Barrick chief expects 20 percent rise in gold price


Copyright 2000,
Not to be reproduced without permission

Midas commentary for May 4, 2000

By Bill Murphy

Spot gold $279.90, up $2
Spot silver $5.10, up 10 cents


The $2 rule again. Gold spiked early today, running up
over $4, only to be beaten down by Chase and Morgan.

The manipulation of the gold market and the patterns
that certain bullion banks employ in their
orchestration could not be more obvious. One can almost
predict how any day's trading will end.

I told you in the last Midas that Goldman Sachs was the
big silver buyer, so silver would probably pop up. Sure
enough. I also alerted you to a possible mini-squeeze
in silver. That kind of talk is making the rounds.


Right on cue. Tuesday's senior gold share rally was the
biggest in memory. Leave it to one of the Hannibal
Cannibal crowd to come out the next day to talk it
down. What a propaganda machine this big money cabal
has put together to create a negative slant about gold
whenever there is the slightest bit of excitement in
the air. The latest:

* * *

Mining / P. Ward / 5/3/00

Reverse Alchemy Institutionalized;
Cutting Gold Forecast to $270

Despite a rally yesterday, gold stocks have
significantly underperformed the market YTD. In our
opinion, the argument that these stocks are safe-haven
investments has been systematically refuted -- again.

Last fall most gold analysts viewed the Washington
Agreement as a "new dawn" for the gold market. In our
opinion this agreement has merely institutionalized the
commoditization of gold -- a process we refer to as
"reverse alchemy."

In view of weakening fundamentals, we are cutting our
long-term gold price forecast to $270/ounce from
$280/ounce. We believe the risk to our new forecast is
to the downside. For comparison, the Street is
forecasting gold to average $325/ounce in 2001.

We do not believe gold equities have fully discounted
the current weak gold price. Accordingly, we are
cutting four gold stocks to 4-underperform from 3-
neutral: Battle Mountain Gold, Homestake Mining,
Newmont Mining, and Kinross Gold. Barrick Gold and
Placer Dome will remain rated 3-neutral.

* * *

It would appear Peter Ward has no use for the lesser
hedged or unhedged gold companies -- nor does he have
any use for gold, period. Some gold analyst.

Oh yes, one could actually say that Peter Ward has
turned extremely bullish. Last year he pushed around
Wall Street the notion of Lehman that the price of gold
was going to go to $200, not $270. By the way, why come
out and change your estimate from $280 to $270? Who
gives a crap about something like that?

Anyway, here is what happens (and has been going on for
years) in certain press circles after a Lehman type of
negative gold disinformation hype -- even though the
XAU was up 10 percent Tuesday:

"By Keith Damsell, Financial Post, with files from

"Gold stocks hung on to gains yesterday despite a
pessimistic forecast from influential New York
brokerage Lehman Brothers."

The press thinks gold analyst types like Peter Ward are
credible, so they print with what they have to say.
When the likes of us go to the same type of
journalists, they go dead silent. Very sad.

Peter Ward is hopeless. Paul Walker, director of U.K.
consultants Gold Field Mineral Services, is a gold
industry obscenity. Leave it to this bullion dealer
apologist to alert the media to anything negative he
can find when there are few gold upbeat days.

Dow Jones reports him saying today to the press that
gold prices are set to come under downward pressure
because India is being hit by a drought. Walker says:

"Indian consumption could drop by around 10 percent
this year.... There is already anecdotal evidence that
of distress selling."

That is, selling of family jewelry and small bars.

Walker went on to say that Indian gold demand could be
down 80-100 tonnes in that gold-devouring country,
which last consumed 20 percent of world production.

Dow Jones then reported that the World Gold Council
played down such fears. Besides, grain prices are
really popping in the United States because of drought
fears. If there are droughts all over the world,
inflation will be rampant as food prices skyrocket.
That can only increase gold investment demand and
easily make up for that 80-100 tonnes.

The World Gold Council links to GFMS on its own web
site and cites GFMS as an "authority." Yes, GFMS is an
authority: on how to deliver the bullion dealer

WGC: Send GFMS packing.

Some strange lease rate commentary. Yesterday sources
told me that short-term gold was offered for lease at
near zero rates. Borrowed gold was everywhere. Someone
was obviously trying to find borrowers to stop the
rising gold price. Today the official gold lease rates
are moving up a tad with the one-month at .546 percent
and the six-month at 1.06 percent.

Market talk of a big seller out there:

"Reuters, May 4 -- As soon as that was clear, there was
a big sell order at $277 -- it led to an instant drop
of one dollar. 'We could repeat that scenario today,'
added another trader," citing a much-talked about

Anglogold's President Roberto Carvalho told Platts
Wednesday: "I think demand is far greater than what the
industry is delivering" and that gold prices will
recover, citing Anglo's takeover of Australia's Acacia
in late 1999 as proof of the company's bullishness.

Potpourri and the Gold Shares

The XAU continued to rise today and finished at 62.16,
up 2.36.

Cafe member J.M noted yesterday:

"The South Africans were real strange. Heard a comment
today that the South African stocks were caught in a
squeeze play on Tuesday. Must be that someone was
shorting and got creamed Tuesday and had to step in and
cover and those stocks took off like a rocket. Today
they dropped on selling but came off their lows."

Durban Deep says it closed out 500,000 ounces of gold
hedge book in the first quarter. That is good news;
that another producer is covering (buying). Who keeps

Gold Fields of South Africa announced increased
earnings for the quarter at 51 cents per share. Their
share price exploded 50 percent on Tuesday before
setting back. This company does not hedge and has been
vocal about the need for other gold producers to start
believing in their own product by taking in forward
sales, etc.

Barrick or Gold Fields? There is no comparison. If you
believe the gold price is going higher, the leveraged
play is Gold Fields, not derivative player Barrick.

Same goes for Durban Deep, which is also very leveraged
to the gold price and will become a big winner when
gold escapes its shackles. Agnico-Eagle too.

Regarding the article in the business section of last
Sunday's New York Times, "Gold Believers Put
Rationality to Test" by Jonathan Fuerbringer. It
compares gold investors who invest in unhedged gold
companies like Gold Fields and Newmont with investors
in a heavily hedged company like Barrick and the investing crowd that is just praying for
something good to happen.

The article goes on to say how Newmont stock has way
outperformed Barrick even though the gold price has
been so weak. Barrick President Randall Oliphant is
quoated as saying, "It doesn't make sense to us and I
can't explain it."

Yes, you can, Randall. You told a New York investor
audience (many GATA supporters were there and heard
you) that your low stock price was brought about by the
people who believe that there is a conspiracy to keep
gold down.

Why didn't you tell the Times what journalists outside
the United States have reported -- namely that famed
novelist Arthur Hailey dumped Barrick stock because of
your hedging policies and GATA's pleas that
shareholders around the world do so? I know of Barrick
shareholder who dumped more than 3 million shares to
invest in unhedged gold producers, and boy is he glad
he did so. It paid for his Cafe membership for the next
billion years.

Just looked at the closing stock prices for the day.
Newmont finished at 27 3/4, up 1 1/2, while Barrick was
down 1/16 at 18 1/2.

Randall, why not lift your hedges and get behind GATA?
I will fly to Toronto and we can have a joint press
conference. With the assets you have in the ground,
your share price would go right to 30. Your
shareholders would be jubilant. GATA would praise you
for seeing the light and alert all the people who
dumped your stock to buy it back.

The U.S. economic numbers issued today were very gold-
bullish. Q1 productivity was only 2.4 percent, down
from the 6.4 percent in the fourth quarter and below 3
percent guesstimates. The Q1 labor unit cost was up
1.8%, above expectations. Yesterday the Fed Beige Book
findings were released and highlighted growing
inflationary pressure from higher wages and increasing
commodity costs.

Cafe contributors have been debunking the "productivity
myth" for some time now and the numbers are beginning
to prove them right. Meanwhile, the bond market and the
10-year notes are dive-bombing in price; 30-year bond
yields have backed up to 6.19 percent. The numbers and
credit markets say inflation.

All this and still the price of gold is well below
$300. Ridiculous. Gold is the buy of a lifetime and has
been for some time.

The venerable Harry Schultz always chides me when I
mention a central bank sale and do not mention that at
the same time that there is a big buyer too. From

"If IBM or Oracle or Shell Oil said, 'Wwe are selling
our company,' the press would scream the question, 'Who

"If the press people want to continue pretending they
are journalists, they must now scream, 'Who is or will
be buying the gold that the Swiss (or any banks)

Harry's major point is that a sale of anything has a
buyer. Demand for gold is going through the roof and
all of that is lost when the press harps on central
bank selling. Remember, Frank Veneroso says there is a
1,500-tonne yearly supply/demand deficit. That is more
than 120 tonnes per month. The 15 European central
banks that signed the Washington Agreement can sell
only 400 tonnes per year for the next five years.

What is amazing is that evidence keeps surfacing that
Veneroso's supply/demand and gold loan numbers are
right, much more right than those of GFMS. Why is there
not a big hoopla about this from the gold producers?
Why don't they have their PR departments put out what
Veneroso has to say, which is so bullish, to counter
the drivel GFMS puts out?

From Bill Fleckenstein's commentary yesterday quotes
someone as saying:

"Three of the best proven longer-term money managers --
Julian Robertson, Stanley Druckenmiller, and Nicholas
Roditi -- have quit the game. And he sees this
development as a very troubling sign because all three
investors are serious, intellectual, very bright people
who are serious students of investing who ... had
employed all the tools and had matchless resources. He
is right to be troubled. No one has yet written a
serious article on 'what is killing the macro hedge
fund managers?' for The Wall Street Journal or the
Financial Times. The answer is clear: We are in a
period of unprecedented government intervention and
manipulation of markets ... in response to the near
(and forthcoming) collapse of the international
economic regime."

Morgan was all over the gold sell side again today.
That name has more visibly surfaced the past week than
any time I can remember. Much of it comes from the OTC
market, where they do most of their gold trading.

It is time to put Morgan on the hot seat.

The notional amount of Morgan's off-balance-sheet
derivative contracts as reported to the Office of the
Controller of the Currency went from $18.363 billion on
July 1, 1999 ,to $38.1 billion at the end of 1999. From
what I can gather, these positions correspond to the
total value of the bank's gold loans plus the face
value of option positions vis-a-vis clients. From the
footnotes to the Office of the Comptroller of the
Currency (OCC) report, these gold derivatives encompass
OTC positions only. There are additional futures market
positions that are not covered by this data. These
statistics (which can include some double counting)
exclude basis swaps and all similar derivatives not
subject to bank capital adequacy requirements, which
means that they refer only to 'at risk' positions."

Morgan Bank has a special relationship with the U.S.
government. These derivative positions represent a
massive shift of gold risk exposure to their account
during a period when producers were covering and large
hedge funds were exiting their gold carry trade
positions (thereby buying their shorted physical gold
back) late last year."

My conclusion: The U.S. Government, via the Exchange
Stabilization Fund, is now short 1,000, 2,000, or more
tonnes of gold and has taken over gold producer shorts
and hedge fund shorts. If so, one has to wonder what
the heck is going on and why. Someone is scared to
death that the gold price might rise. Why?

It gets worse.

From the fourth quarter 1995 through the third quarter
1999 this notional amount for ALL Commercial banks in
the U.S. averaged around $61 billion. At the end of Q2,
it was $61.4 billion -- the end of Q3 $63.4 billion.

The price of gold exploded after the Washington
Agreement was announced on Sept. 26, 1999, when 15
European central banks said they would curtail their
selling to 400 tonnes a year and not increase their
lending. As said above, that announcement prompted
panic short covering and gold buying. Yet, at the end
of Q4, this same gold derivative number at the
commercial banks alone ROSE to $87.6 billion, close to
a 40 percent increase over Q3.

Somebody was desperate to keep the price of gold from
rising to its natural equilibrium level. There was not
enough physical gold around to stop the gold price from
exploding, so derivatives were used to bring the price
back down below $290.

As I have said for a long time now, I believe that one
of the great financial scandals is brewing. Reg Howe,
Frank Veneroso, and GATA will bring that to the
attention of certain political officials when we go to
Washington next Tuesday. GATA's Gold Banking Derivative
Crisis document will be hand-delivered by me to each
House and Senate Banking Committee member's office. The
following week, GATA's open letter to these same
members of Congress will appear in Roll Call. All of
Washington will be alerted that the banking committee
members have received information in great detail as to
the nature of the problem and that it requires their
immediate attention. It will be to their political
peril if they fail to look into this.

The price of gold must be allowed to rise, and swiftly
at first, to slow down gold demand. Eventually it will
take a price of $600, more or less, to do the trick.
That is how a crisis can be averted.