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Veneroso analysis identifies gold manipulation
9p EST Monday, February 7, 2000
Dear Friend of GATA and Gold:
Lots of stuff to send you tonight and I'll do my best
to keep it organized. The good analysis I've seen
so far tonight is still bullish despite today's price
* * *
John Hathaway of the Tocqueville Gold Fund was
interviewed on CNBC at 6:40p today about the prospects
for the gold market. You may remember that Hathaway
called almost to the day the September price spike and
last Friday's. If you don't believe me, check the GATA
archive. His crucial essays are still posted there.
Hathaway wasn't given much time -- after all, this was
only TV -- but he said that gold producers are turning
against hedging. Not just Placer Dome and Anglogold but
also Normandy, which I hadn't heard. (Note comments
below that consider Barrick's announcement very bullish
even though it seems to have been construed as a downer
today). Hathaway said that he easily could see the
price of gold up another $100 simply on the basis of
current market conditions, quite apart from any
concerns about inflation.
2) Steve Kaplan at www.goldminingoutlook.com, whom so
many gold bugs love to hate for his attitude of quot;gold
yesterday and gold tomorrow but never gold today,quot; more
or less acknowledged tonight that Barrick's
announcement was bullish and that the long-term trend
now is up. Questioning himself, as is his style, he
quot;QUESTION: Why do you think that the price of gold sank
after Barrick's announcement that they had covered
almost half of their hedge position? Shouldn't their
reduced hedging be positive? Also, is gold going to
collapse to a new low now that investors are
disappointed yet again?
quot;ANSWER: The total amount of gold that is hedged by
producers has declined substantially since its peak in
July 1999. Although the total amount of this drop
cannot be known until after several producers have
released their official figures, which they are often
unwilling to do until several months afterwards, my
estimate is that the total worldwide producers' hedge
book has declined by one third since last summer.
quot;One important reason for this reduction, of course, is
that it is economically foolish to add to hedge
positions when the gold price is below $290 (or even
below $300, for that matter), since gold is always
going to have a spike now and then above $310 or so
when hedging becomes more economically intelligent.
quot;With gold prices averaging well below $300 per ounce
over the past half year, it is no surprise that hedges
were being bought back, or at least that production was
delivered to hedge books. Producers generally adjust
their hedging based upon worldwide physical demand;
with demand powerful in the summer and generally strong
since then (except during gold price spikes above $300,
when price-sensitive physical demand has almost
completely dried up), the correlation was very strong
between hedge buybacks and physical gold buying.
quot;The Barrick announcement this afternoon was bullish in
that it confirmed an industry trend toward less hedging
at low gold prices. However, it was bearish for three
important reasons: 1) Barrick clearly remains committed
to its hedging strategy, which it virtually invented,
and must surely have been tempted by the recent price
spike to add fresh hedge positions.
quot;2) Far more important in my opinion, and virtually
overlooked by today's media 'analysis,' that Barrick
was able to close nearly half its huge hedged position
in the fourth quarter of 1999 (a total of 280 tonnes of
gold were closed out by Barrick in less than two
months) without pushing the gold price up by even a
penny must have come as a shock to a substantial
portion of current gold long-side speculators, many of
whom assumed that Barrick was 'trapped' because it
couldn't possibly lift its hedges (so this argument
went) without causing a sharp spike in the gold price.
Now it seems clear that Barrick could cover 100 percent
of its hedges if it wanted to without causing any
significant change in the gold price.
quot;This demonstrates how thoroughly liquid the gold
market is today, and how very close to true
equilibrium, and most importantly, how immune gold is
to a permanent price change without a fundamental
economic realignment (such as a sharp correction in the
Nasdaq or a U.S. recession).
3) With GoldFields, Harmony, and Agnico-Eagle having
already reiterated their unhedged stance, with
Anglogold, Barrick, and Placer Dome now having fully
clarified their hedging strategies, and with Newmont,
Homestake, Battle Mountain, and Kinross only very
lightly hedged, the world's top 10 gold producers are
already spoken for. Therefore, there is no longer the
eager anticipation of a domino effect, since the only
remaining 'dominoes' are tiny ones by comparison. One
must remember that there has been a lot of political
pressure on the shareholders of these (and smaller)
mining companies to clarify their hedging position, so
now that they have done so, this pressure will likely
diminish, at least in the short run.
quot;However, the board members of all gold producers have
not forgotten how quickly they are likely to be
criticized if they are too heavily hedged in the next
gold price rally, so my prediction is that they will be
quite eager to aggressively lift their hedges in the
next downward move in the gold price.
quot;That is why, although even more investors are likely
to be disappointed when gold declines in price yet
again, figuring that any chance of a sustained rally is
truly hopeless, the producers will be lifting a
substantial portion of their hedges, thus blunting the
downward effect of this disappointment by buying many
tonnes of gold into all serious dips.
quot;That is why I don't believe that there will be a
collapse in the price of gold, merely a normal
retracement to a level markedly above the August 1999
nadir of $252 spot but probably below $280, since
commercials do not heavily accumulate much above that
price. The December 6, 1999 bottom of $274 spot may
well be briefly revisited. My earlier prediction of
March 2000 as a bottom for gold and its shares remains
intact, in spite of recent volatility which I had not
* * *
GOLDEN RALLY IN THE MAKING;
TIDE OF OPINION HAS BEGUN
TO TURN AGAINST HEDGING
National Post (Canada)
February 7, 2000
Looking at stock markets Friday, one would never have
guessed that anybody had even talked about raising
short-term interest rates.
My own guess is that we ain't seen nothing yet. Among
other developments, another golden rally is in the
making, as producers rethink the wisdom of their
extensive hedging of forward production, regarded by
many as the major gold-price depressant of past years.
Placer Dome Inc.'s announcement last week that it is
winding down its hedging position confirmed that a
fundamental industry reconsideration has begun.
In the eyes of John Hathaway, this is precisely the
kind of change in producer sentiment that can drive the
quot;next strong upside move.quot; Hathaway is the gold market
watcher and portfolio manager at New York-based
Tocqueville Asset Management LP, who correctly forecast
the gold bullion market's 30 percent runup last September.
In a paper published on his company's Web site
(www.tocqueville.com) Hathaway has predicted that this
next rally could be even more explosive.
Placer Dome is hardly likely to be the only gold
producer to have begun buying back its hedge positions.
In another development, Ashanti Goldfields Co. Ltd.,
whose hedge-book problems were one of the accelerators
of the September rally, is now the target of a class-
action suit by a New York law firm on behalf of
investors who bought the stock in the late summer and
early fall of last year. The allegation is that this
Ghanaian producer misrepresented and concealed the
true risks of its gold hedging book.
Since producers in general have tended to be somewhat
protective in the past of the precise details of their
hedging books, that is a fresh incentive for hedging
Hathaway also asserts that Ashanti recently disclosed
that its hedge book had changed for the worse since it
first ran into difficulties. The quantity of gold
hedged has declined slightly to nine million ounces,
says Hathaway, but the breakeven point has declined to
$262 (US) an ounce from around $285 (US).
Predictably, Ashanti, which followed Toronto-based
Barrick Corp. into the hedging game, has been doing
what it can to cut its exposure.
One reason Hathaway is confident the next move in gold
will be sharply upward is the complacency that has
settled in since bullion prices began retreating again
last October. A few market watchers strongly suspect
that prices have been artificially restrained through
some kind of collusion with Washington.
True enough, Washington has a vested interest in gold
price stability. A runup in gold could be destabilizing
and inflationary and could compromise financial market
stability. The bullion dealers who accept (and
invariably seek to lay off) the short-selling risk of
their gold producer clients' hedging operations could
find themselves having to deliver significant
quantities of bullion that they don't have (a situation
in which one or two of them were widely rumoured to be
The point is that demand from fabricators exceeded
newly mined gold by 1,000 tonnes last year, and the gap
is said to be widening. So who has been making up the
The culprit now being advanced by the iconoclasts who
allege collusion (see www.leMetropoleCafe.com) is the
U.S. Exchange Stabilization Fund, an operation under
the exclusive control of the Treasury. Secretary
Lawrence Summers has categorically denied that the U.S.
Treasury has been selling gold.
The response from the other side has been that it does
not need to. The fund need only write call options, or
use other means, to make gold cover available to
bullion banks to allow them to take large short
positions safely, and thus keep the price down.
Whatever the truth, or otherwise, of these assertions,
one investment pointer should be kept in mind. Gold
stocks are still as depressed as technology stocks are
inflated. Hathaway puts the global gold industry's
total market capitalization at $50 billion, about what
Qualcomm Inc. recently gained and lost in weeks.
* * *
ONE ANALYST IS FAIRLY BULLISH
TORONTO, Feb. 7, 2000 (Canadian Press) -- Mining giant
Barrick Gold announced major changes to its hedging
program today that should continue to push the price of
Toronto-based Barrick, the world's fourth-largest gold
producer, said it would reduce the amount of gold in
its hedging program by 32 per cent or 1.3 million
ounces by the end of the year. The company will also
buy back 6.8 million ounces of call options, spread its
contracts over a longer time and accept a lower price
for its gold on the futures market.
quot;With some key changes to enhance our leverage to
rising gold prices, we will now be able to provide
earlier participation in rallies while maintaining the
downside protection,quot; Barrick's chief financial
officer, Jamie Sokalsky, said in a release.
Barrick's announcement follows a move last week by
Canada's second-largest gold producer, Vancouver-based
Placer Dome. It announced Friday that it would suspend
its hedging due to higher anticipated bullion prices.
Hedging is an insurance strategy used by many gold
producers to protect themselves against price downturns
by selling gold months and years in advance at a set
price. One downside, however, is that this depresses
the long-term outlook for the commodity.
The price of gold steadily climbed today as industry
watchers expected such an announcement from Barrick.
Bullion closed today in London at $313 US an ounce,
$2.60 higher than Friday's closing price in New York
which had followed a $23.20 one-day rise. However, the
price eased in later North American trading today.
John Ing, a gold analyst and president of Maison
Placements in Toronto, called Barrick's announcement
quot;a bold step.quot;
The company's plans to buy back 6.8 million ounces will
quot;significantly reduce their hedge books,quot; he said.
Like many critics of hedging programs, Ing said the
industry has been quot;shooting itself in the footquot; by
selling tomorrow's gold at today's prices.
quot;And now at long last they've been able to figure it
out that these gold sales are bad for their business as
well for their companies.quot;
Other major international gold producers have also
recently announced that they won't sell gold forward
because they expect gold prices to rise this year.
For Placer Dome, the announcement had a sudden and
dramatic effect on its share price, up 24 percent
Friday afternoon. The price was little changed in heavy
* * *
Please post this as seems useful.
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.