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Notes on GATA''s friends and today''s market action
9p EST Tuesday, February 22, 2000
Dear Friend of GATA and Gold:
Here's GATA Chairman Bill Murphy's quot;Midasquot; commentary
tonight at www.LeMetropoleCafe.com
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
* * *
MIDAS COMMENTARY FOR FEBRUARY 22, 2000
By BILL MURPHY
Spot Gold $304.90, up 40 cents
Spot Silver $5.25, unchanged
The beat goes on. Gold traded higher all day yesterday
and again today during the Asian trading hours, as well
as during the early European trading session. Then,
right on cue, the New York bullion banks came in and
sold the market down about an hour before the Comex
open. Just following the same orders from the same
general who has been leading the bear troops the past
month, I guess. This general gets an quot;Aquot; for consistency
and an quot;Fquot; for originality.
Gold traded $2 lower all day in New York and then
rallied going into the close. This was an especially
good sign as the higher Comex close brought gold all
the way back and up against a downtrend line (the top
of a now-bullish flag formation). I say quot;nowquot; because
today's close makes it more likely that we could come
in tomorrow or very soon with gold gapping sharply to
the upside and running. The bears gave it all they had
today and yet gold closed up.
Why there should be a gap up or a big move up soon: The
bears are running out of ammo. They have already used
the Ashanti settlement story twice (see below). That
the bear camp has had to tout this settlement twice
within a week is a sign of how desperate they are to
come up with a bearish case these days.
Even the retreating Euro has turned against them, as it
rocketed today, closing above par at 100.63. Then there
is March palladium, which breached $800, closing at
$806.80, up a mere $115.55 per ounce.
Or take oil. The March contract went off the board
today at $29.95, up 45 cents and right off its contract
high. That was after press stories were circulated all
day of how the price of oil is going to go down because
the Saudis and their crew are going to turn on the
spigot in March.
The case for an explosive gold market is off the
charts. Only a surprise central bank sale, stunning the
market out of nowhere and at the frantic urging of U.S.
officialdom, can prevent the price of gold from trying
to catch up to palladium.
Silver continues to build its base. We have a KABOOM
coming here too. One day it will be off to the races
with silver too.
The Dutch sold 7 more tonnes of their gold last week.
That leaves them with only 5.5 tonnes to sell until
September 26, 2000. They had all year to dump their
gold, but have been eager to get rid of it quickly. I
wonder: What was the rush?
The bears will be getting no help from future Belgian
gold sales either:
quot;Feb. 18 -- Belgian Central Bank Governor Guy Quaden
Wednesday confirmed that the Belgian National Bank has
no immediate plans to sell more gold. 'We have sold
quite a lot in the last 10 years because of our big
gold reserve, but there are no plans today to sell gold
again,' Quaden said.quot;
From Bloomberg today: quot;Gold fell 1 percent, after
Ashanti Goldfields Co. reached an agreement with its
creditors that probably will delay purchases of metal
to pay off bad trades.quot;
As I said earlier, that is the second time in a week
the press has taken the Ashanti settlement story from
the bullion dealer analysts as a reason for the gold
price to go lower. That story went out this morning
with gold down $2 to $3. Now that gold closed higher
for the day, what should it read?
How about this one from Midas: quot;Gold closes higher
after short clients of bullion dealers tire of hearing
same bearish stories over and over.quot;
How come I can always find a way to pick on the
Hannibal Cannibal crowd? Last week Chase Bank was a big
seller. Naturally they trotted out their gold analyst
to give the press his bearish 2 cents' worth.
From Reuters: quot;New York, Feb. 17 -- quot;My personal view
is we're going to test the $285 level within the next
couple of weeks,quot; said Donald Eckert, global bullion
risk manager at Chase Manhattan. quot;From what we've seen,
all the good news is out.quot;
One might note that even the gold bears are raising
their downside targets. For months now Midas has said
it makes no sense to be short a market that has so much
upside and so little downside. Being short may not make
any cents for the bears either.
Midas would like you to know that our camp does not
relegate all bullion dealers to the quot;Hannibal Cannibalquot;
camp. Many Cafe members, including myself, have good
relations with many bullion dealers. I know several and
like them very much. Our gripe is with a select group
that have caused so much aggravation for so many of us
who thought we were investing in a free market based on
Bullion dealer Barclays Bank released Tony Hill, its
main forward trader in London, last Friday. The
disarray grows in the bullion dealer ranks.
Midas also would like to differentiate between the
dealers. The bullion dealers who have sold traditional
products to the producers should be just fine. But the
ones who have sold the long-term structured products
(the exotics) are the ones showing stress. No reason to
get into it all now, but the fancy hedge programs sold
by certain aggressive bullion dealers failed to take
into account sky high-option volatilities and liquidity
in longer-dated forwards.
I do not know where Tony Hill stood, but I find it
ironic that he was let go just as Barclays gave Ashanti
a $100 million loan. I can't figure this one out.
Barclays has faith in Ashanti for $100 million but no
faith in its own trader who was advising Ashanti?
An excerpt from Ashanti's statement today:
quot;Ashanti Signs Agreements That Secure Its Future
quot;NEW YORK, Feb. 22, 2000 (Business Wire) -- Ashanti
Goldfields Co. Ltd. is pleased to announce that today
the final signatures have been obtained on agreements
which it believes will secure its future....
quot;Commenting on the signings, Sam Jonah, chief executive
officer, said, ``The signing of the new facility will
allow Ashanti to pursue its objective of getting its
exciting Geita Project into production in the shortest
time possible, to the benefit of all stakeholders.
quot;Furthermore, the agreement reached with the hedge
counterparties will enable the company to go forward
and retain the benefits of hedge protection without the
spectre of potential cash calls for a three year
quot;The negotiation of this facility has been
extraordinarily complex, requiring agreement from each
of Ashanti's 22 lending banks and 14 hedge
counterparties. I would like to thank all parties for
their hard work in completing the new facility. In
particular, I would like to thank Mark Keatley, our
chief financial officer, who, with his team and our
advisers, has devoted himself tirelessly to achieving
this successful outcome.quot;
What am I missing here about this Ashanti/bullion bank
lovefest? Gold is trading just above $300. Ashanti has
some $470-$570 million worth of margin calls somewhere
around these price levels. What if the price of gold
goes to $400, $500, or $600? How large will the margin
calls be then?
It took the bullion bank syndicate almost five months
to resolve this situation and gold is quiet. Regard
palladium. Historically, the price of gold has followed
the price of palladium. What if it does so again? This
Ashanti agreement is a recipe for DISASTER down the
Apparently Australian gold mining magnate Joseph
Gutnick did not get the inside scoop from Chase's
Eckert. On Friday, at the annual meeting of his Centaur
Mining amp; Exploration, he said the outlook for a long-
term sustained gold price rally was the most promising
since the mid-1980s.
From Reuters: quot;'I think the outlook for gold is the
most positive it has ever been in my 15-year career,
even though the prices are still depressed,' he said.quot;
Potpourri and the Gold Shares
The XAU flipped today, also climbing back from an early
set back to close at 68.28, up a modest .24.
Cafe colleagues were told that the Plunge Protection
Team would be in there buying the Dow today. Sure
enough, they tried all day with the Dow Jones stocks
and it finally worked at the end of the day.
We were also told by top-notch sources that Energy
Secretary Bill Richardson is going around the world
strongly suggesting that the oil producers peddle their
oil with greater vigor. I cannot get into details, but
quot;the big stickquot; is being used.
The oil price shock (the United States has no
inflation, of course) is taking its toll in Canada,
where the truckers are striking.
The New York Fed's McDonough takes taxis in New York,
so he is not very aware of how oil prices (which show
no sign of abatement) are having a greater price effect
than we are being told. Today McDonough announced to
the press that quot;inflation is low and going lower.quot;
Speaking of oil just one more time: On CNBC today, one
of the network's daily commentators noted how each of
the back months on the Mercantile Exchange was priced
successively lower by about $1. Look, he said, oil is
expected to be only $24 per barrel in a few months.
I do not know too much about anything, but I can tell
you this, that is crazy. The most powerful bull markets
are quot;realizing markets.quot; The front months lead the way
because of a shortage in the quot;real world.quot; As the bull
move continues, the back months catch up to the real
world as unbelievers are forced to become believers by
paying up. That is not true in all commodity market
moves, but it is true in the great bull ones. I have
been there in soybean, cattle, hog, and copper moves.
The economic/stock stories make little sense these
days. The stock market is going down on inflation
fears, while the bond price is soaring and yields drop
sharply from 6.78 to 6.08 percent. Yes, we all know
there is going to be a supply disruption with the 30-
year Treasuries, but if the Fed is going to raise rates
in the months to come because of inflation concerns,
who wants these bonds at such low yields? The yield
curve is very inverted with shorter-term instruments
yielding much higher rates than the Treasuries. That
has to create some stress for bankers in general.
I could go on and on about this. The bottom line to me
is that something does not smell right. My guess is
that there are financial problems building behind the
scenes and they will erupt just when the average
investor least expects them to.
When that scenario unfolds, it is likely to unleash a
Madness investing rules the day. The investing legends
can't cut it these days because they refuse to abandon
the investment principles that made them so much money
over the years. Those principles made them investment
gurus too. But today the name of the game is quot;momentumquot;
for the quot;ask no questionsquot; investor.
Warren Buffet and Julian Robertson of Tiger Management
come to mind. Remember last summer when the Cafe told
you how much trouble Tiger was having; that Tiger was
losing clients left and right via redemptions and its
investment performance was very poor? Our report
reached CNBC, which took the internet crowd to task for
spreading such nonsense about Tiger. Tiger had about
$16 billion under management then. Today CNBC reported
how poorly Tiger Management has done and that Tiger's
money under management is down to $6.5 billion.
The Cafe nailed that one right on the head, just as
John Brimelow's information from his Russian sources
that palladium was going to $800 was RIGHT ON!
There was a London Bullion Market Association meeting
in Dubai this weekend. Never have I read such drivel
and platitudes about the gold market than has come out
from there via the wire services. And it was not the
dealers who uttered the pablum to the press. After such
devastation for so long, this industry needs FIRE IN
THE BELLY, not inane declarations.
While the World Gold Council reported record gold
demand last week, demand for diamonds is so strong that
DeBeers, which controls 70 percent of the world market,
may hold its biggest ever gem sale this week. The
economic recovery and buying from the United States,
the world's biggest gem market, has fueled the demand.
What is good for diamond demand is good for gold
Although U.S. Sen. Joseph I. Lieberman advised GATA
Treasurer/Secretary Chris Powell that GATA should
receive by today answers from the U.S. Treasury
Department to its questions posed in our advertisement
in Roll Call in December, that was not to be. We are
hoping to have answers for you tomorrow.