Snakes writhing before the gold earthquake

Noon EDT Friday, September 15, 2000

Dear Friend of GATA and Gold:

The following Reuters story is an indication that
people are waking up to the special connection to
the gold market in the merger of Chase Manhattan
and J.P. Morgan.

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

* * *

Friday, September 15, 11:15 am Eastern Time

Gold losing market maker as top banks merge

By Sara Marani

LONDON, Sept. 15 (Reuters) -- The gold market is set
to lose another market maker with the planned merger
of Chase Manhattan Corp. and J.P. Morgan, and
further consolidation may lie ahead, analysts said
on Friday.

The $34 billion link-up -- inspired by banking
motives far removed from precious metals -- will
bring together two major players in the
international bullion market, although each has
traditionally focused on different areas.

quot;Morgan has always had a very strong focus on
central banks and government agencies and has one of
the biggest vault facilities,quot; a banking source
close to the deal told Reuters.

quot;This is extremely complementary with Chase, which
has project finance capabilities, credit appetite
and capital to back that up. The businesses look a
pretty decent fit.quot; Also, J.P. Morgan recently moved
most of its bullion trading to London, while Chase
remains an active market maker in North America.

Both banks are part of the 11-strong group of market
making members of the London Bullion Market
Association (LBMA), quoting prices for gold and/or
silver on every business day. While J.P. Morgan's
bullion desk is part of its foreign exchange
operations, Chase's falls under its commodities
umbrella, along with base metals and energy.

SYNERGIES

quot;There are certainly synergies for the individual
banks, and a natural attrition for the market,quot; said
Jessica Cross, analyst at Virtual Metals,

But while a successful merger would bring benefits
for the banks, the feeling was that available credit
lines for hedging would be tighter and trade
executions more difficult as the number of
counterparties decreased.

CONSOLIDATION

The deal is just the latest in a round of
consolidation in the gold industry, and market
players do not think it will be the last.

quot;It's part of a consolidation that is ongoing, that
is indicative of a shrinking market, not one that is
aggressively expanding itself,quot; said Cross.

Gold market liquidity has been falling since the
Washington Agreement last September under which 15
European central banks pledged to cap gold sales and
lending for five years.

Latest LBMA figures show average daily traded volume
falling consistently in recent months to an all-time
low last month of 19.8 million troy ounces.

The value of these transactions was $5.4 billion --
down from $9.8 billion the previous August and a
high of $11.5 billion in the immediate aftermath of
the central banks' accord.

quot;The macro gold market is getting smaller -- that is
worrying for market participants,quot; said a London-
based analyst.

Last year, London gold fixing members HSBC and
Republic National Bank of New York merged, while in
December 1997, UBS and Swiss Bank merged.

Analysts say the falling number of counterparties in
the bullion industry limits the scope for official,
producer and speculator activity.

quot;You've lost Republic, Swissbank, and now Morgan or
Chase. And there'll be more where that came from
because they're all trying to cut costs and raise
efficiency,quot; added the London-based analyst.