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GATA cited in Gartman Letter, Gold Newsletter
1:15a EDT Wednesday, June 16, 1999
Dear Friend of GATA and Gold:
GATA Chairman Bill Murphy has just posted the following
commentary at www.lemetropolecafe.com. There are
indications that we all should stay tuned, and watch
Please post this as seems helpful.
Secretary, Gold Anti-Trust Action Committee Inc.
* * *
June 15, 1999
Spot Gold $259.20 down $1.10
Spot Silver $5.05 down 5 cents
Battle stations! The volume has been light of late and
the world is bearish. A contrarian's delight. In a
normal market, the CPI number tomorrow should be of
importance in a very oversold market like gold is, but
this is no normal market.
Silver continues to confound, but no surprise there
either. If we are right, there will be an upside silver
price explosion some time this year that will run
silver up some $3. It will probably all happen in a
Headline: quot;An Icon's Fading Glory; Now the Gold Rush Is
to the Exits,quot; by Jonathan Fuerbringer of The New York
Times, June 15, 1999.
Never have I seen so much anti-gold diatribe, ever. It
has built into a crescendo of cackling like nothing I
have ever seen. It is like one-upmanship for financial
writers on the gold market. This article follows a slew
of negative articles that have come out of the
Financial Times World Gold Conference in London.
Then there is a comment by Kevin Crisp, gold analyst of
Counterparty Risk Management Group member J.P. Morgan:
quot;Gold is on a path of evolution away from being a
closely held store-of-value asset.quot;
Of course I cannot talk about the bear conference of
the world without talking about Andy Smith and the
Mitsui crowd. They held a dinner at this conference and
I understand they were all talking about $180-$230 gold
and pounded away at the bearishness of the market to
all the guests. (You might like to know that it was
reported to me that GATA has the bullion dealers and
the LBMA irritated. Such a pity!)
The orchestration of lower gold prices has been a thing
to behold -- the sheepish reportage of the press is
quite another. It has me shaking my head. At the same
time it is a moment in history to press on, to fight
the fight, and to position ourselves to make some
Have you lost it, Midas? you might very well say.
No, I don't think so. Our day is much closer at hand
than the Hannibals think. Reason 1: It is becoming more
apparent that the cracks in the financial system that
we have discussed ad nauseam are starting to surface.
The Internet bubble is coming apart at the seams. Bond
yields have hit 6.15 percent. The action today was
horrendous as the rally failed, even if was due to some
evening up ahead of tomorrow's CPI number. (Will they
cook them one more time?) This type of poor bond market
action was more remarkable in that it occurred just
after the convenient intervention to support the dollar
vis-a-vis the yen. Rumors of hedge fund problems are
flourishing. This follows a hush-hush banking meeting
The signs are here now. Something is seriously wrong
out there in financial land. Hence the obvious attack
to try to discredit gold and the one barometer that
stands for financial stress. Can it be any more clear?
As those problems surface, marketplace greed will begin
to turn to marketplace fear -- an emotion not felt by
the masses in the financial arena for a very long time.
When that new emotion kicks in and investments in paper
assets begin to go sour, hard assets will begin to have
more investment appeal, much more -- especially as the
year goes on and Y2K fears flex their muscles.
But just as important I have a sense that the major
gold producers have had it with the bullion dealer
crowd, and with the central banks. The Bank of England
announcement may have been a watershed event. The big
boys could live with $280-$310 gold; that price even
allowed most to make money and pick up fire-sale assets
as the juniors withered into oblivion. But the BOE
announcement has pushed prices so low that it is a new
day for them; even the bigguns are suffering and being
pushed to the point of fighting back.
It is about time.
This story by crossed my desk this morning and will
give you some idea of what they are up against now:
quot;DECISION TIME FOR GOLD PRODUCERS, By Damon Frith. June
quot;More than half Australian gold production is
uneconomic at the depressed current price and local
miners are rapidly reaching a 'decision point.'
quot;CIBC Grundy senior resource analyst John Macdonald
said yesterday half of the country's production and
more than half of its producers were mining gold at a
cost higher than the yellow metal's spot price.
quot;Mr. Macdonald said, on average, local producers had
forward sales that could keep their mines operating for
another four to five years but that many producers
'face a decision point.'
quot;'You can have a healthy hedge book but if you're
producing above the spot price, is it worth keeping
mines open when you can buy gold cheaper on the market
to meet forward contracts?' he asked.
quot;Australia is the world's third-largest gold producer,
with an output last year of 310 tonnes.
quot;Macquarie Corporate Finance associate director Richard
Phillips said research now in progress suggested that
27 of the top 50 local gold companies produced gold
above the spot price.
quot;Gold is trading at about $US258 an ounce following
approval by the Group of Seven leading industrial
countries for the International Monetary Fund to sell
up to 10 million ounces of gold to fund developing
nation debt repayment schemes.
quot;Mr. Macdonald said the large number of shorts in the
market --investment instruments that effectively gamble
that the gold price will fall -- were betting on the
IMF sales going ahead and would have to scramble to
cover their positions if that strategy failed.
quot;He said that could lift gold back to $US300 an ounce.
quot;The gold price has been in a tailspin since early May
when the UK Treasury announced it would sell 415 tonnes
of gold over several years.
quot;Before that announcement, gold had stabilised around
the $US390 an ounce mark following a series of blows to
sentiment caused by a few central banks, including
Australia's, selling gold reserves and the apparent
defeat of inflation by the large developed nations.
quot;The continuing perception that central banks want to
unload gold holdings equivalent to 10 years of global
production is likely to keep the gold price depressed
in the short- to medium-term.
quot;'There is a growing view the current low gold price is
here to stay and just delivering into a hedge book
won't get you there,' Mr. Phillips said.
quot;'It was OK when the view was the gold price would
turn, but we are now likely to see more mine closures
and company mergers.'
quot;Mr. Phillips said U.S. producers had been through a
spate of mergers and South African producers had
rationalised and were now moving offshore to diversify
What is important to remember is that the biggest
commodity moves of all time come out of the greatest
despair. I have seen and been a part of big, big moves
that have come out of a time of hopelessness (although
this one does take the cake).
Something to take heart about:
For the first time we are hearing of buy stops building
above the market -- that is what this article alludes
to. But there is more. We cannot get into many details
but from two sources we are hearing of physical buying
that is going to emerge going into the Bank of England
auction that will surprise the shorts. We have been
told that this group has been buying gold properties
and the gold shares. We suspect that this well-heeled
buying group is one of the main reasons the XAU has
held up so well relative to bullion. That divergence
may really be telling us something, as divergences
On that note, I just returned from having a beer with
Cafe member Bill S., who is very knowledgeable about
the oil market. He informed me that oil production in
the United States has fallen to 5.8 million barrels per
day, the lowest in 50 years. At one point we produced 9
million barrels per day. We are now importing 55
percent of our oil needs. A cold winter will send the
price of oil into the low $20s, according to Bill S.
This is not too good for the dollar, much less
inflation, down the road.
Now the Middle East crowd gets paid in dollars no
matter where they sell their oil. During the 1970s,
when oil ran up, inflation was rampant in the United
States and the dollar went into the toilet, so the
Arabs were penalized for being paid in dollars,
according to our astute Cafe member. He says they will
not make the same mistake again. Thus, 1) we know some
of the Middle East crowd is buying up gold properties,
2) the dollar is likely to suffer greatly down the road
as a result of our trade deficit 3) the Arab crowd will
not make the same dollar mistake again -- it makes
sense that they might buy cheap gold, just when no one
is looking and the bullion dealers are smug as can be.
Remember, it was not long ago that the Arabs were
suffering financially because of low oil prices; now
they have surpluses.
Potpourri and the Gold Shares
From Cafe member THC.... A bullion dealer made this
comment: The Bank of England sale conditions are primed
to drop the price as much as possible.
Here is what he remarked:
1) Gold is to be sold quot;as is.quot;
2) No physical inspection of the gold is allowed.
3) All the gold will be sold at the lowest accepted
4) Neither the government, Treasury, or the Bank of
England makes any warranty, express or implied, with
respect to the weight and quality of the gold.
I wish my nightmare investments turned out as well as
the following. From Bloomberg:
quot;MILAN, June 12 -- Italy's Foreign Exchange Office, or
UIC, said Long-Term Capital Management, the U.S. hedge
fund that almost collapsed last year, paid back the
$150 million it borrowed in 1996.quot;
Same story over and over. The in crowd is miraculously
bailed out somehow, while the average Joe is left
holding the bag. Sickening!
Speaking of the in crowd, I found it interesting to
note some of the attendees at the Bilderburg meeting in
* Jon S. Corzine, retired senior partner of Goldman
* Stanley Fischer, director, IMF.
* Vernon E. Jordan, senior partner, Akin, Gump, Strauss
* Ottmar Issing, member of the Executive Board,
European Central Bank.
* Hilmard Kopper, chairman of the Supervisory Board of
* William J. McDonough, president of the Federal
Reserve Bank of New York.
* Alessandro Promumo, CEO of Credito Italiano.
* Padoa-Shioppa Tommaso, member of the Executive Board,
European Central Bank.
* David Rockefeller, chairman, Chase Manhattan Bank.
* John L. Thornton, president and co-CEO, Goldman Sachs
* Martin Wolf, associate editor and economics
commentator, The Financial Times.
So what do we have here?
Goldman Sachs, Deutsche Bank, and Chase -- three big
bullion dealers, proud Hannibal Lechters.
The Financial Times that calls the Gold Anti-Trust
Action Committee quot;extremistquot; and quot;dangerous.quot;
The IMF and a close Clinton administration tie-in.
Officials of the ECB, which includes the Central Bank
This got my juices going, so I went back to some Midas
commentary that was written four months before GATA was
even dreamed of. I thought you might like to see what
Midas wrote right after the LTCM blowup and compare it
the events of the past nine months. Many have asked how
GATA came about. This will strengthen the picture for
Midas du Metropole, Sept. 26, 1998
quot;And that brings me to the most intriguing possibility
of all. If the Fed and banks not even involved in the
LTCM fiasco had to do the unprecedented by stepping up
to the plate to try to arrange a solution for the huge
derivative problem that LTCM faced, what else could the
Fed be up to? For a very long time now we have been
harping about the incredibly large short gold positions
by the hedge funds and what that liability could mean
exposure-wise. We made special note of this in the last
Midas. Well, if we are correct and the hedge funds are
short all this gold (true or not, it was last year that
we heard Meriwether was short 350 to 375 tonnes) the
LAST thing the Fed can allow in the very short term is
for the price of gold to take off too quickly. The gold
loans are cheap. Since the price of gold has not done
much compared to the movement of other derivative
positions, it would make sense the gold short would be
one of the trades LTCM (and other troubled hedge funds)
still has on. That trade has not collapsed on them yet,
so they have not been blown out like they have
elsewhere. One thing the orchestrators (the Fed and
other banking institutions) of the bailout might do is
borrow some gold from bullion banks and stop an out-of-
control gold rally. An exploding gold market would undo
their fix-it plans for LTCM. They need to buy time and
figure a way out of this entire derivative problem.
Besides, this problem (the gold borrowings) could be
worse than the others. Where are all the hedge funds
that are short gold going to find such massive
quantities in a very short time?quot;
Midas du Metropole, Oct. 3, 1998
quot;We know from public statements that our government
bailed out LTCM because they feared its failure would
threaten our economic system. One hedge fund! If that
is the case (and it must be) then they have to save
LTCM. I think LTCM (as a former trader of pork bellies,
I still am cracked up by that misnomer) is short some
375 tonnes of gold. If the price of gold shoots up very
fast, then what? What do the bailout boys do? What do
the bullion bankers do with their wakeup call? I
suggest this tug of war in gold is bigger than meets
the eye. For example, J. Aron, bullion dealer and big
bullion lender, keeps posting lease rates higher than
other dealers. I suggest they are part of the Rubin
Wall Street cabal (and we know there is one now, so
being a conspiracy advocate is mainstream thinking) and
defending their short positions at all cost; therefore,
they need to pay up to do so. They know that if gold
zooms the Long-Terms of the world could really be in
trouble because their cheap loans would suddenly be
expensive ones. And that could affect their profitable
business and maybe even expose them to some serious
problems. But there may be even a bigger problem
looming out there. What if the hedge funds are short
1,000 tonnes of gold or more, as we think they are?
Where do they get the gold if the price of gold takes
off? Yearly world production is only about 2,400
hundred tonnes. This is the time bomb we have been
talking about. The story gets more intriguing. This
came to me yesterday from Bloomberg News.
quot;'Italy's Foreign Exchange Office said it invested $100
million in Long-Term Capital Management LP and lent
another $150 million to the hedge fund.' The exchange
office, or UIC, is a division of the Bank of Italy that
sometimes invests the central bank's currency reserves.
This is the Central Bank of Italy we are talking about,
which also happens to have many hundreds of tonnes of
gold as a reserve. 'Antonello Biegioli, the UIC's co-
director, said the exchange office expects to see the
full value of its investments returned.' OK, fine.
quot;In the same Bloomberg article, Liechenstein Global
Trust AG, the principality's biggest bank, yesterday
said it expects its $30 million investment in the fund
will be written off almost in full.
quot;So what gives? Have any of you invested in a vehicle
in which somebody gets paid back in full and your buddy
loses everything? Give me a break, Italy.
quot;The story gets worse, or more mysterious, depending on
how you look at it. Next day (yesterday) Bank of Italy
Governor Antonio Fazio said he was unaware, until this
week, of an investment by Italy's foreign exchange
office, UIC, in LTCM. 'I never heard about it,' Fazio
told reporters. Not so fast, Fazio. Pierantonio
Ciampicali, UIC's director, suggested in an interview
with Daily La Republica this morning that Fazio might
have been aware of the investment. He said the
investment had been discussed by the board at the
beginning of 1994, and no one had opposed it. Asked who
was present at the board meeting, Ciampicali said,
'Either the chairman or the director general or both
must be present at board meetings.'
quot;That brings me to the point of the story. We think
there may be as much as 7,000-8,000 tonnes of gold
loans out there to producers, hedge funds, fabricators,
etc. The hedge funds alone are short big-time. The
Central Bank of Italy (with its huge tonnage of gold
reserves) appears to be clueless about what they were
doing. Are they liars? Or they are scared?
quot;That is a central bank. We know from our own leaders
that our own bankers did not know what they were doing
lending to hedge funds. This is public knowledge,
discussed in Congress, etc. In essence, lenders had to
be bailed out because of their ignorance.quot;
I had not read these comments in 9 months and they
ring just as true today as they did then. GATA was
still in the womb then. No more. Because we have truth
on our side, will not be silenced, and are gaining many
supporters by the day. We will win this one.
The year I played with the Boston Patriots was the
year Joe Namath guaranteed that the New York Jets (who were
incredible 17-point underdogs) would beat the
Baltimore Colts in the third Super Bowl. I guarantee
the same kind of upset victory over the Hannibal crowd.
No one thought the Jets would win, but they did because
they were a better football team and few knew it.
We will win too because we are right, and soon many
others will know it too. When the facts are known, the
gold shorts will be finished and will be trampled by a
relentless gold bull rushing attack.
We will have our own upset Super Bowl win.
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