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Gold market report for July 5, 2000
By Bill Murphy, Chairman
Gold Anti-Trust Action Committee Inc.
July 2, 2000
The setting for the 23rd annual Financial Times
World Gold Conference was the finest, as the
Intercontinental Hotel is surrounded by the Place de
la Concorde and the Place Vendome in the center of
the cultural and historical areas of Paris.
The Champs-Elysees is nearby, and that is the
favorite street in the entire world of Le Chien du
Cafe, Little Bear. Also nearby are Napoleon's Tomb
at the Pantheon; the Eiffel Tower, which hovers over
all; the Louvre; and the Ritz, where Princess Diana
began her misfortune. On the other side of the
Intercontinental is the Hotel Maurice, which
headquartered the Gestapo during the Nazi
That had me chuckling a bit, as the staff of the
FT/Gold Fields Mineral Services Ltd. conference that
stopped LeMetropole Cafe member Mark Gunn and me
from passing out our handouts called our efforts
quot;Nazi tactics.quot; Later, ironically enough, a charming
woman on the staff wondered what everyone had to
say, as she thought it interesting and entertaining.
The irony of all of that is that no much could be
more Gestapo like-ish than what certain bullion
dealers are doing along with the pitifully inept and
indefensible propaganda of Gold Field Mineral
Services Ltd. I think GFMS' Doctor Walker made an
mistake by arrogantly refusing to acknowledge GATA's
challenge to pay for a debate for the press and the
gold industry on the important issues of gold supply
and demand. All he had to do, if he was confident in
his analysis, was to thank us for our efforts in
behalf of the gold industry and say that GFMS would
take our challenge under consideration. But no, GFMS
is so freaked at being found out, that Walker
panicked in front of the conference and looked a bit
pathetic with his anemic response to our good will
quest for a transparency challenge.
That is what bullies do when put in their place.
These guys and their bullion dealer cronies have
misinformed the world to satisfy their greed. A
financial scandal of epic proportions has debauched
many poor people of the world. Those responsible are
going to have to pay a price for this.
This FT Conference is mostly for the banking crowd;
more than half the attendees were central bankers or
bullion bankers. Central bankers attended from
Austria, France, Uzbekistan, Italy, Algeria, Britain,
Denmark, Libya, Venezuela, Russia, the Netherlands,
the European Central Bank, Zimbabwe, Mozambique, and
Also present were the Abu Dhabi Investment
Authority, the Austrian Mint, ANZ Investment Bank,
Almaty Merchant Bank of Kazakistan, Banco Pop
Etruria e del Lazio and Banca Populaire di Bergamo
CV of Italy, Banka Asaka of Uzbekistan, Bank Zenit
of Russia, the Bank of Nova Scotia, Barclays
Capital, Bayerische Landesbank of Germany, CA
Indosuez of Switzerland, Chase Bank, Citibank,
Commerzbank AG, Credit Suisse First Boston (10
representatives), Demirbank of Turkey, Deutsche
Bank, Dresdner Bank, Erste Bank of Austria, Fleet
National Bank of the United States, Goldman Sachs,
HSBC Bank, Investec Bank of South Africa, J.P.
Morgan, Kazhommertsbank of Kazakhstan, Korfezbank AS
of Turkey, Lanta-Bank of Russia, Maquarie Bank of
Australia, Mitsui amp; Co., N.M. Rothschild amp; Sons Ltd,
Narodowy Bank of Poland, National Commercial Bank of
Saudi Arabia, Ratobank International of the United
Kingdom, Rand Merchant Bank of South Africa, Royal
Bank of Canada, Royal Canadian Mint, Societe General
of France, Standard Bank London Limited, Standard
Corporate amp; Merchant Bank of South Africa, Warburg
Dillon Read, and Westdeutsche Landesbank of Germany.
Banks such as Dresdner and UBS Warburg (Warburg
Dillon Read) had as many as nine representatives
each attending this conference from offices all over
I think you get the picture. These institutions
spared no expense and no personnel. While most of
the delegates are smart and fine individuals, this
is a quot;don't rock the boatquot; group in general. One
generally rises to the top of the banking world by
knowing how to say the right things at the right
time to the right people. That is true in the
corporate world in general too, but more so in the
LeMetrople Cafe. members might like to know that
www.LeMetropoleCafe.com had the only dot-com
delegate. It is in this setting that GATA made its
pitch to rock that bullion dealer boat gently. Reg
Howe of www.GoldenSextant.com made the trip over to
Paris from Massachusetts as a GATA delegate and was
superb in his delivery to the bankers about the gold
derivative buildup and the potential consequences of
the massive increase of gold derivatives on the
books of certain banks.
The first session of the conference was the most
illuminating. While the Washington Agreement was
applauded by everyone, the body language and
comments by the big bankers told a bit of a
different story about how they felt about gold and
what was going on behind the scenes.
Terry Smeeton, former No. 2 man at the Bank of
England, opened the session by defending the bank's
decision to sell gold and praising it for
transparency reasons -- right off the bat and with
fervor. Weird, I thought, for him to make such a big
deal of such an old issue. Such heat they must still
Smeeton went on to say that central banks cannot be
compared to commercial banks as far as their lending
or risk performance is concerned. I understood that
to mean that the central banks could lend out gold
or act in certain ways because they were too big to
fail, but that commercial banks needed to be more
Smeeton concluded by completely contradicting
himself on the transparency issue by declaring that
central banks should not have to declare what they
do not want to declare, so as not to interfere with
their furtive banking activities. He left me a bit
bewildered, because I know some of the behind-the-
scenes scoop on this bureaucrat.
This is the same Terry Smeeton who told Frank
Veneroso of Veneroso Associates that the gold loans
were 3,000 tonnes as far back as eight years ago.
Smeeton was very open at the time and wrote a paper
(now lost) on the subject. When Veneroso called him
in 1998 to inquire further, Smeeton refused to say
anything on the subject. Dead silence -- as further
discussion might confirm the big gold loan numbers
Frank has come up with.
Herve Ferhani, head of the Foreign Exchange Division
of the Banque de France, spoke next. Naturally, his
delivery was in bankerspeak, but it was VERY
positive regarding the future price of gold. Ferhani
said many lenders of gold may not be taking into
account the risks involved in gold lending -- and
that could turn out to be a mistake. Ferhani noted
that getting the gold back from borrowers might not
He went on to say that the gold loans are now 5,000
tonnes, but, from other sources, I believe he knows
them to be MUCH larger; hence his comment on the
risk of gold loans. Ferhani also noted that the use
of derivatives was facilitating the short sellers.
Ferhani applauded the Washington Agreement, as it
gave stability and transparency to the gold market
and ruined the one-way bet of the short sellers. He
noted that gold is a unique investment asset and
that, because of its upside potential, it is a great
asset for a bank to have.
Finally, Ferhani said gold is likely to become a
more important credit-risk-free asset for central
banks as they call in their bonds as the United
States is doing now. As long-term bonds are called
in by other countries, he said, a shortage of risk-
free assets will force central banks to buy gold to
balance the credit risks of the rest of their
All in all, a very bullish gold outlook presented by
The presentation by Doctor Zoellner of
Oesterreichische Nationalbank (Austria) and Charles
Spall, head of central bank marketing (commodities)
for Deutsche Bank, was of a much different tone.
Zoellner was ebullient about his mobilizing gold for
Austria -- a euphemism for selling, lending, and
writing calls on their gold. He stressed the word
quot;activequot; when referring to Austria and the gold
market. In 1988 Austria owned 658 tonnes of gold;
the country is down to 378 tonnes now and will
bottom out with 320 tonnes in 2004. That will all be
in accordance with the Washington Agreement, which
Zoellner praised as good for transparency and good
for putting speculators on notice that this one-way
bet of shorting gold was guaranteed no more.
Zoellner also opined that gold is not moving higher
because inflation was under control around the
world. I found it interesting that he spent so much
time praising the ebullient sales of the Austrian
Philharmonic Gold Coin and that it is the most
popular gold coin in Europe. In fact, it has become
the quot;European bullion coin.quot;
I wonder how pleased Zoellner will be when the price
of gold shoots up to $600 as the buyers of the
Philharmonic coin rejoice and he is pilloried for
dumping a good amount of Austria's gold for less
than $400 per ounce.
Charles Stall spent most of his talk explaining the
reasons for selling gold and being active in the
gold market. This was of special interest to me
because I learned that the former chief gold trader
for Deutsche Bank, Fritz Platz, was fired because he
did not want to go along with the aggressive gold
mobilization plan of the young turks at Deutsche
Bank. I guess that is why Charles von Arenschildt
was brought in from Morgan Stanley and why the
notional value of the gold derivatives on the books
of Deutsche Bank has gone up so much.
Stall spoke highly of the Washington Agreement but
spent most of presentation saying that the costs in
owning and storing gold are not insignificant and
that gold should be mobilized in various ways to pay
for those costs. He said banks like to earn a return
and that gold derivatives are a good vehicle to
manage gold assets. This basically means lending
gold or writing calls on gold sitting in the banks'
That can explain why the notional value of those
gold derivatives on the books of Deutsche Bank have
ballooned to $50 billion from $15 billion in only a
Stall went on to say that out of 75 central banks
involved in the gold market, only 10 to 15 wrote
calls and even fewer, five or six, did lease rate
Stall seemed to fancy himself as the cat's meow as
far as his gold money-making prowess was concerned.
My guess is that when the price of gold explodes and
his peers at Deutsche Bank find out he has made
pennies and cost them many Euros, he will be
history. Stall has most likely seen his last FT Gold
Conference -- at least with Deutsche Bank.
The rest of the speakers at the conference were
generally good, but very predictable. Except for
Egizio Bianchini, managing director of precious
metals of BMO Nesbitt Burns, who presented a bull
case in a duel with bear case presenter Kevin Crisp
of Credit Suisse First Boston, there was NO talk of
the raging bull market that lies ahead, and NO ONE
but Egizio presented the myriad of facts why the
price of gold should gold should go higher.
A price of $320 was considered bullish for most of
the attendees at this anti-gold conference.
Interestingly, Egizio had enough gumption to point
out on a slide presentation that the gold loans
could be as high as 10,000 tonnes, or twice the
newly acknowledged quot;officialquot; amount. Just bringing
that figure up was tantamount to heresy to many of
As is the case at many industry conferences, the
real action took place at the coffee breaks, in the
bar, and during lunch and dinner.
The first night I went to dinner with the venerable
quot;Sirquot; Harry Schultz, his charming wife, Joy, John
Hathaway of the Tocqueville Funds, and our host,
Sean Boyd, CEO of Agnico-Eagle. We were regaled with
stories about the generosity and likeability of
former Agnico-Eagle honcho Paul Penna. Agnico-Eagle
is a fine gold producer that does not hedge. It
should do very well in the bull moves coming.
Hathaway did not tell me this, but I know it was
suggested that he should speak in place of Gold
Fields Chairman Chris Thompson, who had to attend a
Gold Fields board meeting. That was a natural, as
John is articulate and shares many of the views of
Thompson, whose topic was to be quot;The Case Against
Producer Hedging.quot; Hathaway has just about written
the book on that one, yet GFMS voted Hathaway down
as a speaker. Just as GFMS publicly refused GATA's
challenge to debate the bullish case for gold.
A sad lot, these GFMS people. When the gold price
explodes, they should be taken to task for the
misinformation they are putting out that is hurting
so many people.
The next night I dined with Reg Howe, Ferdinand
Lips, and a young dynamo who shall remain anonymous.
This dynamo invited us to dinner at Laurent, one of
Paris' fancier restaurants. Our host did not attend
the FT conference but wanted to meet with Reg and
me, as he is in almost complete agreement with our
view that the gold market is being manipulated and
that a gold price explosion is not far off.
Ferdinand Lips is a delightful and charming
character. He is on the Board of Directors of Durban
Deep and Randgold Resources. He was founder of Bank
Lips in Zurich and has been a director of other
banks. In 1992 Bank Lips Ltd. awarded its
International Currency Prize to none other than Reg
Howe as a result of his paper, quot;The Golden Sextant.quot;
Our quot;dynamoquot; host believes that certain currencies
are being manipulated to facilitate gold producer
hedging and that certain officials are encouraging
the manipulation of the gold market so the dollar
does not have competition from other reserve
currencies. That may not sound all that dramatic to
you, but this will be: Our host already owns tonnes
of gold (that is tonnes, not ounces) and is thinking
of taking delivery on $100 million to $120 million
of gold in the near future.
This is NOT an idle boast or a trivial story.
This gentleman knows that a gold shortage is coming
and that it will precipitate a crisis for the
trapped gold shorts. It will not take too many
buyers like this to turn the gold market topsy-
turvy. If you know of anyone who has the ability to
buy tens of millions or hundreds of millions of
dollars' worth of gold bullion, or you think that he
might like to know why this is such a sound
investment now, I would be most grateful if you
could make it possible for me to talk with him. All
conversations will be confidential and it may be
possible for me to arrange a meeting with our host
By the way, this quot;dynamoquot; is an avid Cafe member and
fan of Reg Howe. He learned about us through The
International Harry Schultz Letter. He told us that
Harry's newsletter is tops and that he holds Harry
in the highest regard. I will second that.
So is Daniel Oichanski, another Cafe member, and
former chief investment officer of the National
Banque de Paris. Daniel presented me with a couple
of books on the cafes of Paris in their heyday,
which LeMetropole is themed after. We went to the
Automobile Club and Daniel reminisced about much,-
especially his times with Henry Kaufman, famed U.S.
economist. Daniel was most fun to be with.
When we have a party to celebrate gold's rise, you
might meet Dr. Bruno Bandulet, editor of the well
known and highly circulated Gold amp; Money
Intelligence. His publication is widely followed in
Germany and Switzerland. Bruno and crew were filming
a documentary at the FT Gold Conference and I was
fortunate to be included in the interviews. I
followed gold historian Timothy Green and quot;warmed
things upquot; for Wayne Murdy, Newmont Mining Corp.
president. (That is what Wayne chuckled about with
It is amazing to me how much the foreign press knows
about GATA and or wants to learn more of what we
have to say. The mainstream U.S. press wants little
to do with us. Roland Vandamme, editor of Analysis
in Belgium, was very informed of our work (such as
the Gold Derivative Banking Crisis report).
Naturally, he was a delight to talk to, as was
Patricia M. Colmant of the Paris newspaper L'Echo,
who wrote about GATA's challenge to GFMS.
And a big hello to another FT Conference attendee,
Iceland's Thorsteinn Thorgeirsson, senior economist
of the Money and Finance Division of the OECD in
France. Thorsteinn is a Cafe member and gold owner.
What to make of the conference?
First and foremost: quot;The dog did not bark,quot; as Harry
Schultz put it, borrowing Sherlock Holmes' renowned
line. While most of the attendees were not bullish,
no one presented a solid case why the gold price
should go lower. When it was all said and done, that
was most obvious and peculiar. If anything, it
solidified GATA's claims that the gold price was
being held down at $290 and not being allowed to
Second, the Schultzs, Bandulets, Lipses, and
Oichanskis of the conference all compared today's
gold market to that of the late 1960s, when gold was
being officially held down. The only difference
between then and today is one of recognized policy
versus unofficial market manipulation. We agreed
that the result would also be the same -- a doubling
and tripling of the price of gold.
The price of gold can explode any day now. It is
trading differently. That is to say, it is trading
lighter with greater volatility. Much of the time
these past few years it traded as heavily as a stone
with no movement, no volatility. That appears to be
changing, as gold acts bubbly. As gold breaks $290
to the upside, the manipulation crowd beats it back
as it has done for so long. But now it appears we
have new buyers to take them on, AND many more
producers do not want to sell forward as they have
done. (For example, Normandy Mining of Australia is
delivering its gold into forward hedges rather than
rolling the hedge forward.)
The Comex open interest is below 150,000 contracts.
There is easily room for 75,000 new longs to step up
and take on the bullion dealer cabal.
Why should that happen at now? Simple. The bullion
dealer game is being found out. Thinking people have
come to understand that the gold loans are much
greater than GFMS, the bullion dealer apologist, is
revealing. Suddenly even the official number has
leaped to 5,000 tonnes. with no explanation given.
Highly regarded Chase Bank bullion dealer Dinsa
Mehta recently told the Australian Gold Conference
that he believed the gold loans to be 7,000 tonnes.
GATA believes they are greater than 10,000 tonnes.
Momentum is clearly going our way.
There is a great danger that much of the gold that
has been lent may not be retrieved. Herve Ferhani,
head of the Foreign Exchange Division of the Banque
de France, made that clear at the FT conference. The
smell of danger has begun to permeate the gold
world. Is it a coincidence that lease rates are
Just as dangerous is the recent discovery of the
incredible notional value of gold derivatives on the
books of the banks. The increase over the past year
is staggering. GATA's investigator discovered that
these numbers were public. GATA has since trumpeted
the big gold derivative numbers all over the world
and even advised the top political leaders in the
United States that a gold derivative banking crisis
will be upon us unless the gold price is allowed to
rise to slow down gold demand.
That was the message that GATA took to the FT
conference. That message did not go unheeded. Nobody
there could explain why the notional value of these
same derivatives has gone way up at certain banks,
but has not increased on the books of certain other
bullion banks, like UBS Warburg. At $79 billion, UBS
Warburg is still the biggest, but the gold
derivatives on its books have not increased over the
Contrast that to Deutsche Bank, J.P. Morgan, and
Chase Bank. Morgan's gold derivatives have jumped
from $18.1 billion to $36.5 billion in one year,
while it took Chase Bank 14 years to get to $22
billion. Then in the first quarter of 2000 that
number jumped to more than $31 billion. According to
the Bank for International Settlements, the gold
derivative positions of reporting banks surged in
the quarter from $87.6 billion to $95.5 billion, a
36 percent annualized rate of growth. That number is
as great as all the gold in the coffers of all the
central banks in the world -- all of it.
These are not fluff numbers. They count against the
bank's capital adequacy requirements. More
importantly, Charles Stall of Deutsche Bank told the
FT conference that derivatives are used to manage
gold assets -- that banks want to get a return on
their assets. That means lending gold and writing
calls. Thank you, Herr Stahl.
From sources developed over the past year, I know
that many producers have been sold exotic hedge
programs that involve writing of calls of every
conceivable combination. Some of these exotic hedge
stategies extend as for as 10 years in the future. I
can assure you many gold producers have no idea of
what kind of exposure they have should the gold
Kewku Awotwi, managing director of strategic
planning and new business development of Ashanti
Goldfields Ltd. in Ghana, told one of the delegates
at the FT conference that Ashanti is still sorting
out its mess. STILL. One of the presenters showed
that Ashanti's financial problem diminishes at the
rate of $2.8 million per week as long as the gold
price does not rise. This is more motive for the quot;on
the hookquot; bullion dealers to hold down the gold
The bullion dealer crowd does not want the real gold
loan story and the gold derivative numbers discussed
in public is because the revelations would be
disastrous for their huge short positions. The
problem for them is the word is spreading. GATA's
Gold Derivative Banking Crisis report, posted at
www.GATA.org, is being read and distributed. I was
stunned to learn how many of the bankers at the
conference are reading the material presented at
What our camp has been saying is starting to have an
effect! Word is spreading that paper gold is what is
holding down the price of gold. It is a losing
battle for the bullion dealer shorts. It is only a
short time now before one of the big banks breaks
ranks and advises clients to cover their short
positions. That will have a domino effect. No one
will want to be the last man out the door.
There is something else. The manipulators in the
gold market have hurt many people and countries to
satisfy their greed. In my opinion, there has been a
fraud committed and that will be borne out in time.
People who work at the big bullion banks are guilty
of this fraud, and they could be looking at criminal
Does that seem farfatched? It shouldn't....
* * *
June 30, 2000
Shockwaves spread as scandal deepens
By John Stevenson
National Post (Canada)
Elite players on Bay Street accused of stock abuses;
regulators allege poor supervision allowed market
manipulators to thrive....
By Jacquie McNish
The Globe and Mail (Toronto)
With a report from Richard Blackwell
Friday, June 30, 2000
Toronto -- Securities regulators have struck at the
heart of Bay Street by charging one of the country's
leading pension-fund managers and traders at 11
prominent brokerage firms with widespread stock-
In a statement of allegations released yesterday,
the Ontario Securities Commission and the Toronto
Stock Exchange charged nine directors and employees
at the Royal Bank's pension management arm, RT
Capital Management Inc., and 13 traders at such
major brokerages as CIBC World Markets Inc., TD
Securities, Merrill Lynch, and BMO Nesbitt Burns Inc.
in the stock-manipulation scheme.
Regulators allege officials at RT Capital placed
orders with brokers to artificially inflate its fund
performance by buying 26 stocks above market prices
on the last day of trading each month from Oct. 30,
1998, to March 31, 1999. According to the
commission, the practice, known as high closing,
boosted the total value of stock holdings managed by
RT Capital by $38-million.
The 12-page statement of allegations paints a
disturbing portrait of a poorly supervised pension-
fund management company that had virtually no
safeguards to catch the alleged manipulation.
According to the OSC, RT Capital's board of
directors rarely met, was quot;willfully blindquot; to ample
evidence of the alleged violations, and one of its
pension managers did not even know he had been named
to the board.
Industry officials warned the case is shaking
investor confidence in Canadian fund managers and
* * *
This is not good, but the actions of the guilty
individuals involved did not destroy other people's
lives, hopes, and careers. Their misdeeds have not
fomented unrest and economic hardships in gold-
producing countries. Their actions have not made a
mockery of what the United States stands for when it
comes to free markets.
Yesterday cab fares in Dallas, Texas, jumped 33
percent overnight. Grocery prices are shooting up.
Why? The huge increase in the price of oil is being
passed on. Oil inflation is a fact of life, no
matter what the official U.S. government numbers
say. It is going to be harder and harder for the
gold cabal to hold down the price of gold in this
Jim Reilly, a partner in Goldman Sachs and top
commodity dog, told a delegate at the FT conference
that if buyers came in to push up the price of gold
to $310 or $320, Goldman Sachs would offer unlimited
amounts of gold paper to keep the price from going
higher. This is tantamount to Alan Greenspan's
saying publicly, quot;Central banks stand ready to lease
gold in increasing quantities should the price
Both have surely been in on the holding down the
gold price. The anecdotal evidence we have collected
on all this is overwhelming. Our evidence of an
effort to cap the gold price is far greater than the
evidence used to convict and execute murderers in
the United States.
It is time for this to end, and you can do something
about it. GATA's recent press release concerning our
challenge to GFMS there was mention of Phase 4 in
our action plan: quot;That is up to you.quot;
The gold and investment world are slowly waking up
to what has held down the price of gold. The more
this material reaches the right people, the sooner
producers and bullion banks will cover gold shorts.
Investors will buy physical bullion. The press will
report the positive outlook for the price of gold.
Momentum will go our way. Too much gold has been
consumed at too cheap a price for too long. A
slingshot is in place and the gold slingshot is
stretched out just about to the maximum. It is time
to give that slingshot a boost.
I strongly suggest that YOU take a little time and
get this recap of the FT World Gold Conference to
hedged gold producers, the banks mentioned above,
the press, and to institutional investors. All gold
needs now is a bit of a nudge and we are off to the
races. There is just not enough gold around to hold
the price down much longer.
The shorts have had their day. So have the Reillys
and Greenspans. Their paper game has been found out.
For them to continue to play at these price levels
will be disastrous, on a personal or financial
level. Help them see the light a little quicker.
Take that bit of time and spread the word. This
charade must end -- now.