CBSMarketWatch promotes ... gold!

9:30p EDT Friday, September 24, 1999

Dear Friend of GATA and Gold:

Here is Thursday's commentary at www.lemetroplecafe.com
by GATA Chairman Bill Murphy. Note particularly his
disclosure that hedge fund representatives are in
Switzerland scratching for gold to cover their short
positions. This is big news in favor of our side.

Please post this as seems useful.

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

* * *

HEDGE FUNDS GO SCRATCHING FOR GOLD

By Bill quot;Midasquot; Murphy
www.lemetropolecafe.com

September 23, 1999

Spot Gold $266 up $1.80

Spot Silver $5.26 unchanged

Technicals

We have a market again! Gold was trashed early today
falling almost $2. Unbelievers were everywhere -- on
the Comex floor, on CNBC, in the press, etc. After
almost $10 in gains in two days, who woulda thunk gold
could go up even more? Certainly not those guys.

But lo and behold, buying came in from all over and
gold quickly reversed to go up on the day and stay
there. Today's reversal was classic bull market action
-- and we have not seen that type of reversal thrust in
a long, long time.

quot;Hannibalquot; Chase Bank was a one-man gang today trying
to hold down the gold price. They had some early help
from quot;Lecter,quot; but not enough to stem the bull tide.

The technicals are superb. In the past I have noted
that, in my opinion, it would be very constructive if
the open interest did not decline on a decent move up
in the gold price. Over the past couple of years that
has been the case. On Tuesday, the open interest went
down only 4,700 contracts on a $6 up day. In past
rallies it might have gone down 12,000 contracts on a
$1.80 up move.

And on yesterday's $3.60 move up, the open interest
went UP 2,201 contracts and now stands at 207,560
contracts. That means new buyers are coming in. For the
market to thrust sharply higher, it needs those new
buyers and they are coming in. This is very
constructive.

Market analysts were generally not prepared for this
sort of open interest market action. For example, this
was the morning comment about the open interest figures
from Prudential: quot;We would expect a number in excess of
4,750 today, possibly pushing into five figures. A
large open interest drop would suggest some near-term
softening.quot;

For the past few days the volume on the upside has been
two to three times normal. That also is very
constructive. There are very few gold bulls, as very
few gold market analysts and industry participants
really understand the dynamics that are now in place to
propel the gold price sharply higher. That also is very
constructive, as the gold market will climb a wall of
worry for a long time, just as the stock market did
most of the '90s.

Long silver/short gold spreads are being unwound. Those
trades are holding back the silver market as there is
also minor technical resistance at $5.30 basis
December. Our short-term target for silver is $5.60.
Midas' year-long price objective of $9.78 still stands.

My basic analysis of the past couple of months remains
intact. Buying gold, silver, and the precious metals
shares is the best risk/reward opportunity I have ever
seen. The long-awaited gold bull market is under way.
The forces that have been orchestrating a lower gold
price and manipulating the gold market are beginning to
lose control. The price of gold will double and triple
in the years to come.

Fundamentals

I know the CNBC economic pundits, like Lawrence quot;of
Americaquot; Kudlow, continue to assert that there is no
inflation out. All is always well. But crude oil closed
at $24.85 per barrel today, up 73 cents, and the CRB
index moved sharply higher to finish at 202.29, up
1.76. Will anything that happens in the real world
every matter to the bull-market apologists?

On top of that, unemployment claims dropped much more
than expected and to their lowest levels since 1974.
That is just one more indication of how strong the
economy is and how strong demand is. Of note also was
that the Utility Index was battered again, finishing
sharply lower. Bonds rallied, but it appeared that much
of the buying was fear-based. Do the big boys smell a
stock market debacle?

Cafe member Richard quot;The Generalquot; Harmon was very
disturbed about a Sept. 14 Bloomberg story. It was on
the predictions and analysis of the gold market by Gold
Fields Mineral Services, an organization that feeds
supply/demand analysis to the gold industry. Both
Richard and I believe that GFMS is bought and paid for
by the quot;Hannibal Cannibalquot; crowd. The data they pawn on
gold analysts and gold producers is widely reported by
the press. We don't agree with their data or their
outlook In fact, I would be happy to debate them in New
York about the gold market. Do you think they have the
courage to accept the challenge?

This is some of what GFMS had to say with gold trading
around $254.

From Bloomberg News Service:

quot;Gold Seen Falling as Producers, Governments Sell.

quot;Gold prices will keep falling for the rest of the year
as mining companies and central banks overwhelm the
market with supply, according to Gold Fields Mineral
Services Ltd.

quot;Gold will probably average $252 an ounce in the second
half of 1999 and trade in a range of $240 to $270, the
London-based research and consulting firm said.quot;

The article went on to say how increased producer
hedging would depress the market.

I could not understand how they could get away saying
this. Yes, some companies would do some hedging because
of credit pressures exerted by their quot;Hannibalquot;
bankers, but we heard of just as much producer forward
sale covering coming in as forced producer selling. And
that was proved to some degree as Gold Fields Ltd. (the
gold producer) and Anglogold Ltd. tried to buy the Bank
of England auction on Tuesday.

Harmon called Anglogold and asked if they would respond
to Gold Fields Mineral Services. Whether coincidence or
not, Reuters reported this today:

quot;Anglogold sees less gold forward selling.

quot;By Kenneth Barry

quot;HONG KONG, Sept. 23 (Reuters) -- Forward gold sales by
producers and hedge funds, which has depressed the
price, should decline in future, Anglogold Ltd Chief
Executive Bobby Godsell said on Thursday.

quot;That change and flat or declining new mining
production over the next three to five years should
contribute to gold's climb back above 20-year lows,
Godsell said in an interview.

quot;In addition, Britain's latest sale of gold reserves,
which sparked a rally, has helped the market realize
central bank sales would not be nearly large enough to
fill gold's supply/demand gap, he said.

quot;Godsell said he expected forward selling to decrease
because of higher gold leasing rates.

quot;The rise in rates from historical levels of one
percent to 3.5 or 4 percent recently has changed the
dynamics of forward selling, Godsell said. `If the
interest rate contango diminishes, there is less value
to be found in futures. I would expect less gold to be
sold forward,' he said.

quot;The narrowing interest rate differential was also
putting pressure on hedge funds holding large short
positions, Godsell said.

quot;`If prices continue to move as they are, some people
are going to be in difficulty,' he said.

quot;Godsell predicted flat to declining new mine
production in the next three to five years because of
recent low prices. `That is also positive for the
price,' he said.

quot;The Anglogold executive said Asian demand would
contribute to gold's price recovery.

quot;`The fundamentals for gold are very sound with the
return of economic growth in this part of the world,'
he said.

quot;Godsell said Japan, Thailand, South Korea, and Hong
Kong showed signs of recovery. `These are major
markets,' he said.

quot;Godsell said he expected the price to move higher as
the market realizes that potential central bank gold
sales will never fill the gap between supply and demand
for gold of 1,200 tonnes annually.

quot;`This market will return to a physical demand and
physical supply equilibrium that really should be at a
level considerably higher than US$264,' said Godsell,
whose company is the world's largest gold producer.
With that equilibrium the gold price should rise to
US$300 to US$350 an ounce, Godsell said.

quot;Anglogold was looking for gold mine acquisitions and
expected consolidation in the industry, Godsell said.

quot;`We are looking at acquisitions. We would like
geographical diversity and mining diversity,' he said.

quot;The objective would be to replace low-margin
production with high-margin production. `Our target is
a $50 profit margin on each of our 7 million ounces of
production. We are pretty much there,' he said.

quot;Godsell was in Hong Kong to present awards for gold
jewelry designs in a competition sponsored by the
company and the World Gold Council.quot;

Potpourri and the Gold Shares

The XAU held up under the stock market debacle today as
it finished about unchanged at 69.30.

Tiger Watch: Because we believe that the famed Tiger
hedge fund is short hundreds of tonnes of gold and one
of their own investors is concerned about their gold
position, we are keeping an eagle eye on some of their
significant equity positions. U.S Airways stock looks
like it dropped off a cliff on a chart but was down
only 1/8th today. Intel was hit for 5 5/16 points and
sank to 77. At some point the heat may become too great
and this once-noble hedge fund may have to buy back its
mega-gold short position -- if it can find the gold.

The president of Microsoft came out today saying that
the tech stocks, including Microsoft itself, were very
overvalued. So did another well-known high-tech analyst
-- citing Taiwan delivery problems. The NASDAQ did a
dive bomb after that hit the tape and went from 25
higher to 108 lower. Technically, that reversal is
important as it came on the same day as the Dow broke
the key support point of 10466.93 for the Richard
Russell Dow Theorists. Both the Transporations and the
Dow have now broken down, signaling that a quot;primaryquot;
bear market has arrived -- at least that is the way
they see it.

I called a CNBC producer today to tell them that the
past three days I had listened to several analysts that
they brought on to talk about the gold market and, in
my opinion, none of them had a clue as to what was
really going on and why. Most of the analysis presented
was quot;Hannibalquot; pablum, talk that the gold rise was no
big deal and it was just a matter of time before gold
collapsed again. Dead silence on the end of the phone.
Don't look for me on the tube any time soon.

Our camp finds it of note that there was little if any,
mention in the press about the next Bank of England
gold sale. After the previous auction it was plastered
all over the wire services. Not this time. Sources have
told me over the past month (as I have reported to you)
that there are serious government-to-government
negotiations going on regarding future Bank of England
gold sales that will be helpful for the gold price.
That lack of press commentary on the next Bank of
England gold sale may be the first hint that something
is up on this matter.

The disinformation I spoke of the day before the Bank
of England gold sale (still presented at the Matisse
Table) when gold was right above its lows is still
coming from most mainstream gold analysts. Maybe it is
lack of information.

From Reuters on Sept. 23: quot;`It's one thing to exploit a
high level of fund short positions in the market. It's
another to actually convince them to switch to the long
side or to really make a strong fundamental case for
gold,' said Tim Evans, analyst at Pegasus Econometric
Group. `I have yet to be convinced that the
fundamentals for gold are really any different this
week than they were last week,' Evans said.quot;

Aldon Bentley, whom I have met, put out this Reuters
story. Alden, give me a jingle. While
www.LeMetropoleCafe.com is not as glamorous as Pegasus
Econometric Group, we can give you better information
than Tim did.

For two months Midas has said that there is a 160-180-
tonne gold supply/demand deficit that has been filled,
in large part, by borrowed gold hitting the physical
market. That was the most significant way the
quot;Hannibalquot; crowd could add gold supply to the physical
market to keep the very strong gold demand from
boosting the gold price sharply higher. That is why the
lease rates have risen so much. Since May and the Bank
of England gold sale announcement, the one-month gold
lease rate rose from 1 percent to more than 5 percent
at one point.

Repeatedly you have received information from our
sources that the gold borrowings are much, much bigger
than the mainstream analysts know. Again, we have been
alerted that just four hedge funds have borrowed 30-50
million ounces of gold. Ironically, our camp heard
today that one of those four funds may have be covering
now -- but we learned of another big one that also may
be short.

Word is that the one we think is covering might be
ready to take on the shorts!

The lease rates have come off a bit on this rally, as
the one-month rate is 3.36 percent, but that is still
more than three times normal. Producers sell scale up
normally. If that were the case at the present, lease
rates should not be coming down. But if hedge funds or
spec borrowers were turning in some gold to exit some
gold loans, it could account for the modest reduction
in the lease rates.

That fits perfectly into our scenario and is consistent
with all we have telling you.

Now for the scoop of the day.

There has been much conjecture of late as to whether
the Swiss can sell some of their gold. There have been
stories about when they might sell their gold and doubt
about whether they really will sell any at all. Some
politicos in Switzerland have even been suggesting
recently that a Swiss gold sale next year is a fait
accompli, with the wishes of the populace being
irrelevant. Yet the newspaper La Tribune de Geneve
reported yesterday that the referendum process could
put off potential gold sales until 2001. Others are
reporting that the people in the countryside Swiss
cantons will vote the gold sale proposal down. It is
all a very confusing and unpredictable issue.

The quot;Hannibalquot; bullion dealer camp and the officialdoms
that are part of the manipulation of the gold market
are desperate to find physical gold. Remember, many of
the gold shorts have borrowed gold, sold the physical,
and used the proceeds to invest in the markets. They
cannot just buy back a futures short position. They
have to deliver the gold back to a bullion dealer.

So where do they get hundreds of tonnes of gold?

They were counting on the IMF gold sales, etc. All the
while they had no idea the monthly gold supply/demand
deficit was so large. They were not getting the correct
information. They listened to GFMS and not Frank
Veneroso, whose deficit numbers are much higher and,
most likely, correct.

You have heard me say this often. I have known Frank
for 20 years. He was known in the IFC and the World
Bank as the wonder boy on macro-economic matters. The
former finance minister of Mexico would call for quot;The
Priestquot; (Frank) when that country had a financial
crisis. The former finance minister of Chile also
called for Frank under similar circumstances. The man
knows his stuff.

The question that needs attending to is: Are the Swiss
and/or the IMF up to some clandestine activities
regarding the gold market? Is the IMF leaving a
loophole for countries like Mexico to buy gold, then
sell it in the market and return the cash to the IMF? I
don't know. But I have not seen anything in the press
suggesting that this would be forbidden. Regarding
Switzerland, there have been so many conflicting noises
that it is hard to know what will happen there.

That is a big buildup to what I have to say, but it had
to be laid out for you as background for the importance
of what I have been told. The Cafe has contacts all
over the world now that are some of the most
sophisticated in the gold industry.

Today one of them called me from Zurich to let me know
that two high-level hedge fund operators just arrived
in Switzerland trying to find out if the Swiss National
Bank would sell gold to them in size. Knowing that a
Swiss referendum is needed to sell gold, this seems to
be a stretch on the surface, but THEY ARE THERE LOOKING
FOR GOLD IN SIZE TONNAGE. So they might be there to
find out what the prospects are of the Swiss passing
the referendum so they can contract for future physical
gold at a price (way above the market, I am sure) and
continue their gold loans until the physical gold can
be secured.

The mission has to be to find a way to secure physical
gold so they can sleep at night. They can always buy
calls for further price protection against their gold
loans, or buy futures. But they still need the physical
gold.

That is, the hedge funds are over there looking for
ways to get out of their gold borrowings. They now know
they have a big problem.

The word is starting to circulate that the gold-
borrowing shorts are realizing that they are trapped.
The physical gold market is very tight. That is why
Goldman Sachs took 90 percent of the August deliveries
on the Comex; they needed protection.

The gold shorts are looking for a way out. They need
physical gold or a plan for locating it soon. It must
have been a shock to them to discover that Gold Fields
Ltd. and Anglogold Ltd. of South Africa, two big
producers, bid for gold at the Bank of England auction.

Sources of gold are drying up fast. The shorts know it.
They can feel it. They are looking for a way out. The
gold loans are probably in excess of 10,000 tonnes now.

What if just a third of the gold-borrowing shorts want
out? Where do they find the gold? That would be 3,000
tonnes of buying, while mine supply this year will be
only about 2,550 tonnes.