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After gold, can silver be far behind?
12:07a EDT Thursday, September 30, 1999
Dear Friend of GATA and Gold:
Here's Wednesday night's commentary at
www.usagold.com, quot;The Golden View from
the Tower.quot;
CHRIS POWELL, Secretary
Gold Anti-Trust Action Committee Inc.
* * *
AFTER THE CLOSE:
THE GOLDEN VIEW FROM THE TOWER
September 29, 1999
Sorry folks, the Tower was unmanned today because we
saw something on the horizon that we couldn't make out
with our binoculars. It appeared to be the figure of a
man bent over in a most bizarre angle, though we
couldn't recognize the face because his head was hidden
from view.
That's right ... upon further investigation, today's
Head-in-the-Sand Award goes to Andy Smith, analyst at
Mitsui Global Precious Metals, for his comment
regarding gold: quot;It's just a small little market bought
by locals which used to be a reserve asset. Now it's a
(commodity like) copper.quot;
Yep. That's why we also have an onerous copper-for-
Treasury bonds carry trade scalping greeding hedge
funds and lenders left and right. It's not too late to
pull your head out, Andy, unless you have it there for
safe keeping against being scalped ... or because you
already have been.
In our quick stock market fly-by, the Dow and Nasdaq
both struggled throughout the day to pick a direction,
finally choosing the path of least resistance ... down,
losing 62.05 and 25.98 points, respectively. Advancers
and decliners finished in nearly a dead heat, but those
reaching new 52-week lows outnummbered new highs on the
NYSE by 220 to 36, while on the Nasdaq it was 164 new
lows to 66 new highs.
The 30-year bond (6.117%) lost 17/32 in price,
extending losses for a third straight day. There was
some speculation that the hedge fund selling of
Treasuries today was a carryover of yesterday's sales
that were driven by efforts to unwind their gold/U.S.
bond carry trades. There was also talk that some of the
funds' losses were large enough to spell trouble.
Despite all that, Scott Winningham, an economist at
Stone amp; McCarthy Research Associates told Bridge News
that the Tresury market was not looking good anyway.
quot;Gold aside, I think there's reason to worry we might
have a bit more commodity inflation, and therefore
higher inflation in goods. You can see it in the
producer price index for raw materials, which has
accelerated sharply.quot; Concluding, quot;And we think partly
because of this, and because the strength in the
economy is continuing, the Fed is going to be
increasing rates a number of times over the next year
or so.quot;
In currencies, Bridge reports a trader saying, quot;The
rise in euro/dollar today is partly to do with the
sharp gains in euro/yen and partly to do with dollar
weakening versus the euro and the Swissie.quot; While the
dollar gained .75 yen from the previous close to end at
106.93 yen/dollar, the euro gained 2.01 yen (1.14
cents) on the day to end at 113.84 yen/euro ($1.0644
per euro).
And in similar fashion with the bond market, the money
market was also plagued all day by talk that numerous
players who had been caught short gold, were
liquidating profitable short euro/yen and short
euro/sterling positions to cover their losses as
December gold reached a 1 1/2-year high of $329.00 on
Tuesday. Another dealer said, quot;There have been some
losses that have forced the punting fraternity out of
positions but euro/dollar and euro/yen were comfortably
bid in all three time zones today and that's what sent
it higher.quot;
Another factor that contributed to euro/dollar strength
was the German finance ministry's monthly report
indicating the country's economic outlook was quot;clearly
improvingquot; and that the expected acceleration in growth
had just begun.
Official remarks by ANYBODY of high financial rank
remain conspicuously absent following these recent
gains in gold. Clearly, following the Sunday
announcement by the European central banks, this rise
was expected and not at all disturbing to any of them,
otherwise the jawboning would commence. Gold truly has
been set free to float against the world's currencies.
After sitting on gold to keep it down for 30 years, the
IMF shifted its weight around at this same time, and
can be expected to raise the remaining quot;cheekquot; by
degrees in the time ahead.
NY spot gold was last quoted at $302, down $5.90 from
$307.90. This is quite interesting because the COMEX
December contract ended down $8, to close also at $302.
How long before spot prices exceed the paper prices?
Backwardation-R-Us. Take notice of the astounding
levels of gold lease rates later in this report. Would
you deposit some of your own gold to be lent into a
market that is so desparate for gold as to pay nearly
an ounce interest for one month's use of 100 ounces?
What makes anyone think this is going to sort itself
out in any other fashion than what you get with a run
on the bank? Gold metal can occupy only one hand at a
time, and any notion that gold lent into this
particular market would be returned when requested is a
complete fiction. If gold were available for easy
return, the lease rates wouldn't be so desparately
high.
In overnight trading, the London markets saw gold
revisit the $320 levels that we're briefly seen in
yesterday afternoon New York trading (before settling
back for that day's impressive $26 gain ... and setting
up an understandable pullback today by the technically
driven paper traders.)
A quick look at supply and demand: On the supply side,
industry analysts say the surge in bullion prices thus
far is quot;not nearly enough to spur a restart of projects
or mines that were suspended by U.S. and Canadian firms
during the recent market downturn.quot;
On the demand side, a spokesman for the U.S. Mint said
although it is too soon to quantify the changing demand
for gold during the $53 increase since Sept. 21, demand
for gold Eagles has steadily increased since the
beginning of the year. The mint has been making quot;as
many of the coins as possible.quot;
Both of those tidbits were courtesy of separate
newsbriefs by Bridge.
FWN reports the New York Mercantile Exchange said that
it would raise the margins on gold, silver, and
platinum futures contracts at the close of business
today. But then we later received this news from
Bridge: quot;The New York Mercantile Exchange has revised
the changes it made earlier today to margins on gold
and silver futures contracts, while the changes for the
platinum contract margins remain the same.quot; Where those
changes currently stand we have yet to ascertain. And
since Bridge had the head's-up call on the margin
standards, we'll let them run with the ball for a bit
longer and describe what happened today while we were
out of the Tower, examining that bent figure.
quot;New York Precious Metals Review: Dec gold down $8 on
profit-taking (i.e. paper-taking). By Melanie Lovatt,
Bridge News New York, Sept. 29 -- COMEX Dec gold
futures settled down $8 at $302 per ounce on profit-
taking after Tuesday's hefty one-day 9.2% jump.
quot;Gold was also pushed lower by news Russia may lend
around 7 million ounces to the market. However,
relative to the lending market this is a small quantity
and lending may not even be profitable right now with
Russia's 5 percent export tax, said traders.
quot;A representative of the Central Bank of Russia told
Bridge News that it is possible the CBR may place 7.3
million ounces of its gold with western banks, thereby
enabling it to be lent to the market. He said that due
to the current 5 percent export tax on precious metals,
it was not profitable for the CBR to sell gold
outright, but that added lending it out was possible,
depending on the interest rates offered by the banks
concerned.
quot;While the climb in gold lease rates makes it more
attractive to lend gold, they are probably not yet
sufficiently high to cancel out Russia's 5 percent
export tax on precious metals, said traders. Also,
Leonard Kaplan, chief bullion dealer at LFG Bullion
Services, said that the Russian Central Bank is not a
very large holder of gold and even if they were to
lend, it 'wouldn't make a dent in this market.'quot;
(We've got to intervene here to ask you to reconsider
Andy Smith's asinine remarks presented at the opening
-- quot;It's just a small little market bought by locals
which used to be a reserve asset. Now it's a (commodity
like) copperquot; -- in context with what you have just
read. The Tower finds ever more evidence supporting the
position that gold is a world-class financial asset
distinctly UNLIKE such things as copper. Smith's
commentary, in light of the facts, sounds ever more
like a Martin Armstrong redo.)
quot;Gold Fields Minerals Services' current estimate for
the total world lending market is 5,000 tonnes, which
includes both the private and official sectors.
quot;Part of the fuel for gold's recent rally has been the
tightness in lending and subsequent jump in lease
rates. Typically one-month gold lease rates are under 1
percent, but they have been in a steady climb over the
last few months and jumped to about 4.5 percent Tuesday
from Monday's already high 3.25 percent. This morning
they had climbed even higher, with some quoting 9.7
percent while others were suggesting they were nearer
the 11 percent level. This afternoon the stayed at the
9 percent level. Kaplan, who has been in the gold
market for 25 years, said that he had 'never seen lease
rates so high.'
quot;Meanwhile, traders said that they were not surprised
that gold had pulled back on some profit-taking after
its recent huge gains. Initially the fall back was
mostly driven by locals, noted David Meger, senior
metals analyst at Alaron Trading. 'They were trying to
shake people who were above $300 out of the market,' he
said. Market observers said that there had also been
some trade selling at the top of the market. 'It needs
to rest. It came in much quieter,' said Bill O'Neill,
analyst at Merrill Lynch. He noted that gains were
exaggerated Tuesday by the options-related activity.
'We now have to re-adjust to get back to more regular
trading pattern,' he said. However, many players are
not ruling out another attempt at a climb, especially
given that gold managed to settle above the $300
support area.
quot;Kaplan said that gold's relatively orderly close was
the 'calm before the storm.' He said that dealers had
widened their spreads to $2 per ounce on spot gold,
which cut volume by making it impossible for players to
trade effectively. Kaplan predicts that gold will try
to rally again, suggesting that it 'held nicely' at the
$297/298 area. He pointed out that the fact lease rates
have remained high suggests further mileage on the
upside.quot;
Yesterday's official gold futures total volume 182,404
resulting in a rise in total open interest to 225,467
contracts, gaining 11,531 new postions. For the second
straight day there was no change in the level of gold
inventory held in COMEX depositories, holding at
942,231 ounces. As we move from the last trading day
for the puny September contract toward the first notice
day (for delivery) on the October futures (2,139
contracts of 100 ounces each as of yesterday), we'll
keep you posted how many call for the goods.
Our Fifth Horseman (rising oil prices) spurred his
steed today through psychological resistance at $25
following weekly inventory data released by the U.S.
Department of Energy data this morning showing a drop
of 4.3 million barrels in crude stockpiles last week,
which exceeded yesterday's API data of a 3.684-million-
barrel decline. After reaching a 33-month high at
$25.12, November crude settled up 36 cents at $24.69.
President Clinton pledged on Wednesday the United
States would forgive all debts owed to it by
impoverished countries, saying he would direct his
administration to make it possible to forgive 100
percent of debt owed by impoverished countries to the
United States. Clinton was quoted by Reuters as
offering the explanation: quot;Unsustainable debt is
helping keep too many poor countries and poor people in
poverty. I do not think we can say in good conscience
that we support the idea that (poor countries) should
choose between making interest payments and investing
in their children's education.quot;
True enough, and when you consider that the element
that makes any fiat currency valuable is the efforts
people will expend to earn it in order to pay back
their debt, you've just kicked one of the spindley
support legs out from under the dollar. The Tower
surmises that if the dollar were about to lose value
anyway, you might as well try to look heroic and
generous in the process, and maybe earn a few future
favors to boot. This is offered as one small additional
piece of evidence that the future strength of the
dollar is in grave shape. And where the dollar won't
meet your needs preserving your wealth from here to
there, there is gold .... IF you have it.
Today's closing gold lease rates (annualized):
1-month 8.9000% #43;4.3200
2-month 7.4688% #43;2.9788
3-month 7.5780% #43;3.0700
6-month 6.4580% #43;1.6220
12-month 7.0300% #43;2.2740....
