Wall Street Journal asks why gold isn''t higher

MIDAS COMMENTARY FOR MARCH 7, 2000

By BILL MURPHY
www.LeMetropoleCafe.com

Spot Gold $291.90, up $4.30
Spot Silver $5.07, up 2 cents

Technicals

A volcano that could blow at any time. With the specs
puking and Goldman Sachs and others of collusion ilk
generally buying, gold found support at $287 at the
bottom of a pennant formation. In addition, as
mentioned in the last Midas dispatch, the stochastics
were practically at zero, indicating a severely
oversold technical condition.

Gold is now threatening to take out the downtrend line,
formed after the last big spike up. Any follow through
to the upside following today's advance ought to do the
trick.

Goldman Sachs bought early today paying up to $292,
while a big fund bought 1,000 December 400 calls at
$3.60 with a volatility of 27.

Morgan Stanley, which has emerged as a quiet quot;Hannibal
Cannibal,quot; was one of the featured stoppers of the
rally this afternoon.

Silver continues to meander, this time slightly higher.
The trade has been buying in general and the funds
continue to sell. There must be a Bunker Hunt in the
world who is watching the oil price go crazy and then
eyeing $5 silver.

Regarding that Warren Buffet report. I got bad info on
that one. It was not released last weekend in his
annual report as I was told. Perhaps this Saturday.

Fundamentals

The quot;There Is No Inflationquot; slogan lives on -- at least
it did until the Proctor and Gamble announcement this
morning. Meanwhile, the CRB closed today at 215.61 up
1.12, a new high for the move.

Brisk jewelry gold sales, coupled with growing
industrial demand fueled by an economic recovery,
stimulated Taiwan's gold import growth 14.9 percent
year over year in February.

Gold demand is very strong in Turkey too and remains
robust in India, according to the Cafe's John Brimelow.

After the gold spike up late last year, Kuwait
announced, in unprecedented fashion, that it was
shipping its 79 tonnes of gold to the Bank of England
to lend it out. The United States/Britain/Kuwait link
thrives:

quot;Kuwait reported close to $1.2bln arms deal

quot;KUWAIT, March 5 (Reuters) -- A leading Kuwaiti
opposition politician said Sunday his country was close
to signing an arms deal defence experts say is worth
$1.2 billion as part of a programme to re-equip the
military after the 1991 Gulf War.

quot;The deal, which has been delayed in recent months, is
for a command and control system sought mainly by major
British and U.S. defence firms.quot;

The CNBC talking heads and many in the financial
community seem taken aback by the continuing rise in
the price of oil. Cafe members are not, as we have been
articulating this scenario for some time now.

Today crude oil did what the Cafe thought was coming
and has started a panic spike up. When it closed above
$27 per barrel, I alerted Cafe members that there was
no serious technical price resistance until $42. Phooey
to the CNBC pundits (I said then) who kept yapping that
the steep backwardization (much lower future monthly
prices) meant that the oil price was headed lower.

Crude oil finished the day at $34.15 per barrel, up a
whopping $1.97 per barrel. The gold/oil ratio now
stands at about 8.8 to 1, another new low. When the old
economy and reality were quot;in,quot; this ratio would have
salivated the big-money crowd into a stampede of gold
buying. No matter today, as the new economy has taken
over. Fundamentals are out; so are profits. Market
hype, dreaming, fraud, and market manipulation are in.

Maybe that is a reason we see a gold-lending type
scheme for oil popping up in Congress:

quot;U.S. senator seek congressional vote on SPR oil swap

quot;U.S. Sen. Charles Schumer, a New York Democrat,
introduced Thursday a non-binding resolution calling on
the Clinton administration to sell or swap oil from the
Strategic Petroleum Reserve to help stabilize prices.
'The market does not believe that OPEC will increase
production by a sufficient amount in a sufficient time
to head off an oil crisis,' Schumer said at a press
briefing on Capitol Hill.

quot;'Using the SPR will prod OPEC to move now,' the
lawmaker said. 'If the U.S. releases the reserve
through swaps, other OPEC producers -- fearing that the
last days of sky-high oil prices are near an end --
will fudge on their quotas and send oil prices into a
downward spiral.'

quot;Schumer's resolution would express the sense of the
U.S. Senate that SPR oil should be released, but would
not actually force the administration to sell or swap
oil from the reserve.

quot;Sen. Susan Collins, a Maine Republican, co-sponsored
the resolution. Schumer and Collins are gathering
support of other lawmakers, with a vote on the
resolution not expected until next week at the
earliest, a congressional aide said.

quot;The White House is already reviewing an Energy
Department proposal that would allow the government to
loan oil from the reserve to energy companies, who
would then sell the crude on the open market to lower
prices.

quot;In addition to releasing reserve oil to fight OPEC's
low production levels, the resolution also calls on the
administration to increase the amount of oil held in
the SPR.

quot;The reserve currently holds 570 million barrels of oil
in underground salt caverns in Texas and Louisiana and
has room to store another 111 million barrels. The SPR
was created by Congress in the mid 1970s after the Arab
oil embargo.quot;

Schumer and Collins must have consulted Treasury
Secretary Summers on this one, for the Treasury already
has a gold prototype in play and look how that has
worked.

The Arabs must be chuckling with laughter behind the
scenes at our pathetic groveling. I would think they
would be buying gold in a substantial way in the near
future and are probably delighted that the West is
throwing this valuable asset away at such ridiculously
low prices. They certainly will have the money to knock
on gold's door, and it will be a great hedge for them
when the overvalued dollar takes a swan dive.

As a result of the falling Aussie dollar, Australian
miner Delta Gold sold forward 560,000 ounces of gold in
February at an average price of A$492. This brings
Delta's total hedging exposure over the next 10 years
to 2 million ounces, or some 49 percent of mineable
reserves.

Let us mark down Delta Gold and revisit the company
when gold is $500 bid and see how it is faring and what
is the disposition of its shareholders toward
management then.

Potpourri and the Gold Shares

The XAU poked its head up again closing at 62.79, up
3.97 -- showing some late signs of vigor. Gold stocks
are suffering the same fate as other value plays.
Nobody wants them, the public wants high-tech, and
money is pouring out of the hands of portfolio mangers
that want to buy the gold shares.

The sky is falling! The sky is falling!

As I have to prepare for my speaking engagement on
Friday at the Alaska Miners Association Convention in
Fairbanks, I wrote up quot;the sky is fallingquot; part of this
commentary last night. Today the sky fell in for
Proctor and Gamble, as that stock opened 30 points
lower after presenting Wall Street with an earnings
warning.

Good old reliable Proctor and Gamble. Now, if that
tried and true company can open more than 30 percent
lower overnight on an earnings warning, what could the
share price of a company that has no earnings at all do
on an opening? The day is coming when an Amazon bomb-
type Internet company opens 80 percent lower, not 30
percent, on bad news, and that will set off a Nasdaq
panic.

The momentum players most likely will want to get out
of their obscenely overpriced tech stocks all at once,
and there just may be no bids.

Meanwhile, the sky certainly is falling for many
shareholders of corporations that require rising
earnings in the future for their share prices to
advance.

That is what the Cafe camp has been saying for some
time when it comes to the stock market. And that is
what has started to happen to many of the mainstream
stocks. Of course, the Nasdaq crowd would call us
Chicken Little, as that index continues to set records,
and has almost doubled in five months.

Most everyone in the markets has his own thoughts on
such quot;crowings,quot; but for me it is now or right around
the corner that the sky is falling or will fall. Any
one us who have experienced market collapses knows how
greed can turn into fear overnight. Many money managers
today have no concept of real market fear or the quot;get
me outquot; trade. The same client who wanted to buy at an
1/8th instead of a quarter will demand to get out of
shares NOW, regardless of price. That scene is coming
(as interest rates rise, putting further pressures on
profits) and when it does. we will start hearing about
the opposite when it comes to gold -- quot;just buy itquot;
will be the cry of the investor.

The Cafe camp has company when it comes to warnings
about the quot;sky.quot;

Cafe member Jim Cole sent us the following alert from
Arthur Levitt:

quot;NEWTON, Mass. March 6 (MSNBC) -- Securities and
Exchange Commission Chairman Arthur Levitt said Monday
that he was concerned that many retail investors did
not fully understand how the financial markets worked
and were overextending themselves.

quot;He said that these investors could fall victim to
their own wishful thinking due to this failure to
understand markets. He said he was worried that
investors were borrowing not just on margin, but also
against other assets, such as their homes, to invest in
the market without taking any account of the risks they
were running.

quot;He said some companies go public simply to survive,
threatening their long-term survival.

quot;'Sometimes their race to an IPO comes at the expense
of laying a foundation for a viable, long-term
company,' Levitt said at the Boston College Finance
Conference.

quot;He also said that many of today's stock market
valuations are hard to justify.quot;

I have long felt that the price of gold might explode
due to a banking panic of sorts in which loans were
called in or curtailed in all sectors of the economy.
Because the gold loans are outrageously large at 10,000
tonnes or more and mine supply of gold this year will
be only around 2,550 tonnes, it could cause chaos when
the bullion banks try to get their gold back.

This will happen -- it is just a matter of time -- and
leaves me calling quot;the sky will fallquot; to the gold
shorts. For reference, regard what one of the gold
bears had to say when gold rallied to only $330 per
ounce, not $430 or $530 as palladium just did, or as
gold will.

This is what long-time mega bear London gold analyst
Ted Arnold had to say last Oct. 11 with gold trading at
a mere $324 per ounce.

quot;Central banks are selling gold to prevent a further
sharp rise in prices from causing a major financial
crisis....

quot;Central banks, according to our sources, have acted
swiftly to prevent a repeat of an LTCM-type of crisis
by making sure that gold prices remain in a tight
range. Enough selling is done by agents of the monetary
authorities involved to cap gold.

quot;'Central bank regulation of the bullion market always
seems very farfetched to most observers, but it is a
'cheap' option compared with the potential cost of
bailing out banks and generally injecting liquidity
into an economy if there were a full-blown crisis,' he
said.quot;

Gold is a financial disaster just waiting to happen to
the shorts because of the price-distorting manipulation
that has gone on for years.

Am I being too alarmist?

quot;Risky debt may cause trouble for U.S. banks.

quot;By Daniel Bogler and Gary Silverman
quot;Financial Times

quot;U.S. companies and consumers have built up record levels
of risky debt that could threaten bank's financial
health if the economy slows, warns McKinsey the
financial consultant.

quot;Wolfgang Hammes, a senior manager in McKinsey's banking
practice, said: 'There is a substantial amount of
hidden credit risk at U.S. financial institutions that
could lead to serious loan losses. Most
banks' risk-management systems are not sufficient to
identify and quantify these risks.'

quot;Mr. Hammes, who has been examining debt levels in
recent months, points out that, in spite of a nine-year
economic boom, U.S. consumers and companies are more
indebted than ever. The borrowings of the average U.S.
household now exceed a year's disposable income,
according to Federal Reserve figures....

quot;The consultancy is even more concerned at the rapid
growth of riskier types of credit on bank balance
sheets.quot;

I suggest to you that there are reasons that many
bullion operations, such as J.P. Morgan's, are
downsizing. They have to know the size of the gold
loans and that they cannot be covered in a short period
of time if need be during a crisis.

Just today I received word that the liquidity in the
over-the-counter gold market (where most of the action
occurs) is already down to 50 percent of what it was
two and three years ago. The retreat by many of the
bullion dealers is starting to take its toll in many
regards. When the gold-buying panic kicks in, there
just won't be enough gold to go around and satisfy the
buyers. We have a skyscraper gold move coming.

When that day comes, quot;Chicken Littlequot; will look like a
guru while the gold shorts try to explain their way out
of gross miscalculations.

Speaking of banks and checking them out, look at this
from Bridge News today in London:

quot;The National Audit Office confirmed on Tuesday that it
was conducting a routine investigation into the
Treasury's decision to sell a share of its gold
reserves but said it would not be in a position to
publish anything until around December. An NAO
spokesman dismissed newspaper speculation that the
inquiry would 'savage' Chancellor of the Exchequer
Gordon Brown's decision to press ahead with the sales,
saying it was far too early for the investigation to
have reached any conclusions. A spokesman said the NAO
held inquiries into all major public sector sales to
determine their value for money. The gold sales inquiry
was launched in December and will take evidence from
the Treasury, gold market participants, and 'everybody
interested in the sales.'

quot;Critics have accused the Treasury ever since of
depressing the gold price -- although the price is
currently well above the level when it announced the
scheme -- and for wasting public resources in an ill-
calculated and politically-motivated conspiracy.

quot;The Treasury has responded by saying it has actually
made a net profit to date in selling the gold, despite
40 percent of the proceeds being invested in the ailing
euro. It also strongly rejects the suggestion that the
sale was in any way politically inspired as 'complete
rubbish.'quot;

First of all, last night's gold price was below the
gold price when the Bank of England scheme was
announced ($289), not considerably above. Second, the
British money mangers must have invested the other 60
percent of their gold proceeds in Internet stocks to
make the selling of gold a winner after what the euro
has done. By December this trade should look like one
of the worst in history.

From Jonathon Rosenthal's business column in South
Africa:

quot;Safe as Fort Knox' called into question

quot;The United States government's gold stockpile at Fort
Knox was safely tucked away with all of the 147.3
million ounces in the cavernous vaults accounted for,
the U.S. treasury said recently.

quot;But a footnote to the treasury's report implied that
no one had actually gone down to the vaults to check.

quot;The questions over whether the U.S. gold stockpile was
safe and sound began with a letter from James Turk, a
prominent gold market commentator, to the treasury
asking when the last proper audit of the gold stock in
Fort Knox had been done.

quot;Turk said he believed the last audit had taken place
under the Eisenhower administration in the 1950....quot;

Some closing thoughts....

The precious metals rarely rally sharply on the day of
news that we all would construe as bullish. Today's
blip with oil over $34 per barrel is a good example.
That is because of its recent action over the past
decade and because of the manipulation. But it should
rally when investing institutions gather after a market
day like this one and decide either to buy gold or
cover shorts. That is why I am expecting a significant
delayed reaction to this recent sharp move up in the
oil price.

Portfolio managers know why Pamp;G went tankola this
morning. No statistical games, just facts coming to
light.

The Proctor and Gamble earnings warning is not to be
taken lightly. As I understand it, the company came out
with this warning due to climbing commodity prices that
are used to make the company's products -- thus profit
margins will be squeezed. If that is the case for them,
it has to be the case for many corporations. There
surely is inflation in the real world, and denial of
that reality will not cut it any more.

North to Alaska!

Heading out early Thursday morning. I have that old
Johnny Horton tune popping up in my head all the time
now.

quot;Way up northquot; -- just what the price of gold is going
to do.

Because of the news of the quot;routinequot; investigation into
the Bank of England gold sale, I thought I should give
you some idea of what the Gold Anti-Trust Action
Committee is up to.

Congratulations to GATA's operatives in Britain who
have been so instrumental in shaking things up over
there and waking up the British press and government.
Something was rotten in the State of Denmark; something
is rotten in the British Treasury.

Chris Powell will be meeting soon in Connecticut with
staff members for Sen. Joseph I. Lieberman. Chris sent
me the following this week after speaking with a
Lieberman staffer: quot;He said he understood that the
Treasury Department is dealing with MANY requests for
answers along these lines that were prompted by GATA.
But he had no sense of why the Treasury has been so
slow to respond.quot;

This means that the Treasury Department is dealing with
many requests for answers from members of Congress as a
result of the GATA army.

My schedule:

* North on Thursday to the Alaskan Miners Association --
hopefully to round up support in that mining-conscious
state and to make some connections to meet with the state's
politicos in Washington.

* Late March: Off to New York to speak at the spring
dinner meeting of Committee for Monetary Research and
Education to spread the word and meet some New York
press.

* Mid-April: Off to Washington with Chris Powell to
meet with congressional leaders. We may not meet with
all of them, but GATA supporters are lining things up.
Sincere interest has been expressed to meet with an
entire GATA delegation. We will ask that there be a
congressional investigation into the gold market and
will lay out an exact agenda of what Congress needs to
do: Just find out the truth.

* Also in mid-April: Off to Las Vegas to meet with U.S.
Sen. Richard Bryan, D-Nevada. Bryan has expressed
interest in hearing what we have to say, and his staff
today called another GATA supporter in Nevada who has
been working diligently to arrange this meeting.

* June: Off to Paris to the Financial Times Gold
Conference to tell our tale to all the high and mighty
there who that have an open mind.

Alaska, Connecticut, New York, Washington, Las Vegas,
Paris -- why not Rome too?

GATA is an army not so differently composed as that of
Spartacus. If Spartacus had the Internet in his day,
his revolt might have succeeded, as ours will.

Our adversaries might laugh and tell us we will end up
like Spartacus and that our Don Quixote-like quot;tilting
at windmillsquot; is sheer fantasy that will not win the
day.

My retort is: This is a brand-new day. That is what
they keep telling us anyway, isn't it?

Long live the quot;Enveloping Horn.quot;