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To: The Fix who wrote (1008)3/13/1999 7:22:00 PM
From: Bill Murphy  Read Replies (1) of 3551
Outrage!! Scandale Gold 2

The Matisse Table
Discussion du Jour: Gold Anti-Trust Action

Outrage!! Scandale Gold 2
Yesterday, the Comex open interest break downs were disclosed after the close in their Commitment of Traders Report. The figures were shocking. As of last Tuesday, the large traders went from a historically very high 70,000 contract net short position to a 3,000 contract net short position. The small specs are now long about 8,000 contracts so that the total net speculative position has totally reversed and as a group they are now long 5,687 contracts as of last Tuesday. It is surely greater than that today.

Before the gold market was manipulated, an upward move in the price of gold that effected so many technical buy signals, accompanied by a speculative short position of comparable size, would have resulted in a price move up of at least $40 over a period of time. This time gold only rallied $9 and the open interest did not start to drop until last Tuesday ( the day of the compilation of the report ) when it went from approximately 196,000 contracts to 183,000 contracts. The volume on that day was extremely heavy. We noted at the time that the gain in the price of gold that day was very small for such a perfect bullish technical set up accompanied by a simultaneous reversal of almost all the important technical signals.

How can we account for such a development? While the speculators were pitching their shorts, the commercials ( the trade ) went from mega long to net short almost overnight ( in two weeks they decreased their net long position by 40,000 contracts and increased their short position by almost the same amount ). The change in the technical makeup of the trading types on Comex has to be an unprecedented shift for such a small price move in such a short period of time. We checked around today with the sharpest minds that we know in the gold industry. They all said the same thing. There is no rationale explanation of this except there had to be collusive market activity to orchestrate such an event.

Let us review the scenario for this blatant manipulation. Until the past couple of weeks, Goldman Sachs led a ferocious attack by the bears trying to break the gold market. The open interest, and short speculative positions grew and grew as time went buy. Part of that spec short position represented borrowed gold that was sold into the market place. Money was borrowed at .7 to 1.2% and invested elsewhere. This is called the "the gold carry trade".

The gold loan, borrowing crowd has had to borrow gold ( until the recent price run up ) at less than $290 the past number of months. A sustained move above $290 would create a risk that their low interest rate loans could become very expensive ones. A move to $310, for example, would create a potential $20 principal loss. If that occurred, the annualized interest rate of the loan would become prohibitive. Here is the rundown of that reasoning:

Gold is borrowed at 1% for 3 months from a bullion bank. A move from $290 to $310 is a $20 loss, which represents a 7% loss in three months time. If you annualize that 7%, it means the loss of 7% x 4 (3 more quarters ) is really 28% on an annualized basis. Thus, the real interest rate is 28% plus 1% or 29% total. That kind of money is loan shark material.

Therefore, it was in the interest of the big New York financial houses not to let the price of gold run up too far up now. We believe the spec short position ( a good bit of which is leased gold ) is on average around 3,000 tonnes. Mine supply in 1998 was 2529 tonnes. A significant run up in the gold price could cause many financial institutions some serious problems ( resulting from their own greed ). How would the "Group" of them get their hands on so much gold so fast without the gold price skyrocketing? They really do not want a run up in the gold price now if they are using the gold loans to finance other derivative trades that have nor normalized since the Long Term Capital Management blowup.

The best laid plans of mice and men always do not turn out like they are supposed to. The sellers and gold borrowers ran into a brick wall of physical gold buying around the $285 area a couple of weeks ago. We have been saying for months that any time gold approaches this level, gold demand goes through the roof. In addition, our sources tell us the Bank of China has been a buyer around that price point.

The collusion crowd was facing a dilemma. Everyone following the gold market knew the size of the net spec short position on Comex ( 7,000,000 ounces ). It is our opinion that the spec short position on the OTC was 10 times that or 70,000,000 ounces. That would be about 2200 tonnes of gold (give or take ) or almost one year's mines supply ( our 3,000 tonne figure stems from the fact the gold loans are mostly OTC based and not a net spec figure like the Comex one we gave you ).

Since the market would not break and was vulnerable to an upside explosion due to the technical condition of the market, it appears that the colluders called for a change of strategy. Goldman Sachs became a noted heavy buyer of gold on Comex around $285 to $87. We were then alerted that one of the largest producers intended to take on the short the specs by covering some forward sales and we were also told that one of the biggest hedge funds in the world had entered the long side of the gold market ( they would not be alone ). As a result of receiving this information, Midas du Metropole issued a bulletin on March 3 that read, "Major Gold Rally Imminent".

We then went up 6 days in a row before Friday's sell off. At the end of the rally, we learned from 3 sources that Goldman Sachs was going around telling producers to sell forward. At the same time, they were noted bombers of the gold market on Comex and helped to stop the rally in its tracks. The selling by Goldman Sachs was noted by all. Then, yesterday the Commitment of Traders Report was released after the close and we find out the big specs have covered and the little guys have gone net long. Groans of shock and disbelief were heard when the figures were announced. Almost everyone thinks the gold market will be trashed on Monday.

This is clearly an outrage and example of blatant manipulation and an obvious orchestration of trading in the gold market. While the Australian stock market soared on the gold price run, up the XAU was moribund. The big boys in New York must have known "the fix" was in and thus stayed away from the big cap gold stocks. The down and dirty result of all of this is that the gold market has been raped and set up to be attacked again while the colluders made some nice money with their manipulation. They have alerted the world that the gold market is ripe for a trouncing as a result of the Comex announcement of the new technical condition of the gold market. I am sure they feel this concerted action will help to temporarily preserve the $290 area where much of the gold was borrowed by this crowd over the past several months.

At least that may be their plan for now. I must say this concerted manipulation is so blatant that it may represent a bit of desperation on their part to give the illusion to the world that the gold market is weak. I say illusion because this crowd now knows that the gold market is stronger than they want to let on. The Chinese official sector is there and physical gold demand is very strong. And yesterday, "well heeled" sources told us that they heard from substantial investment interests in Europe that have been out of the gold market for over two years.

My guess is this is the last hurrah got the colluders. The "gold carry trade" is in its last free lunch stages. J. P. Morgan and Goldman Sachs formed a "Counterparty Risk Management Group" in January to do just what that name implies. This recent glaring manipulation of the gold market suggests that they now know there is big risk in this greedy trading scheme that they have enjoyed. That risk grows everyday that the gold price is likely to take off and get away from them on the upside . It appears to us that this recent maneuver is a last gasp effort to attract selling into the gold market so that this crowd can cover their shorts.

Meanwhile, back at the ranch, the irresponsible action of this "Group" is devastating lives of people all over the world. The South African gold industry has had to lay off 100,000 miners, 13,000 in January alone. Unless the price of gold rallies soon, there will be more layoffs. This is jeopardizing the only black democracy in Africa as the layoffs are fomenting social unrest. Unless changes come soon, there could be permanent damage done to this historic democratic development.

In another continent, 20,000 Australian miners are out of work. They have asked GATA to do something about the greedy, self serving tyrants in New York and on Wall Street. We intend to do just that.

According to GATA's Chris Powell:

"Antitrust laws protect economic competition. To quote the World Book Encyclopedia, "These laws prohibit price fixing, an agreement among business firms to control the price or supply of a product or service." The major federal antitrust laws are the Sherman and Clayton acts, but there are others, and all states have their own such laws. Whenever two or more parties cooperate in limiting prices or supplies of a product or service, the free market is defeated and antitrust law is broken. (There is an exemption for labor unions.)"

GATA is in the process of taking in enough contributions to retain Berger & Montague, one of the premier anti-trust law firms in the world ( they won a $2 billion settlement in the Drexel Burnham/Milken case ) to start a thorough investigation of the Long Term Capital Management bailout, the "Counterparty Risk Management Group" and now this recent manipulation of the gold market. We ask for your support and we ask for the support of the gold mining companies. It is time that the mining firms stop kow towing to the bullion bankers and their arrogant ways. We will be calling on them in the weeks to come and will let all of you know where each stands at

Word came to GATA this week that we are all making a difference. We were told that some bullion dealers in London are now nervous about our heightened activity. We ask all of you that have an interest in the gold market to become involved in some way and alert others to and our Gold Anti-Trust Action.

The internet is changing the world. Just by letting others know that we exist via email is a big help. Perhaps you could send this to other gold company shareholders or just to those people that believe in free markets. If you can send in a small contribution, we would also be very grateful as we only need to raise a bit more money to retain Berger & Montague.

Enough is enough! Time to seize the day!!

Bill Murphy

Chairman, GATA
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