Financial Times article about gold hedging


10:15p ET Thursday, February 22, 2001

Dear Friend of GATA and Gold:

Here are two more dispatches tonight from GATA Chairman
Bill Murphy to his subscribers at

CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.


By Bill Murphy
February 22, 2001

The World Gold Council today sent a letter today to
its members. It spoke of problems in the physical gold market.
I was told that such a letter is highly unusual.

As the day progressed, there was continued talk in
New York about a physical gold problem. It appears that
while there is central bank gold around, there is not
enough refined gold needed by gold users. What was
being used for lending is gone, used up -- and is now
jewelry around someone's neck in India. The Bank of
England and others are scrambling to cover current needs.
That could explain why some official-sector entity is
selling gold right now -- so that it can be sent to

Another story has it that a gold producer wants to
cover some forward sales and return borrowed gold to
the central bank. That means the bullion banker
lender must buy physical gold and return it to a
central bank. That tightens up the spot market.

Cafe member Marcia Peters sent the following about
the lease rate situation:

"On Jan. 3, 2001, gold could be leased for a one-year
term at 1.4 percent. Bullion banks (or whoever lends the
stuff) were confident enough that this price adequately
captured whatever risk they could confidently predict
for a year in advance. One-month rates were at three-quarters
of a percent.

"By last week (Feb. 15) the one-year rate that had
stayed flat in the low 1.35 percent range for six weeks
aggressively moved up to 1.5 percent, and one-month rates
were at 1 1/4 percent. Change in confidence? Unforeseen
change in economic conditions? I'll say.

"By today (Feb. 22) the lease rates for one, two three, and six
months are all in the neighborhood of 1.54-1.59 percent.
Suddenly the 1.40 that they were willing to lock in for a year
just six weeks ago looks like a very bad deal. Likewise the 0.9
percent they were willing to lock in for a six-month lease.
What has changed? Perception of risk, obviously."

Regarding the meeting I had with the Reserve Bank of
South Africa.... So there is no confusion, it was arranged
during a Cape Town breakfast meeting with the minister
of Minerals and Energy, Ms. Phumzile Mlambo Ngcuka, at
her request.

Actually, that moment gave me a chuckle. During the
phone call to set up the meeting, the ministry official
on the phone started smiling, so I asked him about it. He told
me that his colleague in Pretoria had asked, "What is he up
to now?"

Other useful info sent my way....

The Reserve Bank of South Africa is owned by private
shareholders. Who are they? No one could tell me while I was
in the country. But the talk is that many are the same financial
institutions that are the shareholders of the Federal Reserve
Bank in the United States All one big happy cabal family.

Word also to me is that the Oppenheimer family of
Anglogold fame is a big Reserve Bank shareholder. Perhaps
that is what the recent email to me from South Africa was all
about. The plot thickens everywhere we turn.

I wonder why British Prime Minister Tony Blair is suddenly
headed to Camp David to meet with President Bush?

Sir Peter Tapsell of the House of Lords in England is making
noises about the gold market again. One of the leading
newspapers in London is back on the case too. Hmm.

As usual, gold sold off after London closed today and
the stock market was saved from oblivion via "massive
futures buying" by "well-known players," according to
a report on CNBC.

No matter, the stock market could not rally and gold
held steady.

What is important here is that all the evidence suggests
that President Bush and his no-nonsense vice president, Dick
Cheney, and Cabinet members (Rumsfeld, Ashcroft, Powell)
are going to end the Wall Street shenanigans of the previous
administration. My guess is that they are doing so now, but in a
way that is calculated and prudent.

Remember: Reg Howe, Frank Veneroso, Chris Powel,l and
I gave a dissertation about the gold market scandal
last May 10 to the speaker of the U.S. House of
Representatives, Denny Hastert, at the U.S. Capitol. He was
so interested that he set up a meeting two hours later with Rep.
Spencer Bachus, chairman of the House Subcommittee on
Domestic and International Monetary Policy. This committee
has gold oversight responsibility. Both are Republicans.

We told them that we were like doctors who had
found a terrible cancer. The patient needed chemotherapy
and the side-effects would be unpleasant and
painful, but the patient would survive with proper
treatment. We said: To go into denial and do nothing would
mean death. If you win the election and nothing is done, the
gold market will blow up on your watch and you will be

My guess is they have known everything all along, but
did not know how to deal with the fraud until now. Let
us hope that is the case.

As related to me today by Cafe member Michael B.: Is
Alan Greenspan now out of the loop? A week ago Tuesday
he spoke to Congress and made no mention of inflation
problems. No Greenspan "isms" on the subject, no warnings
of the PPI and CPI bombshells coming the following Friday
and Tuesday.

Is the no-nonsense Bush administration upset with Greenspan
for his role in the sleazy financial market maneuvers of the
Clinton administration?

Fasten your seat belts and stay tuned!

* * *

Quotes from the unusual letter that the World
Gold Council sent its members today:

"According to usually reliable market sources, the Bank of
England has not been lending gold over the past few days. This
is unprecedented, as its short-term lending is considered a
vital tool in the smooth running of the London market. The
bank's explanation for this (confidentially) is that many client
central banks had lent out for longer periods than normal around the
Washington Agreement period, and that as the loans matured
they were not being renewed, creating a temporary tightness in
liquidity. The market is regarding this explanation with some
suspicion, however, suspecting that more may be involved.

"It has indeed been suggested that another joint central bank
move on gold lending may be imminent, cutting the amount of
gold available for lending.

"We have no firm evidence for such a move. However, if
this were to happen, then lease rates would soar;
non-Washington Agreement countries have increased their
lending substantially in recent months and it is unlikely
that they could fill any liquidity gap produced. In these
circumstances, a price spike could easily develop; shorts
would be quick to cover while other borrowers would be
forced to buy as the rolling over of existing loans became
more difficult to achieve."

Can you smell the smoke?