in September before the crash. On May 6 it was 17% above its 200 day moving average.
On Friday George Soros said that the IMF made several specific policy mistakes in handling the recent global economic crisis, which in his opinion, is now over. Dow Jones - Chicago - " It insisted on cutting public expenditures, when the cause of trouble was in the private sector; it underestimated the severity of the contagion; and in the case of Indonesia, it precipitated a run on the banks by closing some banks without first putting a deposit insurance scheme in place."
This is the same IMF who wants to sell its gold to benefit debt relief for poor countries. It is just all this gold sale talk, effecting lower gold prices that is hurting many poor gold producing countries, not helping them. And the IMF gold sale talk is certainly not helping the labor situation in South Africa.
Johannesburg, May 24 Bloomberg---- East Rand Proprietary Mines Ltd., the highest cost gold producer in South Africa, said it could be forced to close because of gold prices near 20-year lows and the expiration of a government subsidy.
Just received a call from a highly respected President of a well known junior gold company who is absolutely convinced we are right about the gold market manipulation. He believes that if something is not done soon, very soon, many of the juniors are not going to survive. The suppression of the gold price has gone on just too long for many to hold out much longer.
Hate to talk like that and even bring it up, but this is talk turkey time; the old, birds and bees talk.
Robert Hoye of Vancouver, British Columbia, Canada is well known in academic circles for his "Quantum Research". I have had the pleasant opportunity to speak with Bob from time to time and am always interested to know what he has to say on the markets. In essence, he is of the camp that we are still in a deflationary spiral, but that is going to be very bullish for gold. He looks for credit problems to develop with the quality spreads to widen ( he sent a chart showing that the emerging debt to US Treasury yield spreads were already in the process of doing so ).
Bob likes to point to the widening of the gold-silver ratio as a technical signal of further deflation problems. It would appear he has his signal as silver has been trashed of late, following the retreat of the base metals.
A report issued by Gold Field Mineral Services which indicated that demand was down by 2% last year was a reason sighted for silver's sell off. Perhaps, but the report also indicated that the supply/demand deficit is now in its 11th year. At the bottom of the copper market in early 1987, bearish fundamentals were given by analysts such as GFMS for the 60 cent copper price. Our camp paid no attention then to the "so-called" experts. The trade associations and brokerage house analysts were bearish to a man in February of that year. The copper price was $1.46 by December.
The silver play will be just as grand.
Midas
Bill Murphy ( Midas ) |
