Gold

September 29, 1999

A senior member of the Japanese ruling party and unofficial advisor to PM Keiza Obuchi, suggested Japan should use excess dollars in its foreign reserves to buy gold from the IMF.

Low gold prices over the past two years has caused the closure of over 130 mines. The only reason production is up 1% is that major mining companies are hi-grading their reserves.

In early September short positions rose from 184 to 196 tons. One month lease rates were about 4.85% late in the month, 12 month rates were 3.25%. Both are historically high levels. Some central banks are not rolling existing loans causing the pressure.

Comment from important Indians has recommended that the country should take advantage of the current low prices to increase its gold reserves. Mr. S.S. Tarapore, former deputy governor of the Reserve Bank of India said, India's reserves of 357 tons could safely be doubled and accounts for only 8% of external reserves.

We don't know if former Vice Minister of International Affairs at the Japanese Ministry of Finance, Dr. Eisuke Sakaibara, was right in his statements in May to the Australian Financial Review, that Wall Street would crash over the next year, but he certainly coined the name for the U.S. economy, Bubble.com. If Mr. Sakaibara is correct it goes a long way toward explaining why the Bank of England is in such haste to sell or transfer the gold reserve holdings of the people of Great Britain to other elitists and at the same time save them from their investments involving the gold carry-trade. The carry-trade positions being just one part of the $300 trillion in financial obligations floating in the world financial system. There is always more than one reason why these people do things. It was not some bolt out of blue that prompted the UK's sale of 415 of 715 tons of gold. It was grand theft of the publics' assets. As a result 130 mines have been shut down and thousands are out of work. This has been abetted by the IMF which wants to sell 311 tons, but was forced to use accounting procedures to turn its hoard into dollars after the U.S. Congress sent them the message that they wouldn't approve the sale. As we close in on the day of reckoning for the financial system the effrontery and greed of the elitists becomes more easily recognizable. Sale or proposed gold sales by the BofE, IMF and the Swiss. The scandals hitting banking every month such as major banks being caught money laundering, which is nothing new to our readers, in their quest for easy profits. Whether it's Coutts, Chase, Citibank, or Bank of New York they are all involved. If the BofE gold sales are any yardstick you can rest assured gold is still the only store of value, at least the elitists think so, they are buying it.

Second quarter gold demand hit a record high or 809.5 tons, up 16% from 1998's 807 tons. Jewelry demand was up 13% and investment demand 32%. In the U.S., Gulf States and India demand was at the highest level ever for a second quarter.

In July, the average daily net clearing turnover in London gold markets was up sharply to 1,082 tons, or much higher than actual demand.

On September 21st the BofE said it had sold 25 tons of gold from reserves at $255.75 an ounce, slightly above price expectations. The sale was eight times over subscribed. Three times over would have been bullish. Eight times is somewhat astonishing. Interestingly gold mining companies were among the bidders and it was significant that So. Africa's Gold Fields said it bought 12.5% of the total. This could be very positive as it shows a genuine belief in higher prices and could signal a slowdown in producer hedging and possibly even future buy-backs. Other positive news was a report in the Tribune de Geneve that said Swiss central bank sales would probably start in 2001 rather than 2000. Although the Swiss National Bank later said it plans to sell half its 2,600 tons reserve some time early in 2000. The IMF had to throw in a canard, that it is considering a plan to sell more than 10 million ounces to raise money for debt relief. They can't without U.S. approval and neither can the Swiss without voter approval.

Any sane person with any intellect whatsoever has got to believe, given the facts, that central banks with the assistance of some major gold producers, have been manipulating the price of gold since 1986. Who in their right mind would lend an asset at 1 1/2% interest? It certainly can't be a profitable endeavor. We know central banks have admitted leasing gold. The Fed denies having done so. We suspect the Fed has been writing call-options, which allows bullion banks to hedge their gold leasing activities. It also could be true that the Fed and other central banks have sold call-options in the $290-$300 per ounce area. This could be another reason why the BofE took the unprecedented step of selling off part of Britain's gold reserves. The writing of call-options would invigorate gold leasing, but low gold prices going into option exploration time would be beneficial to the writer. Thus, the BofE action could have carried banks through a period of terminating maturities. During such a period a lessor would not be leasing or writing calls, thus, the increase in gold lease rates from 1 1/2% to 4%. It is possible that the Fed and others, last May, when gold prices looked like they might move to $310-$320 an ounce, requested the BofE take the drastic step that it did selling gold reserves, thereby suppressing prices. This happened at almost the same time that hedge funds got in trouble in the yen and franc carry-trades. The BofE could have had two reasons for suppressing prices. It is the function of central banks to prevent financial breakdowns and driving down gold prices under these circumstances would be justified. What is not justified is the manipulation of gold prices in the first place. If the central banks are in the market investors and speculators have to lose money due to their actions. Not only do they manipulate markets for their own benefit, but they also lie about it under the guise of it being in the national interest.

Of course, the national interest is whatever the elitists deem it to be. Their interest is the national interests. The British excuse for selling borders on the ridiculous. At least sales by other EU countries had a rational and that was meeting Maastricht criteria. The Swiss do have excess gold reserves, but we doubt the public will ever allow them to be sold, but just the announcement of such an event sabotages the market. We are convinced that, that is what Swiss sales are all about, consequently for whatever reasons they are also part of the problem. Bullion bank leasing is not leasing if the borrower sells the gold. Banks have sold the gold through an inter mediatory for interest hoping they'll get the bullion replaced. The inter mediatory uses the cash and leverages. All we can say is one problem and the whole system could collapse. Thus, the first to go could be gold lending central banks. If our reasons are correct, and the financial system went to the edge, without our being told, it could have had a frightening enough effect on central banks, so that they might cut back or end leasing arrangements. If that does happen, gold is certainly headed higher.

At the end of 1998 official gold reserves were approximately 33,500 tons or 15% of total world foreign exchange reserves. The five largest holders, the U.S., France, Switzerland, Germany and Italy, own 20,000 tons. Annual turnover at the London Bullion Exchange is 250,000 tons. The net short position in gold derivatives is between 4 and 14,000 tons. Whatever the figure is that amount has been sold into the bullion market and must either be bought back or rolled. We always tend to look at the price of gold in terms of higher prices. Gold selling unnaturally at $252-$265 an ounce on the other hand presents a great buying opportunity, which has led to major physical demand at these levels by traditional buyers in the Middle East, India and throughout Asia. In June we said we thought gold had finally bottomed at $252 an ounce. If we are correct long-term buys should be taking advantage of what could be a golden opportunity.

As discussed in our last issue the IMF plans to revalue 14 million ounces of gold to finance its share of a debt relief initiative. The value is about $5.5 billion. The U.S. intends to seek funding from Congress for their share of funds, so its contribution may never materialize. As you can see the IMF revalues its gold, but expects members to fund the give away. Instead of selling gold, they revalued it and then assessed the $5.5 billion to membership, which is just another tax of the taxpayer, or another scam. We hear all these platitudes about the tragedy it will be if we miss this opportunity to further aid the indebted poor. Having spent years in Africa we can assure you that any debt relief we execute will descend into a bottomless pit and the whole cycle begins anew. While the IMF is demanding more taxpayer funds they have abruptly changed the rules on international lending. It is fine to change the rules, but they should have given fair warning to lenders. Remember, the IMF created the lending problems in the first place by bailing everyone out with taxpayers' hard earned money.

Small amounts of natural gold were found in Spanish caves used by the Paleolithic Man about 40,000 B.C.