Gold Discussion for Investors and Market Analysts

Kitco Inc. does not exercise any editorial control over the content of this discussion group and therefore does not necessarily endorse any statements that are made or assert the truthfulness or reliability of the information provided.

(Sun Jul 13 1997 00:24)
cherokee - I just saw your Sat. afternoon post wherein you said "i've been buying options ( dec 400 calls ) every chance i get. " I think options are a good vehicle to use on occasion, ( not as good as the smoke mobile or a '67 Cougar though! ) , but as I mentioned to Lurker777 the other day, I believe that with the present gold price being so low you would be better off to go with a lower strike price. You can still pay cheap premiums and have a much higher probability of a payoff on your 'lottery tickets'. Say $365 or $375 Strike?

(Sun Jul 13 1997 00:29)
Talking to myself again and gotta get up early to pack car and take family to cottage for a couple days, ( I can hear the sympathetic murmurs now ) , so time to hit the hay. Goodnight Glenn wherever you might be.

(Sun Jul 13 1997 00:33)
EB......reference your FAQ on what percentage and "why" PM should be in any given portfolio. Here's how I see it....

Putting any kind of investment in one's portfolio concludes that that individual has it there for a reason: to increase in value and to ultimately liquidate at some point in the future for retirement income, trip around the world, college expenses, etc.

So, when we buy a gold stock ( say ) at $5 a share, we project a target of ( say ) $8, and sell at that time with a $3 profit. That loot is then invested in some other vehicle that we hope will have a like gain. Whether it's gold stocks, bonds, corporate stocks or whatever -- it's a bet that that company will do well so their stock appreciates.

Everyone for years has said that Gold should be a part of a portfolio. Frankly, buying 100 1oz gold Eagles, or Mapleleafs or whatever make a pretty stinky investment for the long term. However, they are great insurance. And I mean insurance via the classical definition: they will pay off when you suffer a loss or calamity of some sort. There is just too much volatility to buy and sell gold as a portfolio investment -- especially if you are not savvy in that regard ( and there are few that are ) . Plus the varying spreads will kill the casual investor. Even the pit traders take it in the shorts every now and then -- and they are the ones creating the market!

If someone were to come to me for a gold buy recommendation for the medium/long term, I would point them to stocks and/or mutual funds. If they really wanted to buy bullion, then I would tell them to target a 2 or 3 fold gain as their "target." Reason? If something drastic happens and they can't get out of all their stock positions, then at least they would have something left to start over with. With a 2 or 3 or 4 fold gain, the spread doesn't matter anymore.

I am buying physical gold for two reasons: long term insurance. If the market really goes into the shitter, then at least I can buy food and pay the rent ( theoretically ) . If it doesn't happen in my lifetime, then my son will ( hopefully! ) use the windfall as a prudent insurance policy.

However, if gold makes a $100-200 jump, and I can actually sell them at that level above what I actually paid for them, then I'd be tempted to sell some for a quick profit. I would wait for the price to come down and then buy more. I think the latest buying "spree" by individuals is being driven by this scenario.

Bottomline: we all make our investment decisions. Personally, I like the feel and look of 10 Eagles in my hand!

(Sun Jul 13 1997 00:38)
Panda and nailz.......good questions about how/why bullion is marked up. The gold market is just like any other market: if you buy in quantity, you get a better deal.

Let's look at land. Let's say you want to buy 10,000 acres and the market is at $1000 an acre. For one, it would be relatively easy to find something that big, and for two, it would relatively easy to actually put the deal together. Now, let's say you only want to buy a half acre lot in the same market. I can assure you that you are not going to get it for $500!! And even if you could, the closing costs would be about the same for each sale - thereby making the $500 buy more expensive "per unit." ( for this argument, I'm assuming that finance costs of points, etc, would be based on a percentage of sale price ) Also, since it's harder to find a for-sale half-acre, your "looking around" costs go up.

So, that half-acre lot would probably cost close to ( say ) $800. That's your "spread" from buying it 10,000 acres at a time.

Same is true for spot gold. Spot is the price of gold in rather large units. And it's assumed the buyer has the money and the transaction has no other overhead. When it comes time for you to scrape together $350 for a 1oz Eagle, you have to find someone to sell you a quantity of "one." There is much overhead involved with that: wholesale to retail pricing, shipping, rent, utilities, insurance and paying for that apartment for the young girlfriend! ( Babes really dig gold dealers! )

As an aside, when a CB ( or other large holder ) sells its gold at market prices, that does not include shipping - which is called "lifting" - the bullion to it's new location. My claim to fame was putting big gold deals together in London about 15 years ago. The actual buying/selling was easy. The lifting was the tough part - insurance, transportation and security were big expenses. Did you know that an empty 747 freighter can carry "only" about 75-100 tons of gold? That's a block that takes up less than 5% of the available on-board cubic space. And, of course, all those security goons want put up in only the best hotels.

Anyway, all you see is what the CB/company/private individual bought/sold the gold for. That does not include shipping and/or storage to a new location. That is ultimately the big "spread in the sky!"

So, if you walk into your friendly coin dealer tomorrow, he will charge you spot plus a premium. That premium depends on how much he can replace that gold Eagle for. The big traders, like Monex, sell to big dealers at 3% over spot. The mint sells to Monex at a prearranged price. Monex hopes to buy in quantity and be able to replace their sales for less than what they sold it out the door for. If they can do that on a daily basis, then they will make a profit. The person who gets killed in this kind of market is the little guy who is sitting on inventory bought at $350 and now it's at $321.

As another aside, take a look at the bottom of this page here on Kitco. They have buy and sell prices. As of this writing, they are selling Eagles at $337.91 ( spot 321.01 ) - that's 5.2% over spot. They are buying 24K scrap ( ?? ) at $14.24/pennyweight. There's 20 dwt in an oz, so that works out to 310.80 per oz. It's interesting they don't give a buy price for Eagles. It would appear that their profit is about $27 per oz ( assuming a zero sum of buy and sell ) . That's about 8% return on investment - a respectable industry standard for any profitable company.

So, by the time it gets down to the little-guy dealer and Mr. Roy T. Smedlo ( the high roller who is buying one Eagle per month ) , the spreads can get pretty high. Also, the quicker the prices drop, the more the spread becomes as there are many folks left with inventory bought at a higher price. Once the market washes out, the spread goes down. That's what I saw at the coin show today: the $20 spread I saw is "only" $5 above the Kitco spread. I'm assuming Kitco only sells in large quantity to corporate entities and individuals. So that extra 5 bucks is quite reasonable considering all the "overhead" involved in getting that coin to that dealer to sell to Mr. Smedlo.

My advice, you ask? Buy the physical bullion if you are happy with the "walk away" price. Sheeesh, I forgot to mention sales tax! That adds 4-7% in many markets!! If the walk away price is ( say ) $355, and you think gold is going to $400 by December, then that looks like a good short term investment. By the way, always assume that you can sell your Eagles to any given dealer for spot. It may not always be true, but it's a good guideline. I use it in my dealings. I generally sell at 1-3% over what it physically cost me ( including shipping, tax, title, and dealer prep ) , and will always buy an Eagle at spot. I find that spot pricing is very hard to argue with, even when dealing with Mr. Roy T. Smedlo.

Whew! Hope I wasn't too long winded! Please ask for clarification if I forgot any strategic details!

Lan Man
(Sun Jul 13 1997 00:43)
HopeIGot AllThoseZeros
Bill Buckler: As usual, exceptional op-ed piece. So if we were to have the same percentage of backing as there was in June of 1973 ( 1.90% ) , then gold could be purchased with $1450 american based upon $20 trillion total est. debt.

(Sun Jul 13 1997 00:44)
Forbes conference in LA & Moony

On C-SPAN a short time ago; Rupert Murdock gave about an hours worth of opinions.
Never once did he look down at a prepared paper.
I personally respect him for that: and many of the things he said.
I wonder if Neil Cavuto; formerly of CNBC got sick and tired of being told what to say; and went over to FOX business?
You will have to check his opinions yourself, I don't like writing books.
Mooney; I think your right about Barrick; if we knew a bottom for the good midcaps they "ABX" may pay a small fortune to get them.
PDG sometimes makes errors, but they like Homestake are mining institutions.
Munk should go back and watch the Danube flow.
Don't wish him any harm, just to keep him out our faces.

(Sun Jul 13 1997 00:47)
goats head is better!
nailz......your "decency" post was right on the money! I can add to your philosophy: "Two heads are better than one, even if one is a goats head. At least the goat will find something to eat." Cheers!!!

(Sun Jul 13 1997 01:12)
Financial Times stuff
hey's what the London Financial Times has to say about gold ( hang on for this ride! )

Gold: Not quite so 'precious' any more

Deborah Hargreaves examines the latest price plunge and finds prospects gloomy
About of depression has enveloped the precious metals market as analysts question whether gold, beset by tumbling prices, is losing its status as a "safe haven".

Governments and private investors have traditionally turned to gold during periods of inflation and economic instability. But, with many central banks selling off reserves, a significant change in the way the metal is valued could be under way.

The price drop of $14 a troy ounce over the past 10 days was sparked by the announcement that Australia's Reserve Bank had sold two-thirds of its gold holdings over the previous six months. Prices slipped to a 12-year low of around $318 an ounce and, in spite of some consolidation since, most analysts believe the market will go lower over the longer term.

"There is a genuine shock factor here," says Andy Smith, precious metals analyst at UBS in London. "If Australia, as a leading producer, is not interested in holding gold, who is?"

Australia is not alone. In recent years, central banks in Canada, the Netherlands and Belgium have got rid of gold, while more recently there was a serious row in Germany over a proposed revaluation of its reserves. Moreover, Switzerland and Portugal have both said they will sell.

But what makes Australia's move such a blow to the market is that the country's mining companies are important producers of gold and had counted on the government to support prices.

Reaction to the Reserve Bank's action has been bitter. Australia's Association of Mining and Exploration Companies said the cyclical downturn in the market had been made worse than it would have been. The World Gold Council added: "For a leading producer to take unnecessary actions that prejudice the well-being of a key sector of its economy suggests a lack of sensitivity to the factors impacting the market."

Explaining its reason for selling - a decision supported by the country's prime minister - the Reserve Bank said: "While there was a case to hold some gold as a contingency against unforeseen events, the previous holdings - about 20 per cent of international reserves - were no longer justified."

The Australian central bank hit out at its critics yesterday, blaming gold miners and speculators for the fall in the gold price this year. It said the money from the gold sale had been put to better use buying foreign securities such as bonds.

If all central banks were to take the same approach, however, the market would be awash with gold and the price would plunge.

The holdings of central banks differ widely. Around 73 per cent of US foreign reserves - or 261.75m oz - are in gold but Australia and Canada now have only about 5 per cent.

M. Murenbeeld & Associates, a Canadian precious metals consultant, estimates that if most countries were to cut their holdings to 10 per cent of foreign reserves, an additional 618m oz would come to market - almost the same as eight years' new supply from mines.

Smith compares the present-day gold market with silver a century ago. In 1871, about 80 per cent of the world's population had currencies redeemable in silver. Ten years later, silver's monetary value had been nearly obliterated.

Demand for gold depends so much on its value as a "precious" metal and a safe haven - it has few industrial uses - that its price could collapse if bankers start to lose interest.

Technical analyst Brian Marber, who charts the price of gold, says an important pattern is building up which shows the price hitting $150 an ounce over the long term. Smith himself believes it will drop below $300 fairly quickly.

Over the short term, the price could bounce back, but most observers believe the longer term trend is far from promising.

(Sun Jul 13 1997 02:05)

To : Ted Butler

Ted - didn't really understand your 12 July 09:51 post regarding forward sales. As far as I can tell, none of my gold mining companies receive any cash up front when they make their forward sales. My understanding is that a gold mining company establishes a contract with, say, a bullion dealer to sell a certain portion of its reserves at a certain price at some future time. To offset his risk the bullion dealer might then borrow gold from a CB, sell this gold into the spot market, and invest the cash to achieve a market interest rate which will provide a net positive return to the dealer over the duration of the forward contract. When the forward gold is finally delivered by the mining company, the dealer pays the company cash and hands over the gold to the CB to repay the loan.

It would be greatly appreciated if you could clarify how the mining company gets cash up front through forward selling.

Gold loans are a different situation. Here the mining company borrows gold, sells it into the spot market and receives cash. The loan is subsequently paid back when new gold is mined by the company.

Also, it is quite easy to verify the actual prices at which gold companies have sold forward by looking at their financial statements. These statements will tell their total sales revenue and total amount of gold sold during the reporting period. If you know the average spot price during the period you can roughly estimate the price which the company must have got for the gold which it sold into its forward contracts. For example, quickly looking at the latest quarterly results for Normandy Mining I can tell that the company received around US$500 per ounce for the gold which it delivered into its forward contracts. This gold was probably sold at least 4 years ago when the price was 380-400.

Cheers, Milhouse

(Sun Jul 13 1997 02:34)
Steve-Perth W.A. My feelings on that piece is that it is a red herring.
I think C9 are stooges for playing this one. Its obvious all the drama
over the next five years is going to be played out in S.E.A. ( and Westbank ) They just don't want us thinking too much about it. U.S. marines setting up in Darwin under the cover they will provide security for Olympic Games 2000. Yeah sure and its also 3 hours to a S.E.A. flare up! Question. Why did South Korea buy 85% of RBA sale but are prepared
to have it warehoused at the RBA? Contingency funds held in safe country

(Sun Jul 13 1997 04:06)
Hi BB,
The charts were just great.

If you've read my posts, over the months, you know how much I enjoy TA,
long term.
Yes I do have a request, actually more than one. I'd like the gold chart
to go back to the early sixties, if possible, then if you have a similar
chart for silver, and either dow or s&p500, for the same period.

Can you super impose two graphs? I'd like the platinum and gold that
way, you'll find that very interesting too.

I have most of what I've asked for, but the condition of my charts are
abominable, due to time, and sometimes errors.

Do you have any currencies, such as Swiss Franc or DeutcheMark, dating
back to the '60s?

You may bill me if this gets out of line, but let me know in advance,

By the way, the Omega charts usually shown by people always have a black
background, do you go to the trouble to change before posting?

Again much obliged, and hope I'm not too much of a pain.

All the best,

Reify, Don't have your Email.

(Sun Jul 13 1997 04:08)
@Oz Bureaucratic Bungle
Harry Schulz, highest paid investment advisor ( Guinness Book of Records ) was quoted in an Oz newspaper to the effect that selling of Oz gold reserves was a bureaucratic bungle of the highest order. The Reserve bank will regret its decision when gold rallies. More importantly, he goes on to say that a gold rally is imminent, the price having fallen through a major support level. He says that a major Asian syndicate has been shorting gold and is now getting ready to re-enter the market.

Maybe its BT or maybe Harry has a vested interest in saying all that. Is the dagger turning?

(Sun Jul 13 1997 04:11)
Since Tortfeasor is away on holiday, may I briefly fill his humor spot?
Not sure but the following may have been one of his.

FROM THE OLD TESTAMENT--Sunday School Student comments
In the first book of the bible, Guinessis, The Lord got tired of
creating the world, so he took the Sabbath off.

Adam & Eve were created from an apple tree.

Noah's wife was called Joan of Ark.

Noah built the ark, which the animals came on in pears.

Lot's wife was a pillar of salt by day, but a ball of
fire by night.

The Jews were a proud people and throughout history
they had trouble with unsympathetic Genitals.

Sampson was a strongman who let himself be led astray by
a jezebel like Delilah.

Sampson slated the Philistines with the axe of apostles.

Moses led the Hebrews to the Red Sea, where they made unleavened
bread, which is bread made without any ingredients.

Moses went up on Mount Cyanide to get the Ten Amendments.

The first commandment was when Eve told Adam to eat the apple.

The Fifth Commandment is humor thy mother and father.

The Seventh Commandment is thou shalt not admit adultery.

Moses died before he ever reached the UK. Then, Joshua
led the Hebrews in the Battle of Geritol.

The greatest miracle in the Bible is when Joshua told his
son to stand still and he obeyed him

David was a Hebrew king skilled at playing the liar.
He fought with the Finkelsteins, a race of people who
lived in the biblical times.

Solomon, one of David's sons, has 300 wives and
700 porcupines.

Bill Buckler
(Sun Jul 13 1997 04:31)
Reify ( Jul 13 04:06 AM ) I assume you're talking to me. Glad you like the charts. There's not much point posting Gold back to the "early 1960s". It was pegged at $US 35 oz until 1971, my data goes back to 1973. I may post a long-term chart. It would have to be a monthly bar to fit on a web page properly.

I convert my charts in Paint Shop Pro so the background is transparent. Also reduce colors to 16 so the files aren't too big. It is an extra step, but I think it's worth it.

If you want other charts, e-mail me. I'll see what I can do.

bb fisher
(Sun Jul 13 1997 04:51)
more food@for thought
Bart: how can we specify more than one graph when we post something?

the 6 charts here and following show that relationships betweens things can be as illustrative as relative price levels. i think that in viewing the relationships between paper assets and essential commodities one can more clearly view the merits and risks of each.

it may be too simple to haphazardly assume that because the 'dow' is worth so many more bushels of stuff now versus only 10 years ago this skewed trend can not continue for very much longer. additionally you would be remiss to blindly think that the end of this situation will result in an overall dramtic rise in the obstensibly undervalued foodstuffs. various combinations of rises and falls are quite possible.

one thing is certain however, there will be some very big winners and some very big losers during the next few years as these relationships inevitably readjust.

bb fisher
(Sun Jul 13 1997 04:54)

bb fisher
(Sun Jul 13 1997 04:55)
see below

bb fisher
(Sun Jul 13 1997 04:55)
se below

bb fisher
(Sun Jul 13 1997 04:56)
nearly done

bb fisher
(Sun Jul 13 1997 04:57)
that's it

bb fisher
(Sun Jul 13 1997 05:05)
and criticism may be sent to

bb fisher
(Sun Jul 13 1997 05:06)
typing too

(Sun Jul 13 1997 05:32)
BB was supposed to be addressed to BB Fisher, whose been posting charts, but I didn't have his email, so posted my request here. However I like the work you do Bill Buckler, and appreciate everything you add to this site. Sorry for the confusion.

bb fisher
(Sun Jul 13 1997 05:35)
read it@because it's true
this from jake bernsteins website:

Why Losers Lose

Losers tend to begin with limited capital. By the time they learn how to trade and by the time they
have mastered the principles of good trading, their risk capital is gone. They can't stay in the game
long enough to make it work for them. The lesson to be learned is that the smaller your starting
capital, the lower your odds of success.
Losers tend to have no system, no method, no indicator, and no consistent methodology. They
change their methods as the wind blows. The lesson to be learned here is that a consistent
approach is necessary if the odds of success are to increase.
Losers tend to react quickly and emotionally to news and other events not specifically related to
their trading method. The lesson to be learned here is that emotions and trading don't mix well. To
be a good trader you need to steel yourself, you need to "not care".
Losers tend to overtrade. They somehow believe that the more you trade, the more money you
make. This is dead wrong. All you need is a FEW GOOD trades. The lesson to be learned here is
that if you overtrade, you'll give most of your money away to brokers.
Losers don't understand the nature of trading systems. They don't realize that even the best of
trading systems will be wrong as much as 7, 8 or even 10 times in a row. They either run out of
discipline or they run out of cash before their system ( if they're even using one ) takes hold. The
lesson to be learned here is that in order to use a system effectively you need to know the
downside as well as the upside of your system, AND you must be prepared to handle the
Losers tend to get too much information. They suffer from informational overload. The more
information they get, the more confused they become. The end result is that they are often frozen
in indecision. The lesson to be learned here is that you don't need a plethora of information. All
you need is a few good methods and a little good advice.

Why Winners Win

Winners often begin their trading with sufficient capital. This gives them time to learn by "fire" and
to put into practice the concepts they have been taught. By having sufficient capital, they are able
stay in the game long enough to make it work for them. The lesson to be learned is that the larger
your starting capital, the better your odds of success. Note that I use the term better. "Better" is not
to be confused with "guaranteed".
Winners often follow a specific system, or method, or indicator, and/or a consistent methodology.
They tend to stay with their methodology, giving it sufficient time to work. The lesson to be
learned here is that a consistent approach is necessary if the odds of success are to increase.
Winners have a defined methodology and they give it plenty of time to work.
Winners have self control. They DO NOT react quickly and/or emotionally to news and other
events not specifically related to their trading approach. The lesson to be learned here is that
emotions and trading don't mix well. To be a good trader you need to steel yourself, you need to
"not care". To be a winning trader you need to follow the rules as often as possible. All traders
break the rules at times. But winning traders tend to follow rules much more often than they break
Winners may overtrade at times, however, they seek good trades rather then frequent trades.
Winners realize that all they need is a FEW GOOD trades. The lesson to be learned here is that if
you overtrade, you'll give most of your money away to brokers. Winning traders will focus on high
probability trades rather than on a "shoot at anything that moves" philosophy.
Winning traders understand the nature and limitations of their trading systems. They understand
fully that even the best of trading systems will be wrong as much as 7, 8 or even 10 times in a row.
They keep their discipline in spite of a series of losses. More often than not, their system takes hold
and rewards them for their patience. The lesson to be learned here is that in order to use a system
effectively you need to know the downside as well as the upside of your system, AND you must
be prepared to handle the downside. Winning traders understand their systems. They know that
drawdowns occur and they're prepared for them emotionally as well as financially.
Winners tend to place strict limits on the information they get. Although there ARE winning traders
who seek input as much information as possible into their decision-making process, such traders
are the exception rather than the rule. The lesson to be learned here is that you don't need a
plethora of information. All you need is a few good methods and a little good advice.

The game of commodity trading isn't an easy one to win. There are rules and there are methods. To play
the game and have to a chance at winning the game you will need to know the rules and you will need to
follow the rules. In so doing you will significantly improve your odds of success. YES, there will still be
risk. YES, the odds of success will still be tilted in favor of professional traders. However, by knowing
the rules and by having the discipline to follow them your odds will increase. Trading commodities will
never be like taking candy from a baby. It will always be more like taking candy from a dragon without
losing life and limb.

Jake Bernstein

now think about the rumour, anxiety and useless worry some of you put yoursleves thru running form one news article to another thinking you are actually learning anything of importance. uncontrolled emotions are death
in the trading game...if you want to win

(Sun Jul 13 1997 07:03)
This in from Tokyo:
Japanese firms take out forward forex
contracts on weak baht
Consumer electronics makers and automakers are selling sagging local
Asian currencies for the dollar in forward contracts to avoid foreign
exchange losses, The Nihon Keizai Shimbun learned Friday. The Thai
baht went into free fall after it was cut loose from the dollar in early July.

Sony Corp. took out forward forex contracts for the first time in
dollar-denominated transactions of its Thai subsidiary after the baht was
floated on July 2. The firm aims to prevent dollar-denominated import
payments from ballooning.

Matsushita Electric Industrial Co. is also selling the baht in increasing
volume for the dollar to prevent revenue in Thailand from decreasing in

Canon Inc. is considering dumping not only the baht but also the
Malaysian dollar and the Philippine peso in forward contracts.

However, Mitsubishi Motors Corp. and Honda Motor Co., which both
import auto parts from Japan for assembly in Thailand, will see little
impact on earnings from the weakening baht because they settle
transactions in the dollar.

Philippine central bank lets peso drop in
effective devaluation
MANILA ( Nikkei ) - The Central Bank of the Philippines said Friday it
will tolerate wider daily fluctuations in peso-dollar exchange rates,
effectively devaluating the Philippine currency. The move follows the
peso's plunge since Thailand floated the baht last week. The central
bank, however, did not clarify how wide it will allow the currency to
swing from the present 1.5%.

In response to the announcement, the peso fell 11.6% from Thursday's
close, and trading was suspended about 30 minutes after the opening.
Trading will resume on Monday.

The Philippine central bank has raised its key overnight borrowing rate
to 32% in four stages from 15% since July 2 and purchased the
currency in volume.

(Sun Jul 13 1997 08:25)
To all,
news from oriental....again more supply?
happy trading

George S. Cole
(Sun Jul 13 1997 08:40)
gold and news
VIESERRE: I would not place too much emphasis on the fact that the XAU has held up relatively well versus bullion.That has been true for most of this bear market. The same argument could have been made 6 months ago and look what has happened since then.

I will be looking for something much more dramatic to signal the end of the gold bear. Some possibilities:

Another CB announces a big sale, but bullion rallies instead of plunging.

The dollar sinks and gold goes up and stays up.

The stock market is hit hard and gold moves up sharply

A war breaks out somewhere and gold goes up and stays up.

The stock market surges, but gold does not decline further.

George S. Cole
(Sun Jul 13 1997 08:42)
gold and news
VIESERRE: I would not place too much emphasis on the fact that the XAU has held up relatively well versus bullion.That has been true for most of this bear market. The same argument could have been made 6 months ago and look what has happened since then.

I will be looking for something much more dramatic to signal the end of the gold bear. Some possibilities:

Another CB announces a big sale, but bullion rallies instead of plunging.

The dollar sinks and gold goes up and stays up.

The stock market is hit hard and gold moves up sharply

A war breaks out somewhere and gold goes up and stays up.

The stock market surges, but gold does not decline further.

(Sun Jul 13 1997 08:46)
To all, pick this from the net,
how do you think?

(Sun Jul 13 1997 09:07)
GEORGE S. COLE, VIESERRE: Re the XAU. I don't know a lot about how it is made up except that Placer Dome and Barrick comprise a large part of it. Can the fact that it is hold up be in part due to the fact that those larger companies are buying juniors and are making themselves mor valuable properties? For example, Newmont purchases Santa Fe. The market percieves value in the combination over and above the cost of the deal?

(Sun Jul 13 1997 09:52)
Jin: Thanks for the posts. Reuters presents no new data. They are re-stating opinions and "old news". Andy Smith quoted 10 times in 10 places is still just one opinion given once. After the second or third incidence, I discount the wire service quotes as propaganda. Bill Buckler has an excellent piece on the "War Against Gold".

Every gold sale has a buyer. Who are the buyers? Why are they accumulating hundreds of tons of gold, if gold is going out of style? If gold is no longer a store of value, then why hasn't the U.S. treasury sold out?

The XAU and HUI rallied this past week as bullion also crept up from the low of 315. The stock market also surged. It seems to me that reports of gold's death as a store of value, have been greatly exaggerated.

(Sun Jul 13 1997 09:52)
Just read in my local newspaper lots of cleaver words about how high
the bull might fly. Made me wonder. Is this one of those traps that
lets the mouse in but won't let him out, without getting skinned?

(Sun Jul 13 1997 10:01)
I read Barron's online yesterday and came away with one impression. Several of the big name analysts and fund managers are now predicting a "speculative blow off" sometime late this year. The frightening thing is that they have no intention of preparing for it now. They are staying fully invested with other peoples money. They must all believe that they will correctly identify the top and be able to pull out before the market crashes. IMHO there will be one hell of a crowd trying to get through that door at the same time.

Steve - Perth
(Sun Jul 13 1997 10:12)
After reading the Dow 8000 pages, this article seems interesting...
Kremlin draws up blacklist of foreign press
Copyright  1997 Times of London

MOSCOW ( July 12, 1997 3:45 p.m. EDT ) -- It is a measure reminiscent of the darkest days of the cold war. The Kremlin is drawing up a blacklist of foreign newspapers which it claims are guilty of tarnishing the image of Russia.

The list, which is expected to name a dozen international publications, will be circulated among Russia's political and business elites with a strong recommendation to ostracise those mentioned.

They are not to be granted interviews and should not be given information.

Top of the list are "Forbes," the American business magazine, the "Washington Times," "Le Monde," the French daily, and "La Repubblica," the Italian daily.

"We are putting an end to an aggressive foreign media attack on the image of Russia and on the standing of Russian business," said Andrei Fyodorov, a former deputy foreign minister and one of the main figures advocating the need for an official blacklist.

The decision was taken at a special meeting of the Council on Foreign and Defense Policy, an influential group of Russian businessmen, media editors and politicians which advises President Boris Yeltsin. They unanimously agreed that Russia suffered from a negative image abroad and this was due partly to a foreign press campaign to damage Russian business interests.

Sergei Yastrzhembsky, Yeltsin's spokesman and the man widely tipped as Russia's next foreign minister, and Yuri Baturin, secretary of the Russian Defense Council, are both consultants to the group and were present at the meeting held 10 days ago.

The measure provoked widespread criticism. It coincides with growing pressure on Russian newspapers to control the flow of information. Last week Igor Golembiovsky, the editor of "Izvestia," the Russian daily newspaper, resigned, saying he no longer felt free to decide the
paper's editorial line.

"It is a classic case of Soviet-style intimidation," said Jean Batiste Naudet, the Moscow correspondent of "Le Monde" which fell foul of the Kremlin last March after it claimed that Viktor Chernomyrdin, the Russian prime minister, had amassed a personal fortune of $4 billion. The
prime minister announced on Friday that his total wealth is less than $50,000.

"They claim that they are seeking to improve Russia's image but are in fact destroying it. No democratic country would draw up such a blacklist. But we will not be intimidated," Naudet said.

"Forbes" magazine was accused of seriously damaging the business interests of Boris Berezovsky-- one of Russia's first dollar billionaires and deputy secretary of the Russian Security Council --after it published a hard-hitting piece under the headline "The Godfather of the Kremlin" last December.

"La Repubblica" was singled out because of a 1991 article by its America correspondent depicting Yeltsin as a drunken bear.

"Russia will defend itself," Fyodorov said. "We have eyes and see what these papers are doing. Don't think that we are just going to sit back and take it passively. We have enough forces to strike back."

By MARK FRANCHETTI, Times of London

George Cole
(Sun Jul 13 1997 10:24)
speculative blow-off
SPEED: Seems to me that we are already in a speculative blow-off for the big caps. But small caps are just starting to move and still have a lot of room on the upside. Still think we will peak in August. But how far down after that and how fast is anybody's guess.

I must come to the defense of Jimmy Rogers. Let's face it, he has been right. He is not an ideological gold bear as are many on Wall Street. Jimmy calls it as he sees it, with the sole purpose of making money for himself and his clients. I'm sure he will be heavily long when the next gold bull gets underway. He is on a totally different wavelength than people like Andy Smith and Ted Arnold.

(Sun Jul 13 1997 10:27)
Let's see... The Russian bear is far from dead and the war on gold continues. Doesn't sound like much has changed. Now, the poker player said to himself, how much gold does Mr. CB have? How much can I get him to lay on the table..... :- )

Mike Sheller
(Sun Jul 13 1997 10:29)
The baby is born
JIN, SPEED: All this "news" about the demise of gold hitting the general media is probably a sign that "the baby is born," and that the mass consciousness about gold will soon prove to be entirely erroneous. On the face of it, all this bad news reflects the washout of an asset that is now ripe for the accumulation. As for China's increasing gold production, why not? It's a big country with some great resources barely tapped. But not to worry. Strangely enough, many of the major historical rises in the gold price accompanied increased production. I am not saying the law of supply & demand has been repealed - just that in gold's case strange things have occurred. And will do so in a few years from now.

(Sun Jul 13 1997 10:34)
Gold, XAU, and a Rise in Gold
GEORGE S. COLE ET AL. Thank you for your comment on the XAU and its
relative performance to gold. Yes, I recognize that it has been better
performing relative to gold for some time, and a similar argument could
be made 6 months ago. And one should not bet the farm on the behavior. But this does not mean one should not continue to question the reason for such behavior and continuing possible bullish implications. Consider the following.

Actual Net CB selling has not been as severe as current market price
would lead one to believe. As of April this year, according to IMF
figures, the net sales on year over year basis have been about the same
as in 95 and 96. Yet despite a substantial increase in jewelry demand
during the first quarter, gold has fallen in price. Thus, if these
figures are correct, gold has fallen not due to CB selling, but due to
short selling caused by gold loans, hedging, speculative selling etc.
and any private dishoarding. This probable cause for the drop in price
is evidenced by the Australian gold being absorbed in the market without significantly affecting price until the announcement of the sale when additional speculative selling occurred.

Therefore, there is reason to assume that if physical demand at least
remains constant, once this speculative selling has been completed gold
should rise significantly higher. Unless of course there is a further
increase in CB selling which the market is concerned about.

But there are reasons to believe such CB selling may not occur at these
or lower levels. European banks value their gold reserves to market and
should have a concern that any partial sale of their reserves would
further drive down the value of their remaining reserves as well as
reserves in member states which may be contemplated to fulfill EMU
reserve requirements. Both the RSA and French CB representatives
earlier announced that they do not anticipate any further European CB
sales in 97. Taiwan announced that it was not selling. Russia CB
intends to buy its countrys entire production in 97. The Belgium
announcement of selling gold coins only amounts to 26T per year so it is
not a major threat to price, and such sales are not imminent. So which
country is going to be a major seller.

Since I have so very little knowledge of the market, perhaps there are
banks which are ready to sell, and for that matter are selling now, but
on the other hand, there may not be; and if further significant CB sales do not materialize at these or lower levels, how are the speculators going to manage to keep the price of gold below current prices for any significant length of time. And if gold is to go lower, more speculative selling must take place, but this also means a greater
potential latent demand and increasing possibility for a sharp recovery
due to cover.

Therefore, absent such CB sales, it would seem probable that if gold is
driven below 300, it will not stay there very long and there is a good
chance that as soon as the speculators cover, it will sharply rise above current levels. And this possibly may explain the behavior of the XAU. But, I will be the first to state, there could be a good number of other reasons as well. Only time will tell.

(Sun Jul 13 1997 10:34)
Gold bottoming? I thought you said that they were going to have to pay someone to take it away?

(Sun Jul 13 1997 10:35)
George Cole: I like Jimmy Rogers. He takes a beating every time he gets on CNBC and tries to talk about inflation. They gave him a bag of peanuts this past Friday! I agree that he will be long gold when it takes off.

Mid-cap and small-cap stocks may never get the same attention as blue-chip stocks, due to the inflows of money to Index funds. Index funds are the main repositories of 401k money and they are required to buy the S&P 500 or 100 or DOW 30. You have an excellent grasp of historical cycles. I remain sceptical of this current cycle following the historical script. Time will tell.

(Sun Jul 13 1997 10:39)
Phillippino currency problems? 11.5% devaluation...

(Sun Jul 13 1997 10:48)
If you wonder why you hold gold just imagine yourself for a moment as a Filipino who had to stand there and take it when his government devalued the Peso by 11.5% ( for now ) .

(Sun Jul 13 1997 10:57)
Hi guys, just dropped in before heading for bed. Gold up a little, hope my shares go up a little in the morning in oz. Hope Indian weather gets better and start to buy gold. This may start a small bull run allowing me to sell my shares at cost.

(Sun Jul 13 1997 10:58)
I find it curious that the EMU comes on line, the Pac Rim countries are having currency 'problems', and gold 'drops' in Dollar terms. The EMU countries are essentially bickering about their countries relative currency valuations in order to buy a 'new' paper currency. Meanwhile the Dollar is ascendent in 'value' with respect to those currencies. In a sense, this is a defacto Smoot Hawley trade tariff tax. This time IS different though, as most currencies are floating with respect to one another. In complex math terms, I'd describe this thing as being in the 'right hand plane'. Basically, my interpretation, is that the mathematical equation describing this sad state of affairs is unstable, and could explode to plus or minus infinity. In more earthly terms, ForEx markets lookout! Plus or minus infinity equals -$$$$. This is sometimes descibed as ( $$$ ) on balance sheets. :- )


(Sun Jul 13 1997 11:01)
Over the years, I've heard many stories about the 30's. Almost all
unpleasant. About keeping currency and precious metals in bank safety
deposit boxes, oldtimers warned that when the banks failed and closed,
not only did this prevent access, the boxholders later found that their
box contained receipts for currency that had been removed by the Feds.
Then it took months for the bank to honor. Does anyone else have a spin
on the subject?

(Sun Jul 13 1997 11:06)
Donald: Thanks for the reply, that certainly is a possibility. And NEM will report higher earnings this quarter than what the street predicted, which may account for its recent superior performance, even though it is unhedged. But maybe not. Maybe there are other forces at work.

(Sun Jul 13 1997 11:07)
This is an example of a 'positive spin'. Forget about who is killing whom and the dead bodies, it really is 'positive'. To quote a 'famous' person, "C C Can't we all just get along?"

The positive line in the story.
"The pipeline deal was one example of the improved atmosphere on a political level."

Then read this.... :- ) )

Really gone now............

(Sun Jul 13 1997 11:20)
@the Kitco think tank
Why is it that I get this incredible urge to regurgitate evey time I read some analytical commentary by UBS's Andy can definitely see what his real agenda is.

Also, being that goverments require such "transparancy" of transactions of it's slaves ( citizens ) , how is it that a central bank can sell off huge amounts of PUBLIC patrimony ( gold ) and NOT disclose as to who the buyer is???? Take Aussy, for example......the OZ goverment is the most overbearing, corrupt, and brainwashed anglo goverment in the WORLD ( I lived in Queensland for a year..aussy people are great, but the gov really sucks ) and are so touchy about "transparancy", it seems that any citizen would have the *right* to ask that is a QUESTION BEGGING TO BE ASKED. A "democratic" goverment theoretically must give an accounting to the public, and the gold was public property that was exported. To what country was it exported to? ( Exportation of natural resources require a license, which indicates it's final destination and buyer ) Albeit, the OZ gold is not much in the grand scheme, ( however it is a start ) but methinks that we should put our collective heads together in our "Kitco Think Tank" and start researching this. I believe that the result of this investigation will indicate the direction that the world is actually moving, and who the new "mega-political" powers will be.

(Sun Jul 13 1997 11:28)
Re: Negative press re gold. It is easy ( and low risk ) to write a story that explains how what has happened is going to continue to happen. The same is true for stock analysts. I think this is basically why we are seeing so much negative press right now re gold dropping further, and
the possibility of further CB sales. Not many of these analysts were smart enough to foresee this when gold was over $400 early last year. As WW says, news follows price.

We keep reading that the recent drop in gold is market reaction the sale by Australia. We read here on Kitco, however, that the drop from $330 to $325 and below on July 3 was the result of one seller dumping only a few minutes before the close, as many traders were packing up for the weekend. The Australia announcement was at the open, and there was no market reaction until the close. I'm only repeating what I've read here, but if this stuff is true it has certainly been buried or overlooked by the worldwide press.

DA where are you?

(Sun Jul 13 1997 12:03)
What is the average U.S. income for a family of 4?

CHERNOMYRDIN DECLARES INCOME. Prime Minister Viktor Chernomyrdin has declared his personal assets at $46,000, Russian media reported on 10 July. According to a statement submitted to the Tax Inspectorate, Chernomyrdin declared 46.4 million rubles ( $8,000 ) in income for 1996. His assets include a small country house, valued at 156 million rubles ( $27,000 ) , and a Chevrolet Blazer utility vehicle, valued at 112 million rubles ( $19,000 ) . "Perhaps this is not in keeping with the spirit of the times, but I do not have any stock holdings. And I have no property abroad," Chernomyrdin told Interfax.

RUSSIAN BANK SELLS GOLD INGOTS. Rossiiskii Kredit has become the first Russian bank to sell gold ingot bars to private buyers, ITAR-TASS reported on 10 June. The sale follows the government's June decision to allow Russian citizens to purchase gold ingots at commercial banks. At least three other Russian banks--Inkombank, SBS-AGRO, and Gold-Platinum Bank--say they will follow suit.

(Sun Jul 13 1997 12:05)
During the last six months the Japanese visitors to the GOLD-EAGLE website have been meager at best - ranking about 20th among all countries. That is 20th until LAST WEEK! With lightning like speed the Nippon surfers have invaded our website - and methinks IT AINT FOR THE GRAPHICS!

The actual volume of accesses to the GOLD-EAGLE from the Land of the Rising Sun rose more 800% IN JUST ONE WEEK, making Japan the 4th most frequent visitor to gold-land. At the current speed the Japanese will over-take the Australian visitors sometime this week! Incidentally, the most frequent visitors to our website are, of course, the US and Canada.

All this would imply there is obviously something afoot in Japan in regards to the precious metals. Could this herald the reversal in the gold trend... time will tell? In any case we will keep you posted as to the accelerating Nippon interest in GOLD. As we all know the Japanese have BIGGGGG BUCKS, which could turn the golden tide.

George Cole
(Sun Jul 13 1997 12:07)
VIESERRE: Agree with you that speculative selling and intense psychological warfare by the financial establishment have been two of the key factors behind the gold bear. That plus financial market euphoria and unprecedented confidence in the omnipotence of the CBs. As WW says, if gold is truly a "barbarous relic" why the intense effort to drive it lower?

I still see the gold and financial markets as mirror images of each other. The gold shorts have no choice but to keep the pressure on. For once gold stoops going down, a huge rally is just a matter of time. Similarly in the financial markets the bulls dare not let prices sag very long. For once prices stop soaring, a big downdraft cannot be far off.

Speed: Once the big caps move high enough so that the persistent inflow of 401k money cannot push them up any further, look for more money to flow into the small cap and mid cap funds.

(Sun Jul 13 1997 12:13)
BB FISHER: Thank you for posting the charts and for your continued helpful comments.

(Sun Jul 13 1997 12:25)
...if I were an Aussie citizen, I'd be deeply concerned...Treasurer Costello is being quoted in this article ( see Url ) that, australian gold mining industry, would remain "world competitive".
...the leg is following his foot..
Can you imagine the tax revenue losses, ( mine shut downs, employee layoffs, tax rebates by industry, loss of exports etc ) if gold prices remain depressed?...if you can toss him out of office, DO IT! before he does more damage...he's a shown to be shallow and unfit to carry on with such an important portfolio...let him join the swelling numbers of unemployed...

(Sun Jul 13 1997 12:33)
..can someone provide Treasurer Peter Costello, e-mail address, so that we could inform him of Kitco's might help him to be better educated of the gold industry...more miners reaction

(Sun Jul 13 1997 12:58)
...just realized...Ted Arnold was probably Costello's advisor. Does anyone know if Arnorld and/or Costello passed elementary math?

(Sun Jul 13 1997 12:59)
But a very overdue meaningful correction is on the agenda. After all, stock market here is ONLY priced at something like 2.5 times gross world product ( of all nations ) . SEE:

(Sun Jul 13 1997 13:01)
THE $85 BILLION DOLLAR QUESTION (Feds 262 million oz. Gold at $325)
Why has the U.S. - fountainhead of antigold sentiment - NOT SOLD any of its gold while encouraging its allies to sell?? - Coles Market Insights poignant question:

(Sun Jul 13 1997 13:16)
Would somebody please tell me where the comments by Peter Munk were stated that got everyone up in the air. Was it the comments on CNBC or elsewhere? Thanks!

Tally Ho

(Sun Jul 13 1997 13:25)
All: Why has the U.S. - fountainhead of antigold sentiment - NOT SOLD any of its gold while encouraging its allies to sell? At some point on this forum, someone opined that there is a law ( custom? regulation? ) prohibiting the Fed from selling US gold reserves. Is there in fact such a prohibition? Must they petition congress first? Or is there no impediment to selling after all? Anyone know for sure? Tort, where do we look in the law? Can you check this on Lexis or in the US Code?

(Sun Jul 13 1997 13:31)
quoting again, old news
Ray: In the Wall Street Journal Wednesday 7/9/97, Peter Munk said he "wouldn't be surprised if gold dropped another $40 an ounce during the uncertainty surrounding central banks."

(Sun Jul 13 1997 13:43)
auroelf- thanks! I have him on tape with his comments on CNBC and thought all in all they were pretty positive. Especially on his comments
that times like these are when creation of REAL WEALTH is possible. He is talkin about accumulating the mining shares close to the bottom.
I do not want any of his because they are hedged but you get the point.

Tally Ho

(Sun Jul 13 1997 13:45)
Ray: Per your request. Here is a press release dated July 7. Lifted from the Barrick website.

Investment Advisory

Toronto, Ontario
Investor Contacts:
Belle Mulligan
Senior Vice
Investor Relations
Tel ( 416 ) 307-7442
Fax ( 416 ) 861-0727

Sandra Scott
Investor Relations
Tel ( 416 ) 307-7472
Fax ( 416 ) 861-0727

All Amounts in United States Dollars

Toronto, July 7, 1997 . . . Barricks disciplined financial policies are
protecting investors from the present turbulence in the gold market. While the Company is concerned about the impact of the current decline in gold prices on the industry, Barrick believes it does not reflect the long-term fundamental supply/demand factors for the market.

Barrick is fully protected with the largest hedge position and the lowest operating costs in the industry. Our cash flow, earnings and dividends are unaffected through the year 2000 despite the present
turmoil, said Peter Munk, Chairman and Chief Executive Officer.

Barricks hedge position ensures a minimum average price of $420 per ounce for its production, with cash operating costs of under $200 per ounce.

The Company has the strongest balance sheet and financial position in the industry with operating cash flow of $500 million annually, a debt-to-capitalization ratio of 0.12 to l, and cash of over $200 million. Barricks credit is the only one rated A of the worlds gold producers.

Barrick is listed on the worlds leading stock exchanges and is part of the S & P 500 and TSE 35. It has the largest market capitali-zation of any gold producer in the world.

(Sun Jul 13 1997 13:47)
Cmax- "who the new 'mega-political' powers will be."

Interesting factoid come across, if true. 40% of the world's
tower cranes are presently located in Shanghai. A power center rising,

Crystal Ball
(Sun Jul 13 1997 13:50)
@ Spirit's Hall
Perhaps the legions of gold traders and investors, are demoralized now;
Perhaps by late summer they will feel defeated, once and for all.
But, perchance, by year's end, there will be
A free-for-all.

(Sun Jul 13 1997 14:52)
how much more? insulting our intelligence?
...funds have picked their spot...on cue...currency gyrations...inflated dow, closing in on another, psycological top '8000', which always causes nervousness...spin doctors "intensify attack" on barbaric relic....same couple of analysts being quoted, time after time....same newstories being disseminated...reminds of "war pamphlets" being parachuted down to enemy...we're constantly reminded of Central Bank sales made or proposed...yet statistics, see table below, published this week in Barron's indicate constant and reasonably ...stable holdings...notice how "they" updated the table to reflect the RBA sale as of July 3rd. Interesting that some the Asian rim countries, Russia , IMF holdings are 'consolidated' or not updated as of July 3rd...
...let the "shorts" get a little more greedy...we're waiting!
Feature StoryBARRON'S Online
Central Banks Take a Dim View of Gold

thin rule
The selling of gold from central-bank coffers since 1981 has coincided with the gradual decline of the gold price, a measure of faltering status of the yellow metal as a store of value.

1990 1992 1994 1996 1997*

Troy ounces ( millions )
United States 261.9 261.8 261.7 261.7 261.7
Canada 14.8 9.9 3.9 3.1 3.1
Australia 7.9 7.9 7.9 7.9 2.6
Japan 24.2 24.2 24.2 24.2 24.2
Austria 20.4 19.9 18.3 10.7 10.1
Belgium 30.2 25 25 15.3 15.3
Denmark 1.7 1.7 1.6 1.7 1.7
France 81.9 81.9 81.9 81.9 81.9
Germany 95.2 95.2 95.2 95.2 95.2
Greece 3.4 3.4 3.5 3.5 3.5
Italy 66.7 66.7 66.7 66.7 66.7
Netherlands 43.9 43.9 34.8 34.8 27.1
Norway 1.2 1.2 1.2 1.2 1.2
Portugal 15.8 16.1 15 16.1 14
Spain 15.6 15.6 15.6 15.6 15.6
Sweden 6.1 6.1 6.1 4.8 4.8
Switzerland 83.3 83.3 83.3 83.3 83.3
United Kingdom 18.9 18.6 18.4 18.4 18.4
Subtotal 793.1 782.4 764.3 746.1 730.4
blue line
TOTAL 1,143.80 1129.9 1115.8 1104.9 1099.5
( Official Reserves )
blue line
*As of April 30
**As of July 3
Source: International Monetary Fund, CPM Group

(Sun Jul 13 1997 15:00)
Australia Morning News: Currency Turmoil Spreads

(Sun Jul 13 1997 15:20)
I remember Barick Gold stating that they lifted a good portion of there hedge as gold was going over $400 in Jan 96 now they say that they have the largest hedging program in the industry. Is the company filled with Gold miners or is it a "Shell Company" filled with a bunch of traders??
I question whether or not a company like that can move in and out of the market with such a large position and be continuously successfull. Are they planning to lift 6 years worth of hedge at the exact bottom?? Perhaps if they are this good they such forget Gold mining and open up a Gold trading fund! By the sound of it perhaps I would invest all my money in it and quit trading on the floor. If the operate a pure hedge then they will be protected all the way down and they will be selling ( And loosing potential profits ) all the way back up.

(Sun Jul 13 1997 15:26)
Nomercy: Interesting stuff. Canada, Belgium, Austria and the Netherlands have been the primary sellers ...... and yet ..... the bottom line remains little changed. Some 50 tons net change from total holdings. Big deal. The CBs must be just swapping it around and calling it a sale.

(Sun Jul 13 1997 15:39)
South Korea prepares for North Korean Attack.

(Sun Jul 13 1997 15:49)
a Canadian view
Bill Corrigan, Technical Analyst of a Canadian paper, Toronto Star, seems to feel that next week will tell the tale...

(Sun Jul 13 1997 15:49)
Gold drops in Tailand in spite of Baht devaluation.

(Sun Jul 13 1997 15:53)
Fidelity Select American Gold & Precious metals Charts
5 Years, 30 day comparison and hourly charts at:
Click on Gold Sectors

(Sun Jul 13 1997 16:01)
THE DINES LETTER (July 14, 1997)
Of Japan's $220 billion in foreign-currency reserves, 76% is now in US dollars. Nippon legislator says Japans gold reserves far too low. Dines ALL-GOLD REPORT has interesting insights:

(Sun Jul 13 1997 16:08)
@ westcoast
With all the talk of forward and borrowed gold selling a lot has to be explained. With many mines selling future production doesn't that mean that a 1 to 4 years worth of gold mining is dumped on the market? And with this as yet unmined gold hitting the market the price drops? And when the price drops how does the contract maker make up the difference
when he himself has caused the drop? Does he then short gold futures knowing the price will drop? Very confusing.
So we then have a situation where unmined and borrowed gold hits the market causing an apparent surplus and the price goes down but in reality
the gold supply is the same. HELP!!!

(Sun Jul 13 1997 16:14)
Fresh Bad News
Another negative gold article from down-under in their Monday Financial Press:

(Sun Jul 13 1997 16:22)
Job openings for Kitco's alumnis
Donald I followed your posted URL re: Gold drops in Thailand, and read the article in the business section, "Local Gold prices lose luster as global woes mount" and came to the conclusion that the many experts of "Kitco addicts' should have no problems in securing high post positions in many of the high ranking world Finance and Business posts. Costello in Australia, now Jitti Tangsithpakdi, chairman of Thailand's Gold Merchant Association, is also in peril as he's quoted in the forementioned article "Jitti said gold prices in the international market are
projected to hit rock bottom in 12 years, due to
unfavorable economic conditions, which is
undermining the purchasing power of markets around
the world.

"Many major gold mines in Africa have ceased their
operations as they can no longer tolerate the
situation," Jitti was quoted as saying.

He explained that African gold mines had been selling
its gold at $318 to one ounce ( 28.35 grams ) while
the minimum cost for mining the gold was higher, at
$350 to one ounce. .


(Sun Jul 13 1997 16:40)
...don't margin... could work...if the "gold longs" don't use margin, but obtain financing ( if they have to ) outside the brokerage houses, they can withstand the "sanguine attacks" from the funds...its one way of outwaiting they will continue to "shake the tree' the present environment is giving them the space to devour...
Scotty....Aussies news will persist on being "negative", "they are protecting Costello & co"...
In the long term...they lose!

(Sun Jul 13 1997 16:55)

(Sun Jul 13 1997 17:04)
NOMERCY: I have been working since I was 6 1/2 years old when I had a paper route. I am now semi-retired, I work when I damn well please. But if we have a crisis in Bermuda that needs my assistance I will do it for a dollar a year! ( No heavy lifting of gold bars please )

(Sun Jul 13 1997 17:06)
@New England
Andy Smith must spend 24 hrs a day bashing gold. He must be getting a little worried or his employers surely are. I suggest we send a donation to UBS FBO Andy Smith to hang out at one of the local Biere Stubes and have 5 or 6 Henningers on us so he can chill out and clear his thought processes.

(Sun Jul 13 1997 17:19)
Gold sales

Are their overlay charts available, that show how the currency of a country that sold gold in the past; reacted after the sale?
Such charts may show real sentiment.
Japan; although she talked about US Government sales, also talked about gold purchases; and the yen strenghtened.

(Sun Jul 13 1997 17:19)
Hope it wasn't meant for me!

(Sun Jul 13 1997 17:44)
@The Dentists' Waiting Room
Amazingly, the following exerpt was found in the NZ Edition of Readers Digest July 1997. I am unsure whether this is bullish for gold, appearing in such an august publication. Comments?

The US gold standard .... was eventually abolished in 1971. The high inflation, tumultuous currency upsets and gyrating interest rates since have shown what happens when money loses its moorings.

Indeed, many economist think the gold standard should be reintroduced. "Pegging currency to gold has proved the only stable method of determining what goods are worth," explains French economist Paul Fabra. "No satisfactory substitute has ever been devised."

Wellington-based economist Rufus Dawe agrees: "I think every economist favours a gold standard in principle because then you have a constant that you can measure everything against. It just needs someone to introduce it."

Ironically, the very discipline of the gold standard is why some politicians oppose it. Without such control, leaders can wage their wars, pad their payrolls and expand their bureaucracies by just printing more money. You can't print gold. The words of the German poet Goethe seem as true today as when he wrote them nearly two centuries ago: "Everything depends on gold."

Steve @Perth Perhaps Treasurer Costello's Readers Digest subscription has lapsed??

So who's going to be the someone who introduces a gold standard??

(Sun Jul 13 1997 17:50)
Scotty ( Fresh Bad News ) : Yup, there's real fear out there. Are 'they' dumb enough to increase their shrill attack on gold as the Pac Rim currencies fall apart?

To All:
I have been thinking about the Barron's article, as have some of you, having already posted your thoughts on it. But let's try this on for size.
Gold slides more, and currencies destabilize some more. The gold sales continue, but who is the un-named buyer ( s ) ? Ponder, if you will, who is accumulating the gold and why. Notice, also, that Russia and China were convieniantly left out of the Barron's gold table. Now let's say that an Asian cartel has amassed this horde of gold. The West, being sophisticated :- ) , laughes at the fools who accumulate the 'barbarous relic'. Then one fine day, a trading tiff occurs. Now, we know that could never happen.... Then the Asian block gets tough about import/export stuff and its terms of payment. As the Western CBs fiddle with 'monetary policy', the Asians say, we want to be paid in REAL terms. What ifs are coming here... What if they are willing to eat some large losses on U.S. debt obligations? What if they demand payment in gold, because they didn't get what they wanted at the 'bargining table' regarding trade, etc.? Then they could say, we will trade with those who will pay us in gold?

Why fight a war when you can have an economic war with no death and physical destruction to clean up?

(Sun Jul 13 1997 18:04)
PANDA: The "Golden Rule" still applies. "He who has the gold makes the rules" Yes such a thing is possible. A similar threat was made by the Saudis in 1973-74. They said oil should be paid for with a basket of currencies that included a gold portion. It never went anywhere. Did they get the AWACS planes instead?

(Sun Jul 13 1997 18:12)

I have convinced myself that this whole "New Era" thing is based "primarily" on competitive devaluations.
What happens when a relatively low wage country, with reasonably productive people devaluates it money?
Big business quickly open's up new plants there.
The currency speculator's convert their fund's and place their ( bets ) monies in those countries, receiving high rates of return plus potential currency appreciation. These are big players, who generally do not lose.
If any danger occurs, they conveniently start rumors to protect themselves. All they require is word from a seemingly reputable source and the public follows suit.
I believe, that time spent attacking this "ponzi scheme" would be more productive for gold.

(Sun Jul 13 1997 18:22)
The Kitco version of The McLaughlin Group

Just for fun, any predictions for this week? Fireworks? Ho-hum? What will be the biggest story in the markets?

(Sun Jul 13 1997 18:25)
Vronsky--Is it possible that all the new visitors to the Gold Eagle website could be the result of a new inlcusion of the site on a popular search engine or a recent reference on a oft read Japanese site? Just my naturally pragmatic thought process.

(Sun Jul 13 1997 18:29)
I don't mean to beat this thing to death, but according to the COT reports haven't the commercials been net long almost every week since Oct96 while the large specs have been net short the entire time??? Somebody is loosing money in the commercial world.

(Sun Jul 13 1997 18:30)
LURKER2: I always end up wishing I hadn't done this. Gold up all week, XAU breaks 95, new countries devalue. Japan calls for Asian meeting. US stocks in trouble 3 out of 5 trading days. End week on down side. Tech stocks lead the slide. How far out on a limb can you get a guy before it breaks?

(Sun Jul 13 1997 18:31)
Panda: That is exactly what the British required of the Chinese in the last century. All Chinese purchases were to be settled in gold while, at the same time, British accounts were settled in paper. Do you think that the Chinese have forgotten?

IF the Chinese should suddenly upset the world's monetary and trade apple cart; will the accrued, Chinese, losses be of such magnitude as to outweigh the ultimate benefit to them? In the process, some weight must be given to the psychic satisfaction of righting some old wrongs .......... and living well is among the best of revenge.

(Sun Jul 13 1997 18:50)
Donald -- Do you want a saw? :- ) )

Earl -- Isn't turn-about fair play?

(Sun Jul 13 1997 19:07)
Do you want to buy stock in a company that has never made a profit, and probably won't for the next three to five years? Well this IPO double quick enough. You want to talk about irrational .....

Glenn -- If people are willing to pay for less than nothing, why should losing money bother them? :- ) )
Something must break in this gold market, how long can the mines go on producing at a loss? The derivatives market ( futures ) seem to be disconnected with this reality. I think you're right Glenn, when you say that the funds are driving the selling in gold. When will this stop? When somebody yells, "I want my gold NOW!" That will be the reality check.

(Sun Jul 13 1997 19:17)
@just for the hell of it
A$ is now trading at 73.98.

(Sun Jul 13 1997 19:24)
moon-man @0:24----

i agree with that 100%. my strike vacillates around the 400 level.
the exact strike purchased, depends upon the financial capacity
of the account. with gold trending lower, the strike follows suit.

Paul Volker
(Sun Jul 13 1997 19:31)
Lurker2: The markets will fluctuate.

(Sun Jul 13 1997 19:33)
The repeated focus on gold is that they NEED to drive it down or the bubble will burst. Any stability in gold given the current onslaught and we are on our way!

(Sun Jul 13 1997 19:48)
Panda: No. I want a parachute.

(Sun Jul 13 1997 20:06)

A man leaves for a week of R&R and returns to find the gold market in shambles. What gives? All you guys get short or something?

Haven't had time to catch up on all my reading, but a cursory look at the markets shows that those stalwart German central bankers apparently are quite happily devaluing their currency. Seems to be the way of the world. If your economy is a little soft then just mark down your labor costs by devalueing. Looks also like the currency speculators are not enamored with the gold sale by the Aussies.

I know this is already old news, but it does appear that the Hashman is making good on his promises. Over the last month the Fed's holding of foreign CB debt has dropped almost 20 billion dollars. Coincidentally ( ? ) the currency in circulation numbers have jumped over 7 billion dollars in the same time period. If this pace of printing were to sustain itself over a year we would be talking more than a 20% increase in the currency outstanding account over a years time. Nothing like monetizing the ole debt. Looks to me like the Feds have it all figured out. Keep publishing bogus inflation numbers, drive the price of gold way down to reinforce the thesis, then print scads of $100 bills when no one is looking and monetize the debt. I read where the Germans were joining in the game by selling off their 'strategic' petroleum reserves. I guess this comes under the heading of strategy.

Seems like the Wall St. folks are looking for a speculative blowoff in the fall. Can't wait to see what that looks like. Lets see, the market is up nearly 30% in 3 months and this is just the setup for the really big run. Looks like 10000 in October.

(Sun Jul 13 1997 20:11)

You old dog, was that you driving down those PM's? I'll bet you're just itching to place a little ole wager with moi. What dya say? 360 before 300? One itty bitty ounce? Come on, make me a gold bug.

(Sun Jul 13 1997 20:18)
YO Earl, fasten seatbelts.

(Sun Jul 13 1997 20:27)
Kap'nKev: Fasten seatbelts??? That can only mean we are headed for additional clear air turbulence. With our collective heads bouncing on the overhead storage compartments. Eh? ..... ( :- )

ted butler
(Sun Jul 13 1997 20:30)
forward sales
Milhouse re your @2:05, also Puzzled re your 16:08 -

I think the big misunderstanding regarding gold loans/forward sales is to assume from the outset that they are a legitimate form of transaction and that any difficulty in reconciling them with common sense is the fault of the person trying to understand them and not with the transaction itself. After all, they have been around for 15+ years and are performed by legitimate entities in the world of finance, mining and central banking. I say if you look at these transactions with no preconceived notions of who is involved and how long thet've been around, and just concentrate on whether they make sense - you will reach a startingly different conclusion.

Gold loans and forward sales could not exist without each other. The CBs could not loan metal unless they had some remote promise of repayment - that's where the mining companies come in, who else could make such a promise? The mining cos could not be induced to sell such obscene amounts of future production unless they were given some preferential promises to do so. That is why gold loans and forward sales burst upon the scene simultaneously 15 years ago. To think that forward sales are just another form of legitimate hedging defies logic. After all, there have always been bona fide futures and derivatives available to mining cos before loans/forward sales existed and to this day - why is it only gold and silver ( some Pa and Pt with disasterous results ) that miners "hedge" for years in the future? Why not copper or zinc or oil? Is it because gold and silver miners are so convinced that the respective price is so high that they need to lock in the unusually attractive prices? Of course not. They are being bribed by the lure of either cash up front or much more attractive terms than would be available in the alternative legitimate hedging markets.

The undeniable fact is that in every single loan/forward sale actual metal is sold up front to generate cash. That is the problem - why does cash metal have to be sold to effect a hedge? It's killing the price and setting the stage for a disorderly market on the upside. Where in any other hedging transaction, for any other commodity is the actual commodity sold first? It is stupid beyond belief. Time will reveal this whole loan/forward sale business to be the farce and fiasco it really is

Milhouse, I'm glad you have no problem in reading the financials to see just what a mine's forward sales position is - I can't get by all the footnotes. I'm with Glenn, they're hedged when it's going down and not hedged when it's going up - I guess that's why the earnings are so good.

(Sun Jul 13 1997 20:30)
they cleaned up on Friday...and
...funds seem to be at work again...they cleaned up on Friday ( option exp ) and are ready to push down. EBN, now shows down $.95 to $321.10 How far?
RJ it seems that DA's challenge requires a response! remember $275 its in the bag, right?

yo ho ho
(Sun Jul 13 1997 20:35)
@a bottle of rum
An interesting note: until the early 1980s, it was illegal for a shipping company to pay a merchant sailor in anything but "gold coin". The gold coin requirement was because shipping companies ( some ) had paid their sailors in company script which frequently dropped in value or was worthless. This law was on the books but not enforced.

an ex sailor

(Sun Jul 13 1997 20:57)
YO HO HO: The Naval Base at Guantanamo Bay, Cuba, is rented from the Cubans with a 100 year lease, payable in gold, and that is exactly how we pay it.

(Sun Jul 13 1997 20:58)
@ the golden moment
To all..... This week you will see who's buying and let the fireworks begin!! We buy at any price now!!!!

(Sun Jul 13 1997 20:59)
possible crisis in South Africa they push down...crisis begin to emerge

(Sun Jul 13 1997 21:10)
EBN has the Dutch Guilder down 2.2%. Is that early morning Asian trading or a Friday close?

(Sun Jul 13 1997 21:14)
the slide continues
EBN shows down $1.25 to $320.80
..climax of arguments against gold could this be the ultimate indicator of contrarian timing?

(Sun Jul 13 1997 21:26)
Colunist "Stephen Wyatt" of AFR must have been inebriated

Or was he celebrating at a booze party, when he wrote:

"To really polish it off all the gold market now needs is for the Sojournor Mars Rover to discover that Mars is littered with more gold than the vaults of the world central banks. And its possible - Mars is a big planet."

He wins the 1997 "Bad Breath Award", hand down.

See post at ( 16:14 ) by Scotty, for the article.

(Sun Jul 13 1997 21:32)
got TOO many bumps on da head now, got me a helmet!!
Earl, check out stat on OLD CROP BEANS leemm know what ya tink

(Sun Jul 13 1997 21:35)
ted butler: tnx for your insightful response of 20:30. all these gold shenanigans smell very fishy and gold and gold mines are a long ways from any fish market. the truth will out, we just have to keep the faith and live long enough.

(Sun Jul 13 1997 21:40)
Nomercy, DISINFORMATION,in its truest thing the'll tell us is
sex causes cancer,not cigarettes

Nick the Greek
(Sun Jul 13 1997 22:13)
@ the races

Investing in currencies and gold is like playing the races______Yer gotta know the trainer and the jockey.
Right Andy???

(Sun Jul 13 1997 22:26)
Forward Sales
MILHOUSE: If I may add to Ted's comments, who knows more of this than I, on your question on Forward Sales. A typical way a forward sale works is that if a producer wants to lock in a future price, he has to find someone to buy gold in the future. But, unlike other commodities - such as copper or lumber where someone will actually need the commodity, ie to build a project, a year or more from now - no one really needs gold for future delivery. So the producer turns to a dealer in gold. Because the gold market is ordinarily in "deficit", the dealer can buy the gold for future delivery and immediately sell it in the spot market. He then charges the producer the contango for accepting delivery on the forward date. It is important to recognize that the reason this can happen is that the gold market is usually in such a huge deficit that dealers can sell into a spot market. When such business becomes brisk, dealers may need to borrow gold from the banks to make such sales and thus they are effectively making short sales. When this happens, these dealers may take a big risk as bank lending rates may be on a 3 to 6 month basis while producers may be selling forward on a 1 to 3 year basis. It is also important to recognize that as interest rates come down there is less of an economic incentive for a producer to sell forward, assuming of course gold is not plunging in price. Forward sales may also take place OTC, in the form of gold leases ( which I understand has lost popularity by producers ) or in the futures markets. And there are various hybrids that have been developed. Many argue that forward sales do not contribute to a fall in price over the longer term as the transaction after being closed does not add to supply. It would also seem that since these forward sales are on-going, price at any one particular point of time wll be influenced as to whether more of such sales are being instituted or covered by producers

more supposition
(Sun Jul 13 1997 22:42)
@ westcoast
somebody play devil's advocate. If US govt paper was 100% redemable
in gold wouldn't the interest rate be around 1 to 2% like it used to be when the dollar was redemable and similiar to current lending by COB of gold @1 1/2% ? WOW! what a saving . imagine all the US bonds, notes and t bills borrowing costing so little? We could easily balance the budget or send a flotilla of space ships to capture the universe.

(Sun Jul 13 1997 22:59)
Kap'nKev: Corn comments are in your mail.

(Sun Jul 13 1997 23:03)
Japan: Your week has begun. A few moments ago gold was still down $0.60 on the evening. Either begin "scratching gravel" or join BT in the corner. ....... ( :- ) )

(Sun Jul 13 1997 23:10)
To more Sup.

It probably would be a little higher just as the money mrkt funds pay alittle less than the total of their cupons. alos, there would be a default risk...remember 1934

(Sun Jul 13 1997 23:27)
Vieserre: "He then charges the producer the contango for accepting delivery on the forward date." ...... Isn't the producer selling for spot price and if so, how is the producer able to report the sale at the higher forward price?.... ie, $420 sales price, during a period when gold has languished well below $400.

The effort to better understand this dreadful business in really appreciated. My hat is off, to you, Ted and Millhouse for extending it.

(Sun Jul 13 1997 23:39)
The Contango
EARL: The Producer sells at the spot plus contango. The Contango is the postive difference between the spot market gold price and the forward price. It is often expressed as an interest rate and is the difference between inter-bank deposit rates and the gold lending rates. Presumably, the reason for the high prices some of these producers are showing is that they entered into the forward position when spot gold was at a much higher price. Otherwise, I cannot explain it.

(Sun Jul 13 1997 23:47)
Earl: If you did not catch it, read the post earlier on the comment by Shultz who stated he is bullish on gold and that there is an Asian syndicate which has been shorting the market and is now read to take a position on the long side. "BT Syndicated"

(Sun Jul 13 1997 23:59)
Earl talk to ya in the AM gotta get some zzz's
just got back from jersey shore & I'm a hurtin puppy.
later man.
ps G'night All