Gold Market Commentary

$9 Gold Move and Internet Release of
"Gold Derivative Banking Crisis" report:
Just a Coincidence? Maybe Not

Spot Gold $281.40, up $8.90
Spot Silver $4.99, up 9 cents

Friday was rock 'n' roll time for gold. A welcome change of pace. From a Cafe source:

"You should have seen this fight during the last couple of minutes on the floor. Funds were buying like crazy to keep it up, pushing it up toward a $285.30 print (basis August), and some trade houses (the usual suspects) were selling it hard down to 283.80 again, and it settled at 284.10. The gaps between prints were some 50 to 80 cents.

"Now we are above $280 basis spot but not above $282 spot -- kind of a danger zone technically -- the absolute top for the bears."

The bullish consensus was only 18 on Thursday night, with the world almost unanimously bearish about the price prospects for gold. It was only recently that I reported 10 out of 10 money gold analysts were bearish in the forecasts. Firms like Goldman Sachs lowered their 2000 price forecasts from $325 to $275.

From my Midas commentary for May 25 with spot gold at $270.40:

* * *

The Gold Price Action Is Telling Us Something

The CRB: 224.55, and was over 227 at one point this morning. Crude oil: $30.51 per barrel. Platinum: $547. Gold: $270.40.

For the first time ever, natural gas is priced over $4 at the same time crude oil is over $30.

Demand is strong. Supply is down. The gold price sinks like a submarine. Makes sense? What a joke!

This is my take on what is going on:

My guess is that behind the scenes there is serious concern regarding some financial market stress or event that is about to happen or have a bad effect on a fragile stock market. It could be that the dollar is about to take a sudden beating. It could be that the price of oil is about to soar toward $40 per barrel....

These same powers (bullion banks and the New York Fed/ESF) know that a gold derivative banking crisis could develop if the price of gold started to move higher during a period of general financial instability.

It is the buildup of these gold derivatives that is keeping down the gold price.

That is clear from the data GATA has discovered. If investors were to turn to gold in a time of financial chaos, a gold-buying panic could quickly get out of hand and set off a chain reaction.

That is coming anyway. I think they know it and are just desperate to do what they can to hold the price down and hope for a miracle.

They are not going to get one. One day we are going to wake up in the United States and gold will be $50 higher. It will go up from there."

* * *

Some Cafe members joked with me about my analysis that the decline in the gold price was telling us something bullish for gold. It is only a week later and gold has risen $11.

In addition, since then the price of oil HAS shot way up and the dollar HAS been trashed.

Yesterday the pundits were pointing to the sinking dollar as the reason gold was moving up so sharply. No doubt that was a bullish factor for gold, but the dollar has been getting hit hard for a week now. What made yesterday's dollar bashing so important for gold?

Much was made of the weakening U.S. economic numbers and slowing U.S. economy due to higher interest rates. Perhaps if that is the case it is bearish for the dollar and thus a bit bullish for gold.

But I think something else is up. A $9 move up in gold is more than short covering or a minor event. Except for the rare occasion, the gold price has not been allowed to rise more than $6 a day over the past several years. Check that one out if you care to. You will be stunned to see gold price rallies that always stopped at $6 higher on a given day.

That is why a $9 move is significant in my book. Could it be that the shorts manipulating gold are losing control once again as they have twice over the past nine months?

It also might be helpful to put this $9 in perspective with the past. At one point last year the specs were net short some 70,000 contracts. Gold then rallied and that 70,000 net contract position evaporated. Astonishingly, that ENTIRE GOLD RALLY WAS ONLY $9. It was devastating for the gold bulls.

After the close on Friday the new CFTC open interest figures as of last Tuesday were released and the specs were net short about 43,000 contracts, a big number in itself but not 70,000, and ALREADY we have had more than a $9 move from the recent bottom -- with the specs still mega-short. This is very contstructive.

What else could be going on that is giving the gold manipulators fits in their ripoff of gold investors, gold producers, miners, and the poor gold-producing countries?

First, I suggest that the "Gold Derivative Banking Crisis" report that was presented to every banking committee member in Congress, to members of the Senate Subcommittee on Technology, Terrorism. and Government Information, and to a powerful Washington politician and was made available to the world via the Internet on Thursday is starting to have an effect.

From Marc Trimble at International Strategic Assets Inc. in Minneapolis: "We have printed 50 Gold Derivative Banking Crisis reports bound with cover for our larger institutional clients."

From Europe:

"I am a Portuguese journalist writing about management and technology trends and I am preparing an article for next week before the oil meeting of 21 June and the FT Gold Conference of 26/27 June and I would like to interview you via email about this document, the GDBC Report. Please let me know if you are interested. Best regards, Jorge Nascimento Rodrigues."

And this came in Thursday from Cafe member Alfred Hill of Wyoming:

"Today I spoke up at a small town meeting sponsored by U.S. Sen. Craig Thomas. (In Wyoming they are all small!) I briefly described the gold mess, and told him I was giving him a heads-up, not asking for a response. He looked concerned as I related the concerns about the tons of gold at Fort Knox and the Western world's gold reserves.

"At the end of the meeting the senator's staff person was already over asking me for written material, and said she had already telephoned Washington and asked their intelligence person to check with the Senate Intelligence Committee. I gave her a copy of GATA's recent advertisement in Roll Call and of your essay about why the Intelligence Committee should be concerned. On the paper I noted the congressmen checking into it, and mentioned Rep. Dick Armey's bill on Exchange Stabilization Fund accountability."

From my email Thursday announcing that the GDBC report was available on the Internet at the www.GATA.org web site:

"The Gold Derivative Banking Crisis document is lengthy, comprehensive, and somewhat technical at times. It is the nature of the beast. But there is no more bullish report anywhere on gold than this one. The Gold Anti-Trust Action Committee hopes that the Internet will speed it to money managers, the press, and governments around the world.

"Various forces are repressing the true equilibrium price of gold by hundreds of dollars. This cabal of bullion banks, with the probable assistance of the Exchange Stabilization Fund or New York Fed, is being found out. As this information is understood by investors around the world, they will start buying physical gold in earnest.

"The shorts are trapped. There will be a buying panic when they try to cover those shorts.

"It is only a question of time -- weeks, months, a year. One of the most favorable risk/reward trades in history (buying gold now) is staring you right in the face. This document explains WHY that is so."

To date, NO ONE has refuted GATA's findings in this report.

Something else may be up too. I smell gold production cutbacks coming -- cutbacks that may even be announced. This many be very important, so again I will repeat Midas commentary from a week ago:

"Dow Jones: Normandy Mining Ltd. said Thursday it will deliver a total of 450,000 ounces of gold borrowed from bullion banks from up to five years ago, Colin Jackson, group executive corporate, told DJN.

"'In the fourth quarter ending June 30, 450,000 ounces of gold from the Normandy Group and the Great Central Mines, whose books we manage, will be delivered back to bullion banks. It won't be sold into the spot market,' Jackson said.

"'We don't anticipate new positions and no new replacement positions,' Jackson said. Normandy's hedged positions declined by 356,000 ounces in the March quarter."

Following my comments this week regarding Normandy, I was told that Jackson made a couple of interesting observations about Normandy's hedge book two weeks ago at a Merrill Lynch Global Minerals and Metals Conference in Phoenix. He indicated that Normandy Group companies had delivered into maturing hedge contracts for the last six months without refreshing (replacing) them and that a similar situation was likely in the current three months to June 2000. This means that Normandy has reduced its book by nearly 1.2 million ounces!

It prompted Jackson to reflect that Normandy, a hedged company (where hedged is past tense; that is, the hedging activity was completed some time ago), is not having any impact on the spot market because the contracts are not being replaced, while an unhedged producer selling gold at spot WAS influencing the market. Interesting thought!

By the way, the misunderstanding with Robert Champion de Crespigny, Normandy chairman, has also been satisfactorily resolved.

This is why Barrick Gold remains such an aggravation. Barrick is rolling over its hedges, adding gold supply to the market. Normandy and some other big hedgers are delivering into their hedges, thereby RETURNING gold to the bullion banks, not selling it in the physical market, which naturally tends to depress the price.

But there is more. Word at that Merrill natural resource conference was that the question most asked of resource producers was: Are you cutting back production? Oil production cuts and resulting tripling in the oil price made a big impact on resource analysts. They are looking to promote resource industries that are now supply-conscious.

These increasing queries by institutional analysts are surely making an impact on the CEOs of the major gold producers. Recently the gold market has been rife with rumors about a Gold Fields Ltd. merger with other producers. Newmont, Placer Dome, Euro-Nevada, and Normandy are mentioned. I am convinced that something big is going on behind the scenes. A merger of the big producers would make it much easier for the new entity to cut production. A huge new gold company also could deal more assertively with the bullion dealers and not be pushed around by the Hannibal Cannibals.

From the former CEO of the London Bullion Dealers Association, Peter Fava, now head of precious metals trading at HSBC Bank Plc in London:

"New York, June 2 (Bloomberg) -- 'The stock market is blazing, the gold market is blazing,' Fava said. 'This market makes no sense. By Monday, the market will be down $4 or $5 from here.'"

FAVA has been an outspoken critic of Cafe commentary and the GATA camp.

Gold basher Wayne Angell is having his own troubles these days.

"New York, June 2 (Bloomberg) -- In testimony to a federal jury in New York on May 5, the chief executive officer of Bear Stearns, Jame Cayne, said the 69-year-old economist 'is an entertainer' and can't be blamed for $300 million in currency trading losses incurred by a customer who said he relied on advice from Angell and others at the firm....

"Nice try, but it didn't work. A jury ordered Bear Stearns to pay Canadian investor Henryk de Kwiatkowski $111.5 million in damages. The firm's liability may grow to $163 million if U.S. District Judge Victor Marrero grants a request of interest of roughly $52 million."

When the gold investing public realizes what the likes of Goldman Sachs have done to them, the lawsuits are going to be of a level never seen before on Wall Street.

Does J.P. Morgan know what is coming, and is that why Morgan is letting traders go in New York and London?

In the days to come, the Cafe will be presenting some gold numbers, analysis, and information yhat are so bullish you will be beside yourself.