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Auction proved that gold''s higher price is solid
11p EST Monday, November 29, 1999
Dear Friend of GATA and Gold:
I've put together a little news of the day, most of it
related to the Bank of England's latest gold auction.
Of course GATA isn't in the business of disparaging
gold and you probably wouldn't expect us to put gold
down now, even after today's price decline, but maybe
the two most insightful comments of the day that I've
found are bullish.
The first comes from a CBS MarketWatch interview with
Matthew Ford, metals and mining analyst with U.S.
Global Investors, who dismissed today's gold price
action. Ford noted that the price went up last week and
said that today's decline was just a matter of quot;buy on the
rumor and sell on the news.quot; Ford expects gold to return
to $300 soon.
The second comes from Steve Kaplan at
www.goldminingoutlook.com. While Kaplan expects gold to
register another bottom before resuming its rise, he wrote
tonight: quot;The overall current outlook for gold has improved
from modestly bearish to slightly bearish, as the price drop
on Monday, November 29, removed a significant percentage
of gold's potential downside, while lease rates rebounded
from their recent nadir below 0.5 percent.quot;
Here's what comes with this, below.
1) A statement by Anglogold that it bid successfully
for well more than a third of the gold sold today by
the Bank of England. All friends of gold will cheer
AU's standing up once again for the industry.
2) A Bridge News story about today's price action.
3) The CBS MarketWatch interview with Matthew Ford.
4) A statement by the World Gold Council.
5) A Reuters story about a lawsuit brought by a group
of Japanese companies against bullion dealer Republic
Bank, gold bear Martin Armstrong's recent associate.
One should not presume the integrity of the bullion
I hope this is all more than you'll want to read!
Please post this as seems useful.
CHRIS POWELL, Secretary
Gold Anti-Trust Action Committee Inc.
* * *
STATEMENT BY ANGLOGOLD
November 29, 1999
AngloGold bid successfully for 300,000 ounces of the
803,600 ounces of gold sold at auction by the Bank of
England today (Monday, 29 November 1999).
The purchase, said Kelvin Williams, AngloGold's
executive director responsible for marketing, formed
part of the broader management of the company's
hedge book in the run-up to the financial year-end
on 31st December.
* * *
GOLD FALLS ON UK AUCTION RESULTS
By Melanie Lovatt
New York, Nov. 29 -- COMEX February gold futures
settled down $8.30, or 2.8 percent, at $293.50 per
ounce after slipping to a 2-week low of $292.40. Gold
slid as longs liquidated positions amid disappointment
with the UK auction results. The auction was only 2.1
times oversubscribed with 804,000 ounces of gold
allotted at a lower-than expected price of $293.50 per
Traders said that many players had been bullish going
into the auction, after the UK's second auction in
September had triggered a price rally.
quot;This time around it was much more like the first
auction in July. In July everyone had high expectations
which weren't met and there was a selloff. Then in
September, expectations were lower and there was a
rally,quot; noted one trader.
quot;This time around the expectations were just way
overdone,quot; he remarked.
quot;There was an optimistic outlook, but in actual terms
the auction was not a good one,quot; said Bill O'Neill,
analyst at Merrill Lynch, noting that the bid cover was
only 2:1, compared to the 8:1 seen at the last auction
quot;I did not think that the auction would be that poor,quot;
he said, adding that gold could also have received some
downward pressure from a slip in crude oil prices and
the dollar's climb against the euro.
David Meger, senior metals analyst at Alaron Trading,
said that given that the auction could easily have been
as much as 4-5 times oversubcribed, with prices as high
as $295 per ounce, the actual results were
He noted that on Wednesday, the last day of COMEX trade
before it was closed for the US Thanksgiving holiday on
Thursday and Friday, gold prices were above $295. He
said he was looking at $295 as the quot;pivot point,quot; below
which it would be quot;unfriendly for the bulls.quot;
quot;I'm looking at this auction in an unfriendly light,
given the expectations,quot; he noted.
The last Commodity Futures Trading Commission
Commitment of Traders report had shown a big slip in
speculative gold futures short positions, suggesting
that players were expecting the auction to send prices
higher, traders said.
Nevertheless, Meger said that gold's recent range
remains quot;intactquot; and that it sees support at $288-290.
However, if it falls below $288, there could be a test
of the low $280s, he warned.
He said that a fallback in order to shake out the weak
longs is probably constructive for the market at this
stage, although he does not anticipate quot;an extended
Leonard Kaplan, chief bullion dealer at LFG Bullion
Services noted that gold had quot;simply gone from the top
of its trading range to the bottom,quot; and added that he
would be a buyer at the day's lows. He said that the
market had quot;overly anticipated that the auction would
be a catalyst for higher prices.quot; However, he noted
that it is somewhat encouraging that lease rates have
started to rise again, with one month at 1.05 percent
today, compared to 0.7-0.8 percent last week.
Also encouraging is the ability of silver and platinum
to hold up relatively well in the face of gold's slide,
suggesting that there will be quot;a rally off these lows,quot;
Traders noted that silver could easily have fallen by
as much as 10-15 cents amid such a plunge in gold
prices. quot;It shows that it's strong, especially because
it kept above $5.20,quot; said one trader. March silver
fell to a 1-week low of $5.20 per ounce, settling down
only 4.5c at $5.208.
January platinum continued to range-trade after jumping
to $434 per ounce on Nov 17. This was both a contract
high and a 2-year high on continuous charts.
Platinum prices are nevertheless continuing to see
support from news Friday that Russia's Duma,
parliament's lower chamber, delayed the consideration
of an amendment that would allow the resumption of
platinum exports. A Duma aide said the deputies were
likely to approve the amendment Tuesday. (Story .14894)
Also supportive for platinum prices today was news that
Russian president Boris Yeltsin was admitted to
hospital with suspected pneumonia. Traders are
concerned that if Yeltsin is unable to sign off on
platinum exports, they could be held up even longer.
However, one trader noted that Russians continue to
sell palladium, noting that these sales could be behind
today's price slide. Mar palladium settled down $5.40
at $396 per ounce.
* * *
ANALYSIS OF UK AUCTION'S
IMPACT ON PRICE OF GOLD
By Myra P. Saefong
November 29, 1999
SAN FRANCISCO (CBS.MW) -- The price of gold sank to 20-
year lows in July after the Bank of England announced a
plan to sell more than half of its reserves through a series of
Meanwhile, the BoE's second auction in September, which
revealed strong demand for gold, along with an
announcement by 15 European central banks, boosted
prices back to the $300 an ounce level and beyond.
Now, after the U.K.'s third auction, December gold
appears to be taking another plunge, settling at a one-
month closing low at $290.60 an ounce on Monday. But
some analysts think gold could be heading higher soon.
CBS.MarketWatch.com spoke with Matthew Ford, a Metal
and Mining research analyst at U.S. Global Investors to
get a better idea on the effect of the gold auctions on
gold's price movements over the last few months and
what the next move of the yellow metal's price might be.
Question: What is the background of the Bank of
England's gold auction?
Matthew Ford: The Bank of England decided to dispose of
half of its current gold reserves, roughly 425 tons,
through a series of auctions. The first one was going
to be slightly larger than the remainder, the remainder
coming at 25-ton increments every two months.
Basically they wanted to realize a certain amount of
value on their gold holdings, which had been deemed as
a non-performing asset.
Question: Now when was the first auction held and what
were the results?
Ford: The first auction was held in July and it had a
very negative impact on the market. It came at the end
of a long line of bearish indicators to the gold
market. It's the first auction. It wasn't as well
subscribed as the Bank of England had hoped for. The
majority of the bids were beneath their target price.
Consequently [making] the extreme negative impact on
the market, knocking gold prices down to 20-year lows,
taking from the $290 level down to $252s.
Question: Do you remember the exact figures on prices
Ford: For the first auction, the price wasn't
announced, but 40 percent of their bids were deemed
acceptable, i.e. the majority of the bids that came in
weren't at a high enough value or weren't of their
reserve price. Consequently, it was felt that the gold
price should be lower and hence just added to the
negative sentiment in an already bearish market.
Effectively, you saw the bids for gold dry up and the
Question: Were there any other factors during that time
that pushed prices so low?
Ford: For the last two years, we've been locked in a
negative trend, a bear trend in the gold market through
a series of central bank sales, additional lending
coming into the market. Basically the liquidity of gold
has sky-rocketed over the last two years through the
form of paper transactions and banks being able to lend
their reserves into the market. So we've seen a lot of
liquidation of above-ground supply. Obviously with a
lot of supply coming into the market, it was met with a
Question: Now when did the second gold auction occur
and what were its results?
Ford: The second auction was held at the end of
September. It's results couldn't have been more
different from the first auction. This time the
majority of bids were higher than the Bank of England's
reserve requirement. I think about 80 percent came in
at a higher level.
Its effect was essentially to change the sentiment. It
was a turning point because half the block of gold that
was auction was purchased by Goldfields, a South
African mining house, but with other bidders also in
it, mostly North American major companies.
Now the fact that mining companies were coming in and
purchasing gold at an auction to sell to the market,
indicated, at that time, that really the gold prices
were at a unsustainably low-level if a producer can't
produce at a price they can purchase the gold at.
At that time, sentiment shifted slightly, become
slightly more positive and then we saw a $10 rise in
the price of gold that week. The real movement in gold
came the following week with the announcement by the
European central banks.
Question: And what was that announcement?
Ford: Fifteen European central banks agreed to put a
limit on their lending activity and on their sales
activity. Their lending activity was agreed to be
maintained at its current level and their selling
activity was going to be limited to a total of 2,000
tons over the next five years, or 400 tons a year.
This has major ramifications on the market, because the
reason for the bear trend over the last few years has
been this perception that there is an infinite amount
of supply out there and there's simply not the demand
to absorb that supply.
This announcement effectively capped the idea that
there's an infinite supply, thereby reversing this
negative attitude towards the fundamentals of the gold
market. Consequently, we saw the dramatic price rally
to $325 and the futures heading up to the $340s.
Question: So did that announcement as well as that
second auction erase the losses from the first auction?
Ford: Definitely. The first auction was held and the
price was reported to be in the low $250s. There wasn't
a confirmation of that number. Now, the second auction
would again have been sold around the $252 level. The
buyers were the main influence in driving it higher.
Then the fact that the European central banks made that
pronouncement completely reversed the losses, moving
gold from its 20-year lows that it was in just the week
before and we saw a $50 move in the price of gold.
Question: Now the Bank of England's third auction, held
today, has sent the December futures contract to about
a two-week low. What exactly caused the market's
negative reaction to it?
Ford: I don't think the market is particularly
negative. It was just fairly ambivalent to it. It was a
known event. It's been known for six months now,
everybody's been waiting for it to happen.
These sales in the overall size of the market are
miniscule. Really this was a quot;buy on rumor, sell on
newsquot; and we saw gold prices drop $4 in the spot market
on the announcement which is currently trading at $294.
I think it was more of a non-event than anything else.
Question: So are they actually pricing in the auction
into the market right now or did they already price it
Ford: There was a lot of positive sentiment towards the
upcoming auction last week. We saw a lot of activity
last week driving gold to $297, $298 in the spot market.
I think really a lot of these sales have already been
priced into the market. The fact that gold didn't rise
another $30 or $40 on the sale this morning, left a lot
of people fairly ambivalent to it.
I don't think this sale ever would've been a driver for
another $50 move because, after all, the previous $50
move wasn't because of the Bank of England sale, it was
because of the European central banks' announcement.
Question: What were the results of the third auction?
It was 2.1 times oversubscribed.
Ford: All of the auctions so far have been heavily,
heavily over subscribed, signifying the demand that is
Question: What was the third auction's price per ounce
Ford: $293.50. And what we've seen basically is the
gold market retract back to that price. It was trading
at $297 over the weekend and it's just dropped back to
the price of the auction today.
Question: So there are two more auctions left to
conduct. When will these be held?
Ford: The next sale is going to be at the end of
January. They're held at two-month increments.
Again, I don't think these auctions are a driver in the
market. They're a potential turning point, but the
underlying fundamentals of the market are far stronger
than the impact of a 25-ton sale.
Twenty-five tons, just to put it into context, is about
4 percent of the daily volume in gold on the London
exchanges. So it's really a fairly small amount. It's
the sentimental connotations that such an auction would
We're looking at fundamentals of the market and what
we're seeing is the fact that companies have been in a
lot of pain for the last two years. They haven't had
the money available for capital development.
Consequently, they aren't able to keep production at
current levels and so would anticipate that there's
going to be a drop in production over the next couple
of years. Supply is going to fall from primary sources.
And on the demand side -- gold demand has out-striped
supply every year, save one, for the last ten years and
that supply-demand gap has been met by one of shocks to
the system and it's usually in the order of 400 to 500
tons of gold, not the 25 tons of gold that the Bank of
England has been providing.
So, looking out on the market with this 400-ton
difference in supply/demand, a decrease in primary
supply, we think the gold market looks very good
looking out from here. I don't think the Bank of
England sales are big enough to severely impact the
market unless there is a lot of sentiment in either
Question: So what's your outlook on the gold market in
Ford: A few of months ago, we said that gold would
trade in a range of around $300 to $325 for most of the
year. We're a little off on that. It's got down to a
low of about $292.
There's no reason why gold shouldn't pop back up to
$300. And looking out further into next year, the
historical cost of production of gold has to be in the
$330s to $340s range. I don't think that's an
unreasonable expectation for next year.
* * *
LATEST UK GOLD SALE ACHIEVES LITTLE,
WORLD GOLD COUNCIL SAYS IN STATEMENT
LONDON, Nov. 29 (Reuters) -- Monday's third UK gold
auction of 25 tonnes achieved little other than to
further weaken the country's overall reserve position,
the World Gold Council said.
The Bank of England sold 25 tonnes of British gold
reserves on Monday at $293.50 a troy ounce amid
lacklustre demand, forcing spot prices down two dollars
The WGC said in a statement the third sale came at a
time when there are signs of a possible resurgence in
quot;In this context the sale of 415 tonnes of the UK's
total of 715 tonnes of gold reserves unwisely yields a
hostage to fortune,quot; said the WGC, a lobby group funded
by miners to promote consumption.
The first gold sale in July helped send prices toward
20-year lows at $251.70, prompting angry criticism from
miners and mining nations fearing job and foreign
exchange losses as central banks pressured gold prices.
But a solid second sale in September plus news of
European central bank restraint in gold sales and
lending and hedging difficulties of Ghanaian miner
Ashanti Goldfields Co Ltd turned the market around and
sent gold sprinting to two-year highs at $338.
* * *
JAPANESE FIRM SUES REPUBLIC BANK
OVER LOSSES INVOLVING ARMSTRONG
NEW YORK, Nov 29. (Reuters) -- A Japanese manufacturing
group said on Monday it had sued Republic New York
Corp., alleging that it lost $123 million due to the
U.S. bank's dealings with a New Jersey fund manager
accused of fraud.
Three Amada Group entities -- Amada Co. Ltd. , Amada
Sonoike Co. Ltd., and Amada Wasino Co. Ltd. -- filed
suit against Republic in U.S. district court in New
The Amada units were among the fund manager's about 100
Japanese corporate investors and are the first to sue
Republic. Their suit alleges that the bank's
quot;misrepresentations and misconductquot; caused their
losses, Amada Group, a manufacturer of metal working
machinery, said in a statement.
Republic spokeswoman Melissa Krantz declined to comment
on the suit.
In September Republic said U.S. prosecutors were
investigating its futures brokerage's dealings with the
New Jersey commodities trader and fund manager, Martin
Armstrong. The trader was later charged with securities
fraud and owes Japanese investors close to $1 billion,
prosecutors have said.
Republic's connection to Armstrong caused the bank to
three times delay a special shareholder meeting to vote
on the bank's proposed $10 billion merger with
Britain's largest banking group, HSBC Holdings.
Republic's stock fell as shareholders worried that
Armstrong's Japanese investors would sue the bank.
Republic's billionaire founder, Edmond Safra, earlier
this month broke the impasse by saying he would take
$450 million less for his stake in the bank. He also
agreed to cover up to $180 million in potential losses
resulting from the Armstrong probe.
Until the Amada lawsuit, Japanese investors mostly had
kept quiet about their losses. The reason, according to
Armstrong's attorneys, was that many of them used their
investments with Armstrong to artificially beef up
their balance sheets.
Armstrong has said he suffered noncriminal trading
losses but is innocent of fraud.
The Amada suit names as defendants Republic, the
Republic brokerage's chief executive and the
brokerage's head of futures trading. Earlier this year
Republic suspended both executives pending an internal
The Amada suit alleges that Republic's brokerage
improperly transferred $101 million from Japanese
investor accounts to Armstrong's futures trading
accounts, when Armstrong's bet against the Japanese yen
went sour this summer.
quot;Amada was a victim of a massive fraud,quot; Steve
Schindler of Schindler Cohen amp; Hochman, the law firm
representing Amada Group, said in a statement.
quot;Republic Securities played an integral role in that
fraud and was unjustly enriched at Amada's expense.quot;