Bill Murphy writes....From Lemetropolecafe.com:
The importance of keeping gold below $370 is evident. Cabal forces took bullion lower as soon as trading began in Australia. Gold then rallied back and traded up on the day for a brief moment in New York before it was slammed. Nothing unusual about the pullback, however. It’s a normal correction after a $19 straight run up from the $354 area.
One indication of the ferocity in which The Gold Cartel intends to defend $370 was the open interest build up yesterday. It rose a whopping 9133 contracts to 205,371. Were Morgan Stanley and Goldman Sachs buying for clients? That sort of build up indicates new longs, not short-covering. Somebody was selling a lot of gold to keep it from exploding above $370.
The big gold news of the day concerns gold derivatives. There is a commotion going on behind the scenes in the bullion-banking world. Word has it that Newmont Mining is taking it to one of the Hannibal Cannibals, JP Morgan Chase. It has to do with their Yandal operation in Australia, which Newmont inherited when it took over Normandy. That property has 3 million ounces of gold reserves with a 3.7 million ounce hedge on – one that is going underwater as the gold price soars. Morgan has called Newmont for a margin call. Supposedly, Newmont is telling Morgan to stuff it, or more appropriately, if you insist on the margin call, the property is yours. I’m told that Newmont is willing to buy back their hedges from Morgan, but only for so many cents on the dollar. In other words, they are playing hardball. Newmont can walk because the property is "fully encircled," meaning it is a stand-alone project. Of course, it won’t do much for their bullion-banking relationships.
The following was filed yesterday with the SEC:
https://www.sec.gov/Archives/edgar/data/891088/000095013003003747/d6k.htm
Newmont Yandal Operations Limited ("Yandal") advises that on May 21, 2003, it received a notice from a gold hedge counter party alleging a right to terminate a gold hedge counter party contract with Yandal before its scheduled maturity, based on the alleged occurrence of an early termination event under the contract. Yandal estimates the payment required to be made under the contract would be approximately U.S. $46 million based on an assumed spot gold price of A$560 per ounce.
In addition, Yandal also received notice today from Newmont Mining Corporation (NYSE: NEM) ("Newmont") that it intends to make an offer to acquire all of the 8 7/8% Senior Notes currently not owned by Newmont, in addition to all of the gold hedge counter party contracts entered into between Yandal and counter party banks.
-END-
The problem is not a small one for Morgan if Newmont walks. The hedge is 700,000 ounces more than their reserves and that’s if someone is mining them. 700,000 times $370 gold is $259 million. At $470, it’s $329 million. If the mine somehow becomes inoperable, the problem could become catastrophic. It serves Morgan right for allowing that kind of hedge in the first place. That’s not a hedge, it’s a speculation, put on back in the Hay Day of the gold rigging operations. What goes around comes around. Chase influenced Newmont to put on a big hedge at the bottom of the market around $265 gold, right before the Washington Agreement was announced.
The ramifications for the gold industry could be dramatic if Newmont sticks it to Morgan. Gold is only at the $370 level. What happens when gold rises hundreds of dollars per ounce? There is liable to be one counterparty risk problem after another. Ever hear this one before?
GOLD DERIVATIVES BANKING CRISIS!
It’s coming. The last time gold ran up to these levels earlier this year, we heard groans from the Daughters of Gwalia. All quieted down as gold was beaten back by the cabal. Now it’s Newmont and Morgan. We should see some serious gold derivatives fireworks once gold stays above $370 for more than a few days.
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Investors continue to take delight in selling their gold shares, selling off today more than they gained yesterday. The HUI lost 3.10 to 140.27 and the XAU fell 1.72 to 73.86.That’s against gains of 2.58 for the HUI 2.58 gain and 1.30 for the XAU with gold moving up $5.70 on Wednesday. The gold shares remain a gift.
On reflection, I got a little carried away thinking The Gold Cartel was going to roll over and die and not be up to their old tricks. The Newmont/Morgan flare up makes me realize just how desperate they are to keep gold from going much higher than where it is now. A gold derivatives crisis is that close at hand. However, I really do believe they are doomed. The falling dollar, the strong physical market demand, the continued lowering of US interest rates, the opening of the Chinese gold market, Malaysia’s gold dinar coming on stream, increasing terrorist attacks, further hedge book reductions, etc., are going to prove to be too much for them.
Stand by stretcher-bearers.