Midas commentary for April 13, 2000

Copyright 2000 / www.LeMetropoleCafe.com
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MIDAS COMMENTARY FOR APRIL 11, 2000

By Bill Murphy
www.LeMetropoleCafe.com

Spot Gold $281.20 down 20 cents
Spot Silver $5.10 down 2 cents

Technicals

Demoralization, but not for long. Gold tried to rally
early today when the stock market was bashed, but was
pushed right back down on very light volume. The calm
before the storm maybe. While it has counted for only a
$7 to $10 move in price in recent years when the large
short specs have been flushed out, the gold specs were
turned from longs to shorts one more time, according to
the CFTC Commitment Report. That technical development
might give gold some bounce to the ounce. Since March
21 alone, the large specs added 42,000 shorts and were
about 21,000 contracts net short as of last Tuesday.
Our sources tell us there has been little spec short
covering since that data was collected and that
includes the stellar $11 up day a week ago.

Time and time again I have reported how the
manipulation crowd has toyed with the specs. They get
them long, flush them out, get them short, flush them
out, and then start the entire process all over again.
That has been going on for years now. I have lost count
how many times that I have brought this to your
attention. Riggedsville.

Cafe sources tell me the brokers are very demoralized
because of all the cries to take the gold and silver
trading to the Internet and to electronic trading. That
may never come to pass, but more and more I am being
told that quot;nobody wants to playquot; in the present gold
arena because the word is getting out that the gold
market is fixed. Fewer people want to play cards in a
casino that has a stacked deck. The trading volume is
just drying up and that is no good for the floor
brokers and floor traders.

No matter how dull it is now, it is time to stay with
the gold and gold share accumulation plan. From world-
class market timer Don Wolanchuk: quot;And gold, it's
getting ready to blast off. This is just the mother of
all bull markets. Fear levels relative to price are
just extraordinary.quot;

The silver action is not that much more active than
gold. There are silver stops on the floor at $521.50
and at $524 in size. They will be triggered soon,
according to my contacts. Otherwise, nothing going on.
I remain very bullish. One of these days!

Fundamentals

The Swiss National Bank has greatly increased its gold
lending in 1999 to 316 tons vs 187 tons in 1998 and 99
tonnes at the end of 1997.

Of most interest was this Reuters comment: quot;In the
middle of 1999, the SNB began conducting operations in
which counterparties put up securities as collateral so
that the credit risk was reduced. By the end of 1999,
23 percent of all gold loans were backed by such an
agreement, it said.quot;

Why this sudden concern about counterparty loan risks?
It was not long thereafter (the commencement of the
credit operations) that the Washington Agreement was
announced, in which 15 European central banks agreed to
curtail their lending and limit gold sales to 400
tonnes per year.

This all becomes very intriguing. Note that the Swiss
lending increased by more than 200 percent in just two
years. That brings us to noted US Zurich/Kemper
economist David Hale, who told reporters at the
Australian Gold Conference: quot;We have a leasing market
that's at least three or four times as large as world
mining output.quot; Since mine supply in 1999 was 2,559
tonnes, that would mean the gold loans have risen to
7,700 to 10,400 tonnes.

Hale's work is sought after by the U.S. government, and
he often is a speaker at the economic bigwig conference
in Davos, Switzerland. Hale knows the central banking
crowd, so his comments about the gold loans are not be
taken lightly. Combine that with the fact that Chase
Bank chief gold trader Dinsa Mehta believes that the
gold loans have risen to 7,000 tonnes, not the
quot;officialquot; 4,500 tonnes reported by bullion dealer
apologist Gold Fields Mineral Service, and one can
easily spot a trend toward an understanding that the
gold loans are much greater than understood by the gold
industry.

Having watched Frank Veneroso collect the gold loan
data over the years, I believe his numbers are correct,
and he thinks the gold loans are 10,000 to 12,000
tonnes. Those are just numbers to most of you, but they
mean that central bank lending of gold has risen to
dangerously high levels. It is a misnomer in a sense
that all the gold loans are loans. A percentage of
those loans is sitting on the fingers and necks of the
people of Asia. The rest of the gold loans are sitting
in the ground waiting to be mined in the year to come.
If there is any kind of crisis and many gold loans are
called in, there is no way the borrowers can get their
hands on thousands of tonnes of gold in a short time
without driving the gold price to the moon.

The really in-the-know crowd knows this. That is why
the gold price rallied $84 when the Washington
Agreement was announced. If Hale knows that the gold
loans are about twice what GFMS dishes out to the gold
industry, so do the Swiss bankers. They are now asking
for more collateral on their gold loans for good
reasons.

The gold price has spiked three times in six months.
Those spikes tell us the gold market has become
unstable. As too much gold is consumed at too cheap a
price and the yearly supply/demand deficit balloons to
almost 2,000 tonnes per year at today's suppressed gold
price, that instability can only increase. One day
there will be some event and the gold price will soar
hundreds of dollars in weeks as the borrowers scramble
to find physical gold.

I would hope that the gold producers are clamoring to
get to Frank Veneroso to understand his gold loan
compilations and then shout them from the mountain top
to the press. If they want a second opinion, they can
just call David Hale.

While gold demand soars, mining supply shrinks. South
African gold production was 415 tonnes last year but is
expected to drop below 400 tonnes this year. Gold
Fields Chairman Chris Thompson says that is due to
declining ore grades.

As an example of strong gold demand, the India premiums
are running today at a healthy 12.8 percent, according
to John Brimelow. That is very ample for legal imports.

IMF Completes Off-Market Gold Sales

On Dec. 8, 1999, the International Monetary Fund's
executive board authorized off-market gold sales by the
IMF of up to 14 million troy ounces to generate the
equivalent of SDR 2.226 billion (about US$3 billion) to
help finance the IMF's contribution to debt relief and
financial support for the poorest nations.

IMF Treasurer Eduard Brau announced today that this
target was accomplished through seven off-market
transactions conducted with Brazil and Mexico from Dec.
14, 1999, through April 5, 2000. A total of 12.944
million troy ounces of gold, equivalent to SDR 2.680
billion, were sold and accepted back immediately at the
same price in settlement of these members' obligations
to the IMF. Thus the gold sold by the IMF did not enter
the market.

According to the Cafe's John Brimelow, the IMF comes
out way ahead with this maneuver rather than by selling
the gold itself. In the original gold sale plan, the
poor countries would have been able to receive only the
interest from the invested proceeds of the gold sales.
Because the gold was revalued from $42 an ounce to
market price, the capital surplus number has grown
substantially on the IMF books, which allows them to
more easily write off debts of poor countries.

By having gold as a valuable IMF asset, this was
possible. Why didn't the U.S. Treasury brains think of
this in the first place instead of trying to go against
the wishes out 36 out of 41 poor countries the IMF says
it wanted to assist?

The big guns are making their move.

First there was Goldman Sachs, Societe Generale, Mobil,
Shell, and others announcing that they intend to create
their own Internet exchange soon offering oil, metals,
etc. It prompted this feedback from a savvy Cafe member
who knows the precious metals markets very well:

quot;I mean, come on, it's created by Goldman, etc. Would
you, as a competitor, trade on this exchange knowing
that even if they obviously say they wouldn't, but they
could go into their own system and look up your
positions? This is so ridiculous, but I guess people
are stupid enough and would trade on it, wondering why
they get stopped out all the time or why the market
always moves against their positions....quot;

Then we have this one today:

quot;NEW YORK (April 11, 2000) -- AngloGold, J.P. Morgan,
and PAMP (Produits Artistiques de Metaux Precieux),
three of the world's leaders in gold mining, refining,
trading, manufacturing, and vaulting, announced the
creation of GoldAvenue, an independent company that
will be the first to offer a comprehensive range of
products and services for businesses, investors, and
consumers in the gold market primarily through the use
of the Internet.

quot;Earlier today, the partners signed an agreement to
form GoldAvenue. In addition to committing market
knowledge, technology, and people, the three partners
have committed $20 million in seed capital to fund
GoldAvenue's first year of operation. The company will
begin to roll out its products and services via the
launch of a comprehensive gold Web site at
www.goldavenue.com in the second half of 2000.quot;

The Cafe's Charles Peabody thought that was a positive
as it would draw attention to gold sites such as
www.LeMetropoleCafe.com from more of the mainstream
investment community. He also told me that it was a
compliment to GATA because they know how effective GATA
has been in using the Internet. That was confirmed
later in the afternoon at an Anglogold luncheon in New
York Cafe member mentioned GATA to J.P. Morgan's chief
gold trader, Frank Arisman, who is also on the board of
Anglogold. I heard that Arisman just grimaced and moved
on to a different subject.

Potpourri and the Gold Shares

Congratulations to James Turk for his relentless effort
to put the Fort Knox gold issue to rest. In a recent
newsletter to subscribers of his Freemarket Gold amp;
Money Report, Turk says he has heard from Dennis S.
Schindel of the U.S. Treasury Department nd Jay
Weinstein of the U.S. Mint. His conclusion: quot;It would
appear that the gold reserve is being properly audited
and accounted for.quot;

Larry Edelson is telling subscribers of the Martin
Weiss Safe Money Report that gold is consolidating for
a thrust to $348 and that the gold loans may be a big
problem: quot;There is a real risk that this loaned gold
will never return to the central banks' coffers.quot;

Nice to have Edelson back on board. Last summer he was
calling for $200 gold.

The World Gold Council puts out a succinct account of
the gold market's weekly events.

Bloomberg used to carry this on their NI PCS page,
which is supposed to follow precious metals stories.
This year they dropped it. Apparently this was an
editorial decision. They felt that no one was
interested.

Of course, why carry precious metals commentary at all?
The World Gold Council's remarks, if sometimes
pedestrian, were well-informed and worthwhile.

To those of you who have Bloomberg, please email them
and ask why this free and useful information package is
being denied to Bloomberg subscribers.

From Joerg, a well-informed Cafe member, about last
Tuesday's market action:

quot;The market has all the potential of getting nasty but
it's not the season yet. To get retail really nervous
we must absorb at least a lasting 25 percent drawdown
with a quick recovery and than another new low. To that
extent the current recovery (DOW, NASDAQ, Samp;P) could
really be a bear market rally. The government won't
solve the issue by having Fed Chairman Greenspan raise
rates on the one hand and the Treasury Department
buying the futures, although they might be very tempted
to do so, and indications on Tuesday really appeared to
confirm my and others' suspicions.

quot;When two players (two so there is no jealousy and
people shut up) buy the NASDAQ futures when it has a 1
percent premium OVER fair value, it must be
politicians, because Wall Street won't pay that. Now I
have no trouble with the government doing its stuff in
extreme panic (which we had last Tuesday). But I do
have a problem when that does not get publicly
announced and the insiders rip off the public. That
seems to play into the same direction as your yellow
metal concerns.quot;

Yes, it does Joerg.

The irony is that while the gold market itself is
dullsville, all heck is breaking loose around it. There
is so much going on that tells us to load the gold
boat. For example, Robert Hugh sends us this:

quot;An excellent article by Anirvan Banerji entitled 'So
Much for a Soft Landing' appeared at TheStreet.com on
April 4. Banerji is the director of research for the
Economic Cycle Research Institute, which publishes the
Future Inflation Gauge (FIG) on the first Friday of
every month. The FIG's creator, Dr. Geoffrey Moore, was
Alan Greenspan's statistics professor in college.
Unlike the Consumer Price Index, which is subject to
the vagaries of government handling, the FIG is an
honest attempt to provide a leading indicator of price
changes within the economy. As such it is not
surprising that the FIG, unlike the CPI, has proven to
be a very accurate predictor of directional shifts in
Fed policy during Greenspan's tenure as Fed chairman.

quot;Below is a graph showing the correlation between the
Federal Funds Rate and the FIG during the Greenspan
years. Note that the latest figures, released last
Friday, reveal that the FIG is currently rising at a
year-over-year rate of 12.6 percent.quot;

How long can our government suppress the real inflation
numbers? More ammunition for the Harry Schutzes and
GATA and others who that say that U.S. officialdom is
not allowing the gold price to rise so the financial
world is not alerted to the true rate of U.S.
inflation, so King Dollar is not questioned, and so the
U.S. credit binge is not seriously examined.

Am I being too dramatic?

quot;CHICAGO, April 10 (Reuters) -- U.S. dollar swap
spreads blew out again on Monday amid another round of
steep losses in U.S. technology stocks and continued
concerns over the creditworthiness of agency debt. The
actively traded 10-year swap spread gapped 6-1/2 basis
points to close on its high of 136 basis points, another
in a string of recent records that have exceeded levels
reached during the stock market crash of October 1987,
when the 10-year ended as wide as 119 basis points,
dealers said. 'Spreads really blew out today,' said a
swaps dealer for a major U.S. bank. The ongoing
volatility in stocks and subsequent bolstering of U.S.
Treasuries have kept swap spreads at record highs,
traders said. Swap spreads reflect the premium over
U.S. Treasuries that a double-A-rated corporation pays
to borrow in the capital markets.quot;

The widening swap spreads tell us that there is stress
in the U.S. financial system.

That stress has worked its way over to Europe. One of
your Cafe members is a biggie in the bond business over
there. This is what he says:

quot;I mailed you before on the first wave of spread
widening at a time the Treasury yield curve became
inverted. You remember the talk about some bank desks
in trouble at that time.

quot;Nowadays we see more spread widening, which is really
more dramatic because of lack of any substantial news.

quot;There's almost no volume anymore and in Europe
everybody is wondering very much what's happening. The
decreasing volume is because almost all fixed-income
books are under water and it is simply not possible
anymore to hedge a position due to the widening. That
means subdued issue activity, very few investors around
and a lot of problems all over the place. Where is this
going to end? With a bang?

Why should there be a big bang? After all, Alan
Greenspan, who may give more public speeches than all
the other central bank chairmen put together, tells us
over and over again about the productivity miracle.

Not so fast, Alan. This from Bill King of M. Ramsey
King Securities Inc.:

quot;Jim Grant slams the quot;new economyquot; productivity hoax.
Jim cites Northwestern Professor Bob Gordon, who says
the last five years there has been no productivity
growth in 99 percent of the industries outside computer
hardware manufacturing. Gordon also echoes our warnings
that 'hedonic pricing' creates imaginary price declines
and distorts the effect of obsolescence. Grant notes
that the BLS 'assumes' that white-collar workers
averaged 37.6 hours/week. Researchers Medoff amp; Harless
contend that's way too low. Y2K preparations were
humongous and were not included.quot;

And finally Tim Ellis sends us this one from The New
Republic.

quot;What I learned at the world economic crisis. By Joseph
Stiglitz.

quot;Next week's meeting of the International Monetary Fund
will bring to Washington many of the same demonstrators
who trashed the World Trade Organization in Seattle
last fall. They'll say the IMF is arrogant. They'll say
the IMF doesn't really listen to the developing
countries it is supposed to help. They'll say the IMF
is secretive and insulated from democratic
accountability. They'll say the IMF's economic
'remedies' often make things worse -- turning slowdowns
into recessions and recessions into depressions.

quot;And they'll have a point. I was chief economist at the
World Bank from 1996 until last November, during the
gravest global economic crisis in a half-century. I saw
how the IMF, in tandem with the U.S. Treasury
Department, responded. And I was appalled.quot;

Maybe GATA could recruit Joseph Stiglitz for our
committee. We certainly have something in common when
it comes to U.S. Treasury Department responses!

Nick Laird, sharefin@cairns.net.au, from Australia has
started a quot;Silver Pledge pollquot; to stir up silver demand
and encourage people to purchasing physical silver and
become aware of the manipulation in the Comex markets.

Already 150 pledgers have signed in with 53,000 ounces
of silver. That is more than $250,000 over just the
last five days.

For more information:

a href=http://www.sharelynx.net/Poll/SilverPledge.htmlhttp://www.sharelynx.net/...

This is an active approach to the miserable precious
metals price quagmire. The worst that can come out of
this is that investors accumulate silver at a very
cheap price. Good luck, Nick.

For the wrapup, some good news from my 44-year-old
cousin, Danny, who is running in the London Marathon
this coming Sunday and dedicating his run to leukemia
awareness and to GATA awareness.

quot;Dear Cousin Bill:

quot;The luck of the Irish was with me as I won the
'Masters title' (40+) in New Jersey going away. I ran a
16:20, which is a 5:15/mile pace. Went out fast in 5:04
and never looked back. The time was my third fastest
5K, and considering the heat, I am pleased with the
results. (It hit 80 degrees yesterday, while today, as
I am writing this, it is snowing!) Next stop, London.
Thanks for the luck, Dan. P.S. I really enjoy Le
Metropole Cafe but I think I'm becoming paranoid.quot;

Danny, I guess the paranoia RUNS in the family. Go get
'em!