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Friday night 5/7/99
Dear Friends of GATA:
Here's another article from TheStreet.com tonight
that's about gold and mentions GATA. Our chairman,
Bill Murphy, has been working nearly around the
clock for a couple of weeks now and it's starting
to pay off with publicity in the mining and
CHRIS POWELL, Secretary
Gold Anti-Trust Action Committee
Gold Bugs Light Up as
They Forecast a Short Squeeze
By Aaron L. Task
5/7/99 3:30 PM ET
Protocols of the Elders of Zion. Bigfoot. Area 51.
Perhaps claims of manipulation in the gold market
deserve to be in the same category: compelling to some,
but lacking relevance to most and rationality to
Certainly there are plenty of arguments to explain why
the idea of collusion in the gold market is a crock.
But that doesn't absolve prudent investors from
understanding what is happening there, and what's
happening is gold stocks were on the rise until today's
debacle. Yesterday, the Philadelphia Stock Exchange
Gold & Silver Index rose 3.8%, capping a 44.6% rise
since April 5. In the same period, the S&P 500 gained
The XAU's advance came to a screeching halt today after
the Bank of England announced its intention to sell up
to 125 tons, or almost 60% of its reserves, by March
2000. The gold and silver index was off 11.5% today as
the price of gold shed $7.40, or 2.6%, to $283.20 an
Still, the XAU's jump came without a concurrent
increase in the price of gold. After hitting a 20-year-
low average of $294 an ounce last year, gold has been
mired between $275 and $295 an ounce in 1999.
The Bank of England's announcement today had conspiracy
hounds howling, but even if you don't think nefarious
forces are keeping gold's price down, beware the
reasons it could revive.
"Gold left to its own devices would have moved solidly
through $300 in response to a rise in oil and chaos in
the Balkans," says Don Coxe, chairman of Harris
Investment Management and Jones Heward Investments,
both of Chicago. "The fact it hasn't is a case where I
believe the people involved are trying to prevent it
from giving an inflation signal. It's not a conspiracy,
but I'd say it's pretty well orchestrated."
Coxe notes nearly every major player in the gold market
-- from central banks to producers -- is short the
metal. "There are no bulls in gold," he says. "Yet the
alternatives to gold, the only three currencies in the
world that matter -- the U.S. dollar, yen and euro --
don't look like strong currencies. This should be the
time for a move in gold."
The investment chief says that many economists who are
dismissive of the potentially inflationary implications
of rising oil prices point to gold's lassitude as
proof. Yet many of the same economists say "gold
doesn't matter," Coxe observes with a chuckle. "When
you have a paradox on this scale, it will have to be
resolved [and] I have a feeling it will be resolved in
higher gold prices."
Gold stocks do not fit the criteria of Coxe's large-cap
value funds, but they're the lifeblood of the
Tocqueville Gold fund. The roughly $13 million fund was
up 28.4% through yesterday since its inception June 30,
1998, according to John Hathaway, senior portfolio
Big positions in the fund include Harmony Gold
(HGMCY:Nasdaq ADR); Getchell Gold (GGO:NYSE), which is
being acquired by Placer Dome (PDG:NYSE); Homestake
Mining (HM:NYSE); Newmont Mining (NEM:NYSE); and South
African producers AngloGold (AU:NYSE ADR) and Gold
Fields (GLDFY:Nasdaq ADR).
"I personally don't think there is overt collusion in
gold," Hathaway says, noting he has no affiliation
whatsoever with the Gold Antitrust Action Committee.
But, he adds, "I think the posture of the market is
very wrong-footed. The mining companies that have sold
forward, the bullion dealers that may be short, all are
going to be [holding] bad assets. Like when the yen
carry trade went sour, the market is simply not liquid
enough. When gold goes through various chart points,
it's going to go through at $100, $200 clips, not a
dollar a day. These guys are going to be trapped."
The Mother of All Short Squeezes
If gold prices ever ramp in a sustainable way, it will
almost certainly be a boon for precious-metals stocks.
But a sharp increase in gold prices would engender
great pain to those short the metal, a group that is
believed to include most hedge funds active in
commodities, as well as bullion banks such as Morgan
Stanley Dean Witter (MWD:NYSE), J.P. Morgan (JPM:NYSE),
Deutsche Bank, Credit Suisse First Boston and, through
affiliates, Citigroup (C:NYSE) and Goldman Sachs
"Any slight move aside from normal organic buying and
we think it's going to be one of the biggest short
squeezes in the history of the market," says Ronny
Kraft, CEO of Gotham Capital Management. "We're getting
set up for something really disastrous. The fact people
are totally oblivious is par for the course."
Kraft says "regression models" show a more than 80%
correlation between the past 150 days and the market
tops of 1929, 1987 and 1973. He believes a move in gold
could trigger a massive selloff in equities as players
short gold sell their stocks to cover those positions.
"I'm not some crazy doomsday prophet," the hedge fund
manager says earnestly. "I want to be a bull, but the
charts are telling me I can't."
Other market watchers don't see quite so Draconian a
"That's like saying a butterfly flapping its wings in
Tokyo started El Nino," says George Milling-Stanley,
manager of gold market analysis at World Gold Council.
"I don't think we're going to hurt the stock market. I
think the stock market might precipitate a move in the
gold market vs. vice versa." Finally, Tocqueville's
Hathaway says: "My point is, the story is so strong,
you don't need to postulate a market crash to say gold
is interesting. You have to know people are essentially
trapped in bearish positions, but they don't know it
Unless, of course, they know something we don't.
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