Midas commentary for May 2, 2000


An alert to the gold world (second of two parts)

Jan. 7, 1999 -- 12 major banks chaired by Goldman
Sachs and JP Morgan today formed a "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.

Jan. 12, 1999 -- The Goon Squad acted right on cue.
Last Friday, one of our sources made a very specific
comment to us that he saw bullion houses cap the gold
market rally. The comment was made that it was clear to
him that borrowed gold hit the market to make sure the
gold rally did not carry too far.

Knowing what was going on, one of the Leader of the
Pack, JP Morgan, came out singing at exactly the right
time. Their precious metals analyst, Kevin Crisp,
released a report today in London predicting gold
prices would fall in early 1999 as the "market focused
on supply and demand issues, deflation in Southeast
Asia and the drop in inflation in Europe and the United

Reuters, London, Jan. 12 -- "Even though significant
event risk remain in global markets -- economic,
political, and financial -- we see no reason to believe
that gold will respond any differently than it has in
the recent past," Crisp said. "We forecast the gold
price will average $280 in 1999, but will trade as low
as $265 per troy ounce before the end of March."

The Goon Squad acted right on cue. Last Friday, one of
our sources made a very specific comment to us that he
saw bullion houses cap the gold market rally. The
comment was made that it was clear to him that borrowed
gold hit the market to make sure the gold rally did not
carry too far. Yesterday, gold moved up a bit anyway as
the yen soared. When the Japanese government intervened
today, the market was heavier than it looked with
available gold and the market sold off.

The Midas camp continues to believe that there has
been, and is, an orchestrated effort to cap the gold
price. This effort has been promulgated by our Fed,
other official sectors, and a group of New York
financial institutions. JP Morgan and Goldman Sachs
just formed a crisis risk management group with 10
other financial institutions to handle emergency
situations. It is our opinion that management of all
their huge gold short positions is one of them.

We reiterate this point, because if we are correct
about all of this, something has to happen to trigger
an upward move in the gold price. This Goon Squad has
been beating the gold market to death- forcing it into
financial oblivion and off the radar screen of many
investors. The "squad", and this gold price capping
camp, sell at strategic times. They make a point of
making public statements that the price of gold cannot
rally because of outside events. The press eats it up
and prints it. The gold and silver markets have not
rallied as a result of external events in years anyway
(although that should change very soon-see below), so
there is no reason yet for that to be the case now.
They put out that sort of thing to the press anyway to
spread the bear story. They want to make sure to tell
you not to buy gold in a future crisis because that
effort will be futile. But the real bear story is that
they make sure gold does not rally very much at any
given point. One of the big sellers again today was
their crisis associate, Goldman Sachs, of course.

Our camp believes, ironically enough this cabal is
actually desperate in a way. They know - I repeat, they
know they have a tiger by the tail. They are all
heavily short. They must find a way out of this or they
could be in serious trouble. They could not cover their
short positions if they had, or wanted, to. There is
just not enough physical gold available in the short
term to accommodate their needs.

Jan. 20 -- We are pleased to say that we have raised
awareness about the "Goon Squad" and their activities.
Queries have come back to us from everywhere: "Could
Goldman Sachs (Secretary of the Treasury Rubin's,
former firm) really be a part of a cabal that has been
holding down the gold price?"

The gold mine supply for 1998 was 2529 tonnes according
to GFMS, a leading trade organization. Demand for gold
for 1998 is expected to be around 4159 tonnes. That
means that there is a 1600 tonne natural deficit (
demand over mine supply ) that has to be filled by gold
from scrap supply, the central bank coffers, forward
hedge sales from producers, or leased gold. Gold can be
leased and sold into the market place ( adding supply )
due to its cheap borrowing costs ( say .75% to 1.8% )
The resulting cash from the sale of the gold is then
used for a variety of investment purposes. This is
similar to what was done with loans borrowed in yen.

The yen carry trade was a big winner for years. It was
fostered by incredibly low interest rates in Japan.
Money was borrowed in yen and then invested in, say, US
Treasury instruments. Our Treasury loved it as it
supported our debt instruments, keeping interest rates
lower than they would have otherwise been. It also has
fostered the credit bubble that is fueling the stock
market bubble. As long as the yen remained flat against
the dollar, or did not gain against the dollar, this
trade was a windfall winner for banking proprietary
trading operations and the hedge funds. When the yen
rose from 146 to 111 in the late summer, the yen carry
trade soured for many of the Johnny Come Lately
borrowers. Now, they had to face principal losses that
skyrocketing their realized borrowing costs to 20% and
more. AND, some of their risk free arbitrage trades
also went amuck, compounding the situation. Voila-Long
Term Capital Management.

The big boys scored early and big with the yen carry
trade. If it could be done with yen, why not gold? The
gold loans were similar to the yen loans in borrowing
costs. As long as the price of gold did not take off
(so that the principal did not have to be paid back as
a result of a much higher gold price and thus making
the loan an expensive one), it was a winner.

In the old days, gold was only lent out to fabricators
and producers by bullion dealers. That was before the
golden age of gogo central bankers. Before the days
when they (The Central Bank of Italy, for example)
began to invest in the likes of Long Term Capital
Management. But, when the word leaked out (the Wall
Street "in crowd" always gets the "leaks") in the
winter of 1996 that the central banks were going to be
dumping some of their gold holdings, the bullion
dealers and hedge fund jumped into bed together. The
bullion dealers made money by encouraging the producers
to hedge and by lending out their bullion to willing
borrowers. One fed on the other, the gold supply
hitting the market ballooned, the gold price collapsed.
Not only did the borrowers have money at a very low
borrowing cost, they had a bonanza windfall profit
because they could pay back their loans with much
cheaper gold.

All has been well for those playing this game. Until
NOW. The price of gold has been trading around the low
$290 area for about a year and one half now.
Deflationary forces have taken hold and the bears have
fostered the notion that there is no reason to own
gold. "Look how lousy it acts and look at its lowly
price" has been the commentary dished out to the press.
Behind the scenes, however, there is entirely different
wordspeak going on.

Remember that deficit. It is some 1600 tonnes. That
means to keep the price of gold down here, the scrap
people, central banks, gold borrowers and producers
have to feed 1600 hundred tonnes of gold into the
market place. But, times are a changing. Many producers
are not so comfortable selling gold forward at these
low prices (gold supply thus reduced).

The pre-EMU central bank selling is over for the most

Dow Jones, Frankfurt, Jan. 7. ECB Vice President
Christian Noyer: "the national central banks (ESCB)
will keep their gold holdings for the foreseeable
future." The ECB has also made well reported statements
that is has no plans to sell any of its 15 percent
foreign exchange gold reserves in the formative stages
of the creation of the euro.

That leaves the gold borrowing crowd and gold scrap
people to feed the junkie bear habit and supply heavy
tonnage of gold to the market place. The gold market
has little transparency. No one really knows what is
what. It is very, very hard to find out what the facts
are in the gold market, especially about the gold
loans. The best work on this subject was done by Frank
Veneroso of Veneroso Associates. As a result of yoeman,
Sherlock Holmes like, detective work, he has come to
the conclusion that the gold loans have risen to 8,000
tonnes, or so. This is a big deal as gold mine supply
in 1998 was only 2529 tonnes. If the shorts had, or
wanted to cover, in a short period of time ( like they
tried to do in the yen carry trade ) there is not a
chance in China that they could do so. What is worse,
many of the borrowers may have, or had, no idea, until
recently, how large the gold loans have grown.

The jig is up time, is here. Enter Long Term Capital
Management. When this Nobel Prize winning led hedge
fund blew up last fall, it was discovered that they had
a big short gold position of say 300 tonnes that had
been sold into the market place. Again, the proceeds
were used to finance their "so called" riskless
arbitrage trading positions. When the Fed and fellow
financial institution big shots came in to bail them
out to prevent a "systemic" financial crisis, they
found out about their short gold position. What to do?
A buyback of 300 tonnes, or so, in a short period of
time would cause a sharp up spike in the gold price
that already was moving up as a result of the serious
collapse of this hedge fund. Thus, they arranged an
"off market" transaction with someone, or someones, to
let them out of the trade."

Back to the ranch. What is to be done about the gold
loans? The Fed and the big shot financial boys in New
York had to learn about the size and potential problem
of the gold loans when they discussed it with each
other during their scheme to bail out Long Term. I am
absolutely convinced they found out how large the gold
loans were, JUST in that group alone. Good grief, they
must have collectively thought. They had to come to a
conclusion to try and develop and exit game plan.

Maybe the plan (not conspiracy) went something like
this: 1. Foster the notion that gold is a dead duck for
the time being. Make sure that your highly respected
analyst reports project dismal future gold prices. This
will encourage producers to sell rallies and help to
continue to attract gold borrowers for leased gold.
Whether planned or not, the gold price projections for
1999 by this "in crowd" are very uninspiring. We know
for a fact that one of these heavyweight institutions
TOLD their respected analyst to come up with a bearish
projection. 2. Make sure that gold is available for
forward hedging purposes to the producer community.
Whether planned or not, Goldman Sachs was running
around last fall offering credit terms to producers (
South African in particular ) at previously unheard of
credit terms. Practically, no credit restrictions at
times, at all. Just do it. 3. Defend the $300 price
area at all costs for the time being. Every time, gold
breaks through $300, kill it. Defend your positions and
discourage gold buying as it approached $300 in the
future and encourage producer hedging right below $300.
We will make sure the gold is available for any of you
that need it to do so. Nice to have a little help from
your friends. House Banking Committee, July 24, 1999 -
Alan Greenspan - "central banks stand ready to lease
gold in increasing quantities should the price rise".

Now, why did Alan Greenspan utter this in the first
place? Gold traded at $385 for years and that did not
bother anybody. What is he trying to protect? Why
mention mobilizing gold reserves when gold is trading
below $300?

Whether it was planned or not, the price of gold has
been bombed every time it has reached, or tried to
reach, the $300 area the past 6 months.

While Midas du Metropole is shouting this from the
mountain tops: "If it looks like a duck, acts like a
duck, trades like a duck, it is probably a duck", we
are not the only ones who are aware about the time
bomb, explosive nature of the gold loan situation.

Bloomberg, Nov. 26, Sydney -- "Normandy Mining Ltd.
said it will realize 85 percent of the value of its
forward gold sales booked over the next 10 years,
giving it a profit of A$650 million. The Australian
miner, one of the world's 10 largest gold miners, said
it bought back 4.1 million ounces of its previously
contracted gold sales, and says it replaced the sales
with options. Reuters- Nov. 25 (US time)- Sydney - "
The transaction will simultaneously eliminate potential
bank counter party risk," Normandy said in a statement.

Why did Normandy even bring up "counter party risk"?
What do they know? The two most vociferous, and right
on, pontificates of the bear case the past few years
were Merrill Lynch and Union Bank of Switzerland. They
encouraged their clients to go short and encouraged
gold borrowing. They, more than anyone else, would have
a very good idea of how large the gold loans have
become. Whether planned or not, both have withdrawn
from the gold derivative business. They were so right
on the gold market. Why did they exit the gold
derivative business? They were the bears' heroes!

Whether planned or not, 12 major banks chaired by
Goldman Sachs and JP Morgan in early January formed a
"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". We realize
this group was not just formed because of the gold
issue, but why the need for it to be formed now? Is
this not a "cabal planner" of sorts. Looks like a duck
to me..

Why did Terry Smeeton, a top official at Bank of
England who recently retired, completely clam up about
the size of the gold loans when confronted? Why did a
top executive of one of these 14 banks turn red when
confronted about the same issue last weekend?

CFTC Chairwoman Brooksley Born sent a letter of
resignation yesterday to President Clinton, because her
efforts were thwarted.

From one of her speeches:

"While the CFTC and the U.S. futures exchanges had full
and accurate information about LTCM's exchange-traded
futures positions through the CFTC's required large
position reports, no federal regulator received reports
from LTCM on its OTC derivatives positions. Notably, no
reporting requirements are imposed on most OTC
derivatives market participants. This lack of basic
information about the positions held by OTC derivatives
users and about the nature and extent of their
exposures potentially allows OTC derivatives market
participants to take positions that may threaten our
regulated markets or, indeed, our economy without the
knowledge of any federal regulatory authority."


Feb. 19 -- The Comex open interest, at 186,925
contracts is near recent high levels as the specs
remain very short. Resistance is Rock of Gibraltar
solid at $290. That area has become as intense as the
$300 area was earlier. There is probably a good reason
for that. It is the gold borrowers who are holding down
the price of gold. To keep the price down, they have to
keep borrowing. A move up to $300 now is a 3% loss.

Feb. 25 -- NEW YORK, Feb 24 (Reuters) - Following are
excerpts from the question-and-answer session after the
second leg of Federal Reserve Chairman Alan Greenspan's
semiannual Humphrey-Hawkins testimony before the House
Banking Committee on Wednesday:

REP PAUL: "Is the price of gold still valuable as an
indicator and a monetary tool as in the 1960s and does
the government still buy and sell gold?"

GREENSPAN: "The price of gold has over the decades been
a generally usable indicator of what the level of
inflation has been. Obviously, during the period of the
active gold standard, which was really prior to World
War I, the price level locked itself into the gold
price and by definition it did.


March 17 -- Treasury secretary and former Goldman Sachs
honcho, Robert Rubin: Reuters - March 17- "The
International Monetary Fund will probably sell 5-10
million ounces of gold to fund a program of debt relief
but will not disrupt the markets with its sales."

March 26 -- Goldman Sachs and crew were very heavy
buyers on the spike down in the gold price early this
morning and they came in again as heavy buyers around
mid day. The big sellers today were notorious funds
such as John Henry and Moore Capital.

March 31 -- For years the collusion crowd has taken in
the gold and silver black box fund traders such as John
Henry. So much so that mega trader announced on April
26, 2000 that they were giving trading silver and cut
back gold trading 40 percent.

April 9 -- Down and dirty. This is how we see it. On
March 12, the large specs were short 70,000 contracts.
We know that Goldman Sachs and cronies were big buyers
around $285. The market runs up and stops in the mid
$290's. We reported to you that Goldman Sachs was
running around the countryside telling all the
producers to sell. "Liquidity" suddenly was everywhere.
On March 26, the next report shows that the entire
short position was taken out and reversed a bit on a
move of only $9. Extraordinary. Gasps were heard
through the internet. Midas put out commentary that
down was ahead of us. Down we went and $285 was taken
out easily. So was $280. New lows for the move.

All of a sudden the "squad" led by Goldman Sachs are
big buyers again. We have reported that to you. They
have been buying around the $280 area. So have their
compadres. That is why the commercials are so long
(bullion dealers are listed as commercials).

April 13 -- But today we received reports that at the
Morgan Stanley Gold Conference gold producers reported
being harassed by Goldman Sachs to sell forward. And
then the Treasury, run by former Goldman Sachs CEO,
Richard Rubin, comes out again with another press
release today after the gold close, urging the IMF to
sell gold. Washington - April 13 - Reuters -U.S. urges
Congress to help fund debt relief The US Treasury on
Tuesday urged Congress to help fund an ambitious
program of debt relief, authorizing gold sales from
International Monetary Fund reserves and stepping up
bilateral help.

The bottom line is are the gold manipulators with their
market trading followers setting up the market for
another hit after the specs are run out of town once
again? That would be easiest for the manipulators to do
by selling into a spec buying panic and reversing their
recent buying and then returning to the sell side. The
moving averages start to turn above $285. The biggies,
the 100 and 200 day moving averages, sit today at
$288.60 and $290 respectively. If gold does rally to
that level and does not soar if those levels are taken
out, you can bet your bottom dollar, the manipulators
are playing their games again. The price of gold must
shoot up sharply at times in the days and weeks to come
or "It's the Same Old Song" and will have gold market
players spinning like "The Four Tops".

Remember, the specs covered 70,000 contracts last time
and the market hardly budged. That produced gasps of
surprise and despair. The price of gold then plunged.
In normal, free trading markets, that does not happen.
Once maybe it could happen, but twice in a row? Now,
the specs are short a staggering 100,000 contracts.
Soon we should either be watching some serious bullish
fireworks or another obvious revelation about market

From John Hathaway is a Senior Portfolio Manager at
Tocqueville Asset Management L.P. and portfolio manager
of The Tocqueville Gold Fund: On Friday, March 12,
1999, hedging managers of gold producers received phone
calls from a leading bullion dealer asserting that the
gold price rally was over. At the time, the gold price
had just barely broken above its 200 day moving
average, a key chart point. Further upside could have
damaged the equity and bond markets, as the Federal
Reserve has stated that it watches gold to predict
future inflation. A strong showing by gold would force
the Fed to raise interest rates..

April 19 -- Let the good times roll! Would you believe
9 out of 10 days. That is how many days gold has closed
higher. Today was a surprisingly quiet one as we stick
to our bullish guns. Stops were moved up a bit to the
$287.50 area basis June. A move into that price point
should give us a $6 up day and some serious excitement.
We will have decisively breached the 100 day moving
average by then and should just zoom right up to the
200 day moving average around the $290 area. If the
gold market has delinked from its manipulated near term
history, we are set up for a dramatic move to the
upside which few are looking for.

May 6 -- We know "the squad" are all lining up to try
and stifle a decent gold move to the upside, one more
time. Deutsche Bank, Chase, Swiss Bank and Goldman
Sachs were all there selling gold during today's
session and, when they had to, even throwing the
kitchen sink at the bulls attack. Deutsche Bank has
been especially aggressive and noticeable in their
selling the past few days. We got word late this
afternoon that their bullion desk is calling their
clients saying that the gold market is stopping at
$290. I don't think Midas followers will be surprised
when we tell you that big sellers late in the day today
and taking on all bids were "Squad" honchos Goldman
Sachs and Deutsche Bank.

Bank of England Coming Gold Sale Announcement made on
May 7

"England announces sale of up to 300 tonnes of gold -
gold drops as much as $10 per ounce."

May 10 -- Based on the tremendous feedback we have been
receiving from around the world, it is clear that most
market participants now believe that there is an
orchestrated effort by certain "officialdoms" to hold
down the price of gold. We have been saying as such for
the past 5 months and we just take it one step further
by suggesting that this orchestration includes
"collusive market activity" by various bullion dealers.
We do not know why GATA's allegations should rankle so
many people. The U.S. Justice Department has subpoenaed
many of these same institutions and is investigating
them on suspicion of the same price fixing, anti-trust
violations that we are looking into. The trading
patterns alone in the gold market these past 6 or 7
months suggest that something is very amiss. Markets
don't just happen to trade like this by accident. We
only ask for market observers to have an open mind.

Did you ever wonder how smart Bob Rubin really is? Do
you suppose when he left Goldman Sachs in 1992 that he
had this great plan? Move to Washington and take over
the economic apparatus. Use his market knowledge to get
the stock market up 500%. Manipulate the gold price to
keep inflation down to zero. Allow Goldman to sell
itself to the public at huge multiples. Then get out of
Washington and back to the Street before anyone caught

After this morning's surprise, at least there is no
longer any doubt among the gold cognoscenti about one
thing. There is indeed an orchestrated effort to take
the gold price capped.

One could imagine this: since the Swiss referendum to
sell gold and the IMF deliberations to auction gold
have not been sufficient to hold the price down - in
fact the price is UP - that Rubin had to revert to Plan
C. The US Congress would be unlikely to buy into this,
so US puppet Britain was the quickest route to an
immediate dumping.

The inflation scare of the past three weeks has seen
capital rotating into resource and cyclical issues.
Bond prices tanked. Precious metals then start to rear
their 'ugly' head. Greenspan runs to the media with his
canned warnings. And Rubin, still hiding in the
shadows, hits the red alert button.

If the scuttlebutt is even partly true, Rubin wants to
get out of DC before the end of Clinton's term. One eye
on the exit door and one eye on his legacy, he needs to
keep the stock market up, bonds steady, gold down.