So the gold price fell through $300 So what!

Repost - bottom line, patience forumites, patience. When it blows it will be explosive. Now is a good time to buy gold if you are thinking of doing so. It's not worth equivocating over $10 or $20 either way...

"The bottom line that we have to remember is why it is up here in the first place, and exactly what there is out there that might suddenly turn it round again. My personal estimate (and hope, for my own career prospects!) is that gold will finish 1999 with a bang, not a whimper. I have been trying to not listen to the bearish droning and whining about the gold price for the last two weeks - as most of it is coming from self-interested bullion dealers and even gold mining companies, for one major reason: risk.

The gold price's move north of $300 caused a lot of problems in an industry self-absorbed and fatalistic, used to big contangoes and hedging as a means to profiteering in a bear market, and gold mining as a sideshow. The hedge books of companies in some cases were bigger than their market caps, and represented big unrealized potential gains at $250 gold, should the management be brainy enough to take the money and run. The simple fact is that these hedge books are still there, and I can think of at least five companies that have sold TEN times their yearly production (can you believe a gold company would be that bearish on its core commodity that it would give away production for ten years???) - only expose themselves to serious financial risk in the case of one of those hundred-year events, a gold price explosion.

What a bunch of turkeys.

My own opinion is not worth much, but I am vehemently anti-hedging. And the endless bull - management has been feeding shareholders about how safe these hedge books are - is making me feel cheated out of performance from a sector that I had written off for a lot of this year. Consequently my recommendations for good situations is limited to those with new projects (exploration companies in some cases), and to producers that haven't sold the family jewels already.

The gold price has dipped below $300/oz on light volume selling - and the usual crap from US-friendly central banks helping out beleaguered bullion dealers - and gold companies from a very tight spot (this time the Kuwaitis).

The facts driving this market at present are still the same. And I am getting pretty bullish on the gold price, and particularly bullish on some of the smaller situations that have been knocked down to bargain prices again - and in some cases trade lower than they did before the gold price rise! (e.g. Viceroy at $1.25!!!). If you are a chartist, gold has come back and filled the gap it made during its rise to $340 on that mad morning when a hedge fund covered. At $300 it is testing solid support and I believe a lot of gold companies are opportunistically looking for a chance to cover hedges, many of which involve options struck at $300. You have to remember some key facts as to why the price is as high as it is:

1) World demand is approx. 4500 tonnes per year vis-a-vis production of 2500-3000 tonnes

2) Physical demand is up 20% this year, mainly from Asian buying when the gold price tested $260.

3) Approximately 10000 tonnes has been lent out into the market to finance hedge books, many of which are unprofitable and present credit and financial risk to counterparties.

4) Counterparties (bullion & lending banks) have worn derivative debacles in Yen, bonds, swaps and copper in the last two years, mostly from hedge funds getting caught.

5) hedge funds are short to the tune of 3000 tonnes, uncovered by any production or reasonable way of covering positions, mostly through options.

6) The gold lease rates normally trade at 0.5% for 12 months. They spiked to 10% for a week, causing pain everywhere when option books started blowing up and the precious "contango" ie the premium of future prices to spot deteriorated. They still remain above 1.5%-2% and mark the new status of gold as a commodity in short supply.

7) Gold traded down to $250 because of aggressive short selling by producers, bullion banks, and hedge funds looking to make a buck from a bear market without considering the risks.

8) The marginal cost per ounce of increasing production globally is approximately $270. This represents a cutoff level where gold companies usually make a loss from extra production. This is especially true in old orebodies in Australia and South Africa. And for all the announcements you see of Barricks' Pierina producing at sub-$100, there are four projects out there with unprofitable production that have to be seriously looked at for future viability.

9) Exploration budgets are one-third or less than what they were two years ago. New ounces are not being discovered faster than they are used, and many mines have been high-grading to maintain profitability in a falling gold price (another one of the things I loathe in companies!!)

10) The announcement of the European Central Banks decision to curtail new sales, and most importantly lending will effectively limit new hedging (where can they borrow the gold from????) and actively discourage renewal of old hedges as contangoes evaporate and the bottom line reason, the profit, disappears.

11) The US economy has finally acknowledged that inflation is alive and well (implied by bond yields of 6.40%) and interest rate hikes are on the way. The US dollar is under serious pressure from other world currencies (the euro and the yen for what its worth!) due to its mushrooming deficit and the huge amount of credit creation from good old Mr. Greenspan. Gold has been shown time and time again to be a hedge against US dollar weakness.

This is why I am bullish and this is why I don't care that the gold price is under $300 again. I believe there are a lot of Ashantis out there, and most of the them will not be disclosed until we get another spike in gold -- which I believe is not too far off.

Look for a base around $295, then another event (such as a falling Dow, a hedge book explosion, a credit default, the announcement by the Swiss that they wont sell etc etc) to set it off and running. If you are a chartist, you will recognize a flag pattern and consolidation formation in the last month or so, signifying a volatility explosion in the not-too-distant future. I believe the direction of this explosion will be up, for the reasons listed.

Basically there is too much random uncertainly out there right now to not be bullish gold - stocks are volatile, bonds keep falling, the US dollar keeps weakening,Y2K is alive and well, and the world is looking increasingly like it is sick and tired of the US dollar being the only alternative. Many Asians were upset by the attitude of the US to their plight when Asia crashed, and the Europeans were mortified when their brand new currency lost 20% in its first quarter. There are big moves going on behind the scenes and I am plugged into only some of them. I have heard the following rumors:

1) The Europeans agreed to stop lending gold to prevent further loss in the value of their reserves. The resulting volatility explosion was a planned event meant to further undermine the US dollar and cause headaches for Wall Street banks and hedge funds that had been actively shorting the euro.

2) George Soros had been plugged into the above and was a massive long gold player and still holds a big position, with full intent to squeeze some competitors (e.g. Tiger) shortly.

3) The Saudis have been huge buyers (I can confirm this is a fact - don't know why though) and are involved in the Euro thing as a repeat of their huge win in silver in the 1970s (see Bunker Hunt's squeeze). etc etc etc I am trying to illustrate that the market is pretty complicated and the gold price is like a window on to the credit flows of the world. It has been used as a funding mechanism by hedge funds (massive shorting to buy bonds) and a profit centre for bullion banks and gold producers. The smart in-crowd made stacks on the way down and are giving some of it back on the way up - I am not shedding too many tears.

Hopefully, you now feel a little more comfortable about holding gold companies in your portfolio and you should see gains in the gold price before year end (at the very least, as a Y2K spike.)

P.S. Patience!!! The gold price will base soon and move north FAST.

30 October 1999

Anonymous Author

-- Andy (2000EOD@prodigy.net), November 02, 1999

Answers

"The global financial system is presently in the midst of the third "LTCM-type" crisis of systemic dimensions, since the LTCM hedge fund had to be rescued, at enormous cost, in September 1998, and the Tiger Fund had to be bailed out in June 1999 because of its Japanese "yen carry trade" exposure. This time, the gold carry trade of US and other financial institutions, has become a systemic threat. Following the sharp post-Sept. 26 rise of the price of gold, financial institutions with vast "short positions" on gold, i.e., having speculated on an ever-lower price of gold, have faced very serious liquidity problems.

According to informed market insiders, key central banks, most notably the US Federal Reserve, have been involved in covertly manipulating the gold price downward during the past two weeks. In a few weeks, if the gold price were manipulated down to the level of $280-$300, it would permit the highly-leveraged gold carry trade positions of New York banks - Chase Bank, J.P. Morgan, Morgan Stanley and others - to be closed down. These moves would be similar to what was done during June, to ease the Tiger Fund out of its Japan yen carry trade exposure. The Federal Reserve has reportedly intervened with derivatives or gold call options on the New York Comex exchange, in order reverse the gold price rise.

Gold market sources have pointed to one of the world's largest mines, Barrick Gold, as an example. Were the price of gold to have broken above $335 per ounce two weeks ago, Barrick Gold would face financial ruin on its gold forward contracts. A default by Barrick would severely impact two of its bankers, Goldman Sachs and Chase.

Because of the fury in the US Congress and public, over the September 1998 Federal Reserve decision to arrange a public bank rescue of LTCM, to avoid meltdown of the global financial system, Alan Greenspan has decided to pursue a far more concealed strategy of "crisis management." Greenspan fears that if there is a disaster in financial institutions' gold carry trade, the hyper-fragile financial markets, especially the US stock markets, would plunge. This, in turn, would drive the price of gold up, into the range of $400 or beyond, and would likely trigger a stampede by foreign investors out of the US dollar. To prevent a dollar free-fall, Greenspan would be forced to impose a sharp rise in US interest rates, which would guarantee a collapse of the US stock bubble.

The Fed's efforts are being quietly supported by Treasury Secretary Larry Summers, who fears any market crash now would finally destroy the Presidential ambitions of Al Gore and with it, Summers' plans to be confirmed as Gore's Treasury Secretary, or perhaps Fed chairman."

Lyndon LaRouche

-- Andy (2000EOD@prodigy.net), November 02, 1999.

The BOE sale and the Dutch/Russian/Kuwait connection...

http://www.skolnicksreport.com/england.html

I came across this recently, an alternative view of the BOE shenanigans... read this and then factor in the role of the Kuwait gold...

"Far too many people believe the common fairy tale that geniuses are in charge of financial affairs. History is riddled with the monumental blunders of the big money crowd.

If the price of gold goes up, it tends to discredit paper money. After all, some do consider gold the only real, independent money, separate and apart from Governments. The Bank of England has been part of a scheme to force down the price of gold. Up to about the summer of 1999, gold had been pushed down to just a touch over 250 dollars per ounce, a recent historical low. The best, most efficient Canadian mines have a cost of production at 285 dollars per ounce. So the Bank of England announced for September, 1999, another sale of gold supposedly from "their Reserves". This was joined with stories, not every one believed, that OTHER central banks were tired of having gold reserves and were and are likewise selling off and discarding their Treasures.

There was, however, a deep dark secret. The Bank of England does not really have that much "gold Reserves". They have used up their gold in two World Wars as well as numerous devaluation attacks on the British Pound Sterling which once was $4.80 for one British Pound. AND, all the while to the last minute falsely denying that the Pound was about to be devalued.

Some believe that the person using the name "Clinton" was ordered, by the secret societies that installed him as President,to start the war against Serbia which had not attacked any foreign country, least of all the U.S. A simple reason: The new Euro Dollar was declining against the so-called "U.S. Dollar". So the Europeans had a financial interest to get the U.S. into a financial disaster called Kosovo, to wreck the Dollar. When it is all said and done, WHO will have to pay for reconstructing the bombed out bridges, factories, and buildings in Serbia? You guessed it: the common ordinary U.S. taxpayer suckers. Not the Rockefellers, Mellons, Morgans, and other ruling families WHO PAY NO TAXES, hiding their fortunes through Foundations and corruption of the Internal Revenue Service.

So to try to force down the price of gold even lower than $250 per ounce, the Bank of England was selling gold it did not really have. Upon the downfall of the Soviets, the Dutch arranged to steal thousands of tons of Soviet gold with the help of criminals in Moscow, the newly rich open market "miracle" entrepeneurs, former Commissars. After all, there was a time when the Moscow government was the world's second largest gold producer. Maybe not longer true with the great decline in production in general since 1991.

In its simplest form, the Bank of England was selling gold borrowed from thieves in Amsterdam. NOTE: The Dutch have been a transit point for Vatican financial schemes. By the way, that nation which is forever fighting off the seas---the Netherlands being below sea level- --has used strong-arm tactics to prevent ANY speculating against THEIR currency, the Guilder. Currency speculators know it is a death warrant to mess with the Guilder which remains stable in an unstable world.

Reputed currency gangster George Soros became reportedly aware that the Bank of England was playing a dirty, dangerous game with someone elses' stolen gold. To counter him, the central bank of Britain has reportedly instigated stories such as: Soros is a world-class gangster, which he probably is; Soros is using stolen insider secrets which he probably is; and to appeal to a growing number of Anti-Jew bigots, calling him, through other people's mouths, a "dirty,rotten Jew", thus defaming and slandering all Jews in general.

So Soros and other worldwide pirates joined with the Swiss--who never were sweet angels--to attack the Bank of England. There is a pertinent principle of commodity trading called DELIVERY. The commodity traders sometimes joke that the items you speculate in might someday be ordered to be DELIVERED, like to be dumped on your front lawn. The currency bandits reportedly have been ordering the Bank of England to DELIVER the gold they supposedly sold in auctioning off THEIR "Gold Reserves". That is where is the trouble started. So the price of gold began shooting up, for a number of reasons.

REASON NUMBER ONE: Could the Bank of England DELIVER stolen gold without unraveling the whole Dutch-Former Soviet Gold Robbery? Also, the Dutch through their bank octopus, Algemene Bank Nederland, ABN, have been buying up FOR GOLD, banks in 15 U.S. cities. For example, ABN bought up a long-known reputed money laundry for bribing judges called La Salle National Bank of Chicago, now the flagship in the U.S. for ABN. La Salle National Bank was one of only two out of 20,000 U.S. National Banks in 1964 that refused to disclose their 20 largest stockholders of record when demanded by the House Banking Committee under Chairman, Congressman Wright Patman of Texas. A populist, he caused a report of the national bank ownership to be published in 1964 the first and only time of such in U.S. history that National Banks were requred to list their major owners for a U.S. Government published Report.

REASON NUMBER TWO: It is little known that the U.S. has a contract arrangement with Saudi and Japan. THEIR vast ownership of U.S. Treasury bills, notes, and bonds, are subject to being paid, upon their demand, IN GOLD. No U.S. citizen is allowed to convert their U.S. bonds into gold upon demand. Further, the Persian Gulf oil producers have an arrangement that their sale of oil to the West is payable in so-called "U.S. Dollars", actually, Federal Reserve notes backed by nothing, not gold, not silver, just hot air promises. Upon demand, however, only the Saudis have the right to DEMAND payment in GOLD instead of "U.S. Dollars". So the world price of oil is pegged to the "U.S. Dollar". AND Saudi can get gold for THEIR oil.

Another secret, known to gold mining and marketing experts, is that the Federal Reserve has an unwritten policy of a trip-wire: $410 per ounce. For example, the Fed with the help of the monopoly press in the market crash of 1987, concealed for weeks and weeks that the Fed was lifting heaven and earth to keep gold from topping 500 following the Crash. Over the years, whenever gold even approached $410 per ounce, the Fed and the press-fakers started an attack on gold, such as: gold does not pay interest but lays dormant; gold is a barbaric metal from the past, no longer needed; gold is useless to own it; and similar fables suddenly circulated by the paper money crowd.

I find it interesting that over a period of years, I was the ONLY JOURNALIST to go to the annual meeting called the Chicago Gold Conference, gold experts from all over the world. The press-whores, fronting for the paper money cartel, never printed a single word of the all-day Chicago-based meeting.

Rumors are circulating, believed by savvy folks to have validity, that the Bank of England needs a rescue of 200 BILLION DOLLARS to bail out their blunders. If the Federal Reserve, circulating their Notes masquerading as "U.S. Dollars", has to send that many paper lifeboats to London, where will they get it? And will it sink the "U.S. Dollar"? And by having more so-called "U.S. Dollars", that is Federal Reserve Notes, printed? Of course, that inflation would simply cause gold to go even higher.

Do not be surprised, however, that the monopoly press says little, if anything, about the Bank of England or is it the BUNK OF ENGLAND, and the gold crisis. And no surprise if the press-liars start circulating stories about gold, that, after all, gold is no good to have.

Wags with gold teeth claim, that when gold is high in price, they have to hire a guard for their mouth."

Sherman Skolnick

-- Andy (2000EOD@prodigy.net), November 02, 1999.

expect extreme volatility in the paper gold markets as they self- destruct... hold physical and wait.

The above three articles probably don't even scratch the surface of what is really going on but to the astute should provide a clear message.

Good luck.

-- Andy (2000EOD@prodigy.net), November 02, 1999.

Andy,

Some oscillators are looking for a small short-covering rally tomorrow but the "short-traders" are not done with this market. If they bust through $286 (a distinct possibility at this point in the next few days or weeks) then this market will quickly drop to test the old lows. Yup, she may dump all the way back down to $260. Most of the Oscillators have turned "neutral" on the long term. They're still firmly holding her down, Andy. I see no signs of them letting go, without a major EVENT occuring anytime soon.

-- Dick Moody (dickmoody@yahoo.com), November 02, 1999.

Ever tried thinking for yourself, Andy?

-- (MindofMy@own.com), November 02, 1999.

Thanks Dick, have e-mailed you privately.

Mindofmyown,

Thanks for your input.

Actually I do think a lot about all this. In fact you have my brief comments just above Dick's TA. However, in order to formulate an effective strategy here, one needs to do one's homework and research.

The above three articles come from widely divergent folks with different axes to grind.

I'm sure Mindofmyown you would agree that there is a definite undercurrent of similarities between the pieces. No smoke without fire.

Please feel free to give us the meat of what's on your mind here in the gold markets, I would be very interested to hear your views.

Thank you.

In the meantime, here is an excellent and somewhat pithy article from one of the UK's top City commentators. He's dead-on right about Economists :)

http://www.thisislondon.co.uk/dynamic/news/business_story.html? in_review_id=224183&in_review_text_id=174200

The lending gap that brought grief to gold

by ANTHONY HILTON City Editor - 2nd November 1999

The turmoil in the gold market is a classic City row. Nothing is visible on top but the most furious and bitter dispute rages just below the surface. Occasionally it becomes more visible, as when yesterday three European gold producers wrote to the Financial Times demanding a statement from the Bank of England on its attitude to gold and the gold market. The Bank typically had nothing in detail to say but it nevertheless is just the latest sign that producers of the yellow metal have become seriously fed up with those who prefer simply to deal in it.

It does appear that the degree of speculation in the gold futures markets had reached quite astonishing levels. The dealing report of the London bullion market for September, for example, says: 'The average net daily clearing turnover in London rose by 2% in September to 37.1 million ounces (1154 tonnes), the highest level this year.' In isolation that figure may not mean much, but when you remember that annual new mine production of gold is about 2500 tonnes a year, it means that total production of all the world's mines is sufficient to keep the market supplied for only about two and a half days (yes, days) of trading in the whole year.

Alchemists tried to turn base metal into gold. Modern-day rocket scientists seem to have turned it back into paper, or perhaps just an electronic blip on a screen. But by any measure this is a vast amount of derivatives trading to be supported on such a small physical base.

Perhaps to get more supply, but more likely just to turn a profit, most of the world's gold producers have been bounced by the financial community into selling their gold production forward, many on a quite heroic scale - not just Ashanti, which is now in trouble, but right across the industry.

The counterparties to these deals are financial institutions - some like Chase, which has doubled its position in the gold derivatives market in the past 18 months, some like Goldman Sachs, and some like Long-Term Capital, the hedge fund we were led to believe has been looking for safe investments since its debacle last year in Russia.

What caused the turmoil in the market, therefore, was not the decision by the central banks a few weeks ago to stop selling gold. Rather it was their decision to stop lending gold that caused the huge rise in price and, of course, has left a large number of those short of the metal with no mechanism to deliver on their commitments.

It is also increasingly clear that this problem is not going to go away and runs a lot deeper than any of the authorities are prepared to admit in public. These shenanigans have devastated the gold producers. There are also several financial institutions rapidly coming to wish they had never heard of the metal.

Economystery

What has surprised me in the falling-out between members of the Bank of England's monetary policy committee is not that they should squabble about the use to be made of the Bank's resources but rather the fact that the Bank has well over 100 economists on its payroll for them to fight over.

With all the economists in financial houses, in pressure groups such as the CBI, in City boutiques, in organisations like the National Institute or the Institute for Fiscal Studies, and in the academic world, there is surely quite enough research already into the various aspects of Britain's economy. Particularly given the flakiness of the statistical data and surveys that provide the raw material from which this mountain of opinion is constructed.

Indeed, if the independent members of the MPC read even a tenth of what is routinely produced every month, it would so overwhelm them that they could not possibly harbour thoughts of adding still more bumf to the pile.

The one law of economics that seems to hold good whatever the circumstances is the law of diminishing returns. So if the Bank were to increase its complement of economists, the extra resource should not be expected to lead to a corresponding improvement in the quality of economic thinking. Indeed, one might even argue that if there were fewer economists feeding into the MPC it might make better decisions, and fewer of them.

) Associated Newspapers Ltd., 02 November 1999

-- Andy (2000EOD@prodigy.net), November 02, 1999.

Just in case you missed it mindofmyown, these are my current thoughts...

"expect extreme volatility in the paper gold markets as they self- destruct... hold physical and wait.

The above four articles probably don't even scratch the surface of what is really going on but to the astute should provide a clear message.

Good luck."

-- Andy (2000EOD@prodigy.net), November 02, 1999.

Thank you.

-- Andy (2000EOD@prodigy.net), November 02, 1999.

One more thing for anyone thinking of plunging in to buy gold now...

This was posted early this morning, and mirrors my thinking precisely. If events play out as normal, you may have one last golden buying opportunity (not for me alas, all out of moola now...) :)

"If I have understood even a single word on this forum it seems to me that next Friday should be a pivotal day for gold.

Last Wednesday we saw the expiration of Oct. British OTC gold options. (Please correct above, I am definitely not sure of that statement). As Sir Goldspoon pointed out, there were plenty of $290 calls and mysteriously gold tumbled down to $290 just before expiration leaving the calls either worthless or close to that value.

If I have deduced correctly, there are herds of $270, $280 and $280 Comex Dec. calls waiting anxiously for Nov. 12. I am under the notion that the POG will slowly and methodically turn down to erase any "in the money' gains.

EVERYONE is aware as to how this downturn may take place.

I believe that with the worthless expiration of these calls will cause enormous pain in the paper market. This I might conclude is the beginning of the 'demise of paper gold' as illustrated by FOA.

After last Wednesday's 'co-incidental' dropping to $290 there was a 2 day surge back to the mid/upper $290's. Is it then safe to assume then that the POG will surge at Nov.12 at 2:30PM Eastern Time?"

-- Andy (2000EOD@prodigy.net), November 02, 1999.

Hi Andy. Nice post. This is the kind of stuff that makes one stop and think. It does appear that there has been manipulation going on behind the curtain. Good work!

-- jb smith (joebobsmith@yahoo.com), November 02, 1999.

So maybe wed or thur might be the opportune time to wait for the lows??

-- Porky (Porky@in.cellblockD), November 02, 1999.