Goldman Sachs tops list of Ashanti''s creditors

12:25a EDT Friday, October 8, 1999

Dear Friend of GATA and Gold:

Here's a good article from Reuters about the chaos in
the gold mining industry arising from the excessive use
of hedging.

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

* * *

Thursday, October 7, 4:49p EDT

GOLD MARKET AWAITS
INDUSTRY FALLOUT FROM PRICE SURGE

By Alden Bentley

NEW YORK, Oct. 7 (Reuters) -- The world gold industry
is anticipating huge losses after the long-depressed
metal's recent price jump but it will take time to sift
through the damaged balance sheets of bullion bears to
see if the worst fears are borne out.

The fallout from the textbook quot;short squeezequot; following
an explosive $59 gold rally last week should emerge
anecdotally, in third-quarter corporate financial
statements or as players simply drop from sight, market
watchers said.

quot;Months from now you are going to see people
restructuring departments and getting out of the
business. But you are not going to know anything until
these things happen,quot; predicted one chief dealer at a
bullion bank.

quot;You just don't know what to believe any longer. There
is hardly a name I haven't heard,quot; he said.

Gold rocketed over the $300 an ounce threshold last
Tuesday, the biggest jump in almost two decades, after
European central banks stunned the market by announcing
a cap on fresh sales and lending of monetary bullion
for five years.

The news, at the end of International Monetary Fund
meetings in Washington, lifted the major weight from a
supply-heavy market that struck 20-year lows of $251.70
in August on assumptions that the world would stay
awash in gold.

The rally, just days before the close of the financial
accounting period, pushed prices to fresh two-year
highs this week as more market players who had sold
large amounts of futures contracts bought back
contracts to cut growing losses.

Many bullion-trading banks, and customers like miners
and speculators, got caught invested the wrong way,
after months of selling forward and using complicated
and risky gold options to bet prices would fall below
the 20-year low set in August.

quot;Everbody is talking about people getting hurt in this
market,quot; said another bullion bank dealer. quot;I think
there have been people that have probably gotten hurt,
like people who have credit exposure (to these gold
customers). But nothing is crystalized yet so nobody
really knows what the damage is going to be.quot;

On Wall Street, references to gold-related earnings
hits, if any, would probably be obscured under general
trading results in third-quarter filings of commercial
banks, due in about two weeks. But bullion operations
are small sidelines for most big banks, analysts said.

quot;If they had weakness in trading results they might
come in and say broadly there was a move down that was
caused by matching their commodity risks,quot; said Stephen
Biggar, bank analyst at Standard amp; Poor's equity group.

quot;But I don't think you'd get (individual market)
exposures,quot; he added. quot;All that stuff they keep fairly
close to the vest for competitive reasons.quot;

Booking a short gold position is usually done by
borrowing metal from a bullion dealer or central bank
then selling it forward, expecting to buy it back
cheaper at a later date and repay the loan at a profit.

But many quot;shortedquot; the market via customized options,
derivative contracts they may have barely understood,
analysts said. These can expose investors to ghastly
losses, being tricky to manage, very illiquid and apt
to magnify moves of the underlying investment -- in
this case gold.

Traders said this week's continued gold strength showed
the market was still positioned the wrong way. Mining
companies were now acknowledging to having hedged or
sold years of future production, leaving little leeway
to take advantage of the sudden spot price rise -- and
big paper losses.

For example, Ghana's Ashanti Goldfields Co. Ltd. faces
a liquidity crisis and has become a takeover target for
the world's biggest miners. On Wednesday its hedging
counterparties agreed not to make margin calls on
options issued to Ashanti, as they all seek a way out
of the jam.

The Toronto share price of Canada's Cambior Inc. lost
more than 40 percent on Wednesday after it revealed
that it had sold forward 2.7 million troy ounces of
gold through the year 2007, compared to total diggings
of 638,000 ounces in 1998.

Based on estimates of bullion lending by central banks,
hedged and speculative quot;shortsquot; may total from 4,000 to
8,000 metric tonnes.

In comparison, global mine output was 2,600 tonnes in
1998, according to consulting service Gold Fields
Mineral Services.

COMEX dealers said transaction records this week were
still not all sorted out for the exhange to clear
trades frantically agreed to during the melee and begin
arbitration of disputes and compliance procedures if
necessary.

quot;If a firm becomes an inactive member firm, that would
appear in our newsletter a month later,quot; said a COMEX
spokeswoman.

Well-known hedge funds -- pools of speculative capital
-- have been grist for the rumor mill about gold
losses, especially those which experienced high-profile
losses during last fall's global market turmoil.

Long-Term Capital Management, the hedge fund bailed out
a year ago by a consortium guided by the U.S. Federal
Reserve, has been dogged this year with talk that it
was short several hundred tons of gold.

But a spokesman told Reuters: quot;Long-Term has never had
any position in gold, in any derivative, in anything --
zero. I dont even think they followed the price in the
newspaper.quot;

Spot gold bullion Thursday afternoon was at
$322.30/5.30 an ounce, down from its 23-month high
of $338 on Tuesday.