Gold lease rates continue rise

By Bill Murphy
www.LeMetropoleCafe.com
March 8, 2001

Spot gold $265.40 up $3.70
Spot silver $4.48 up 6 cents

Clinton did it. I can see the new White House pointing the finger at
his administration when the gold price goes berserk and the financial
world is trying to figure out what is going on and how this could
have happened.

On that note, the office of Dow Jones White House correspondent John
Connors called today and asked for a copy of the letter sent to me
from the White House by the economic adviser to the president,
Lawrence Lindsey. They also requested some other information and said
Connors was interested in doing a story.

That could be fairly scintillating, to say the least. You might
recall from my South African trip commentary that South Africa's
Ministry of Minerals and Energy and the South Africa Reserve Bank
asked me what was the latest date by which they should query the U.S.
Treasury Department about gold market manipulation. That followed my
explaining that the Treasury Department was going to respond to Reg
Howe's lawsuit in U.S. District Court in Boston by March 15. I told
them they should do inquire by the end of February.

Who knows if they did or not, but suddenly all kinds of things are
happening.

This is going to be a quot;Raggedy-Annquot; Midas, as there is much to do
before I head out to the prospectors conference in Toronto.

The one-month lease rate soared to 5.4 percent and was firm right
from the get-go. Even with that, the gold cartel leaned on gold after
it spurted $2 in early London trade. But their bashing did not work
this time and gold roared back.

The lease rate has now firmed, set back, and rocked to new highs. Why
would anyone want to be short or borrow gold in this environment at
these prices?

By the way, there are no gaps to be filled on the downside; that is
bullish technically.

Here is something strange for you. The J.P. Morgan foreign exchange
department came out publicly today projecting $340 gold. I wonder if
they remembered to tell Morgan gold honcho Frank Arisman --
especially, when he and his gold cabal cronies are peddling hedging
programs to the gold producers at these pitifully low gold
prices.This story by David Mckay at www.miningweb.com is a good one
for many reasons:

* * *

Gold producers return to hedging with vengeance

By David McKay
March 8, 2001
www.theminingweb.com

Johannesburg -- South African gold producers are expected to reverse
last year's trend and build their hedge positions. This is owing to
the weaker dollar and stronger rand gold price, and the higher
tendency to use forward gold sales to underwrite debt.

The anticipated consolidation in the South African gold industry may
give greater momentum to this trend.J.P. Morgan estimates committed
positions increased 8 percent in the last quarter to a total of 21.5
million ounces sold forward. This is equal to a discounted cash flow
(dcf) value of the industry book rising to R3.7 billion from R3.3
billion in the previous quarter.

Hedging was lower in 2000 than in 1999 following the Washington
Agreement, an arrangement in which some of the world's leading gold-
holding central banks decided to place a moratorium on further gold
sales (excluding those announced at the time). This was followed by
reductions in producer hedging, such as Harmony Gold's decision to
close out 1.3 million ounces sold forward by Randfontein Estates.
Western Areas closed out the first two years of its book in
anticipation of the sale of its 50 percent stake in the South Deep
project. AngloGold and Durban Roodepoort Deep also promised a
reduction in their hedged positions.

quot;The total industry book (including all derivative positions) fell 22
percent from 35.4 million ounces in December 1999 to 27.5 million
ounces in December 2000. Continuation of this decline seems unlikely
considering a weakening dollar gold price, which may prompt active
hedgers such as AngloGold and Avgold to increase their books,quot; JP
Morgan's gold analyst James Wellsted says.

Interestingly, the average gold price received by the South African
industry last year was $281 per ounce, some 5 percent higher than the
$269-per-ounce spot price. This means the industry operating margin
of 25 percent would have fallen to 21 percent excluding hedge
revenues. In addition, the contribution made by hedge revenues to the
operating margin fell to 4 percent in the fourth (December) quarter
of last year from 9 percent in the previous second (June) quarter.

Traditionally, the South African gold market has hedged much less
than its U.S. and Australian counterparts. For example, there was a
1.5 per cent increase in Australian producer hedging over the
December quarter to 42.2 million ounces. But as the March quarter
draws on, the forward market is less attractive. The retreat in
interest rates is causing contangos to drop. The mark-to-market value
of Australian hedge book in the December quarter increased from a
neutral position to A$1.1 billion after falling A$1.3 billion in the
September quarter.

However, hedging by Australian producers is likely to remain high in
the longer term. Analysts believe Australian companies such as
Normandy Gold -- which added significantly to its hedge book in the
last quarter -- will take opportunities to hedge as the Australian
dollar fluctuates as has been the trend for the last 15 years.

In South Africa, Harmony's purchase of one million ounces in put
options (to help finance its $130 million acquisition of Elandskraal
from AngloGold), and additional hedging by Avgold of up to 1.2
million ounces to finance completion of its Target gold mine
continues the upward trend.

Gold Fields is the only major South African gold producer that is
completely unhedged, having closed out debt on Gold Fields Ghana and
with it an accompanying forward position.

The new IAS 39 reporting standard is requiring companies to declare
the marked-to- market value of their hedge books in their financial
statements. This compares to the previous standard which asked
companies to provide profit or loss details on delivery of the
position. The new standard is going to change the way investors,
analysts, and fund managers value gold stocks.

Derivatives classed as hedging instruments must be marked to market
value at each reporting period -- stating whether the hedge book is
in the money or under water -- and changes in the value of the hedge
offset against reserves on the balance sheet.
Harmony Gold, for example, declared a positive $6 million move on its
trading position.

* * *

Nicely done, David McKay.

No sense going through the hedging drill all over again, but these
hedge strategies are going to look like the dot.com IPOs of a year
ago, in the months and years to come. Pew-ee.The mark-to-mark
positions of the overly hedged gold producers are going to look
ghastly. Just wait and see. Creditors are going to gag. Shareholders
won't be too thrilled either. Ashanti will look like a walk in the
park.

On that note, the Aussie gold price closed today at $521.45, the same
as the multi-year highs of the middle of October of last year. There
was gulping even then. Gold in dollars is only $265.40. Many of these
Aussie hedge books will need deep-sea diving gear to be reviewed when
gold hits $365.40. How about $565.40? That is a good-griefer!

Frank Veneroso has more and more evidence that the central banks have
lent about 15,000 tonnes of gold, give or take. He is going to
present this information at the GATA Africa Gold Summit. Man, are
these mining ministers going to be aggravated when they find out the
truth and how their economies were bagged by these reckless bankers.

Frank also thinks it is very possible that (because his numbers are
generally correct) the gold cartel has run out of the proper grade of
gold for lending. Tapped out. Not that there is not any gold around.
But refiners are already going all-out because demand is very strong,
so it is hard for them to refine any more gold than they already are
refining. Then much of the gold that is left does not have the
proper .9999 fineness.

For example, much of the gold turned into the U.S. decades ago is
dirty gold and does not qualify for official transactions. It needs
to be re-refined. But where and how? That could very well be the
problem of the day. That, and the most likely fact that the Bush
administration wants no part of the Clinton gold fraud. Word is
probably getting out and quot;in-the-knowquot; lenders are pulling back.
Thus, a leasing crunch.

Not a Midas goes by these days without a bullion dealer scandal
coming my way:

* * *

Credit Suisse Unit Obstructed Probe, Tokyo Court Says

By Bradley Meacham

Tokyo, March 8 (Bloomberg) -- A Credit Suisse Group unit was found
guilty of violating Japanese securities law by obstructing a 1999
regulatory investigation. The company was ordered by the Tokyo
District Court to pay a fine of 40 million yen ($334,000).

The court said the group's former Japan derivatives unit, Credit
Suisse Financial Products, also broke rules separating securities and
banking operations when it sold derivatives to help Japanese clients
hide losses. The unit's license was revoked in 1999 for obstructing a
government probe.

quot;The company violated Japanese laws,quot; said Judge Shozo Ogura. quot;It
wanted to do this business because it offered big profits, but the
business was prohibited.quot;

* * *

These scandals are rinky-dinks compared to the giant gold scandal
that is going to surface. Gold will be in backwardation soon. That is
extraordinarily bullish. The bullish consensus on gold is only 22,
silver is only 18. The silver lease rate is roaring too.

To have such low numbers when physical metal is so tight is also
extraordinarily bullish.

To cement that, Bob Pisani, who seems like a regular guy, proclaimed
today on CNBC that gold and Newmont Mining were up a bit but gold was
trading only between $260 and $270 and NOBODY IS BULLISH ON GOLD. IT
IS GOING NOWHERE!

If you say so, Bob.The gold shares in the XAU (56.76, up 3.30) and
the Toronto Stock Exchange golds are breaking out of big bases.
Another very bullish sign.

This is lick-your-chops time. I don't know about you, but I am
awfully hungry.