Bottom in, bull market begins: Milhouse


11:45p Tuesday, May 25, 1999

Dear Friend of GATA and Gold:

Here's tonight's "Midas" commentary at by GATA
Chairman Bill Murphy.

Secretary, Gold Anti-Trust Action Committee

* * *

May 25, 1999

Spot Gold $270.30 down $1.90
Spot Silver $5.055 unchanged


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 its selling
since right before the Bank of England's announcement
and has not let up since. The bullish consensus is down
to 21 percent and the last CFTC Commitment of Traders
Report shows that the large specs are short more than 8
million ounces of gold.


Rip up "Commodity Techncial Analysis 101." Bring in a
new textbook. Professor Midas Murphy here. Your Cafe
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 that 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 that the
practically interest-free gold loans are being used to
try to 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 was never removed from the
system. It was just shifted from the hedge fund Long-
Term Capital Management types to the money-center
banks, the broker/dealers, et al. These (the Credit
Suisse, Bank America types) are the new vulnerables.

We suspect problems; the Fed knows the problems. That
is why the Fed could not afford to let the price of
gold rise above $290 and called on the English poodle
politicos to drop their bombshell about selling Bank of
England gold when they did. That is why Goldman Sachs
continues to bomb the market and demoralize any bulls
left. It is a no-prisoners philosophy.

We told you two weeks ago that the word was out in
London 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.

So I think this is the 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 and such out there, so this should be
no real shock. But would not surprise us that this
1,000-tonne gold short position has something to do
with our own Fed and can explain why Goldman Sachs can
continue to bomb the gold market. I do not want to hear
it that it is not possible:

From federal statutes:

"Section 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 therfore,
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 the Gold
Anti-Trust Action Committee 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?

The stock market is becoming unglued. The internet
stocks look 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. The
Fed may know that a substantial correction is coming
too and, having no other bullets to shoot, is
orchestrating an assault on the gold market in a
desperate 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 such a price is about
$500 per ounce.


By all accounts the demand for physical demand for gold
is robust and there are more reports of Australian
producer buybacks. The problem? You guessed it.

"LONDON (Reuters) -- 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

"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."

For 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 is 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 Cafe member, Doc:

"I suppose you already got the message that Goldman
Sachs' commodity analyst was badmouthing gold this
morning on CNN. He said that with all the central bank
selling (didn't mention any of them buying) and the
trend toward electronic currencies, 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 instead 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 as if they have battered-wife syndrome. It is
a sad sight. Icebergs are upon us.

That bullion dealer ally, Bank of England Governor
Eddie George, today defended a decision by the
government to sell more than half of its gold reserves.

"LONDON (Reuters) -- 'It's a straightforward portfolio
decision and it's a perfectly reasonable portfolio
decision. Britain has 43 percent 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."

Hocus-pocus talk. But surely transparent. A political
decision was made by the British 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 sure that the price would tank when the first pre-
gold sale announcement in more than 20 years was made.

George went on to say: "People get emotionally attached
to gold and we have seen quite a lot of emotional

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
because of what the debasement of it represents and
because of the hypocrisy of statements such as yours
and the timing of the BOE announcement and what that
more than implies.

The Caf'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) whether you were involved, and
3) whether 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

Even bullion dealer apologist Andy Smith poohpooed your
bank reserve comments, Mr. George. Thus you have given
new meaning to "balderdash."

George Milling-Stanley of the World Gold Council says
gold demand was up 28 percent year-on-year. U.S.
investment demand for gold is also continuing to break
records and rose 141 percent last quarter. The reasons
for the surge in gold buying are fears of a severe
stock market correction and Y2K problems.

A coin dealer in Dallas was on TV yesterday expounding
that his gold coin sales are going through the roof and
were up 100 percent just this past month over last.

Yet the price of gold drifts into oblivion.

Potpourri and the Gold Shares....

In 1929 the Dow was 17.4 percent above its 200-day
moving average in September before the crash. On May 6
this year it was 17 percent above its 200-day moving

On Friday George Soros said that the International
Monetary Fund made several specific policy mistakes in
handling the recent global economic crisis, which, in
his opinion, is now over. "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

This is the same IMF that wants to sell its gold to
raise money for debt relief for poor countries. It is
exactly all this gold sale talk, causing 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

"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."

I just received a call from a highly respected
president of a well-known junior gold company who is
absolutely convinced that GATA is right about gold
market manipulation. He believes that if something is
not done 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.

I hate to talk like that, 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 about the markets. In essence,
he is of the camp that we are still in a deflationary
spiral but that this is going to be very bullish for
gold. He looks for credit problems to develop and the
quality spreads to widen (he sent a chart showing that
the emerging debt to U.S. Treasury yield spreads are
already widening).

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 Fields Mineral Services, which
indicated that demand was down by 2 percent last year,
was a reason sighted for silver's selloff. Perhaps, but
the report also indicated that the silver 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 copper price of
60 cents. 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 that
year. By December the copper price was $1.46.

The silver play will be just as grand.



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