No sell signal until there''s a bankruptcy


10:45p EDT Tuesday, September 28, 1999

Dear Friend of GATA and Gold:

Here's a very interesting post at,
the "After the Close: The Golden View from the Tower"
commentary. It contrasts dramatically with Steve
Kaplan's short-term sell signal. It sees the buying
panic for gold continuing.

Please post this as seems useful.

Gold Anti-Trust Action Committee Inc.

* * *

September 28, 1999

After the Close: the GOLDEN VIEW from The Tower

As we look around today we see that gold is on
everyone's lips, but with the exception of very few
rugged individuals that heed their own counsel, we are
left doubting that there is gold any in their pockets
to match. Big mistake.

The G7 is not commonly known to send signals that would
provide an outright direction allowing market players
to capitalize on such writing on the wall, therefore it
is all the more important to listen carefully when they
say whatever they do say. This is what was given as the
top priorities coming out of this weekend's G7 meeting
of the world's seven leading economic nations:

-- Repairing Japan's economic and industrial fabric,
yen strength being a clear concern.

-- Bringing about structural reforms in Europe to
combat unemployment.

-- Increasing the level of household savings in the
United States.

Sorry, folks, but a "contract of promises" does not a
true "savings" make. If stocks qualified as savings,
the G7 would clearly have no trouble with levels of
American household savings -- after all, a greater
number of Americans are invested in the markets now
than at any time. French central bank chief Jean-Claude
Trichet has become the European central bankers' elder
statesman with the departure of Bundesbank's Hans

Mr. Trichet was quoted by Reuters today, "In my memory,
markets have never neglected such signals from the G7,
which are given only very exceptionally," and recalled
that the last time the G7 made such an explicit
statement was in 1995 calling for an "orderly reversal"
of the dollar.

On this very remarkable day for a world-class financial
asset, official remarks have been conspicuously absent.
The belief among those greater knights stopping by The
Tower is that much is now in place and they are content
to sit back and watch the free market sort itself out
with gold now in free float...without what would be the
currency equivalent of forex intervention. More and
more national currencies have moved, often out of
necessity, (Colombia's peso the most recent example) to
cut trading bands and currency pegs for a free floating
currency that has it's exchange rate against other
currencies determined on the open market.

The euro has been the largest example of a currency
that has moved first abruptly up then down, while the
ECB adhered to a hands-off policy of non-intervention.
This trend is becoming ever clearer as we move forward,
and you can see it (if you look for it) clearly
expressed in such statements as this one by a Japanese
source who was accompanying Finance Minister Kiichi
Miyazawa and Bank of Japan Governor Masaru Hayami at
the G7 and international conferences:

"Unsterilised intervention can be an option in only
those countries that use currency policy as monetary
policy.... Unsterilised intervention is not just
ineffective but can become a source of market confusion
and volatility in Japan and all the other industrial
nations that do not treat foreign exchange policy as
monetary policy." The dollar's strength is the past was
built by world demand and reliance upon as a reserve
currency...a situation described by many as an
"exorbitant privilege" for the issuing nation.

As ever more currencies are cut free to float, now gold
among them, supply and demand factors and balance of
trade will determine who's who and what's worth what in
the currency world. As the only universal money, we
look for gold to defy gravity as priced in all
currencies as this sorts itself out, but particularly
when priced in dollar terms. There are simply too many
unneeded dollars and future dollars (Treasury bonds)
sitting in international coffers among nations that
already selling the U.S. more goods than they buy. A
greatly reduced exchage rate for the dollar is the
clearest road to acheiving balance.

We hope that background prepares you for interpreting
these final words of the "elder statesman" Trichet in
regard to the G7 meetings we began with: "This is not a
time for complacency. We must demonstrate that we in
the industrialized world can take advantage of a
quieter and calmer period to embark rapidly on the
reforms that are needed."

As we said in an earlier report today, adding physical
gold now to your wealth portfolio will surely qualify
as household savings, and will give you a stake in the
world's most lasting and universal of free floating
currencies as we enter this period of "needed reforms."

Consider a world playing field leveled against
"exobitant privilege" by the return of currencies
fairly valued alongside gold when you read this Bridge
News report from Zurich today:

"Sept. 28 -- The prime movers behind the deal reached
between the15 industrial countries to limit gold sales
to 400 tonnes per year for the next five years -- which
was announced at the weekend, and which has boosted
gold prices -- came from some EU central banks,
according to a report in the Basler Zeitung. "For
Switzerland the agreement is ideal. But pressure (for a
limit on gold sales) did not come from Switzerland, nor
the UK, nor the IMF, but from other European central
banks," the paper said, citing unnamed central bank
sources. "Several EU central banks -- including gold-
owners Germany, France, and Italy -- are apparently not
yet ready for a public discussion of their over-
proportionally large gold reserves," the paper said.

The Tower is quick to point out that this latest
quarter ends on Thursday at which time the European
Central Bank's gold reserves, currently unchanged at
101.754 bln, will be marked to market. See where this
is going? Given the state of affairs as described
above, we'd say there is no such thing as "over-
proportionally large gold reserves" in a world where
money is money, gold being best of all.

Shifting gears slightly, but still within the realm of
currency news, the money markets gave only the
slightest nod in the direction of Mr. Trichet's words,
and the yen fell slightly, closing at 106.20 yen per
dollar compared to a 105.59 close previously. And as
the dollar made these gains against the yen, the euro
posted additional gains against the dollar, rising to
$1.0559 per euro, up from the previous close at

Moving on to the stock markets, we'll take a running
jump over that mess, and describe what we see as we
sail over. Wouldn't want to track gore into The Tower
(or the Castle, if that's where you're headed next.
Pssssst ... that's where the gold is, and MK is too
kind to ask you to wipe your shoes.)

A Dow Jones report today citing an unpublished draft of
a Federal Reserve study that apparently concludes that
U.S. stocks may decline 32% to 38 percent when the
current spate of corporate stock buybacks slows. And we
thought the buying would last forever....

The DOW lost 27.86 and the Nasdaq shed 5.50, which were
small losses after a sickly looking late-day rally
pared much larger intraday losses. On the NYSE,
decliners beat advancers 9 to 5 with 283 issues setting
new 52-week lows, 31 reacing new highs.

On the credit markets, the 30-year bond's yield was
lifted to 6.058 percent as it lost 1-1/32 in price on
the day. The majesty of gold made it "take a look," and
it was humbled.

From a bond report by The, they stated that
"the huge, huge rally in gold does not appear to have
anything to do with inflation expectations." That's
right, boys. The Tower wants you to know that the
"inflation" (dollar supply) is already IN the system
(pent up in international reserves and whatnot), and
the rising gold price is merely the starting reflection
of the work-out phase.

The reported that market gurus were saying
investors sold bonds as gold rose partly out of fear
that investors would sell bonds as gold rose. One
analyst said that was sane "only if you think everyone
else is going to do it. Then you better get out of the
way." In light of the international developments, we
strongly suggest exercising the "get-out-of-the-way
alternative," seeking available shelter in gold. Don't
believe us?

Fine, don't take our word, but decide for yourself as
you read this excerpt from the Bridge News credit
review. The Tower has had a long view of the gold carry
trade, as have you -- through the many voices that
frequent this Round Table -- so we're sure you know it
well enough to appreciate what this report points to
without our elaboration on the point:

"New York, Sept. 28. -- Treasury prices fell today on
selling triggered by the skyrocketing price of gold,
and traders said worries about upcoming supply and
year-end financing costs contributed to the Treasury
market's losses. Earlier in the afternoon, the stock
market's sell-off lent some support to Treasury prices.
But the bond market extended its losses in late trading
as the stock market bounced back. Traders said a big
chunk of today's selling in Treasuries came from
players who had been financing Treasury positions by
shorting gold. 'It was the gold/bond trade that carried
the price action today,' said Jerry Zukowski, an
economist at PaineWebber, explaining that players had
'shorted the gold, got the cash, and used that cash to
build leveraged bond contract positions.' There were
rumors that one hedge fund sold 15,000 to 20,000
December bond contracts as it unwound a gold/Treasury

Spot prices for gold in NY were last quoted at $307.90,
up $26 from the day before. As we've said before, it is
amazing how months and months can be instantly unwound.
Depending on what action you took during those months,
you suddenly have a gift-horse that is looking YOU in
the mouth.

We'll let Bridge tell you the story of the day while we
go below and see what's that good smell coming from the

"NY Precious Metals Review: Dec gold up $26.2, 9.2
percent, on EU.

"By Melanie Lovatt and Daniel Naccarato.

"New York, Sept. 28 (Bridge News) -- COMEX Dec gold
futures made yet more spectacular gains today, settling
up a roaring $26.20, 9.2%, at $310 per ounce after
hitting a 1 1/2 year high of $329. Gains were still
tied to news the EU will cap gold sales and restrict
lending, but the 0930 ET over-the-counter options
expiry helped. Options grantors were also frantically
covering as prices jumped, said traders.

"'It's not over yet -- it's absolute panic,' said
Leonard Kaplan, chief bullion dealer at LFG Bullion
Services. He said that buying had come from all sides
such as 'retail, hedge funds, and banks.' He predicted
that the move is 'not yet over' and pointed out that
gold had stormed through 'every resistance level.' He
said that many gold market players were no longer
quoting lease rates, and said that they had jumped over
LIBOR. He noted that spreads are widening. 'There's
going to be blood in the streets -- the risks are too
big here,' he warned.

"On COMEX, nearly 100 traders swarmed around the gold
trading pit as the 1430 ET close approached, shouting
their final position as the last minutes in the trading
session ticked by. A few more people rushed in as the
trading bell rang to indicate there was 1 minute left
in the trading session. Traders were standing four-
deep in a circle around the trading pit amid a massive
tangle of phone lines. Most traders remained in the pit
after the closing horn sounded and then gradually
dispersed a few minutes later.

"One broker said that today's over-the-counter option
expiry 'made up the better part of the picture.' He
noted that it helped gold establish itself above the
important $300 per ounce level. Traders said that this
morning one large NY dealer covered about 12,000 lots
of gold, which was also probably options related
business. Traders said that after today's price rally,
some options grantors are probably in serious trouble.
'Market makers who've nothing better to do than grant
options and watch the value deteriorate are now seeing
it come back and (hurt them),' said one broker.

"Traders said that there had been large options
positions clustered at the $285 per ounce level and
that spot gold was pushed over that price. One noted
that that option-related hedging was triggering short-
covering and further fresh buying. Kaplan noted that
while the option-related activity was playing a part in
today's gold rally, it was still basically being driven
by a knee-jerk reaction to the weekend news that the EU
and Swiss Central banks will cap their gold sales and
limit their leasing activities.

"If gold can hold onto its gains for the remaining few
days of September it will have made the largest monthly
gain since 1980. Bill O'Neill, analyst at Merrill
Lynch, said that gold saw 'frenetic options activity'
today, noting that some of the grantors 'probably took
it on the chin.'

"However, he too noted that the EU news was the
overriding positive in the market. 'It was the most
bullish piece of news in five years,' he commented. The
restriction the EU and Swiss banks are imposing on
lending is the key to the rally, he said. Gold lending
has been one, if not the biggest, culprit in keeping
gold prices under downwards pressure. Some analysts
have estimated that gold lending has increased as much
as 700 tonnes per year over the past few years,
although the exact dimensions of the lending market are
hard to pin down because there is no publicly available

"Meanwhile, Kaplan noted that bullion banks and dealers
were scared. 'This started a couple of weeks ago with
the lease rate increase. People are lending long and
borrowing short,' he said. He said that panic was
ensuing because many grantors of call options didn't
even bother hedging their risk. 'Now you've got the
market rallying, option volatilities are through the
roof,' he said.

"'The fear is palpable -- they now have to hedge $325
and $350 calls that they threw in the desk drawer,' he
said. Kaplan expects the rally to continue and suggests
the price could rally another $30 on Wednesday.

"Gold's spectacular climb pushed up currencies of gold
mining countries, such as the South African rand and
Australian and Canadian dollar. It also siphoned money
out of bonds and stocks and there were rumors swirling
in the market that giant hedge funds were liquidating
stocks and bond positions to cover big short gold

"Gold's rally today was markedly different from
Monday's jump because it occurred during the U.S.
trading -- on Monday it was mostly already over. It hit
its highest levels in the overnight NYMEX Access
session and during the open outcry COMEX trade profit-
taking was already trickling into the market."

Here are the gold lease rates (annualized) as they
ended the day: 1-month 4.5800% +0.8000, 2-month 4.4900%
+0.7500, 3-month 4.5080% +0.6030, 6-month 4.8360%
+0.2570, 12-month 4.7560% +0.0560.