Responses to Armstrong/GATA and Dizard/GATA


Tuesday, May 18, 1999

Dear Friends of GATA and Gold:

Some interesting news from the Financial Times in
London today.

John M. Wilson, president and CEO of Placer Dome Gold,
is in London for a financial conference and was quoted
as more or less endorsing GATA's position and purpose
without mentioning GATA by name.

The Financial Times dispatch:

John M. Wilson, president and chief executive
of Canadian gold group Placer Dome, avoids
words such as "conspiracy," but believes
malign forces are depressing world gold
prices, writes Gillian O'Connor.

"I find it difficult to believe, given what
[Fed Chairman Alan] Greenspan said in the
middle of last year, concerning the central
banks' intention to maintain a low gold
price, that there is not some concerted
action going on between central banks to
hold inflation down through holding down
the price of gold," Mr. Wilson says.

"I personally cannot see [this] but many
economists believe holding down gold
prices holds down inflation."

He added that Placer's expansion plans,
which could have involved equity funding,
had been shelved because of the sharp
fall in its share price that followed
news of a UK Treasury gold auction.

Thanks to GATA egroup member Jerry Glass at A.G.
Edwards in Connecticut for forwarding the Financial
Times story to me.

In other developments, at GATA
Chairman Bill Murphy has more details on the Goldman
Sachs-led attack on gold in the last week.

I'll include below an open letter to Barrick Gold
Chairman Peter Munk posted by Ted Butler tonight at

Secretary, Gold Anti-Trust Action Committee Inc.

* * *

An open letter to Peter Munk,
chairman of Barrick Gold Corp.

May 18,1999

Mr. Peter Munk, Chairman
Barrick Gold Corp.
Royal Bay Street
Suite 2700
PO Box 119
Toronto, Canada M5J 2J3

Dear Mr. Munk:

I am writing this open letter to you in the hope of
reconciling recent public statements by you and your
company. As you know, I have written to the Securities
and Exchange Commission concerning what I feel are
misleading public statements and improper business
practices by Barrick. While of course, those
allegations by me are related to the issues I am now
writing to you about, I ask you to view my words solely
with an eye towards your fiduciary responsibility to
the shareholders and employees of Barrick.

Your recent public statements concerning gold market
participant behavior and your outlook for the future
price of gold are distinctly opposite to Barrick's
current posture. First, you have denounced speculative
short selling of gold and central bank selling as the
reasons for the depressed gold price. While, no doubt
there is truth in your words, you have conveniently
ignored the role of Barrick and other mining companies
in the leasing/forward sale scheme. Sir, your role is

Second, if you sincerely believe your gold price
projection of $300 to $400 per ounce over the next year
will come to fruition, Barrick's current short position
of 11.5 million ounces will render as much as a $1.5
billion deterioration in value (based on today's $275
gold price). Considering that you reported record net
profits for 1998 of $300 million (after tax), a loss of
such magnitude would appear very serious.

It is true that speculative short selling of gold has
had a depressive price influence. But it is the miners,
such as you, that are at the root of this problem.
While you will claim only to be hedging, the type of
hedging you are practicing is the problem. In no other
commodity (except silver), nor at any time in history
has there been such a distorted and manipulative
practice as the borrowing of central bank metal for the
purpose of selling short. It is an abomination. Don't
you see that you have lent the appearance of credulity
to this practice of selling short physical material by
creating the impression that the miners can replace the
shorted material through production? Only a fool or a
charlatan could accept the premise that years of
collective world production could be available to
satisfy these short sales in a deficit.

Why would anyone need to physically borrow and then
sell short an item to effect a hedge? Why not just sell
a futures contract or buy a put? We both know the
answer to that in Barrick's case. It is obviously to
play with the proceeds of the short sale and to take
advantage of the difference in interest rates between
the lease rate on metal and money market rates.
According to Barrick, you earned $200 million on this
in 1998, and I can understand your reluctance to
jettison such a moneymaker. But sir, you are supposed
to be a gold miner, not a hedge fund. At $400 per
ounce, you would need 7.5 years of $200 million of
arbitrage earnings to cover the mark to market loss. At
$600 per ounce, you would need almost 20 years to cover
the almost $4 billion loss on your short position.
That, of course, assumes no problem in continuous
arbitrage profits, something that shouldn't be assumed
- restudy LTCM. I don't think the majority of your
shareholders and employees realize this, do you?

While I am sure you will counter that you don't have to
cover your short sale in a price spike (your 10-year
extension loophole), waiting a gold price spike out may
be the worst thing to do. A more important question is
when is the ideal time to cover? If it's not at 20-year
lows, when is it -- at 20-year highs? Or perhaps, when a
regulator orders you to? The reason most miners haven't
covered their hedges at such attractive prices can only
mean one thing -- they're not hedging, they're
speculating -- just like the hedge funds you and they

Leaving aside the wisdom of short selling a physical
item to effect a hedge, how did the notion of selling
more than one years production come about? You know, in
the U.S., commodity law prohibits a commercial entity
from selling more than one year's production on those
futures with a speculative position limit. While the
lobbyists have succeeded in exempting the metals from
this decades old rule, the reasoning behind the law is
sound -- how can anyone project beyond a year? More
importantly, the law also states those selling more
than one years production would have an undue influence
on the markets -- precisely the effect that Barrick and
the other short selling miners have had. I ask you, Sir,
is your short selling revolving around central banks
borrowings designed to circumvent commodity law and
common sense? Be assured that the world is growing
aware that the miners are the chief culprits in the
leasing scam -- without the miners, there would be no
leasing and short selling.

You must know by now the effect that Barrick and the
other short-selling miners have had on the gold and
silver markets. No other market in the history of the
world has had to deal with years of real production
dumped uneconomically as the gold and silver markets
have had to endure these past ten years. While I admit
you have reaped the ill-gotten gains of this
manipulation, conditions do change. Are you prepared to
explain to your employees and shareholders why your
short position should not be closed out forthwith, and
book the reported $800 million short sale profit, in
light of your public prediction of the gold price? Or
will you continue to risk billions in order to protect
the income generated by your hedge fund operation? You
know, your "hedging" has paid off because you have
succeeded in causing gold to declined and interest
rates have remained stable for the past few years. Will
you bet the company on that continuing indefinitely?

If my words have not been clear enough, or if there is
still doubt whether to cover your manipulative short
position forthwith, please consider this -- why not let
your shareholders vote on the issue? Most investors
gravitate towards a mineral producer when they want
exposure to a price rise in that mineral. Do your
shareholders and employees know that you have bet the
company against a price rise?

Very truly yours,
Ted Butler


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