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Friday''s gold market
9:30p EST Thursday, February 17, 2000
Dear Friend of GATA and Gold:
Here's tonight's quot;Midasquot; commentary by GATA
Chairman Bill Murphy at www.LeMetropoleCafe.com.
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
* * *
MIDAS COMMENTARY FOR FEBRUARY 17, 2000
By Bill Murphy
Spot Gold $301, down $1.30
Spot Silver $5.23, down 2 cents
Derivative problems at some bullion desks. The Cafe
gold team hears more and more of that chatter every
day. This morning the reason given to me for the early
run up in the gold price was the buying back of quot;poison
option positions.quot; The bullion dealers, trying to exit
their bummer trades, were putting their orders with
brokers who normally do quot;fundquot; business. In other
words, they were trying to hide that it is dealers who
were doing the buying.
Then quot;Hannibal Cannibalquot; Chase Bank did it again,
stopping the rally cold by selling everything in sight.
They sold and sold and sold and the price of gold
crashed downwards. During the Comex session it was up
$7 right off the bat, before the selling by Chase sent
it down $5 on the day at one point. A wild day.
Tremendous volatility. The reason for the volatility is
clear. For years the manipulation crowd just toyed with
the gold market. They made sure the market was well-
behaved and quiet most of the time -- many trading
sessions rarely exceeded $1 trading ranges. The goons
would get the specs short and take the market down,
thereby attracting more selling. The open interest
would go up. When the specs were good and short, the
goons would cover and eventually knock the short specs
out as the gold price rose back up again until it
reached their agreed-upon wall of resistance. That is
the what the gold market was all about the good part of
the last 2 1/2 years.
But times have changed. Gold demand is accelerating;
many producers are not rolling over hedges any more, so
that supply of past years is not hitting the market;
the gold carry trade has become too dangerous, so that
source of supply has dried up (lease rates hit a new
multi-year low today); and so on. The manipulation
crowd is running out of ways and gold supply to hold
the gold price down.
That is why the gold price keeps erupting. U.S.
officialdom has to keep coming in themselves or recruit
other central bank poodles to sell gold. The line
probably goes like this: If you sell gold, we will do
this for you....
There is no other explanation for the new wild gold
market. The specs want to buy and the producers are
covering, so who is selling in such an aggressive way?
The bad news is that these guys keep coming in to knock
down the gold price. The good news is that the 21-year
bear market in gold is ending. The extreme gold price
volatility is one of the oldest and most reliable
technical signals that a long-term trend is changing.
That is often the case for any market that is changing
course for years to come. A Cafe member told me today
that it is like turning a supertanker around. It takes
time, but when it finally turns, look out!
The open interest, at a little less than 160,000
contracts, tells us that the gold market is not
attracting a big spec crowd yet.
While the frustration level grows for all of us, the
big picture for gold looks better and better.
A few days ago China announced that it was raising its
gold price for only the second time in more than a year
to bring the local price in line with world markets.
That is good news for the world gold market, as it will
inhibit the smuggling of gold out of China into the
higher-priced free market.
Australia's gold output fell 3.9 percent in 1999.
Australian gold supply is down, but worldwide gold
demand is up and surging.
The World Gold Council in London published its gold
demand numbers today:
quot;Global gold demand rose by 21 percent year-on-year in
1999 to a new record of 3,278.4 tonnes as offtake
increased in India, Pakistan, and the United States.quot;
Demand in the 27 nations monitored by the WGC was 7
percent higher than the previous record of 3,053.6
tonnes in 1997.
You have heard me say many times that the Cafe's John
Brimelow knows the Indian gold market as well as
anyone. The gold bears dismissed Indian gold demand all
last year. John Brimelow constantly reported to you how
strong it was.
Here is what the WGC had to say about that:
quot;Strong Indian economic growth, especially in the rural
areas, where the bulk of the gold demand is
concentrated, was the main reason for the demand
Potpourri and the Gold Shares
A Wall Street Journal story yesterday about huge
amounts of water being diverted by numerous gold mines
in northern Nevada battered Newmont Mining's share
price yesterday. Scientists just reported that the
ground water level dropped more than 1,000 feet in
places over the past decade -- quot;believed to be the
largest drop in the world.quot;
quot;That disclosure has escalated a David vs. Goliath
conflict between the region's farmers, ranchers,
environmentalists, and Native Americans -- who want to
keep this region largely agricultural -- and the
state's second richest industry: mining.quot;
Newmont shares were hit hard today too, finishing at
According to Reuters, confusion reigns over whether
Australia's biggest gold miner, Normandy Mining, has
changed its forward selling as other majors have.
Normandy Chairman Robert Champion de Crespigny followed
with this comment: quot;We see a trend of relying less and
less on forward sales.quot;
I know a senior executive at Normandy, Colin Jackson,
and plan to give a buzz to get the scoop.
The wire services continue to put out one Ashanti story
after another. Confusion reigns on this one too. The
real issue is what is to be done about the Ashanti
hedge book. Even if a deal is reached and Ashanti is
given a reprieve from margin calls, what are the
dealers going to do with the Ashanti short positions if
the price of gold climbs sharply again? If Ashanti
cannot be called for margin, how high will the gold
price have to go before the exposed dealers cry quot;unclequot;
and panic-buy the Ashanti shorts on their books?
A probably useless tidbit of information: A birdie told
me that Mark Keatley, the fired CFO of Ashanti, is the
brother-in-law of Ashanti President Sam Jonah.
There is much smoke about derivative blowups and
trading losses among the bullion dealers. Specifically,
the Cafe has brought the bullion desks of J.P. Morgan
and Goldman Sachs to your attention.
I learned today that more layoffs are coming in the
bullion department at J.P. Morgan. Charles Peabody also
tells me that the firm itself is acting as if it is
under stress. Last week I reported that we heard there
was a blowup of a bullion desk. This may be the one.
As far as Goldman Sachs goes, take a look at a chart of
its stock price. It just broke a key moving average to
the downside and broke the neckline of what looks like
to be a massive head-and-shoulders top. GS closed today
at 82 1/8, down 13/16.
Speaking of the hotshot bullion dealers:
GATA is going to a quot;Hannibal CanibalLquot; get-together in
Yesterday I received the following in the mail:
quot;Dear Mr. Murphy:
quot;It gives me great pleasure to extend a warm welcome to
you to attend the 23rd Financial Times World Gold
Conference at the Intercontinental Hotel in Paris on
26th to 27th June 2000.quot;
The invitation goes on to say that for the first time
the conference has invited respected researchers Gold
Fields Mineral Services to participate in the planning
of the conference program. It says the conference is an
quot;unparalleled networking opportunity, a chance to meet
influential decision makers and interact with a vast
array of miners, bankers, investors, refiners,
analysts, jewelers -- in fact, anybody who takes a
professional interest in the gold market.quot;
This is great progress for GATA to receive an
invitation to the world's most prestigious gold
conference. In October GATA was refused admittance to
the Denver Gold Group Conference, even with several
well-regarded members urging that we be allowed to
The second point has to do with Gold Fields Mineral
Thes FT World Gold Conference is basically run by the
London Bullion Market Association, many of whose
members are Hannibal Cannibals. Many of you will
remember that the former chairman of the LBMA sent me
an email eight months ago calling our view of the gold
market quot;sheer rubbish.quot; Stewart Murray, former director
of GFMS, now heads up the LBMA.
GFMS has also cast aspersions about GATA. The GFMS
numbers regarding the gold supply/demand deficit are
much lower than those of the World Gold Council and
Frank Veneroso. The GFMS gold loan numbers are less
than half Veneroso's. GFMS is never bullish on the gold
market and its numbers make no sense if the World Gold
Council is correct.
Long time Cafe members have heard me issue a challenge
to GFMS to let our camp debate the gold market with
them. They will not respond, so now I have GATA
sympathizers trying to find out if I could be a speaker
at the Paris conference. While I would not pull any
punches, they would have my word that I would not
mention any bullion dealers or gold producers by name.
The topic would be: quot;Why the gold price is headed for
$600 per ounce and why it is not there now.quot;
I would like to think that they have enough integrity
and confidence to let me present a different view of
what the gold market has been about and why a big price
move is coming. It is not that I will lack experience
being a speaker by then, as I am a guest speaker at the
Alaskan Miners Association in Fairbanks on March 9 and
at the Committee for Monetary Research and Education
Dinner in New York City on March 29.
This web site posting reflects on what I am talking
about regarding GFMS:
quot;Date: Thur Feb 17 2000 04:34 SlangKing (BBC Breakfast
biz news on Gold) ID#274240:
quot;Interview with GFMS chap.
quot;Talking the price down, their report coming out demand
slumping last and this quarter. Interviewer talk of
gold going as high as 380?
quot;GFMS: I think above 300 is as high as it can go, no
inflation, no investment demand....
quot;Interviewer: Miners changing their attitude on hedging
is a positive for the price?
quot;GFMS: They could equally change their mind again if
the pog starts heading south.
quot;--------hehehemust be getting worried.quot;
This GFMS comment on the BBC came out this morning as
the World Gold Council was reporting record gold
How come GFMS and the World Gold Council's numbers are
so far apart?
A Cafe member was going to a Barrick luncheon
presentation and asked me what I would like him to ask
the company. He came back very impressed with Barrick
and sent me an email contesting some of what I had to
say about the company. His email to me was addressed to
quot;Midas Man.quot; I sent a copy of his email to Frank
Veneroso to get his take on the Cafe member's Barrick
notations, and this was the email I received back from
Frank last night.
quot;Dear Midas Man:
quot;It has been drawn to our attention that a Cafe member
posed the following to you:
quot;Cafe member: 'Seconds afterwards, I posed your
question re 'who was doing all the selling in the
fourth quarter?quot; directly to Jamie Sokalsky, Barrick
CFO, on a private basis. We had been seated next to
each other during the lunch. In essence, their market
intelligence does not lead them to give any credence to
the view that there is or has been any collusion
between governments and bullion banks to bring down or
hold it down. They are very aware of these theories. A
significant percentage of the late Septenber-early
October spike up was short covering by small and large
speculators. Once they were blown out of the market,
their buying was exhausted. But the higher price
brought a lot of bullion out from under Indian, Swiss,
and other mattresses which caused the price to settle
back down into the mid-280s.'
quot;We doubt that the brief rise in the gold price in
October was sufficient to reduce demand and generate
selling by Indian and other hoarders sufficient to
throw the gold market into a transitory surplus in the
fourth quarter. Our reasons are stated in a recent
report posted on our web site, www.venerosogold.com.
The World Gold Council Q4 1999 demand survey data
supports our contention.
quot;The existence of a sustained deficit in the fourth
quarter of 1999 coupled with very significant fund,
bullion bank, and producer short covering definitively
points to very large undisclosed official-sector
selling in that period.quot;
The World Gold Council demand numbers that came out
today proved that Veneroso's retort was correct and
that the answer by Jamie Sokalsky was a bit off, to say
Many of you have asked about the specific dialogue
between a University of Virginia student and Federal
Reserve Board governor, Ed Gramlich. Bloomberg decided
against doing a printed version of its audio, but I did
manage to secure the following:
quot;Q. Is our government directly or indirectly involved in
the leasing of gold?
quot;Q. What is your opinion on the take or what outcome
will be on many of the gold mining companies pledging
to curtail forward selling and also aggressive hedging
that they have been historically involved in?
quot;A. Funny things are going on in the gold market.
There's that. There are various interpretations what
other central banks are doing about their own holdings
of gold. And the price of gold has become a little bit
erratic due to these measures. The broader meaning is
very questionable. Let's leave it at that.quot;
The UVA student is to be commended for asking such
In addition to the line, quot;Funny things going on in the
gold market,quot; I thought it very intriguing how the Fed
governor cut off this sharp, too-inquiring UVA student.
I am not at liberty to get into any details, but GATA
is moving right along in our efforts to persuade
members of Congress to insist on answers from the
secretary of the treasury about whether the treasury or
the Exchange Stabilization Fund are involved in the gold
market in any way.
quot;Keep the faithquot; is the slogan of the day. It is
obvious that there is great stress in the gold market.
There is also great stress in other financial markets.
Something seems to be very wrong out there.
Today the bank index made a new low for the whole move
and has completely broken down. The bank index closed
at 688.92, down 15.49. Meanwhile the Dow closed down
almost 50 points, while the Nasdaq zoomed 121 points to
make a record high close.
The share prices of real-world companies are taking it
on the chin while the stocks of those companies that
make no money are going up and up and up. A banking
sector that is this weak is not healthy for the future
share prices of the general stock market. The Nasdaq is
a mania. Managers who are not involved in the mania are
being fired for poor performance, etc. That is why the
mania is feeding on itself. That is making all
financial markets more unstable.
There are other scary divergences. Today the bond
market went straight up and the five- and 10-year notes
went down. That can only put more pressure on traders
and institutions that are long the short end of the
market and short the 30-year Treasuries. The Cafe's
Charles Peabody says he looks for some serious problems
to surface in the mortgage area in about two months.
The reeling bank index is telling us something is not
kosher in bank land.
The gold fundamentals are extremely bullish. Only the
capping of the market is keeping the gold market from
soaring. It may come to pass very soon that those
entities sitting on the gold price may have their hands
full with market disasters in the stock and credit
markets and will lose control of their manipulation.
The bank index is headed south. The bullion dealers are
bankers. All cannot be well for them. That means they
have to be feeling pressure. When the pressure becomes
too much for their top executives, the order may just
come down: Get out of your gold shorts now!