first majestic silver

Gold Market and Precious Metals Commentary

February 1, 1999

Technicals -

Times may be a changing. Gold has closed higher the past 3 days in a row. Last Wednesdays down day on very heavy, 115,000 contract volume, looks like a climactic blow off and a last ditch effort of the bears to drive down the price of gold. Today's action was particularly good as the gold market shrugged off bearish comments made by Vice President, Al Gore. In our last Midas we said that even though most observers were bearish on gold, we felt a very good pop was in the works. Perhaps, that pop is happening.

Certainly, the open interest configuration on the Comex, which was released after Friday's close, is extremely constructive. It shows the large specs short 70,853 contracts and long only 9, 861 contracts. The commercials, or trade, were long 125,046 contracts and short 60,260 contracts. That fits in perfectly with our take on the fundamental picture. The cash gold market is very firm. This technical snapshot of the gold market says that our info on the physical gold market is correct. It also fits into our theory that the only reason that the gold market is in the weeds down here is because of speculators. We think the specs have bet the wrong way and are about to be taken to the cleaners.

The silver market is explosive. We have tried to make this point over and over so that our strong opinion on the future price of silver would be clearly made. The trading action is classically bullish and there are no gaps to fill right below the close, which is a big plus. The only gap that is out there on the downside, is the breakaway one at $5.04. Four times the past couple of weeks silver plunged below $5.08, but it could not close this gap. This is a very bullish clue that a major player is accumulating silver. One more telltale sign that we should see some silver fireworks very soon- silver is now closing on its HIGHS, while on the sell offs, it closed well OFF its lows.

The lease rates exploded today ( see below ). The Indian premiums remain firm, indicating good demand in that silver devouring country and today the price of spot silver was the same as silver priced for March delivery. We might go into backwardization ( nearby prices greater than forwards ) which would be very, very bullish. The Comex silver stocks dropped again today and now stand at 75,016,717 oz.

Our near term target of $5.80 is looking better and better and our longer term target of $9.78 by year end will be looking better and better very soon. We know of few others that are this bullish on silver.

Fundamentals -

While the tael premiums dropped off a bit in Hong, the gold premiums in India (10.8%), Singapore (80/100 over loco London) and Japan (120/130) remain very firm indicating very strong gold demand in those regions of the world. We have been told by very informed dealers that some refineries are experiencing " a chronic shortage of gold" and need physical supply to meet refinery demand.

Gold supply news out of Davos, Switzerland: Reuters - Jan. 30 - Gold's importance for central banks will likely fade in the long run, but, they must not rile jittery gold markets by unloading reserves, European Central Bank board member, Sirkka Hamalainen said on Saturday.

She told a panel discussion at the World Economic Forum's annual meeting in Davos that gold has played a vital role as a store of value over the centuries that elevated it beyond being just another commodity.

But, she added: "In the long run it is very likely that is nature will change. But it is to my mind in the very long run and it is very important currently that we don't have any rapid disturbances there."

She noted that central banks in the 11-nation euro zone hold 30 percent of their foreign reserves in gold and must ensure they do not undermine the value of their own portfolios.

Hamalainen would not comment specifically on sales by individual central banks in the euro zone, but said banks were very aware of market sentiment.

"There has been a clear understanding--and this has been discussed internally--that the gold market is important in the sense that we need to guarantee the value of our investments," she said.

I can say that central bankers really see the problem. They really see the need for stability, for security.

Contrast that to a statement made by Vice-President, Al Gore, at the same forum. Reuters-Feb. 1 - "I hope this can be the year when international financial institutions are fully able to do their part ( speaking about funding debt-relief to poor countries )-- Including carrying through on a long-discussed proposal, the mobilisation of a small portion of the IMF's gold reserves," he told delegates.

I cannot risk the temptation that this adds to our feeling that US officialdom and the New York financial institutions are desperately trying to hold down the gold price. There is good reason that they may becoming desperate. Gold mine supply is 2529 tonnes and gold demand is over 4100 demands. Where is the difference coming from. They must continue to try and recruit gold loan borrowers "( the gold carry crowd )" to add supply to the market place. They hope that statements like Vice President, Al Gore made, will continue to embolden the borrowers.

We have alerted Midas followers to the recent past buying ( and coming buying that we think is right around the corner) by the Asian official sector. The euro is not acting well against the dollar so far this year. We are hearing more and more talk of a greater gold role in the euro of some sort. Word to us is that the ECB is concerned about future competition from the yen and new Asian financial institutions coming on stream and also about the weak euro performance against the dollar since its formation this year.

Potpourri and the Gold Shares -

XAU is showing signs of life again. Maybe looking forward to spring as it closed at 65.72 up 2.46.

The silver lease rates shot up dramatically today. Overnite, the one month rate jumped rate jumped from 1.20 to 2.59 and the 6 month rate shot up to 4.08 from 3.10. This is very good news for us silver bulls. The "silver streak" has left the station and is now picking up speed. Very simply, this means that the silver supply situation is tightening and that news is significant for the bulls and scary for the bears.

We have been pounding the table for weeks now about silver. There is talk around the silver pits that the "Buffet silver followers" have been buying. We do not know about that, but we have alerted Midas followers ever since silver was bombed down to $4.58 that we smelled something was up. On that day, Midas said he would not be surprised that the bombing of the market was orchestrated by Jimmy DePiazza, who is Buffet's silver broker. A pro like that would do so to clean out all the stale longs by setting off the stops. It also would attract computer system shorting. Then he could open up the bread basket to buy all he wanted for Buffet and his friends. All totally legal- and smart.

Then when silver was trading around $4.92, we alerted you to the fact that it appeared to us that a big player had entered the silver game and was clearly accumulating it. We have also noted how strong the silver premiums are around the world. The dramatic jump in the lease rates has put the silver shorts on notice that they may be in big trouble. Are you listening Mr. Martin Armstrong?

Alan Abelson, Editor in Chief of Barrons, spent a good deal of his " Up and Down Wall Street" column talking about Le Metropole's very own, Charles Peabody, and Charles' very bearish views on the banking sector. We bring this up because the Midas camp believes that a big credit crunch is coming that will affect financial institutions. Greed is the name of the game today. Fear will be the name in the not too distant future as the bank stocks tumble sharply. That fear should lead to a surge in gold demand. Just as we have been pounding the table on silver, "maverick" Peabody has been pounding the bearish cry on the regional and money centerbanks. He is also one of the few banking analysts that is calling for a 6% handle on the long bond and, not for nothing, recently loaded up on the gold shares for the first time since 1993. The banking sector was down over 2% today.

We cannot resist another temptation. Ever since the gold anti-trust action news hit the wires, gold has picked up in price. Maybe the "luck of the Irish", most likely a coincidence. No matter. GO GATA!


Bill Murphy ( Midas )

Midas du Metropole

After graduating from Cornell University, Bill was a starting wide receiver with the Patriots of the old American Football League and has been around the financial and commodities markets ever since. He owned a futures firm in N. Y. that specialized in precious metals and was a contributor to Veneroso Associates, a global strategic investment firm and producer of the 1998 Gold Book Annual.


In the Aztec language the name for gold is teocuitlatl which means "excrement of the gods."
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