Fixers'' trouble is gold investors'' big chance


1:30a EDT Monday, August 16, 1999

Dear Friend of GATA and Gold:

Here's the latest from "Midas" at, GATA's own chairman,
Bill Murphy. I apologize for the length, but
you'll see that it's well worth it. He is
preparing us for the boomerang in the price
of gold.

If this comes to you as an attached file
and you don't like downloading attached files,
you can read this essay on the Internet at:

Please post this wherever it might be useful.

Gold Anti-Trust Action Committee Inc.

* * *

By Bill Murphy

Sunday, August 15, 1999
Spot Gold $261.70
Spot Silver $5.31


Uptown we go. Would you believe that gold closed higher
every single day this past week? The gains were small
but steady.

Gold has broken out of a classically shaped saucer
pattern to the upside, which is normally a very bullish
technical development. The bullish consensus has risen
only to 27 percent, which is low but represents a 10-
14-point jump over the many week nadir of 13-17
percent. The COMEX Commitment of Traders Report
released after the close on Friday was fairly bullish
too, as the speculators are still very bearish with
large specs showing a net short position of 55,000
contracts as of last Tuesday. Small specs switched to
the bull side showing a net long position of about
6,000 contracts.

The 20-year bear market in gold has ended. The price of
gold will go much higher than most people think, and
the risk/reward ratio of being long gold right now is
as good as it gets. The price of gold should double
over the coming year or two -- easily.

Silver continues to mark time and was hurt a bit this
week by the soybean pullback and the unwinding of long
silver/short gold spreads. The bullish consensus in
silver is very low too at 34 percent, and that is
constructive for its near price movement. The base in
silver is massive and can support a move up to our
price objective of $9.78. Patience is called for, but
patience will be well rewarded.


For weeks now I have stressed that this is the time to
be aggressively long gold, silver, and the precious
metals shares. During this time I have also presented
to you my reasons. Recent developments are
strengthening that analysis almost daily. Excitement is
in the air. I can feel it. Something big is up.

First, let me go over Goldman Sachs' taking delivery of
half the gold in the New York Mercantile Exchange
warehouses. Goldman has taken delivery of some 473,600
ounces as of Friday, and we understand that Goldman is
in line to take a good deal of the remaining 3,500-plus
contracts that remain open over the next two weeks.

Goldman thus has taken 95 percent of the deliveries
that have been posted for the August COMEX contract.
That is very unusual. When queried, Goldman's
spokeswoman, Kate Baum, said, "We are seeing strong
physical demand." The Cafe's John Brimelow, head of
international equities research at Donald & Co. in New
York, told Bloomberg News, "People smell a rat here." I
agree with John.

Let us review a chain of events. I will be brief since
many of you know the deal. New Cafe members who wish to
be fully up to speed should review recent Midas du
Metropole commentary that is in the library at this

Starting May 6: The price of gold is about to break
$290 to the upside. The Hannibals -- bullion dealers --
spread the word to their clients that the price of gold
will NOT break past $290. The next morning there is a
surprise announcement by the Bank of England that it
will be selling 415 tonnes of gold. Goldman Sachs is
seen to be selling gold in quantity almost every day on
the COMEX after the Bank of England announcement.

The Gold Anti-Trust Action Committee immediately calls
the Bank of England gold sale announcement a foul ball.
So do others.

The gold market manipulators have had their way for
some time. They have been arrogant about what they have
done and the way they have gone about it -- as their
manipulation most likely has been going on for years.
They did not count on their scheme's being uncovered,
nor for opposition to their grand plans to pop up. They
were wrong.

In addition to GATA, this is what I mean by that.

In one of the most unusual alliances in history,
leading Republicans, Democrats, and the Black Caucus in
the U.S. Congress got together on the issue of gold
sales by the International Monetary Fund and will not
let the gold sale proposal pass. That was a big blow
for Goldman Sachs and the rest of the Hannibals, as
they will not be able to cover their massive short
positions by buying cheap gold from the IMF stash. That
has been a shock to them.

The collusion crowd has been counting on two other
sources of supply. One is from the proposed Swiss gold
sale, but recent reports show that supply from that
source is now far from certain. And even future Bank of
England sales may be altered in some way. Last week
Midas told you that sources have told us that there
have been serious government-to-government negotiations
to do something about future British gold sales.

Well, look what we have here all of a sudden:

"Capetown, August 13 (Platts) -- South Africa's talks
with Great Britain about organizing its planned gold
reserve sales so as not to harm gold prices are likely
to 'pay off,' the minerals minister said in parliament
Friday. 'There is an ongoing dialogue between us and
that country, and we believe it is going to pay off,'
Mineral and Energy Affairs Minister Phumzile Miambo-
Ngouka said."

Keep in mind that our camp thinks that the gold loans
have risen to 10,000 to 14,000 tonnes and the monthly
supply/demand deficit is at least 150 tonnes. (This
means that the shorts need to come up with 150 tonnes
of gold supply every month to hold down the price of
gold. Without that supply the price must rise to a
higher supply/demand equilibrium point. Mine supply was
2,529 tonnes last year and might go down this year, not
up. All of a sudden gold supply sources that the shorts
were counting on probably will not be there.

For new Cafe members, it will be helpful to refer to
previous Midas commentary or recent emails about the
incestuous relationship among Goldman Sachs, the New
York Federal Reserve, Britain's chancellor of the
exchequer, Gordon Brown, and Great Britain's prime
minister, Tony Blair.

Then these events.

Goldman Sachs has an initial public offering and
becomes a public company in June close to the top of
the stock market bubble. Former Goldman Sachs CEO and
U.S. Treasury Secretary Robert Rubin resigns on July 4.
Around the third week in July Goldman Sachs has a
hurried conference call for its clients announcing that
it expects the price of gold to average $275 for the
year, which insinuates the gold price will rally. But
Goldman Sachs does not suggest that the price of gold
will rise to any great degree. (No reason to spook the
market while you are scrambling to cover your butt.)

This conference call is important. Goldman Sachs knows
it has been seen buying gold on the COMEX. It is now a
public company. It probably cannot maneuver as it could
in the past; that is, a few days later Goldman Sachs
will be standing to take delivery on as many gold
contracts as it can get their hands on and it will
become known. Through its analysts and spokesman,
Goldman had led the gold bear parade on the way down.
All of a sudden it is buying up all the August gold
contracts the shorts will give them. Questions will be
asked -- not just by the likes of us, but by the
Commodities Futures Trading Commission, which admitted
recently that it had contacted the major gold players.
"Routine surveillance."

Sure! No one can remember the last time that the CFTC
said it was even talking to anyone about the gold
market. The CFTC made the "routine surveillance" story
public because it had to. Prior to that announcement,
Midas du Metropole was informed by a source that a gold
market investigation going on. I told the Cafe what I
could. The press got wind of it and queried the CFTC.
The CFTC was then forced to make an innocuous statement
to the wire services.

"Heat on Hannibal" has been the Cafe war cry for many
weeks now. The tightening of the gold spreads, the rise
in the interest rates, the CFTC investigation, GATA's
relentless exposing of the gold market manipulation,
and Goldman's scrambling for gold supply by taking
delivery of the August gold contracts is evidence that
the heat is indeed on the Hannibals.

On top of all that and during this period there is a
secret bank meeting in Philadelphia. There are rumors
of an emergency Fed meeting and rumors that famed hedge
fund Tiger had to be bailed out, as it has incurred
significant losses accompanied by substantial
redemptions. (Our sources say there is more to come as
the last day in August is the last day in this period
for investors to pull their dough out of Tiger. Will it
be Redemption Day?

The swap spreads (a liquidity baromenter) blow out to
decade highs, the TED spread goes to levels that signal
danger, bond yields rise to 6.27 percent (unthinkable
eight ago), Iridium goes bust, General American Life
Insurance Co. cannot meet payments, and so on. That
tells us that all is not well in financial land and, in
fact, all could be really sick as an overleveraged
financial system comes to grips with rising interest
rates that few have prepared for. At the same time,
there are trillions of dollars of derivative plays out
there that just as few have a handle on.

Now what else do we know?

GATA has two recent converts. First there was Roger
Kebble, chairman of JCI Limited in South Africa, who
expressed his opinion hat the gold market was
manipulated. Now another stalwart of the gold industry,
Robert Champion de Crespigny, chairman of Normandy
Mining Ltd. in Australia, saying the same thing.

GATA Secretary Chris Powell sent me the following the
other day:

"Robert Champion de Crespigny was interviewed Aug. 12
on the Australian Broadcasting Co.'s late-night
television talk show, 'Lateline,' along with Haruko
Fukuda, chief of the World Gold Council, and Tony
Warwick-Ching, a consultant with Virtual Metals, a
company that analyzes the precious metals market.

"If you have Real Audio, you can hear the 'Lateline'
program via the Internet at:


Here's Chris' summary of Chairman Champion de
Crespigny's comments:

"* Investment banks are 'making a fortune manipulating
the gold market.'

"* Many important investment advisers have 'substantial
conflicts of interest' when they advise their clients
against gold.

"* The price of gold will revive because 'in the end
we'll have a much more transparent market.'

"* The Bank of England is selling its gold against the
wishes of the British people.

"* The price of gold will strengthen quickly when
people see what's going on in the market and the market
becomes more open.

"* 'I'm certain gold's going up. It will be as quick as
oil was recently.'"

Now these comments are very surprising, for only
recently Midas quoted Robert Champion de Crespigny for
saying the following right after the Bank of England
gold sale announcement:

"The Bank of England gold sales could have a positive
impact for the precious metal, accelerating the closure
of weaker high-cost mines around the world.... This
gold will keep on coming out, it will come out at
market price, and the worst of production will drop
off.... The commentators that are saying they expected
someone to bid above gold, that's an absurd thing for
this amount of gold. It is very much in line with what
you would expect if you knew the industry or this

Champion de Crespigny also said he was not opposed to
the Bank of England's method of sale, an announced
auction, saying the gold price was strongly affected by
sentiment and could be badly hit by sudden and
unannounced large sell-offs. "We need time to get used
to this bidding type process, which I think is not a
bad way to go because it is exactly the same (way) as
the government sells treasury bonds.... I don't see
(the Bank of England's sell-off) as a disaster at all."

Sherlock Holmes I'm not, but one can discern a big
change here. Have all you Cafe members been sending
this esteemed man in Australia what Midas and GATA has
had to say, especially the bit about oil? I mean, that
is exactly what I just said a few days ago in my Midas
headlined, "The Gold Market -- Be Aggressively Long."
This is getting good.

Let me at least take a stab at being Detective Columbo
on this one.

The common thread here is Goldman Sachs.

Tiger does a mess of business with Goldman Sachs (that
is well known) and Tiger owns or owned 10 percent of
Champion de Crespigny's Normandy Mining. Perhaps the
good chairman knew the reason behind the Bank of
England's sale. Until recently Normandy has been among
the most formidable of hedgers.

(A Cafe member and very highly esteemed member of the
gold community has a revelation on all of this. Since
he has quite an interesting story coming out soon, I
will say no more except that you will want to know what
he has to say, and the Cafe will alert you to his

But something got the good chairman's goat. Could it be
that Tiger, because of its redemptions, has to sell
Normandy stock? Could it be that the good chairman
knows that Tiger hedged its stock purchase by borrowing
gold and shorting it and has to cover now? Reports have
come to us that Tiger is short from 200 to 350 tonnes
of gold. (That is called a Texas Hedge; i.e., shorting
much more than one need to for proper hedging
purposes.") Was the purported extra gold borrowing put
on to finance other things?

Could the physical market be so tight that Goldman
Sachs has to find gold anywhere it can (either for its
own account or for clients) and now has to undergo some
sort of humiliation as to be seen cornering available
gold by taking delivery on as many August COMEX futures
contracts as it can, when that is the last impression
it wants to create for the firm?

Why has the good chairman suddenly changed his tune and
made a 180-degree turn on the Bank of England's gold
sale, etc.? Why is he so bullish now? What does he know
that the public does not know? Say you were him -- what
would you do or say to the public for image-building
purposes, knowing what is really going on behind the

I deduce that Champion de Crespigny does know something
significant about the gold market and it is VERY
bullish; that is the explanation for his remarkable
statement on Australian television.

Meanwhile, back at the ranch, we have Barrick Gold,
"championed" by the hypocritical Peter "Too Much" Munk,
who speaks out of both sides of his mouth. PR is his
game and part of his fame. GATA is going to give him
some of the PR he craves, but it will be about his
bullion dealer sympathies: Without a doubt, Barrick is
another Hannibal in sheep's clothing.

Months ago it came to my attention that Barrick CEO
Randall Oliphant had told a respected journalist doing
a story on the gold market that GATA was "a bunch of
nuts." Over and over I have considered his strident
words about a volunteer group that is trying to help
his own shareholders. I have spoken to Randall in the
past, and he seemed to be a good fellow, but this
feedback I received was sinister and provocative.
(Randall was promoted to Barrick CEO from CFO.)

What to think? A U.S. source had told me that 10 months
ago Barrick and Normandy opposed a proposal to mint a
"millenium coin" that would have spurred gold demand.
The two companies were going the same way then. But now
something is happening here, as Barrick and Normandy
are no longer on the same wavelength.

Voila! From the Financial Times on Friday:

"Randall Oliphant, chief executive of Barrick, the
Canadian producer, says that while it is impossible to
forecast gold prices with any certainty, he notes that
central banks will more likely be net sellers of gold
-- rather than buyers -- over the next 10 years. And that
represents a significant shift in the market. 'The
industry is somewhat in denial,' Mr. Oliphant says.

"Placer Dome, North America's fourth largest producer,
has recently joined the ranks of the more pessimistic
producers. Following the Bank of England's decision to
sell more than half its gold, the company said it
would review its long-term pricing assumptions. The
company said the months-long review was prompted by the
realisation that bullion would not rebound as quickly
as the company had initially anticipated.

"Industry sources say the average total cost of gold
production, including depreciation, overhead, and
exploration expenses, is about $320-$330 per ounce. At
that cost, between 20-40 percent of gold production is
uneconomical at current prices.

"'More than half the industry is under water at these
prices. I wouldn't be surprised to see total mine
supply drop by 20-40 percent within five years,' says
one industry insider.

"The industry has already seen a number of smaller
mergers and acquisitions in the past year. Homestake,
the U.S. producer, acquired Argentina Gold, while
Barrick snapped up Sutton Resources. Franco-Nevada and
Euro-Nevada, the Canadian mining royalty groups (mining
venture capitalists), merged this year, while
Australia's Normandy entered into a partnership with
TVX, the struggling Canadian group.

"Barrick and Newmont also swapped assets in February.
Some analysts expect to see more asset swaps, as well
as joint ventures and facilities sharing agreements in
the coming months, as the industry attempts to cope
with the depressed market.

"But Mr. Oliphant says asset swaps and joint ventures
are little more than 'Band-aids' and they won't help
struggling companies endure a prolonged price slump. He
says it is only a matter of time before large-scale
consolidation hits the gold industry.

"'Everyone is running numbers to look at how they would
match with other companies,' says Mr. Oliphant.

"The most often talked-about combination involves
Newmont and Barrick, North America's two largest gold
producers and companies that could generate important
synergies from their assets in Nevada and Peru.

"Newmont, the continent's largest, is widely seen to be
the most vulnerable of the big gold producers, due to
its $1.2 billion debt and its small hedging position.
On the other hand, Barrick's strong financial position
makes it the most likely acquirer in the current

"But Barrick's dilemma is that its position as the
lowest-cost producer would be eroded if it were to make
any acquisition.

"Nonetheless, Mr. Oliphant is not ruling out the
possibility of merging with another large producer if
the right opportunity comes along. And while Newmont
says it does not feel a lot of pressure to merge, the
company is keeping an open mind with regard to mergers.

"Big mergers, if and when they come, might not be
limited to North America. At least one top gold
executive says he has been approached by South African
and Australian producers that have expressed interest
in merging with a North American group.

"It is not clear which of the big producers would be
the first to merge. What is increasingly apparent,
however, is that is the industry is slowly coming to
the realization that more dramatic measures may be
required if they want to survive during a prolonged
price slump."

Now something has caused Barrick and Normandy to
dramatically diverge in their directions. From this
article one can see Barrick's motive in cheering on the
lowering of the gold price and positioning itself to
pick up the pieces after the decimation of the rest of
the gold industry -- especially when one reviews
Barrrick's hedge book. The following information was
provided by Ted Butler:

"Barrick's annual gold production is roughly 3.5
million ounces, or approximately 5 percent of total
annual world production. As of March 31, 1999, the
company held a reported physical short sale position of
12.5 million ounces, or approximately 18 percent of
world annual production. This is gold borrowed from
central banks (additionally, Barrick is short millions
of paper ounces of gold and silver equivalents, as well
as a sizable physical short silver position). The 3.5
million-ounce annual gold production is equal to 35,000
contracts on the COMEX, the world's leading precious
metals futures exchange, or what would be the
equivalent of 17 percent of total open interest. The
12.5 million-ounce physical gold short position of
Barrick is the equivalent of 125,000 contracts on the
COMEX, or an astounding 60 percent of total open

The flows in the OTC market are much greater than those
on the COMEX -- some say five to 10 times greater. That
must be taken into account when it comes to the
percentages, but the gross numbers are revealing,
especially for Barrick shareholders. A source told me
Friday that a well-known fund manager was looking to
buy shares in gold companies. At last contact, we heard
he was shying away from Barrick because of the size of
its hedge position.

Maybe GATA is a "bunch of nuts," but if we are right
about the gold market and the price takes off to the
upside, Barrick could look like the "bunch of nuts."

Goldman Sachs is scrambling to find gold for someone --
almost 500,000 ounces so far. What if there is not
enough physical gold around to satisfy the shorts?
Physical gold -- not paper gold available at a future
date. No, NOW gold! How easy will it be for Barrick to
cover its shorts to enhance shareholder value on a
substantial move up in the gold price?

Loop back to the derivative risk questions that are
haunting the financial markets. Many of the gold
producers have these magical high prices they are
receiving for their future gold production. The bullion
dealers have sold them derivative packages that require
the producers to write calls on their future production
-- in some cases maybe much more than their production.
The call open interest on COMEX and in the OTC market
has soared in the past couple of years.

The producers are happy to sell "paper" gold at such
high prices, especially amid today's gold price
depression. The Hannibals have gotten them to think
that the gold price is not going much higher in the
years to come, so the producers go along with the
dealers feeling very smug about the transactions.

The problem will come when the gold price takes off. If
the herd tries to cover these massive gold loan
borrowings and, in many cases, naked calls, there will
be a gold-buying panic the likes of which the world has
never seen.

Some gold producers could go belly-up in this type of
scenario. We have been told that $315 gold is the
number to watch. Zillions of calls have been written
around that strike price. A move north of $315 could
bring on that gold-buying panic. Very interesting times
are ahead.

I began with Goldman Sachs in this segment of the Midas
and will end with that firm. In my opinion it has set
the scene for a dramatic move up in the gold price. The
Hannibals are losing control of their gold market
manipulation. I was just sent an email about a Kitco
gold site posting by The Gambler. He says it all. Here
are some excerpts:

"So what about gold now? It's just getting started. As
I have been saying, watch the 30-year interest rate,
the dollar, credit spreads, etc. They're confirming the
growing risk in financial markets.

"The gold lease rates, contrary to what many have said
on this forum, are not going up because the specs are
borrowing gold to short it or because some producers
are borrowing to sell it. As a lot, the Aussies are
buying back as their dollar gains against the American
dollar; the same with South African and Canadian

"Gold lease rates are climbing because of the growing
risk to the financial banks. The simple key to
understanding this is that banks borrow the gold for
short periods and lend it for long periods. The central
banks are aware of the growing risk of not getting back
their gold and are winding down their leasing. Some
producers have been having problems repaying their
loans and their books are looking bad. Several banks
are in hot water. These banks, unlike the commercials,
will not be bailed out by the central banks.

"One of my sources told me two weeks ago that a big
bullion bank has liquidity problems and is trying to
cut a deal with several major producers to borrow more
than 55 tons to return to the central bank lender. This
loan would be over about five years, depending on the
gold price.

"It gets worse. As I wrote several months ago, there
are more hedge funds similar to Long-Term Capital
Management and the Tiger Fund that have liquidity
problems. I posted this bit about liquidity problems
some time ago. This particular big bullion bank in big
trouble has lent more than 425 tons of gold to SEVERAL
hedge funds. Of course the hedge funds cannot come up
with the gold; thus the growing crisis.

"Yes, gold lease rates are up for a reason. And Goldman
Sachs is NOT buying gold to short it. A liquidity
crisis is coming and they know about. Gold is going

"Stay away from heavily hedged producers such as those
in Australia. Let them suffer the consequences of their
stupidity and greed. Purchase unhedged gold companies
to prosper in the coming gold short squeeze. Agnico
Eagle is a good one for starters."

I agree with this analysis. Don't bet against The

Potpourri and the Gold Shares

In my Jan. 20 Midas du Metropole essay, called
"Scandale Gold," I noted that 12 major banks chaired by
Goldman Sachs and J.P. Morgan in early January formed
the Counterparty Risk Management Group with the intent
of "enhancing best practices in credit and market risk
management. The policy group will develop standards for
strengthened risk-management practices."

It was upon this discovery that GATA was formed. GATA
co-founder and Cafe member Chris Powell sent me a note
saying that what I was writing about regarding the gold
market manipulation seemed like a violation of the
Sherman and Clayton Anti-Trust Acts. "Would General
Motors, Ford, and Chrysler be allowed to do the same
thing" the founders of the Counterparty Risk Management
Group, Chris pondered.

Chris suggested that we stop complaining about the
collusion against gold and do something about it. So we

The Bank of England gold sale alerted many gold market
observers that GATA was right after all -- that the
gold market was being manipulated.

Unfortunately, most Toms, Dicks, and Harrys (not you,
Sir Schultz) are AFRAID to talk about the entities
doing the manipulating. The manipulators are powerful

Let me just say that these blueblooded banking firms
that every one kowtows to are not Little Lord
Fauntleroys. Since GATA was formed, Counterparty Risk
Management Group Chairman Goldman Sachs has been
subpoenaed by the Justice Department for anti-trust
violations in a securities underwriting scandal.
Counterparty Risk Management Group member Credit Suisse
is being kicked out of Japan for financial violations
and unethical conduct. And now the other Counterparty
Risk Management Group chairman, J.P. Morgan, is the
subject of this story in The New York Times:

"Sumitomo Sues J.P. Morgan for Role in Copper Debacle.

"August 14. By Timothy L. O'Brien.

"J.P. Morgan & Co., one of the most prestigious banks
in the nation, has been sued by the Sumitomo Corp., one
of Japan's largest banks.

"Morgan, which prides itself on being on of the
country's most cautious lenders, is the only bank to
have been singled out by United States regulators for
its role in the scandal. In 1997 the Federal Reserve
Bank of New York reprimanded Morgan for lax controls
and supervision in its commodities lending business.

"Morgan is a leading provider of the complex financial
instruments known as derivatives and has been an
aggressive advocate of looser regulatory controls over
the lucrative products....

"Morgan structured the loans to Mr. Hamanaka as
derivatives, which allowed him to account for them as
trades rather than simple loans -- a move that may have
allowed him to borrow money more freely.

"'J.P Morgan, in one series of transactions alone,
loaned Mr. Hamanaka roughly $535 million disguised as
complex derivatives transactions,' Sumitomo said in a
statement released last night. 'When those transactions
came due, Mr. Hamanaka was secretly forced to pay J.P.
Morgan almost $1.2 billion to satisfy the debt --
representing an effective interest rate of 150
percent.... These were plainly usurious loans provided
for the sole purpose of supporting Mr. Hamanaka's
illicit copper trading.'"

Counterparty Risk Management? Talk about the fox in the
chicken coop. We've got three of them here. All three
Counterparty Risk Management Group members are bullion
dealers. ("Hannibal The Cannibals.")

Do I need to say any more?