Bill Murphy''s "Midas" commentary for Sept. 13


3:15p EDT Wednesday, September 13, 2000

Dear Friend of GATA and Gold:

Here's some brilliant commentary posted today at by its proprietor, Michael Kosares.

CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.

* * *


By Michael Kosares

Gold was sideways in the early going. Ours sources
tell us that yesterday's strong run-up on the COMEX
was squashed by selling from Chase Manhattan in the
options' markets. Gold is in a wait and see attitude
with speculation whether or not the ECB will act to
defend the euro and a series of government reports
due later in the week including consumer and
producer prices the key influences for the moment.

The London Bullion Marketing Association numbers
came out yesterday morning showing the first dip
below 20 million ounces (at 19.8 million ounces) in
daily turnover since the key London-based
organization started publishing its volume numbers
in 1997. The highest volume has been in the low 40
million ounces and though I haven't done the math (I
left my report at the office), an "average" month
looks to be in the 30-35 million range. So with
volumes cut in half in London, it appears that
something is evolving in London of which we should
take note.

In our view, the dip reflects a visible unwinding of
the carry trade. This unwinding is directly
associated with the capping of bullion availability
from the world's top central banks via the
Washington Agreement, and, if our perceptions are
correct (based on theoretical evidence), this could
have wider implications for the gold price itself in
the months ahead. We continue to believe that the
gold carry trade has been the greatest deterrent to
a higher gold price; remove the deterrent and gold
could indeed start "acting like its old self again,"
as the World Gold Council's Haruko Fukuda put it a
while ago.

We have reported sporadically on this unwinding of
the carry trade over the past year -- i.e.,gold
trading department closings and thinning staffs,
etc., but we are beginning to see enough movement in
the numbers themselves to believe we could be
transitioning toward a time when gold might be set
free. Here's the key point to be considered: If
options strategies are being used, as some have
claimed, to hold the gold price in check, it may be
serve as covering fire for a full-blown retreat from
the carry trade and a covering of those positions at
the options related price. A recent issue of USA
Gold's "News & Views" newsletter included a note
that ever since the Washington Agreement the
emphasis in the gold market seemed to have
switched to the options markets and the operations
of key U.S.banks. The World Gold Council has
reported rapid growth in that sector -- a tripling of
positions in some cases in recent months.

The gold carry trade allows financial institutions
(including speculative hedge funds)and mining
companies to borrow gold at rates usually below one
per cent, sell the gold into the market and then re-
invest those proceeds at a higher rate. The gold
must be paid back at a specified due date that for
mining companies simply means delivering its gold to
the bullion bank. For the speculator, however, it
means going into the market to buy the metal in
order to repay the loan. If a mining company gets in
trouble, it is the bullion bank's responsibility as
the signed counterparty to buy the gold in the open
market to repay the gold loan. Hence the vested
interest in a low gold price. Now with a cap on gold
availability and some mining companies, hedge funds
and financial institutions still licking their
wounds in the aftermath of the Washington Agreement
and the subsequent spike in the gold price, several
institutions appear to be moving on to other
business. This one has become too dangerous for a
banker mentality.

In short, at least some (if not most) of the major
participants appear to have read the handwriting on
the wall and the LBMA numbers -- so far afield from
the average -- could be a signal that the gold carry
trade is reaching a terminus. If so, its end could
trumpet the beginning of a bull market in gold,
though it is impossible to determine at what point
the LBMA numbers will signal conclusively that this
chapter in gold market history is over.

For the typical gold investor, if this analysis
proves to be correct, this time period could very
well signal a solid opportunity to buy metal while
the financial community is providing cover for the
gold carry trade's retreat. As we have said
repeatedly, these ruminations are not offered as
short term trading advice. We believe that by owning
the actual physical metal, fully paid for, and in
your possession, you can most effectively and safely
take advantage of any major change in the larger

As Holmes would have said, "Come, Watson, come!
The game is afoot."