Gold Last Week

November 2, 1999

The war being fought between paper and gold has already been decided. It was decided when European central banks announced they would sell a limited amount of gold over the next five years and end leasing. This effectively remonetized gold. Once the markets collapse the elitists will rediscover gold -- and base currencies on gold again.

Irrespective the war is still being waged. Fiat money brings massive profits to the insiders. These speculators know if they lose, the world economy will fall into depression because the credit system will collapse. Were it not for foreign buying of US debt, the dollar would be much lower and interest rates much higher. When gold falls in value or when major sales are announced or reported, there is great fanfare and media coverage. The anti-gold media propaganda is relentless. All propaganda is focused on the demonetization of gold. When central banks sell, the owner is never identified because it's usually another central bank. If that was disclosed it would confirm the buyer prefers gold to dollars.

Now you can see what a put-up job the whole charade is. Net central bank sales during the past 10 years have amounted to an average of 320 tons a year. Since 1970 the total amount of gold held by monetary authorities throughout the world has fallen just 6%. A small minority of investors and professionals have tried to combat for the last 15 years a highly sophisticated and motivated anti-gold cartel, whose primary goal is to destroy the monetary role of gold and impose forever a world currency on the citizens of the world.

The ability to print money and control credit allows banks to profit handsomely. Historically, the battle has been waged for 5,000 years in one form or another. Before paper it was base metal coin or gold and silver coin clipping, all of which amounts to the same thing. Again we have been losing, but we will prevail.

Figures don't lie, so if you easily wanted to identify who was leading the war against gold, all you have to do is see who bought and who sold. Between 1960-1975 Germany increased gold holdings 60%. And overall Italy, France, Germany, Austria, Netherlands, Portugal, Switzerland and Belgium increased their combined gold positions by almost 75%. Over the same period, US gold reserves decreased 36%, and British reserves fell 67%.

France was and still is the pro-gold leader in Europe, continuing to harbor distrust of the dollar and pound and US-Anglo intentions. It could be France's intention to resume war on the dollar through the euro, which is 15% gold backed. The French were also behind the sale of $500 billion of dollar denominated ECB reserves, US Treasury paper, which they are now in the process of divesting at the rate of $170 billion a year. This will put enormous pressure on the dollar, drive US interest rates higher, perhaps cause dollar monetization and strengthen the euro. All of which will enhance fortress Europe. This might also explain to some extent the recent declaration by European, British and Swiss central banks to sell limited amounts of gold over the next five years and suspend leasing.

We still believe whoever has the gold makes the rules. This is why, even though the US is at war with gold, it hasn't been a seller since 1975, except for 1987 when gold ran up $100 an ounce while the market was crashing. The US Treasury sold gold through the BofE, which was held in their IMF account and they drove gold down $100 an ounce and simultaneously the Fed purchased derivatives, which ran the stock market back up.

The way to get gold prices higher is to accent the positive. Push for reacceptance of gold's monetary role, especially since the European central banks have effectively remonetized gold. Work to expose the collusion between central banks and investment banks stopping them from keeping gold in a narrow acceptable range. This is what these banks intend to do next. The range is probably $300 to $320 an ounce. The war against gold by the US and UK is nowhere near over. You can expect a new barrage against gold to perpetuate the myth that the dollar and pound are the preferred monetary medium rather than gold. Never before in history has the entire world been subjected totally to fiat currencies. Sooner or later the dollar, pound and euro will disintegrate and gold will retain its position as reserve currency.

Britain has made two sales of gold toward the liquidation of 415 tons of gold, This represents 58% of its reserves, which leaves it with a paltry 300 tons, putting its reserves in the category of a third world nation. This certainly brings into question its position as a world leader in the international monetary system. They used the proceeds of the sales to buy the debt of Japan, the EU and US. Last issue we mentioned the reasons for the sale and we'd like to add one more. Europe wants gold backing and the US and UK don't. This is probably the reason why 85% of the elitists with short positions were hammered. They were not forewarned of the impending changed ECB policy.

Gold lease rates have floated between 0.5% to 6% recently. The higher the percentage the more expensive it is to borrow gold. At 4 1/2% lease rates and 6 1/4% US Treasuries, the profit is 1 3/4% less costs. A slim profit if gold rises against borrowing costs. In order to attract leasing from other lenders, the Fed and the BofE must try to keep lease rates down. They can induce other non-European central banks to lease, and they can surreptitiously do so themselves. Otherwise it is too expensive and risky a proposition. Borrowers must be assured that profits are guaranteed, otherwise the carry-trade dies.

Alan Greenspan admitted the Fed was illegally interfering in the gold market during the LTCM disaster. He signaled speculators that they would get the Fed's support in keeping the price of gold in place by standing ready to lease gold in increasing supplies should the price rise. This gives credence to our appraisal that the Fed had sold calls and BofE sales in part were designed to bail the Fed out of its position by keeping gold down while the calls expired. In this regard it is meaningful to mention there is a distinct possibility that 10,000 tons is on lease, or 4 years production - 1/3 of which is owned by central banks. If you add other shorts there could be 14,000 tons short. We feel 85% of those shorts remain uncovered. And, we believe those shorts are averaging their shorts and this is why gold has slipped back from $330 to $300 an ounce.

This again brings into question whether the US in fact still has 8,138 tons of gold to back the dollar. There has been no audit of this reserve in over 40 years despite attempts by Congressmen to get an accounting. If it was sold, it was sold prior to 1971 at $35 an ounce. If it is gone and discovered, it would cause the biggest financial crash in history. We don't know if it's there, but government has fought audits like they have something to hide.

US policy officially has been not to sell gold or lease it. Perhaps they have no gold to sell or lease and were naked on calls. Either way gold is the ultimate money which protects freedom and sovereignty, and the war on gold is necessary in order to implement the New World Order. Gold consumption continues to increase. Second quarter off-take was up 16%, but investment demand increased 32%. The latter being the factor gold manipulators cannot control. These purchases are borne of confidence and the psychology that no matter what manipulators do gold will win in the end as it always has. Over the past few years the Japanese have created a trillion dollars of yen, so it is no wonder they purchased 18 tons of gold or 47% of the total for the entire quarter. We wonder how the Fed and BofE liked that?

Now that European central bankers have reversed their anti-gold stand, we see them laying the ground work for a gold based standard again, as an alternative to a failed financial system. In moving to a pro-gold stand, the elitists are admitting to us that the present global financial and monetary system cannot be saved. Gold will be the foundation again to a new monetary order.

Evidentially, the bankers didn't like what they see in the abyss. Central banks, the US included, have determined they'll be smooth sailing for the gold market. Due to loss of credibility the central banks decided that those short gold, even though they were friendlies, would have to suffer. Obviously few were aware of what was about to happen. At this writing we still feel 85% of the collective shorts are still short. There is absolutely no question that this is a long-term move, which will ultimately take us back on a gold exchange standard. By capping gold sales and leases the bankers are in effect preparing to establish a gold-based monetary system after the collapse of the financial system. Again in preparation for this event thousands of major companies are merging in order to be too big to fail. Once 9,000 on the Dow is broken, which should occur over the next nine months, the flood gates will open.

Homestake Mining (HM) has reported it has virtually no unprotected call options in its hedge portfolio and no margin call requirements in any of its existing hedge contracts. Over 95% of its reserve base can benefit from the rising gold market. It is also not exposed to mark to market earnings adjustments with respect to its precious metals contracts. On July 29th when gold was at $254.00 an ounce, they closed out 245,000 ounces of US dollar denominated forward sales and realized $35 million. That is what we call heads up management.

Homestake advised that recently Malaysia Mining Corp.(MMC) sold over 60% of 11.2 million shares of its position in Homestake. The shares were snapped up by institutions in the US, Canada, Australia and Europe. That shows you the liquidity the stock has. We'd be a buyer of Homestake stock.

The hedge funds are again shorting gold in the $305 to $329 range. They were stopped cold at $305 when a bid showed up for 1,100 bars (440,000) ounces or 13.7 tons. The size of this order clearly reflects genuine major long side interest - and surely captures the imagination.

Gold prices have fallen recently due to Kuwait saying it would loan 79 tons, or $850 million of its gold reserves to capture high lease rates created after 15 European central banks said they wouldn't boost their own gold loans.

Lease rates that were as high as 10% dropped to 1% due to sales by non-European central banks. These bankers just can't help themselves. They have to continue to depress gold, so other elitists can cover their shorts. At $288 an ounce there is less pressure for the shorts to cover and they can ease their way out. It has come to our attention that a large percentage of the gold sales came from US bank sources, which would reflect hedge fund selling more than bullion sales. Kuwait lending tersely points out the European banks are not the only lenders.

In December the Russians are studying the possibility of ending the 5% export tax on gold, which would help the local mining industry.

Rumor has it that Venezuelan President Chavez is displeased with the head of MEM Ally Rodriguez and that he may be replaced. Rodriguez in a speech to South American mining executives said, he hoped PDG would resume work on Los Cristinas, and that Venezuela was not looking at other alternatives to restart the project at this time.

Robert deCrespigny, Chairman of Australia's biggest gold miner, Normandy, attributed the latest fall in gold prices to bank manipulation designed to protect option exposure.

On a per capita basis the Swiss have 12 times as much gold as the US, representing the 5th biggest gold reserves in the world. Two years ago it let it be known it wanted to sell 1,300 tons or 50% of reserves. This has had a long-term debilitating effect on gold prices. Voters approved breaking the gold link last April in a constitutional referendum, but legislative proposals governing what the Swiss National Bank could do with its surplus 1,300 tons of gold were defeated in the Swiss Parliament in June by conservatives. The political wrangle affects the use of proceeds, so sales are dependent on the introduction of new legislation covering the demonetization of gold in Switzerland. A revision to the constitution has already been approved and a revision to the Coinage Act has begun. Parliament approved a new federal law on currency and payments instruments, which drops any reference to the gold parity of the Swiss franc. The Upper House is expected to consider the legislation in December and if it were to pass it could take effect in the spring of 2000. Opponents of gold sales have three months from final Parliamentary approval to collect 50,000 signatures needed to call for a referendum. If this happens, and it probably will, after the conservative Swiss People's Party victory, the vote is likely to take place in fall 2000. Thus you see all the propaganda regarding Swiss sales is just that, disinformation. We do not feel a compromise on use of funds will be attained and sales will be postponed indefinitely.

An example of what $252 an ounce did to earnings in the second quarter is borne out by Gold Fields 81% drop in profits. After derivative losses were added in they recorded a loss of R$8 million, down from the previous quarters loss of R$1.90 billion. Gold Fields is largely unhedged. For every $10 increase in gold prices they will realize a R$240 million increase in annualized pretax earnings.

The Cambior hedge book has a negative value of $450 million, a force mejure is in place.

The fall by gold in the week ended 10/31/99 was blamed by gold producers on central banks, who they say were manipulating the market. At the end of the week Kuwait announced that it intended to lend out its entire reserves of 79 tons through the BofE. What a setup. It is totally transparent that the BofE wants gold prices back down.

A recent release written by Jay Taylor, President of Placer Dome, was essentially gobbly gook and misinformation. His comments on Las Cristinas were summed up in, "the project in order to proceed would need a long-term gold price well above contemporary (current) levels." He said, "what can be achieved from the engineers working on this project is a limited paradigm." Whatever that means. The intellectually weak must get in the buzz words.

Further he said, concerning the new mining law, that "the opportunity would arise to convert our contract into a concession under the constitutional mandate under the Ministry of Energy and Mines. That should be interesting considering Crystallex holds title.

It is our opinion the two purchases Getchell and Western Areas will be losers short-term due to high costs. The company has lots of cash and credit, and is more interested in playing predator then being a mine developer. Getchell and 50% of South Deep cost $1.3 billion. A price to high to pay. In the past year Placer closed Turquoise Ridge Mine in Nevada and laid off thousands of miners at South Deep. Placer also has a very poor environmental record. PDG also announced that 30 employees at headquarters in Vancouver had been sacked. Among the slain were investor relations representatives Hugh Leggatt and Earl Dunlop. How could they do anything right with such inept management to work with. As far as we know 19% reserves are hedged, or 2 years production. We'd by Homestake.

These producers are changing their hedge positions so fast we can't keep up with them. Gold Fields of So. Africa has bought back most of its hedge positions now that it expects higher gold prices, if not much higher gold prices. Gold Fields produces 4 million ounces a year, and had previously hedged 1.8 million ounces with a mixture of forward sales and options. The company spent $3 million buying them back. St. Helena, which is managed by Gold Fields, paid a net $6.8 million to repurchase its obligations of 100,000 ounces hedged at an average price of $258 an ounce - ouch. Gold Fields only remaining obligation is 200,000 ounces of forward sales for its 71% owned Gold Fields of Ghana. This represents a possible debt covenant obligation required by lenders to the Tarkwa gold project. Gold Fields also holds 660,000 ounces of gold call-options at $354 per ounce maturing in Sept. 2001, and 50,000 put-options at a strike price of $270 expiring in Nov. 2000.

Randfontein says its hedges represented 1/3 of planned production over the next 6 years. The company has hedged 1.78 million ounces of gold at an average of $283. an ounce.

We'd buy Gold Fields and sell Randfontein.

India and the U.S. trump Italy as top gold jewelry exporters.