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16 (or 160) Tonnes, and What Do You Get?

Section: Daily Dispatches

9:15p EDT Sunday, August 22, 1999

Dear Friend of GATA and Gold:

GATA Chairman Bill quot;Midasquot; Murphy has posted tonight at what strikes me as analysis of
the gold market that is as important as anything he --
or, for that matter, ANYONE -- has ever written. It describes
in detail what is really happening in the REAL gold market,
and prepares us for the coming turn. I commend it to you
here and ask that you post it as seems useful.

Gold Anti-Trust Action Committee Inc.

* * *

August 22, 1999
Spot Gold $257.30 down $1.30
Spot Silver $5.22 up 4 cents


quot;It's the same old song.quot; quot;16 (160) tonnes.quot; The
technicals continue to be meaningless in the gold
market. Worth zip-dee-doo-dah. They are constantly
overshadowed by the bullion dealer crowd and most
likely Peter Fisher, the No.2 man at the New York Fed.

I will get into that below, but as far as the big
picture goes, the risk/reward ratio in the gold market
still remains as good as it gets. After the breakout of
a saucer bottom, gold has retreated to the middle of
the recent range. The gold open interest is now all the
way down to 187,413 as the specs are being jerked
around every which way and fading from the scene for
the moment.

Silver continues to make higher lows and is holding on
to its very constructive technical pattern. Longs are
continually being stopped out which is lousy for those
exiting, but bullish for the big picture as the silver
market is constantly cleansing itself and creating a
quot;wall of worryquot; to climb to much higher heights.

The XAU at 67.51 has closed higher the past two trading
sessions while gold was trashed lower by Goldman Sachs,
among others. The divergence between gold and the XAU
and silver is very noticeable and continues. The XAU is
50 percent off its lows of last August and silver is
about 20 percent off its lows. Gold is plodding along
only $5 off its 20-year lows.

That tells me that quot;the collective consciousnessquot;
understands that the gold price has been quot;heldquot; down
and not quot;allowedquot; to rise. The collusion crowd knows
that the forces doing the gold market manipulation have
a quot;tiger by the tailquot; and that tiger is one angry cat;
it will not be long until the tiger gets loose and when
it does, the XAU will rocket to the upside along with
both silver and gold.


The demand for gold is surging around the world (see
stories below). It would appear that some of the
bullion dealers led by quot;Hannibal Lecterquot; (Goldman
Sachs) and the New York Fed's Fisher have made a long
term strategic error in their manipulation of the gold

Perhaps they had no choice because of the desperate
nature of their situation, but by calling in the
British to sell their gold, thereby causing the gold
price to tank some $35, they have unleashed powerful
demand forces that are devouring up the newly priced
cheap gold.

We know this is true from the recent World Gold Council
statistics that show that gold demand was 4 percent
greater last quarter than any other in history and will
even be greater this quarter. For example:

quot;Hong Kong, Aug. 20 (Reuters) -- Physical demand for
gold in Asia, which helped to lift worldwide demand to
a record high in the second quarter of 1999, should
continue through the year, traders said on Friday. They
said prospects of gold harvests in India, end-of-year
holiday buying and a trend to repurchase gold that was
sold during the hard times of Asia's financial crisis
in 1997 and 1998 were boosting demand.

quot;'People in Taiwan and South Korea are buying back what
they sold,' a trader said. Taiwan's demand rose 44
percent in the second quarter year on-year.quot;

quot;Tokyo, Aug. 20 (Reuters) -- Gold purchases by Japanese
investors have more than doubled this week as retail
prices tumbled to a fresh 26-year low in response to
the dollar's sharp decline against the yen, bullion
traders said on Friday.quot;

As a result of this surging gold, demand our camp
believes that the monthly supply/demand gold deficit is
now 160-180 tonnes per month. That is a quot;tonnequot; of gold
that the Hannibals have to come up with to keep the
gold price from rising to a much higher equilibrium

Yes, the shorts have a big problem. Where do they come
up with that much gold EVERY month? That is what they
will have to find unless the price of gold rallies
sharply from here and some sticker shock slows demand

Now we know the shorts are feeling the pinch. That is
why Goldman Sachs took delivery on so many of the
August gold contracts. There was a question until
Wednesday whether the longs could find enough
deliverable gold to avoid a squeeze. Midas told you by
email that we got the word on that day that the shorts
secured the gold for delivery, but they had to pay a
nice little premium to do so. There is just not much
deliverable gold right now in New York. Refineries are
booming and we are headed into a seasonably strong
demand period for gold.

The desperate Hannbials pulled the Abbot and Costello
English gold sale out of their hat and, in addition to
the British gold, it surely has attracted some other
official sector, and or, producer selling.

Newmont Mining is a classic example of Hannibal's modus
operandi. Newmont Mining has been a hedging holdout.
With gold demand surging and the price of gold at 20-
year lows, the last thing they must have wanted to do
his sell forward down here. But Hannibal probably went
to them saying, quot;With all your debt, we think your
credit lines look a little shaky.quot; That is, quot;Hedge or

According to Bloomberg News, it was discovered on
Friday afternoon that quot;Newmont Mining Corp., the
world's second largest gold producer, said it acquired
put-option contracts giving it the right to sell 2.85
million ounces of gold at $270 an ounce.quot;

I also understand that Newmont sold 2 million ounces of
July 2009 calls at a strike price of $385.

Midas will go into this transaction in greater detail
this week and will explain to you why it looks like the
strategy of a real gold bull. Under the circumstances
and quot;the gun,quot; Newmont's move makes sense. Hard to
swallow, but logical. The Hannibals will let them stay
in business for a year while most of Newmont's 60
million ounces of gold in the ground will still benefit
from a sharp move up in the gold price.

Remember a while back I told you that Chase was selling
and Goldman Sachs was buying. Chase was doing the deal
for Newmont. That gave Goldman a chance to cover and
control supply of the New York gold for the August
contract. By taking the gold in their own hands, they
made sure no one else to took it to squeeze the New
York gold market; that, God forbid, might create some
gold market excitement. Hannibal Lechter and the New
York Fed's Fisher did what they could to make sure that
did not happen in the end. Then again, there are still
five days to go before the August contract expires.

Of course Goldman Sachs was buying while Newmont was
adding the needed gold supply to make short covering a
snap. As I said, more on this soon, but it looks like
the Newmont gold supply that was fed into the market as
a result of delta hedging was a little more than 100
tonnes. That 100 tonnes of gold was needed by the
Hannibals to keep the price of gold from rising to a
higher equilibrium price. As it was, the price of gold
rose $10 off its lows anyway.

It was not 24 hours after the shorts were notified last
Wednesday that enough 100-ounce bars were secured for
New York delivery to avert a delivery squeeze that
Goldman Sachs was going around telling producers that
they had better sell forward because the hedge funds
were lining up on the sell side. Then on Thursday night
I was notified by a top-notch source that Goldman Sachs
was selling down the Australian dollar hard (noticeable
because Goldman put out a bullish report on the Aussie
dollar earlier this year, looking for A72). A cheaper
Aussie dollar would make Australian gold producers more
likely to do some forward selling.

Goldman also come out selling the Comex on Thursday and
on Friday bashed the close when most traders had left
for a summer weekend. Goldman told sources of ours that
the trade was done for quot;a client.quot;

The quot;clientquot;? We have suspected that one of Goldman
Sach's clients may be the New York Fed. There is a big
hole in the supply demand numbers. Supply of gold has
been hitting the market for some time from some
unidentified source. We think it may be the New York
Fed. After all, Alan Greenspan said last year, quot;Central
banks stand ready to lease gold in increasing quantity
should the price rise.quot; Maybe he meant to leave out
quot;should the price rise.quot; Midas has documented the close
connections between the U.S. Treasury, New York Fed,
and Goldman Sachs. If the Fed does have an account at
Goldman Sachs, it would be known to only a few; that is
for sure. Yes, only a few would know about quot;the

That brings me back to the Bank of England sale and
resultant gold price drop that has caused a demand
surge. The Hannibals need to come up with that 160-180
tonnes of gold supply this month AND next month. The
scheduled Bank of England sale will net them only 12.5
tonnes per month spread out over the next two months.
Has our officialdom called in a favor or two to bring
on some other closely allied central bank sales? There
aren't a whole lot of Newmonts out there to harass.

This email from Peruvian Cafe member, A.A., will give
you some idea of the psychology and market fear
Hannibal is trying to elicit about the gold market:

quot;The other day Carlos Galvez, chairman of the Peruvian
Gold Producers Association, starts talking out in
public for the first time in years, practically begging
for local regulation to allow gold derivative
activities. Galvez is also CFO of Buenaventura, largest
miner in Peru, which owns 43 percent of Yanacocha
(Output FY99 at 1.65 million ozs, costs at $100), with
Newmont (51 percent). I think it is obvious that the
change of attitude has to do with Newmont's change of
attitude. Since Newmont and Buenaventura have several
joint exploration projects under way, It is easy to
conclude where the pressure came from.quot;

On Friday the gold lease rates shot right back up some
60-70 basis points as the six-month rate reached 3.65
percent. That means someone is willing to borrow $257
gold, with the upside risk that entails, and pay a 3.65
percent interest rate. If the price of gold goes back
just to $300 over the next six months, the effective
interest rate on the gold loan will be prohibitive.

This is dangerous borrowing, or is it desperate
borrowing; meaning the shorts need physical (borrowed)
gold to be fed into the physical market place to hold
the price down.

This is why it is so important to monitor what is
really going on in the gold market. When the U.S. trade
deficit balloons 20 percent higher than the pundits
predict and gold immediately gets socked $2, there can
be no greater example that the fix is on and that the
shorts are scared to death of gold. If gold were to
rise sharply on that news, the manipulators might fear
that the gold barometer would indicate potential dollar
and credit market problems, so they bash it.

They are afraid that if gold acts as it should, when it
should, upward price movement might attract latent
buyers that have shied away from gold because of its
recent poor price action and failure to rise on news
like this in the past. The manipulators are now
obligated to reinforce this negative gold pattern every
time news comes out that should be bullish for the gold

The problem is we are on to them now and it is getting
TOO obvious. And the natural supply/demand deficit is
making it much more difficult for them to maneuver.
They are running out of bullets, and as they do, the
gold price will rise. But more importantly, the
Hannibals and the New York Fed are setting a tone of a
loss of credibility when the gold market manipulation
scandal is exposed.

By then the gold market will have begun its move to the
upside in earnest. The world will then realize the gold
loans (10,000-14,000 tonnes) are too large to be
covered quickly and panic short covering will kick in;
covering of naked calls by the writers of those calls
will be like jet fuel for the price of gold and that
buying will propel the price even higher; then the
speculative world will jump in for a piece of the
exciting action of this tiny physical market.

Many other financial markets may be in disarray by
then. Gold will go from the outhouse to the penthouse.
By paying attention to what is going on now, you will
be around for the fun and megabucks coming to gold
market bulls.

Potpourri and the Gold Shares

It is very unusual for central bankers to speak out
publicly on policy issues that are controversial. Just
not their style. Terry Smeeton was the No. 2 man at the
Bank of England for many years and sent a letter to the
Financial Times this week. It is revealing in the sense
that his comments subtly demonstrate the complete
disarray in British officialdom about the Bank of
England gold sales. An excerpt:

quot;The resulting rise in the foreign exchange reserves
(or quot;netquot; reserves, as the Treasury now seeks to define
them) not only is desirable for the long term but would
have the consequence of reducing the proportion of gold
held, destroying any case for gold sales and thereby
helping the producing countries.quot;