Le Metropole members,

Murray Pollitt of Pollitt and Co. has served commentary at the Man Ray Table.

It is very well written and right on the money.

"At this juncture both the words and deeds of policy makers vis-`-vis gold smell increasingly suspect. One thing seems clear: the IMF acts more and more as an appendage to the US. The IMF advocates gold sales, the IMF dealt with Asian and other crises in a fashion which seemed to help corporate America, and recently the IMF sponsored a conference to discuss, of all things, "dollarization" in Argentina. We always thought the IMF was there to help its members pro rata, but there's nothing pro rata about dollarization; to make it work you must cede economic control of your country to you know who. And what's really behind the Bank of England gold sales? The London Spectator recently suggested Goldman Sachs, but there's probably something bigger."

Cafi member, Marshall Auerback, who is vacationing in Italy, had an article published today in the National Post. It also has been served at the Man Ray Table, is very well written and, yes, right on the money.

"It is important to note that the proceeds from the IMF sale will not be used directly to relieve the debt of the poor countries. The fund will not spend its capital endowment. It will simply use the interest earned on the sale's proceeds to help fund G-7 debt relief for poor countries. Thus, the financial logic behind the proposed sale makes little sense."

Cafi market update:

Charles Peabody called to give all of you his latest take:

"For the entire decade of the 1990's, the TED spread has remained mostly below 100 basis points. During the Russian/LTCM debacle in the fall of 1998 this spread spiked up to 105 basis points. Today the spread ( at about 90 basis points ) is approaching those panic levels. It is also worth noting that the TED spread is wider today than at any point during 1994 when the Fed literally doubled interest rates over a 12 month time span. This widening in spreads, combined with similar action in the asset back market, tells me that the liquidity in the system to support financial assets at current price levels is insufficient".

Charles went on to say that despite massive intervention, the dollar broke down vs. the yen today. "This is the mirror image of the lack of liquidity to support U.S. financial asset markets. Capital flight is now out of the U.S".

This is very important news for the gold market scenario and fits into Midas's thinking for months now regarding the "raison d'etre" of the Bank of England gold sale. The bullion boys and the orchestrators of the lower gold price had run of supply and excuses to whack gold. The "big account" at Goldman Sachs needed a reason to be such an obvious, visible seller and wanted to attract company for its selling of gold. With the BOE sale announcement, no one would even think as to question why Goldman Sachs was selling so much gold - EVERYDAY.

But, in addition to protecting the short positions of the bullion dealers, our "officialdom" wanted to get the price of gold down and discredit gold as much as possible before the S hit the fan. The gold market manipulators are clever, ruthless, desperate, and knew what was coming in the markets. They did not want gold hovering around $290, a key "gold carry" level and creating some overdue excitement. Remember, gold share activity was at 6 year volume highs the day before the BOE announcement.

Not when they knew the dollar was going to "crapola". The trade deficit number was known to the gold cartel "big honchos" for some time. $30 billion in intervention and the yen is higher than when it started. That is very telling of what is to come. The bonds cannot hold any rallies, the CRB Index has formed a massive double bottom with oil, base metals and the grains moving higher. The gold lease rates are triple what they normally are and physical gold demand is soaring with Y2K looming on the horizon now.

So, they bashed the price of gold some $38 and completely demoralized the industry. So much so that even Newmont Mining stated today that it is going to hedge gold production one year out. At these levels? Another good grief.

But now the time has come and they cannot keep the dyke from breaking. They have run out of fingers. Their dam is leaking like a sieve. Charles Peabody, Murray Pollitt and Marshall Auerback all understand that something is not right in U.S. financial land and they are bringing it to your attention at your Cafi.

As Midas has been saying for weeks, our time is at hand. That does not mean we fly tomorrow, but the pressure cooker in this "collusion crowd" is about ready to blow. It won't be long now until the jukebox will be playing our tunes!

Le Metropole Cafe

All the best,

Bill Murphy Le Patron

IMHO, Le Metropole is right on with insight into short term financial crisis.

-- Bill P (porterwn@one.net), July 23, 1999

Answers

Uhh... I'm a bit dense maybe, but does this mean that the bank guys are selling off their country's gold in order to lower the price so that they can buy bullion themselves, privately, as a hedge against teotwawki?

If I got it wrong, would someone please explain it in layman's terms. Thanks in advance.

-- sorry if it's (a@dumb.question), July 23, 1999.

Another question from the bleachers--

What does widening of the TED spread to this degree actually mean?

-- Tom Carey (tomcarey@mindspring.com), July 23, 1999.

A widening of the TED spread means that some are expecting turmoil in world financial markets.

-- dave (wootendave@hotmail.com), July 23, 1999.

sorry,

As I understand it the banks led by Goldman Sachs are heavily borrowing gold from central banks and selling it to drive the price down so they can buy it back at lower prices while using the profit from their short selling to cover unprofitable derivatives like foreign currency futures. The volume is so huge I doubt the banks will ever take physical possession of the bullion, it is pureky speculative and very likely a signal of the top of the equity markets.

If yoiu recall last falls Asian financial crisis, aka the Asian Flu, these bankers sold dollars and bought Thai bahts, Indonesian rupees (sp?), and Brazilian reales to keep those foreign economies from a total collapse. The burden of carrying these unwanted foreign currencies has big banks in a difficult position - no one wants to buy their foreign currency assets - so selling gold short is profitable for them in the short term due to the volume they can put on the market. But like anyother short, eventually it has to be covered to balance to net zero, so they can only stay profitable if gold prices keep going down. If (when) gold rallies, trillions of dollars in speculation is at serious risl of mega loss.

Perhaps some bankers understand this and are using this as an opportunity to buy physical gold to hedge their personal portfolios. But most likely this is a small amount relative to the thousands of ounces being sold short.

-- Bill P (porterwn@one.net), July 23, 1999.

Bill P,

Note of interest: I read where Barrick Gold's most recently issued quarterly report states they shorted an additional 800,000 oz. in the 2nd quarter. Done before and coincidentally, roughly equal to the 25mt of physical the BOE recently 'auctioned'. This action brought their short position to 13.8 million ozs., approx. 400+ mt. At their current production rate, about 4 yrs. worth, when the CFTC regulations, for market stability reasons, say a producer can only short 1 yrs. worth.

This anomally has come to the attention of G.A.T.A. and apparently the CFTC is doing its best to ignore them....we live in interesting times.

-- Mike T. (anita_martini@hotmail.com), July 23, 1999.