Gold shines in several economic scenarios


Noon EDT Sunday, October 10, 1999

Dear Friend of GATA and Gold:

Here's much of GATA Chairman Bill Murphy's most recent
"Midas" commentary, for Friday, October 8, posted at I'm not able to reproduce a
chart from his commentary, and I've shortened the whole
thing a bit in the hope of avoiding having this come to
you as an attached file. If this does come to you as an
attached file and you don't want to download it, you
can read it on the Internet at:

Bill writes that the bullish case for gold is growing
stronger and that some remarkable days are ahead of us.
It is essential reading for all investors, not just
those interested in gold.

Please post this as seems useful.

Gold Anti-Trust Action Committee Inc.

* * *


By Bill Murphy

Spot Gold $323.25
Spot Silver $5.57


Like deer looking into headlights. Another
extraordinary week for the gold market. That should be
just about the norm for most of the coming weeks,
months, and years. These days the gold price moves
more in an hour than it used to in an entire quarter of a

For some time I have suggested that the old law of
physics, "for every action there is an equal an
opposite reaction," would apply to the gold market too.
That is what is happening, and why the move up here is
so violent.

For years the gold market was manipulated by the New
York bullion houses, et al., to serve their own
scheming purposes. Cheap capital was borrowed via
practically interest-free 1-percent gold loans and
invested elsewhere. As long as the price of gold did
not rise or went down, this play was a bonanza for the
in-the-know players. Every time the price of gold tried
to rally, these dealers, whom I have called Hannibal
Cannibals, would make sure, via coordinated trading
(done with a wink), that the price of gold never
breached certain points. During this period, junior
gold companies, gold shareholders, gold miners, and
all of us associated with the gold industry were

One can go back just over the past year alone and see
that the Hannibal-defended price points were the $306
area, then the $296 area, then $290, and a final ill-
conceived attempt to hold $262. When the $290 area was
about to be taken out to the upside and the Hannibals
were running out of gold supply last May, the Bank of
England was called on to add supply and psychological
devastation to a market that had been battered for
years but was finally showing signs of life. It would
appear that the Bank of England maneuver was
orchestrated by Hannibal Lecter himself -- Goldman
Sachs -- and the other Hannibals with some help from
the New York Fed and the U.S Treasury.

All this time the gold supply/demand deficit was
growing and growing. Frank Veneroso of Veneroso
Associates believes it rose to 160 to 180 tonnes per
month this summer with gold trading in the $250s. At
the same time the gold borrowing by confident short
speculators was growing too. After all, if the Wall
Street big boys, the U.S. government, and the bullion
bankers' momma, the Bank of England, were dissing gold,
how could it ever go up? Shorting it was a sure winner.

The propaganda machine of these financial powerhouses
relentlessly told the world that gold was dead. Anyone
who invested in gold or was bullish on it was taunted.
The bullion boys, who had the money and the connections
to the press, chided us for our views and told gold-
market reporters and financial journalists that we had
no credibility.

To further demoralize our camp and the gold investing
world, the Hannibals instituted a $2 rule, by which
they made sure that the gold price never closed more
than $2 higher on any given trading session. I recall
one day when they slipped up and gold closed $2.70
higher. Someone must have been balled out, as gold
tanked the next day. Such control over the gold market
killed any interest in gold as an investment.

That was the action. It was sustained, intense, and
universally expounded by the mouthpieces of the New
York bullion house machine. It is either that or the
majority of the gold analysts in New York are just not
very bright.

Now we see the reaction. Again I share the opinion of
Veneroso that the equilibrium price of gold today, free
of manipulation, is a bit north of $600. The gold
market was unnaturally forced to go down to $252. Thus,
a slingshot has unwittingly been set in place by the
malign forces that pushed gold so far down for so long.
The slingshot was stretched and stretched and
stretched. Pushed to the limit. It was yinged and
yinged and yinged. Now it is yanging.

The power behind the yanging and the thrust of the
slingshot is beyond the comprehension of most and has
surprised most in the investment world. It has not
surprised Reginald H. Howe, John Hathaway, Midas, or
the Gold Anti-Trust Action Committee.

All summer, with gold staggering around $256, I told
the cafe that investing in gold, silver, and the
precious metals shares was the best risk/reward
investment I had ever seen.

It is important to understand what kind of power is
propelling the bullish ball in the slingshot. It is of
typhoon force. It can propel the price of gold far
higher than what the gold establishment houses are
telling anyone, and, therefore, what the mainstream
press is reporting.

The Hannibal Cannibals have suckered many of the gold
producers into overhedging. That has resulted in an
irresponsible exposure by some of the gold producers to
an upward thrust in the price of gold. An entire essay
could be devoted to this subject. The essence of what
happened is that the Hannibals sold many of the gold
producers "structured deals" that involved derivatives
and options, puts and calls. These bullion dealers
convinced the producers that the price of gold could
never go up, so why not get a higher hedging price with
these "structured deals"? For the most part, gold
producers are miners, not finance wizards. If Goldman
Sachs, J.P Morgan, Chase Bank, Deutsche Bank, etc., all
said it was good, these mining companies thought, it
must be good.

Over and over producers would tell the press that they
hedged a certain amount of forward gold production at a
price that was way above the prevailing gold price.
Such a deal! What brilliant management! Many of the
gold producers became little more than glorified hedge
funds. Unfortunately, many of them did know not what
they were doing. They still don't.

And that brings us to the moment. One of the biggest
gold producers in Africa, Ashanti, is reeling, and
while it has incredible assets and has done a marvelous
job of mining, it is caught in a derivative blowup.
Ashanti's only way out is for the gold price to go
down. I repeat -- a gold company, Ashanti, is hoping
for the gold price to go down.

Yes, this is the theatre of the absurd. Gold
shareholders normally invest in gold producers because
they believe in the value of gold, like it as an
investment, and want to profit from a rise in the price
of gold and the enhanced asset value of the companies.

Ashanti is not alone. Cambior is on the ropes too. And
these two companies are just the ones that have gone
public with their problems so far. Sources tell me that
Cambior is already in the hands of the banks and that
management remains there only to keep things going.
Ashanti's fate also belongs to the banks now; it too is
in deep, deep trouble.

Many producers, not just these two, have these
"structured deals" as well and so they also want the
price of gold to down right now so they can unwind them
without too much pain. Many of them are telling money
managers that option volatility has risen so high that
now is not the time to unwind these time bombs.

Wrong again! Now IS the time. These companies must stop
acting like deer staring into the headlights of an
oncoming car. Deer freeze, and so have many of the gold

It is a recipe for disaster.

If they cover now, they might have to admit to
shareholders that they blew it. They might get fired
because their performance will be so poorly regarded.
But their companies will be saved and as the gold price
rises, shareholders will be rewarded for their gold
investments, not annihilated. Catastrophe must be
avoided, even if some managers who acted irresponsibly
must be axed.

A highly respected technician I know just got a sell
signal on the XAU. How can that be? It can be because
the XAU is loaded with North American gold producers
that have had a love affair with the Hannibal

Now for the gold technicals. They are extraordinarily

The Comex Commitment of Traders Report issued after the
close on Friday was the most stunning ever. In 1993 the
gold market rallied $80. At the end of that rally open
interest rose to 221,000 contracts and the speculative
long position grew to 110,000 contracts. A big
correction followed.

Yesterday's report showed the large specs to be net
SHORT 22,000 contracts. The small specs are net long
only 9,500 contracts. This is mindboggling news. If
1993 is to be repeated (and there is no reason it
should not be), another $80 move up is coming at the
MINIMUM, since the open interest on Comex is already
close to 221,000 again and yet the specs are short, not
long, 110,000 contracts.

That would suggest $400 gold is coming -- MINIMUM!

The trading action the past three days has been superb
as the bears tried to take gold down sharply early in
each session. But the $315 area has held with strong
support surfacing.

Here is how I see it. A bullion dealer told a source of
mine that he had not seen a great deal of covering yet
by the big hedge funds. Time and time again I have
stressed to you how short the gold-borrowing crowd is.
reason is that every technical black box trading system
now has to be long. It is hard to fathom any that would
have given a sell signal as of last Tuesday. Who is
short this market? The shorts have to be the hedge
funds in good part and maybe one other big player.

After an $80 move or any big move like this, the
commercials in the Comex commitments report would
normally be short. Yet they are long now. Why?

Doug Pollit of Pollit & and Co. in Toronto explains it
well and offers one possible interpretation.

Historically, after such a monster move, Doug says, the
commercials would be short the board against their
physical inventory. Because gold is in such tight
supply now, the commercials are long Comex and the gold
OTC market against physical delivery commitments. That
tells you that they don't have gold in their basements
like they used to.

On top of all this, many of the large-cap gold
producers need to reduce their call exposure by buying
them back or buying futures against them or both. There
is a big mismatch for producers at the moment. They owe
money short (margin calls) against owning assets long.
These margin calls can eat some companies alive if they
tarry too much and do not act quickly. Those that wait
for a dip will most likely be left standing at the
altar. The train will leave the station without them.
They eventually will be buying in panic at much higher

So we have the hedge funds that need to cover and the
producers that need to unwind forward sale "structured
deal" hedges. That represents powerful buying that has
not hit the market yet. Look out above!

The specs have been long silver all year and it still
goes up. I see no reason for that to change until
silver approaches $9.78 or so. As long-time silver
watchers now, silver can rally $3 in a week, even in a
day. Silver has a massive base that can support a move
to much higher prices.


Just as bullish as the technicals.

First take a gander at the precious metals lease rates.
They are four to 20 times normal, an indication of
tremendous physical tightness. There is just not a lot
of precious metal supply out there.

Platinum lease rates are extraordinarily high. Will the
gold lease rate go that high? The trapped gold shorts
talk about new lending coming into market. Fine, but
who wants to borrow gold in this environment? Why take
a one-way trip to the poorhouse? What producer is going
to want to roll over its forward sales?

Shareholders are already besieging corporate
headquarters around the world trying to find out what
their forward sale exposure is. Newmont Mining is
conducting a hurried conference call on Monday.

Allow me to give you a specific example of what is
going on out there. Take Barrick Gold. I know of
several money managers who have called Barrick to get
the lay of the land. Barrick tells them that all is OK.
Yap, yap, yap. One money manager spent 20 minutes on
the phone with Barrick about this. I just happened to
call him up after I learned that Barrick has written
3.2 million ounces of calls at a 360 strike price --
600,000 ounces for the year 2,000, 600,000 for 2001,
600,000 for the year 2002, and 1.4 million ounces
beyond that. It would appear that this is in addition
to Barrick's forward sale position of 13.3 million
ounces of gold sold through 2001 at an average price of
$385. This sharp money manager was unaware of this
Barrick written call position.

The volatility on these calls has skyrocketed. The
bottom line is that the price of the calls Barrick has
written has soared. To buy them back now will be too
costly. But not to buy them back could be corporate
suicide. Sources close to Barrick tell me that around a
gold price of $325 Barrick's hedge book is neutral at
the moment. That number can fluctuate as it is partly a
function of lease rates and call volatilities. But a
gold price move well above $325 could start to stress
the Barrick financial system.

Every Barrick shareholder should know about this kind
of exposure. I can assure you that many Barrick
shareholders have no knowledge of the company's call
position exposure. It is only fair to ask for
disclosure -- the truth told and dangers exposed. If
you are a Barrick shareholder, I urge you to get on
this fast. Speak, Barrick! Stop postponing your
conference calls.

Bullion dealers are stressed out all over the world
with margin call problems. How much margin extension
can they give all these gold producers that are caught
flatfooted? How many Ashantis might there be out there?

The manipulation of the gold market is backfiring on
the bullion dealers. Corporate management of the
bullion banks is livid. Firings and rumors of layoffs
are everywhere. The boards of directors and CEOs are
coming in and telling bullion dealers to begin clearing
out their positions and exposure. The heat will only
grow on these gold finance outfits. Then who extends
the margin call money to the producers?

Barrick has done well over the years because of its
hedging. The company has flaunted that the investment
community. But Barrick may have arrogantly stayed at
the party too long. The Wall Street Journal says this
in a recent article about Barrick: "However, if the
spot price does rise above $385, Mr. Sokalsky
(Barrick's CFO) said, Barrick has the luxury of
deferring its forward contracts for as long as 15 years
and instead selling its gold production at the spot
price. That means the company can wait for spot prices
to return to lower levels before returning its borrowed
gold to the central banks."

I do not know exactly how all these deals work, as they
are very complicated. But I can't believe that a
responsible CFO of a gold producer could make a
statement like this. If I owned Barrick shares, I would
freak out.

Thus far Midas' assessment of the gold market and what
should happen to the price of gold has been correct.
The proof is in the pudding. To verify that, all one
needs to do is go to the cafe library.

It is my opinion that the price of gold is headed for
$600. What will Barrick do in that case? What will its
stock price do? If you are a Barrick shareholder, it
might be a good idea to ask that question NOW.

I am not trying to bash Barrick. I am trying to get
information out to the public so investors can be make
their own judgments. I have worked on this all year.
The mainstream U.S. press has been loathe to tell our
side of the story, yet has extolled the bearish gold
market commentary of the Hannibals.

I just received this email from a Cafe member.

"Is there an article that discusses how to find the
junior mining companies that have NOT sold their future
production at give away prices?

"By the way, I've conducted a multi-year, intensive
investigation into media manipulation, especially as it
applies to widely covered stories. Generally it's a
safe bet that the bigger the story and the more widely
it's being covered, the more likely it is that the
facts presented are 180-degrees wrong and there is
manipulation involved. A handful of stories seeded at
critical times can start a theme going, and once
started, these themes, like locomotives, become almost
impossible to stop. Reporters don't report, they
repeat. And investigators don't investigate, they

"Price changes, of course, have a nice way of cutting
through this kind of news manipulation. Interestingly,
if my reading and conversations are any indication, NO
ONE seems realize what is behind what just happened and
that the triggering conditions are still very much in

"Though I trade futures, I'm not a particular student
of gold, but this summer I detected an undeniable and
very obvious media campaign to bash the metal. Finding
the very intelligent analysis on your site -- thanks to
my friend Sam Smith, the most censored journalist in
Washington -- has filled in the blanks.

"It's been a rare intellectual thrill. Thanks again.


Ken is right. Even now this disinformation campaign of
the Hannibals continues to capture the media. Some
excerpts from an article yesterday at

* The hopelessly bearish Peter Ward, mining analyst at
Lehman Brothers: "I don't see this as a cause of great
celebration." He forecasts the average price of gold to
be $280 an ounce over the next three years. Long-term,
"nothing really changed here," he says.

* The perplexing Doug Cohen, gold equity analyst at
Morgan Stanley Dean Witter, said that the European
central banks' agreement will merely keep gold from
retreating back to its lows, not push it to new highs.

"We believe a rally within the next 12 months toward
gold's mid-1990s perch in the $375 area is unlikely,"
Cohen writes in a recent report. "Our 2000 forecast
goes to $305 an ounce from $295 an ounce."

* Then there is J. Clarence Morrison, precious metals
analyst with Prudential Securities. "It's a high-priced
commodity having a certain amount of usage in the

"The article ends with: "Your own portfolio probably
isn't one of those uses. Just something to think about
if you've been bitten by the gold bug."

This is out-to-lunch commentary. No, it is outer space

OK. Let's get to some good stuff and another reason why
the gold price is going to go uptown.

During the summer I reported to you that well-connected
GATA supporters told me that serious government-to-
government negotiations were going on about the gold
market after the Bank of England gold sale
announcement. These negotiations were prompted by the
collapse in the gold price.

Just recently I related that the Germans, French, and
Italians were behind this decision, with the Swiss and
British told to sign on the bottom line. The door was
locked on Gordon Brown, Britain's chancellor of the
exchequer, as he was kept out of the deliberations.

Now further elaboration for you and I believe it is
significant information.

As the European central bank was coming into existence,
the Germans, big gold holders, brought gold onto their
balance sheet for the first time. It was a technical
maneuver that brought their budget deficit into
compliance with the new ECB requirements.

Everything was groovy for the Germans until the British
sabotaged the gold price with their nonsensical gold
sale announcement. The gold price plummeted and so did
Germany's ECB budget compliance. The Germans were
furious at the British and the others instrumental in
bringing about the Bank of England's announcement.

So te Germans were the orchestrators of the surprise
European central bank announcement, which way more than
countered with the British did. The Germans quietly
went around to the French and Italians, and then
others, to gain support. After that, they strongarmed
the Swiss and the British into signing the agreement.

This tells me that what we have in place here is going
to stick. The European central banks with big gold
holdings have had it the with British, the United
States, and the bullion dealers that were denigrating
the banks' own valuable asset for dishonorable

What was good for the goose has to be good for the
gander. The British, at the prompting of the United
States, surprised everyone. The Germans surprised
everyone right back.

To all my good British members of the Cafe: Nice gold
sale trade by your Abbott and Costellos at the
Exchequer and the Bank of England. They sell gold at
$261 and $258 to buy U.S bonds, which now are going
straight down as gold itself goes straight up.

Potpourri and the Gold Shares

The XAU closed Friday at 77.09, down 2.94. Much of the
weighting in this index is in companies that are
heavily hedged. The very hedged companies were the
place to be in recent years. But that success might
have sown the seeds of destruction -- at least for a
few. Now the big hedgers with too much call option
exposure might become more outcasts than the
"untouchables" of old in India.

Trouble at the World Gold Council? Word from very high
up says serious spats have developed among some of the
large funders of the organization. One may be

One company that has not hedged and is a favorite of
the renowned Harry Schultz of the International Harry
Schultz Letter is Agnico-Eagle, AEM on the New York
Stock Exchange. This is a clean mining operation. AEM
does not hedge, its gold reserves are going up, and its
cash costs are going down.

I have met Agnico-Eagle CEO Sean Boyd and like him very
much. This is a winner in my book too.

As you know, one of my favorites is Golden Star
Resources (GSR on the AMEX). I liked it at 21. Now,
with GSR at 1 1/2, it seems like I am hallucinating.
GSR has found an astonishing number of gold reserves
and resources in the ground. I bring GSR up again
because of its ironic involvement with the troubled
Ashanti and Cambior.

This from Cafe member Dan:

"These folks (Agnico-Eagle) were smart enough to get
some cash up front with Cambior and have no liability
with regard to the Omai mine, their joint project in
Guyana.... I was told that they will try to get all of
the Gros Rosebel project in Surinam from Cambior (50
percent now) and Birim back from Ashanti.

"Gros Rosebel is a blockbuster and GSR thought they had
Birim in Ghana when Ashanti paid big bucks for the
project. All this on top of all the other gold they
have found in French Guyana. Their very, very exciting
Dachine diamond project is also in French Guyana."

I think the good junior gold and exploration companies
are steals right now. Gold futures and gold call
options have moved straight up. The investment world
still cannot fathom this gold move, as the world
continues to get disinformation. Soon the world will
"get it" and look for companies that have gold
resources. Many great gold companies are still priced
at close to bankruptcy levels. Their upside potential
is staggering.

As reported to you in the Cafe, a few days ago there
were gold defaults in Karachi by physical gold traders
who could not meet their commitments.

Now this anecdotal story from a Cafe member about e-
Gold pricing this week. is a web site
that facilitates the electronic circulation of gold,
"the ultimate worldwide free-market currency."

"I went to check up on the exchange rates for e-Gold
and I found that they'll buy at the spot rate of $322
per ounce but they will SELL gold only at more than
$400/oz, a 25 percent spread. As this is certainly a
far cry from their usual 2 percent spread, I wrote to
Jim Ray and asked him why. Here is part of his

"'As everyone on this list is surely aware, there is a
screwy situation in the precious metals (especially
gold) markets. The published spot price for gold does
not seem to be the market clearing price for actual
physical bullion. The prices published in the financial
press are for PAPER gold -- that is, for promises
purportedly payable in gold. But anyone who attempts to
buy large quantities of actual physical bullion for
immediate physical delivery/allocation is likely to be
stonewalled. From our vantage point it appears that
there is already a de-facto holiday involving the gold
bullion banks. Slow delivery and rationing differs
little from explicit default.'"

"Does this sound warped, or what?

"Sincerely, Craig."

Almost last, but not least. Y2K talk is heading into
high gear. With the tightness in the physical gold
market it might be prudent to think about what this
Cafe member has to say:

"I am convinced that in most parts of the world there
will be y2k-related software, hardware, and embedded
system failures that affect the reliability of electric
power, fuel supplies, telecommunications, equipment
operation, and just-in-time inventory systems, just to
mention a few pieces of the economic puzzle. In a
nutshell, this means significant lost production.

"My feeling is that magnitude of lost production in the
extraction and refining industries will be huge.
Although I can't prove it, suffice it say that 'fix on
failure' is the Y@K remediation policy for practically
all capital-intensive industries, and this means
guaranteed downtime. If you want a second opinion on
this conjecture, contact Dr. Leon Kappelman at the
University of North Texas, who is an internationally-
recognized expert on the subject of global y2k
remediation and contingency planning.

"Has anyone factored in Y2K-related production losses
next year for gold, silver, platinum, palladium,
copper, nickel, etc., and the potential price effect on
these metals?

"Sincerely, Randy."

One more thing. We have received many reports that the
New York Fed is selling calls, trying to hold down the
gold market. The Fed is authorized by law to lend gold
and sell calls. They just cannot SELL the gold. Is the
New York Fed jeopardizing the U.S. gold supply to help
out the Hannibal Cannibals? This is a matter for
Congress to look into. We have been notifying
congressional committees of what we have been told.

Where there is this much smoke, there probably is a
fire. Is the New York Fed the big short along with the
hedge funds? How much Fort Knox gold is on the line