Steve Quayle News Alerts

January 6, 2003

A people that values its privileges above its principles soon loses both--Dwight D Eisenhower

Another extraordinary gold day. Right off the bat last night, gold opened $3 higher in Australia, which is most unusual and signaled pronounced gold market tension.

While trading all over the place, gold reached $356.10 during the London AM Fix before succumbing to the prerequisite sell-off in the US. Three times The Gold Cartel and friends assaulted gold in attempt to break it below unchanged. Three times they failed and the locals had to cover on the close when their last attempt went for naught.

The importance of Jim Sinclair’s $354 key technical point, brought to your attention many months ago, could not be more apparent. The gold shorts know that if that mark is broken, it could easily lead to a gold buying panic. That is their last stand and they are pulling out all the stops to defend this Maginot Line, which is looking very shaky at this point.

Highlights of the day:
*The shorts tried to break gold three times and COULD NOT DO SO!
*The Comex open interest rose a whopping 11,139 contracts and now stands at 218,352 contracts, a large number historically. When the locals saw this number, they pressed gold hard, thinking the specs would be vulnerable. They were not! That line of thinking has been a loser for a month now.
*The Commercials continue to get more short, the specs more long. Will we have a Commercial Signal Failure before the big specs are sent into sell mode? My guess is yes. Enormous physical demand for gold is buttressing dips.
*Gold closed higher even though the stock market soared ahead of the unveiling of President Bush’s economic proposals tomorrow.
*Gold closed higher even though oil was trounced. Crude fell to 98 cents to $32.10 per barrel. So much for gold going up on war fears! If war tensions had no effect on oil and stock traders today, why should the looming Iraq war have had any effect on the gold price?
*Goldman Sachs was a big buyer on the close. They have been big buyers for a week now. Have no idea whether it is short-covering, new buying, or producer buying.
*The dollar continues to slide. The euro rose .57 to 104.40, while the dollar sank to 102.37, down .47.
*At six AM, I thought we had our breakaway gap. The cabal said, "not so fast" and slammed gold down to fill the Comex opening gap. That means the breathtaking, breakaway gold/silver gaps are still to come.

The latest on the Daughters of Gwalia, the big Aussie hedger:

Word to me is they are short 122,000 $310 calls. That puts them underwater to the tune of $512, 400, 000 on just their call position. What about their ten years of gold production sold forward?

My source is now looking into Newcrest, who might even be in worse shape.

Then, from another source I heard of an Aussie gold producer who is short 60,000 $310 calls. That means The Daughters and this other Aussie gold producer are collectively exposed to the tune of around 87% of the entire long open interest on Comex!!!

Third party sources say neither of these big hedgers are concerned about their exposure. Yeah…..right!

I say: "GOOD GRIEF!"

There are big hedgers from other countries with MAJOR problems, but the concentration of the hedging fiasco problem is in Aussie land. When gold takes out $354 on a closing basis, we ought to hear more and more about GATA’s long anticipated gold derivatives banking crisis.

The John Brimelow Report

Monday Jan 6 2003

Indian ex-duty premiums: AM 53c, PM 39c, with world gold at $352 and $354.80. Below legal import level (by $ 1.50 or so), as is to be expected on such a spike. Reuters carries the usual story about Indian bullion dealers complaining about their inability to import profitably: significantly, however, the story reports:

"Jewellers said gold inventories had fallen as they had not replenished stocks due to firm prices" which concedes that the Indian public will eventually force the dealers into the world market at these prices. Turkish imports last week were a surprisingly heavy 2.5 tonnes.

TOCOM re opened with a bang today: although confined to a morning session, the equivalent of 23,293 Comex contracts traded, forcing $US gold to a high of $354 ($3 + above NY’s close) at one point. Open interest was static (down 311 Comex equivalent): considering the gains any casual TOCOM long woke up to today, and the fact that the yen was firm, this is quite impressive. (NY traded 44,756 contracts on Friday, and open interest rose a large 11,139 lots (i.e. 34.6 tonnes), suggesting the large move that day was not in conditions as thin as bullion bank commentators suggest.)

Upon further reflection – especially seeing the forcefulness of TOCOM today – the Yomiuri article mentioned on Friday seems the more important: in fact imperative reading for the students of gold:

http://www.yomiuri.co.jp/newse/20030103wo12.htm .

If the idea that a yen depreciation is established Japan Inc policy takes hold, the implications for $US gold will be profound.

In the meantime the US has produced at least as dramatic a development in the shape of an article by a senior Pimco officer, Paul McCulley, on their web site:

". The simple fact of the matter is that America, and the world, needs a devaluation of paper versus "stuff," the exact opposite of twenty-odd years ago. And gold is the global symbol for "stuff."… Today… America needs to inflate the money stock, while devaluing it against gold, so as to keep private sector debt obligations from sinking into a deflationary abyss. And the world needs the same thing: a broad based, wholesale devaluation of all paper currencies versus a basket of globally-traded "stuff."

Richard Russell is suitably startled:

"Would you believe his shocking piece on the Pimco site. Read it and wonder. A bond guy pushing for inflation of the money supply." (Richard’s Remarks, Jan 4)

In general, gold’s price pattern is increasingly being confined into that of a well-directed rearguard action, albeit a powerful one. Big sell-off after the enthusiastic TOCOM market closes early:
"After trading on the Tokyo Commodity Exchange ended at 0200 GMT, selling from some European and Australian banks, either on their own accounts or for U.S. funds, took gold lower,"

(Dow Jones)

and again on the NY open and close, points when leveraged players are at their most sensitive. One also notes the Bank of Canada marked the "thin’ year end by selling 10% of their remaining reserves, admittedly a miserable 2.7 tonnes, but meaning that, combined with the ECB captive’s selling, the last week of ’02 was one of fairly heavy C Bank selling. Shares are confused. However, If the Yomiuri Research Institute, and Pimco’s McCulley, are right, all of this is now just noise.

JB

Canada is as pitiful as Australia when it comes to its gold. It is an important commodity and industry to both countries. But, instead of supporting gold, they are getting rid of all of it at the lowest of prices. It is moronic, as they are letting the non-Western countries scoop it up. The latest revolting news is Canada sold 25 tons of gold in December to do what they could to slow down the gold price rally.

OTTAWA, Jan 6 (Reuters) - Canada took advantage of the sizzling price of gold last month with the sale of one- eighth of its remaining gold reserves, part of a long-standing drive to get a bigger bang for its foreign reserve bucks.

A finance ministry official said the decision to sell was not explicitly tied to a specific gold price, but added: "When the price of gold is enjoying some lift, we may conduct more sales at that time."

Canada has been selling gold from foreign reserves since 1980, investing the proceeds in bonds and foreign-currency securities that yield a return which "far exceeds the return that the government gets on gold," the official said.

Finance ministry figures released on Monday showed that the government sold 83,399 ounces of gold in December, leaving its holdings at about 599,000 ounces. That is down from some 21 million ounces in 1980 before the gold sales started.

http://www.lemetropolecafe.com/james_joyce_table.cfm?cfid=450338&cftoken
=97589360&pid=2727