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Gold Fields chairman denounces overhedging
10:05p EST Thursday, February 3, 2000
Dear Friend of GATA and Gold:
Here's GATA Chairman Bill Murphy's quot;Midasquot; commentary
posted tonight at www.LeMetropoleCafe.com. Big things
Please post this as seems useful.
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
* * *
MIDAS COMMENTARY FOR FEBRUARY 3, 2000
By Bill Murphy
Spot Gold $286.60 up $2.30
Spot Silver $5.24 up 5 cents
Here is what we hear is going on in Financial Land.
Treasury bond yields have collapsed, dropping from 6.76
to 6.06 percent before settling at the end of the day
today at 6.15 percent. The yield curve has inverted
sharply; long-term yields are now less than shorter-
dated notes. Ten-year notes closed today 30 to 40 basis
points higher than Treasuries.
The incredible speed at which this has occurred has
rocked traders and investment houses in the credit
market trading game. Last week I alerted Cafe members
what was going in this, but because of the tremendous
financial market implications, I will touch here
briefly on what has been set in motion.
The U.S. Treasury Department has made a decision to
restrict the supply of 30-year bonds. This sudden
change in policy has caused a surge in price of 30-year
Treasuries, as demand has overwhelmed supply, much of
it due to technical considerations. The dramatic rise
in the price of bonds and the reduction in long-term
yields has caused a rapid inversion of the yield curve.
Some financial institutions have been caught with
wrong-way trades on. These institutions have been
quot;longquot; the short-dated instruments and quot;shortquot; the
Treasuries. Now those trades are under water, as the
Treasury market has exploded up.
This development is not good for most banks either, as
by the natural course of their business they are
borrowing short and lending long. This quick inversion
has to reduce bank profits.
Rumors began flying at mid-morning that a major bond
dealer was in trouble. I heard this early from a Denver
source. Then a Canadian source said it was Bank of
America. That was followed by a New York source
identifying Goldman Sachs as the one in trouble. A
Chicago source told me the same thing. Then a European
bond dealer told me the rumors over there kept bringing
up Deutsche Bank and Goldman Sachs.
The Chicago source said the problem was astronomical, a
derivative blowup. That source, who long has had
Washington sources, also told me that the Federal
Reserve was in emergency session, contrary to what the
Fed said in public today.
More of the same just in from another Cafe member:
quot;I have very good (trading floor-based) connections in
the Chicago Board of Trade. According to my sources,
Deutsche Bank is the bond dealer in trouble. Your
recent bulletin indicated that the Fed denied calling a
meeting to address the dealer's troubles, and that may
be an accurate answer. But I have heard that rather
than calling an emergency meeting for the dealer, the
Fed called the meeting to discuss the condition of two
hedge funds that are in deep trouble due to the change
in the yield curve. Those two firms, according to my
sources, would be Merrill Lynch (very interesting,
given its recent flight from the commodities business)
and the traders that left Long-Term Capital Management
to form their own fund. I can't swear by the stories
that I've conveyed, but I know the sources and have
good reason to believe them.quot;
This would not be the first time Merrill Lynch got in
trouble with fixed-income trading. Remember Orange
County! Wouldn't that be something if the LTCM crowd
and Mr. Meriwether are right back in the soup again?
Another LTCM-type bailout? I would hope not. How many
chances should this guy and his hapless crew get?
A denial by the Fed should be no surprise. Somewhere in
one of my old Midas commentaries I have a Wall Street
Journal quote from Allen Binder, former Fed official
and now a Princeton professor, who said something like:
quot;The last role of a central bank is to tell the truth
to the public.quot;
This just in, hot off the Bridge News wire:
quot;Goldman shares slip on talk of fixed-income loss.
quot;Sources dismiss rumors of abnormal bond losses at
quot;Goldman Sachs' share price closed the day at 85 3/8,
down 5 3/4, while the general market closed much
In addition, Goldman Sachs has been the big gold buyer
with gold rallying around $5. Does it have something to
do with the firm's rumored fixed-income problems? Too
early to tell, but if Goldman does have serious bond-
related financial problems, it would make sense for the
firm to pare back on short gold positions.
Ironically, Goldman was finding it hard to buy gold
today. They would come in and bid and the offers would
dry up -- for Goldman has become such a big factor on
the Comex that traders all want to go with them. It
looks like they may be a bit too big for their britches
at the moment.
But the collusion crowd does not have too much fear
just yet. Right at the close Hannibal Cannibals --
Chase Bank and J.P. Morgan -- sold the market down.
That makes sense too. Goldman has to lighten its short
gold positions, so fellow cabal members Chase and
Morgan pick up the slack at the higher end of the
recent gold trading range.
More on gold later.
Crude oil closed at $28.10 right off a contract high
close, with both heating oil and gasoline closing up
around 2 cents per gallon. This was an impressive
close. Crude had reached $28.40 per gallon when the
World Bank put out the following headline to the press:
quot;OPEC to increase supply and increase quotas next
month.quot; The price of oil immediately swooned before
coming back to close up 48 cents per barrel on the day.
All the oil stories the Cafe is receiving from all over
tell us the oil product market is incredibly tight.
Here are some excerpts from those stories:
quot;www.greespun.com 2000-02-02 15:40:39 EST
quot;OUTAGES OF NORTHEASTERN OIL WORSEN; SPOT PRICES SOAR
quot;Pay no attention to that March NYMEX price today. It
is not indicative of the soaring prices being paid for
prompt heating oil, diesel, jet, and kerosene at
Northeastern bulk locations. Prices this afternoon have
soared to 40-50 cents/gallon over the NYMEX and there
are many many instances of terminals with no fuel for
oil-starved jobbers, retailers, and end-users.
quot;NYMEX March heating oil futures ended the day around
75.40 cents/gallon, showing a loss of 1.79 cents/gallon
on the session. But some spot prices in the Northeast
are up 20-25 cents/gallon on the day, with desperate
buyers not finding product even at the elevated prices.
quot;Latest word indicated that buyers had paid 45
cents/gallon over the NYMEX for prompt heating oil, or
more than $1.20 gallon. Buyers were bidding but not
finding low-sulfur diesel in New York Harbor at $1.22
per gallon, and kerosene buyers couldn't find product
at 50 cents/gallon over the NYMEX.
quot;Outages were more the rule than the exception. There
was no No. 2 oil in New Haven, and Providence was about
to run out, sources said. Boston was very low on diesel
and heating oil, with virtually no kerosene. There was
no diesel or heating oil to be found at Long Island
terminals and Newark had barely any low-sulfur diesel
at its numerous terminals.quot;
quot;2000-02-03 10:55:32 EST
quot;NEW YORK UP ANOTHER 5-15 CENTS/GALLON
quot;AS DESPERATE BUYING PERSISTS
quot;Feb. 3 (10:45 A.M. EST) -- More record prices have been
witnessed in the N.Y. Harbor spot market this morning
as desperate buyers try to get product to terminals
before the weekend. Premiums to the NYMEX have advanced
to almost burlesque levels, pushing absolute values for
heating oil and diesel to nearly $1.40/gallon. Outages
persist throughout the Northeastern system, and
dislocations are extended spider-like to areas in
western Pennsylvania, Virginia, the Carolinas, and
Of course oil is a very important commodity.
Historically, it has had a great influence on the gold
price. If it continues to truck on higher, as I have
been saying for months now I think it will, it will
attract more buyers to the gold market, making it
harder for the collusion crowd to continue their
Now that there is a problem for many firms in the
fixed-income arena, the last thing the Fed/Treasury
bullion banking crowd wants to see is a sharply rising
gold price, which would be a clear signal that there
really are problems in Banking Land.
They will make another of their desperate stands to
stop the price of gold from accelerating as spot gold
trends toward $290. We know that. But they lost control
of the gold market before and they will lose control
again -- maybe next time for good.
All the signs are pointing to a loss of that control
sooner rather than later. The Fed just raised interest
rates and announced that inflation is a concern. The
collapse of the 30-year bond yield makes no sense until
you understand that there is a short squeeze that has
nothing to do with fundamentals.
The Fed and Treasury have a Fric and Frac routine going
The lower bond yields mean lower mortgage rates, which
should stimulate the economy just fine. Great! -- the
Fed raises rates to slow an overheated economy while
the Treasury initiates a bond-buying panic that will
produce just the opposite effect of what the Fed is
Meanwhile, the swiftly inverted yield curve creates
some serious unintended consequences. Rumors of massive
trading losses by big bond dealers are worldwide. That
creates a big positive for the NASDAQ, which goes
berserk to the upside as stock investors now believe
that the Fed cannot raise rates anymore in this
environment. The quot;too big to failquot; scenario asserts
itself one more time. The moral hazard stock market
The stock market wealth effect continues to create more
confidence in the stock market-investing U.S. public
that has depleted its savings to a record low.
Financial safety backstops are a thing of the past.
quot;Put all your money in the stock market or be left
behindquot; is the feeling of the times. As the stock
market goes up, the public probably will keep on binge
spending, again contrary to what the Fed's interest
rate increase is trying to accomplish.
What this means to me is that the day of the gold
reckoning is coming closer. The volatility in markets
is really picking up -- except in managed gold, of
course. The markets are going bonkers.
Take Amazon.com. Frank Veneroso told me today that
Amazon reported $184 million in losses compared to $22
million one year ago. That was the report to the
public. But to the Securities and Exchange Commission,
following Generally Accepted Accounting Principles,
Amazon reported $323 million in losses compared to $46
million last year. That was on $676 million in revenue
compared to $250 million last year.
What am I missing? The more this company grows, the
more it loses, even as competition in its business
Nutsville! The more a stock makes no sense, the more it
is removed from normal stock market valuation
practices, the more traders pile into it.
Many contributors to the Cafe focus on out-of-control
credit growth and derivative markets in this country,
and for good reason. The gold market exploded to the
upside when it was announced in late September that
gold lending would be curtailed. The speed of gold's
move up was increased by too many derivative positions
on the books of gold producers that had extreme upside
market exposure. Excessive derivative exposure also led
to the yen's explosive move up in 1998, and now in this
bond move. Model T Ford market moves of the days of old
now move at the speed of souped-up Ferraris.
The shorts in the gold market have a big problem in a
big-picture sense, which I have discussed ad nauseam.
What is exciting is that recent market action and the
lunacy of so many markets are bringing the day of
Here is the typical gold mentality of the establishment
brokerage firm about gold:
Some market commentary from one of them on gold today:
quot;Steady, led by near-term tech action. Comments out of
U.K. Treasury on gold sales and talk about India
looking at higher yield equity investments not having
the desired effect.quot;
That is how obvious the manipulation game has become,
even though the establishment has mocked the Gold Anti-
Trust Action Committee for telling what is really going
Again, that is why the generalist money mangers won't
buy the big-cap U.S. gold companies. The XAU could
manage only a .16 gain today and closed at 60.83, less
than 2 points off recent lows.
Reginald Howe's most recent gold market commentary
bringing suspicion upon the U.S. Treasury and its
Exchange Stabilization Fund is getting well-deserved
wide circulation; it was posted today at
www.LewRockwell.com. The Exchange Stabilization Fund
figured in the first question GATA asked Fed Chairman
Alan Greenspan and Treasury Secretary Lawrence Summers
in its open letter to them in Roll Call on Dec. 9,
GATA's first question read:
quot;Does the Federal Reserve or the Treasury Department
either on their own behalf or on behalf of others,
including government agencies, such as the Exchange
Stabilization Fund, lend gold or silver, facilitate the
lending of gold and silver, or trade in any securities,
such as futures contracts and call and put options,
involving gold and silver?quot;
We are still waiting to hear from Secretary Summers,
and GATA Secretary/Treasurer Chris Powell has already
written back to Sens. Christopher J. Dodd and Joseph I.
Lieberman to find out why Summers has not responded as
Fed Chairman Greenspan did. Again Powell made special
mention of the Exchange Stabilization Fund.
The Europeans raised rates today. Our bond yields
cratered. The overvalued U.S. dollar was stronger
earlier in the day then sold off sharply against the
Euro and Swiss Franc. About time. Technically the
dollar looks very bearish short-term.
Greenspan was confirmed today by the Senate to continue
as Fed chairman. The four quot;noquot; votes were cast by
Democratic Sens. Paul Wellstone of Minnesota, Tom
Harkin of Iowa, Byron Dorgan of North Dakota, and Harry
Reid of Nevada.
These senators will be hearing from GATA soon.
The following is an excerpt from an email I received
the other day:
quot;I am Martin Armstrong's son, Martin Jr. He informed me
of your conversations and expressed a need to talk to
you again. As you know, he has been put into prison due
to our wonderful justice system. Oh yeah, I'm sure you
know they have also taken away the funds for his
lawyers. What a country! Anyway, I feel a strong need
to bring to light the actions against my father.
quot;I have finally been able to meet with Father this past
Friday. He was put in solitary confinement for a week
and a half until the criminal judge requested his move
into general population. The funny thing is that until
the judge's order, the jail was said to be quot;too
crowdedquot; for such a move.quot;
Chris Powell and I have no opinion on the charges
against Martin Sr., but we feel strongly that he should
be accorded the right of every American to defend
himself and not be treated as guilty BEFORE a trial.
More on this later.
The Ashanti verdict was due today. We heard nothing.
South Africa's Anglogold has jumped into the bidding
for some of Ashanti's prized assets, according to
sources close to the affair. Ashanti's fate could
affect the gold market in a material way. What happens
to Ashanti's hedge book? Will a good part of it have to
be closed out? Will Goldman Sachs' bond market problems
influence the Ashanti outcome?
YES! A night for just-ins:
quot;CLASS ACTION LAWSUIT FILED AGAINST ASHANTI OFFICERS
AND BOARD OF DIRECTORS.
A class-action lawsuit was filed today by a New York
law firm against the Board of Directors and officers of
Ashanti Goldfields Co. in Ghana, Africa. It is for
shareholders who purchased Ashanti stock between July
and October of last year. The details will be all over
the press tomorrow.
This is a big event for the gold market. In essence,
the suit was filed because of Ashanti's excessive
hedging policies. That now puts all boards of directors
of gold producers on notice that they may be held
accountable if their hedging policies are too
aggressive and penalize shareholders in the event of a
rising gold price.
If the supposed smartest minds in the gold world -- the
investment bankers led by Goldman Sachs were advisers
to Ashanti, and they blew it -- how can any board of
directors of any gold company be comfortable with any
excessive hedging structure? Almost no one thought that
the $84 rise in gold in late September was possible.
That fast a rise was not even entered in the computer
models presented to the Ashanti officers by Goldman
Yes, indeedee. This is big news for the big picture.
With 10,000 tonnes of gold loans outstanding, what are
the shorts going to do if a bond market runup like
today's occurs in the gold market again? Another yen-
type move! Another $84 gold type blitzkrieg move? What
if that move is $284 in gold next time. Yen can be
found. Money can be printed. But gold?
Is the United States willing to donate the 8,000 tonnes
we supposedly have in Fort Knox (or under Fed/Treasury
auspices) to bail out the collusion bullion dealer
crowd? How will Greenspan and Summers explain that to
Congress and the American public? How will the dollar
fare in such a scenario? Yikes!
Hello, Barrick Gold. I have a question. When is your
next hedging seminar for your Board of Directors?
Speaking of upside risk for gold shorts.... Sources
tell us that two hedge funds in particular have put the
gold carry trade back on in major-league fashion and
are risking $2 to $4 higher than tonight's close. We
hear that they are short more than 7,000 contracts.
The trade is understandable. Go heavily short using the
collusion crowd's $290 defense point as a stop-out
number. Recent bond trade problems in the bullion
banking arena and this Ashanti news may be quot;Murphy's
Lawquot; taking effect against that trade.
One last note on Ashanti. A birdie told me that the new
D-Day for Ashanti is one week to one week and a half
Gold's one-month lease rates hit a new low today: .25
More evidence of how the manipulation of the gold
market has reduced interest in the gold market: The
open interest figures on calls continue to drop. They
are down from 611,000 in October to 413,000 at the end
of January. This has to be a bullish sign. Markets tend
to make the big moves up just when everyone has given
up on that ever happening.
Want to really get mad? Spot platinum closed at
$504.50. Spot palladium at $509. Kudos to the Cafe's
John Brimelow. He has been right as rain on these two
commodities. I say quot;madquot; because if the gold market was
not being held down by the collusion crowd, these are
the numbers we would be talking about in the gold
market. What would those kind of prices do for your
For those of you who say I am a part of GATA because my
gold share investments have done so poorly and I am a
poor loser: Your dang tootin' I am mad, disgusted at
the scandalous fraud perpetuated on all of us who
thought we were investing in a free market. If finding
out that I have been playing a game that was rigged
against me so that others could make fortunes at my
expense makes me a poor loser, then yes, I am a very
poor loser -- and a quid-pro-quo man. They had their
way. GATA is going to find a way to have ours.
Somehow, some way they are going to pay for their
arrogance. Mission not impossible.
Back to platinum and palladium. The Defense Logistics
Agency has asked the U.S Mint to return 200,000 ounces
of platinum that it lent the mint in 1997. The reason:
The agency has no platinum left and cannot fulfill a
4,500-ounce commitment for fiscal 2000. The mint says
that if it returns the platinum, it will threaten its
American Eagle bullion program.
Meanwhile, South African sources are looking for $600
palladium soon. The Russians are looking for $800.
Reason: The palladium they put out for bid was scooped
up so quickly that they know how desperate buyers are.
Remind me some time to tell you about some hilarious
stories about a former Russian partner of mine (from
Leningrad) during my Shearson brokerage days.
OK. That is it. All I can think of when I hear these
$500-$600 precious metals numbers is that this should
be us talking about the gold price. That is where the
gold price would be if the the goon squad was not
holding down the gold price with help from U.S.
officialdom. Many times throughout precious metals
trading, palladium and platinum have forecast the price
I still expect that they are doing so again.