first majestic silver

Gold Market and Precious Metals Commentary

January 18, 1999

Special Commentary

We have identified Goldman Sachs and JP Morgan as the "Leaders of the Gold Selling Pack". We also believe, that for various reasons, U S officialdom and some highly visible financial entities have orchestrated the capping of the gold price to keep it below $300. For months we have documented anecdotal evidence for you that this is so.

Recently, Goldman Sachs replaced John Corzine as its CEO. A new regime was installed. One of our more plugged in and astute members suggested to me at the time that there would be changes in Goldman policies. He told me right after the change of leadership was made to also look for a change in their gold shorting policies at some point, because if the gold loans are as dangerously large as we think they are, the newly appointed Goldman regime would not want to be caught heavily short in a gold buying panic. We have been on that alert. Until late yesterday we heard nothing, and saw nothing, but more Goldman selling.

We also suggested to you that if JP Morgan and Goldman Sachs were going to try and extricate themselves from their very large gold short positions ( along with some others in the "Crises Management Team" ), they might first do everything they could to attract shorts to the market, so that when they wanted to start buying, the price would be a good deal lower and there would be willing sellers around that they could buy size from.

Then late yesterday, one of our members sent us the following: From Steve Kaplan's :

"In a surprising departure from the brokerage community's neutral to bearish near-consensus on the future price of gold, Goldman Sachs' investment bank released its weekly FX report predicting that "the spot price of gold bullion is poised for an upside breakout." Part of the reason for such a prediction is their belief that the Australian dollar will rise sharply against the U.S. dollar, as it is close to breaking above a downward sloping trendline. A strengthening Aussie dollar will make Australian gold producers less eager to sell gold forward, as they will receive diminished U.S. dollar returns"

Midas did not know what to make of it. Was it a planted comment as a result of even the Financial Times knowing how short they were? Did they want to deflect some attention away from their shorting? It was time to do some checking around, so I called one of our Wall Street wizards, a Le Metropole member. It just so happened he was on a Goldman Sachs conference call. What a coincidence!

To my surprise and delight, the gist of the conference call is that Goldman Sachs said today that the dollar has to go down and go down a good deal. They see a good chance of our trade deficit ballooning to $20 billion per month at the rate things are going. The Brazilian devaluation and their allowing their currency, the Real, to float, can only exasperate the situation. A Brazilian soybean farmer now receives 30% more for his soybeans than a US farmer does. Thus, he can sell his soybeans to end users more cheaply than the US farmer can. This is not a happy day for US farmers as they are big losers - his soybeans are just not as competitive. US exports of soybeans have to suffer. It is not a happy day for other types of US merchants. Profit margins will be squeezed.

Year-end precious metals price forecast

Company $ gold $ silver
ABARE, Sydney 295 4.95
Barclays Capital, London 295 av. 4.90 av.
Chase Manhatten Int. 310 5.35
Daiicchi Commod Co Tokyo 260 4.90
Dresd Klein Benson 310 5.00
Frankel Pollak, Jo'burg 305 av. 5.65 av.
HSBS Capel 310 av. 5.50 av.
ING Barings 250 av 5.00 av.
JB Were & Son 300 5.45
JP Morgan 280 none
Macquarie Equities Ltd., London 310 5.25
NM Rothschild & Sons 315 5.65
Precious Metals Ltd 288 5.40
T. Hoare and Co, London 340 5.70
Tokuriki Hontenm Tokyo 300 5.00
Virtual Metals London 295 5.00
Warburg Dillon Read 290 5.33
Midas du Metropole 405 9.78

Well, what can we say. We are a little more bullish than most. What we must say is that this is one of the most uninspiring forecasts from a group of pros that we have ever seen. To us, this is most encouraging. All of these precious metals firms will be bringing in buyers since they are not very bullish at this point in time. That is why Midas says we will go much higher than ANY of them think is likely to happen. This is the kind of anecdotal bullish material we love to find. Do you wonder why they all look so similar?

The two major Swiss banks ( Credit Suisse First Boston and United Bank of Switzerland ) have broken down technically as their uptrend lines established in September have been broken. They have derivative and Brazil exposure. You are all aware that our own Charles Peabody is calling for a banking crash and is calling for a 60 to 80% drop in the share prices of US banks. This is an extraordinary call and was made as most Wall Street analysts remained bullish on the regional and money center banks. The banking index is reeling and closed down ANOTHER 3 1/2% today. We bring this up in Midas because it is what distinguishes us from the firms mentioned above.

We see gold going to $400 plus because of financial chaos, not because of jewelry buying. We say over and over that we see defaults coming, more Long Term Capitals going down for the count, and a severe credit crunch that will terrorize the financial markets. The stock investors of today know no fear. They will soon. Currencies all over shall come under attack ( the rumor today was that the Brazilian Real may be allowed to float which is contrary to all that they had previously said ). Peabody has predicted a Mexican devaluation. King Dollar is on a precipice and ready to go off a cliff. As this enfolds, gold demand will soar (see coin demand above). The shorts will have to cover. In the last Midas e-mail to you, the headline read, "We got them right where we want them". Sound the bugle!!!

After the close, the Comex silver stocks were reduced 316,584 ounces and stand at 75,904,506 ounces. There is a play on for silver by some substantial buyer. That means we have a big price move coming. We clearly see it. The firms mentioned above do not. They will.

Most of the Wall Street comments discussed the importance of the Brazilian financial breakdown yesterday. Our David Tice did not as he posted his thoughts to you at the Dos Passos Table. Today, the Brazilian market dove another 9.97%. David is the articulator of the bear case in America. We think he is right on and his forecast of a "stock market bubble burst" will also be right on the money.

Bill Murphy (Midas)

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.


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