The Gold Market and Precious Metals Commentary

Technicals -

Jump back jack. Katy bar the door. It is all she wrote for the gold bears. Uptown we go. In the last Midas we called the technical set up about a 10. The pullback the past couple of days and sudden thrust up today only further strengthens the technical picture. Next stop: $335 gold. The bullish consensus, with all that is going on in the world, was only 33% this morning. That is very, very low for gold and confirms what we have been telling Le Metropole members. There are not that many other real bulls out there. But, there will be. The herd is coming our way.

Silver is doing just fine and has no near term gaps to fill. That is positive and it is doing the work we thought it had to do. The price of silver is going to accelerate up very sharply in the near future as governments around the world step on the gas petal and print money to stave off financial collapse.

Fundamentals -

Tis a lot happening out there to report to you.

One of our more keyed in sources tells us that Long Term Capital has been let out of their short 300 tonnes gold borrowing position by a central bank in an " off market transaction". In our last Midas we stressed the fact that their short position was actually an impediment to the price of gold rising. There is no way they could just go out and buy 300 to 375 tonnes of gold at the market. That would have undone the "bail out boys" entire "save the system" program. Just look at the tremendously, violent bond run up and yen run up. Long term was supposedly short both of those and look what happened. Exiting the yen short and short Treasury Bond positions was painful, but they could get out. Buying that amount of gold could have set off a world panic as other hedge funds and borrowers joined in to cover at the same time. Now, we can have just a normal buying panic ( instead of a catastrophic one ) when the other big gold shorts try and cover down the road.

We think this is important news for several reasons. It shows how desperate our government is to try and keep order. Two, a 300 to 375 central bank sale of gold at the market is staggering and the price of gold has not really budged. Had they done this in the bullion markets, the price of gold could have dropped $60 to $70 per oz. The net effect of this maneuver, in our opinion, is that this is very bullish news because when this news leaks out to others, it will become apparent to all that there must be other big gold shorts out there, but governments will not be there to arrange such an exit deal that lets the gold shorts off the hook so easily. That is why I suggest that the price of gold will fly when these other big gold shorts try and run through the tiny exit door at the same time.

One month lease rates have collapsed to 60 basis points from about 180 basis points in just days. This suggests some confirmation of our theory that the "powers to be" orchestrated a bear counter attack against gold bulls by borrowing gold and dumping it in the market place to buy time to solve the Long Term Capital problem. Now that they have solved the gold short problem for Long Term, they paid back the gold loan, the lease rates have tumbled dramatically, and the price of gold has risen again.

There is even more fuel or the fire to our story that officialdom is messing with the gold price. Over the past many months and years, every time gold looked like it was poised to really move higher, we heard from the Central Bank of England about gold sales. They did it again on Monday.

(Bloomberg), London, Oct.5 - " Gold dropped more than 1 percent after the U.K. Chancellor of the Exchequer Gordon Brown said the International Monetary Fund, the world's largest gold holder, will consider selling some of its reserves. Though previous attempts by the cash-strapped IMF to sell gold to pay down debts of the world's poorest countries have been blocked by Germany, that country's position my now be changing, Brown said yesterday at an IMF press conference."

Tell me this was not part of the buying time program by our "bail out boys".

These games do not amuse the French. (Reuters), Washington, Oct. 6 - "Bank of France Governor Jean-Claude Trichet said on Tuesday the French central bank had "absolutely no plan for gold sales" and that he believed this was the same case for France's major Western counterparts. " As far as the Banque de France is concerned there is absolutely no plan for gold sales, and to my knowledge it's the same as regards the major owners of gold holdings, which are if I'm not misled, the U. S. first, Germany second, France number three, and Italy four, " he told Reuters.

Le Metropole Café is developing tremendous feedback and information sources. A very conservative member has heard from his Wall Street connections that Bankers Trust is "toast". The word is that they are shopping it around and it has to merge. This has many implications, not the least of which, is they have a very active bullion operation and we believe they carry a fairly large short gold borrowing position on their books. An announcement such as this is liable to create additional, justified fear about the financial system. Our sources tell us that the Federal Reserve is really worried about banks like Bankers Trust, even more than they are about the hedge funds. Some of these banks have proprietary trading desks that are out of control. Financial stocks are plummeting for good reason.

Another Reuters headline ( Oct 6 )that has very bullish implications for gold down the road, " OVERDEPENDENCE ON DOLLAR ONE CAUSE OF ASIAN CURRENCY CRISES LAST YEAR- Miyazawa ". " The Japanese government is now considering from a broader perspective some specific measures to improve the environment for the yen to be used more actively by market participants in the region an beyond,"he said.

King dollar is in trouble. Stronger Asian currencies will give gold demand a big boost in that region and the weakening dollar is likely to influence Asian central banks to buy gold for reserve purposes.

Sine fundamental information on gold's cousin, platinum. John Brimelow pointed out that the perennial long position of Engelhard on the Tocom in Japan dropped by several thousand contracts. Since they are THE Anglophile on that exchange and always have a long book, the reduction in their long position indicates heavy shorting by hedge funds that are still playing the economic collapse game. We think they will be caught going the wrong way as all the precious metals are poised to rocket.

Potpourri and the Gold Shares -

Yesterday the XAU gapped 3 points lower and closed over 2 points higher. That is bull market action at its finest and another clear signal that the gold scene has changed. Holders of the senior shares did not want to give back profits as they have in the past couple of years, so they panicked after gold's lower opening yesterday, thinking another dive was coming. By the end of the day sellers had to buy back their positions as it was clear something else was up. Today's follow through and hefty advance of 5.87 to close at 86.63 is another step towards the XAU headed for 155 down the pike.

We have been asked repeatedly about the great stock market action of Golden Star Resources and members want to more about why I think it will go to $60 to $70 in the years to come. I strongly suggest you read Frank Veneroso's report on this company which can be obtained from GSR's headquarters in Denver.

I will say this. I think they have found Eldorado in a sense that I believe that they have found a number properties ( a few with very big resource potential ) that will eventually become profitable gold mining operations in the Guyana Shield. This is very unusual. How does one exploration company find so many?

The Guyana Shield is one nasty place. It is a big jungle, inaccessible and hard to explore. Compare exploration there to many places like Nevada, Australia and many spots in Africa that have really been picked over because exploring is not so harsh. That does not mean there are not spectacular finds to be found in those locations, but on a probability basis, it explains why one exploration company may have a real big time score in the Guyana Shield.

One of our favorite gold share holdings is Durban Deep, a South African gold stock. We know that many of our lemetropolecafe.com members own it, as we do. As I have stated in the past, Midas's goal is to attract some of the sharp minds and "in the know" people that are involved in the gold market and the gold shares.

Ray De Moss, successful entrepreneur from Ruston, Louisiana and Café member, is exactly the kind of individual I was hoping to attract. A good buddy of Terry Bradshaw ( NFL Hall of Fame great ) from his collegiate days at Louisiana Tech, he is also a major shareholder of Durban Deep, knows the top brass, and has been to South Africa to see Durban for himself. He has written some commentary on Durban which says it all. Take it away Ray.

Durban Deep by Ray De Moss 10/07/98

Durban Deep is probably the premier gold investment on the market today. South African gold stocks in general offer excellent values in today's gold share market, that is if you are interested in making money! Risks in SA have been way overblown! After doing business in the SA gold shares for 20 years, I went to that country to see for myself just what the political and economic situation was. I found a bunch of GOOD people. Yes, there are places that you would not want to go and other places that you would use the usual common sense about security. You can also get SHOT in Shreveport, LA, ( Las Vegas of the South ), any afternoon. There are areas of New Orleans that a coach will not go to recruit a prospective athlete. That aside, the sheer beauty of the country will overwhelm any new visitor. In short it AIN'T the way you see portrayed it on the networks.

My primary interest is in making money. In 1978, the first money I had to invest was up over 140 times in 4-5 years with the SA shares. There was a German salesman that called on me, I knew he was a millionaire and I shared some of my concerns about making money with him and he introduced me to the gold market. One thing lead to another, and after doing my due diligence, I met Richard G. Johnson, a broker in Shreveport, LA [318-221-2558] that specializes in the SA gold shares. That was my first experience making money with money.

Another thing I must mention is the houses in South Africa do not have screens on the windows because they have little or no bugs, insects flying around to irritate and BITE you.. The environment has not been screwed up with all the chemicals that we have in the USA today. The main risk with the North American shares is the government regulations and I view that risk to production as more than any political risk in South Africa. Sure there is risk in all places we invest, a good reason to have a diversified portfolio, with YOUR risk tolerance reflected in the mix, ie. some would want a mutual fund and another may want a heavy weighing in a stock like Durban Deep.

Durban Deep- [DROOY is the ADR symbol in the USA, DRD is the symbol for the JSE]- The following are reasons I like DD:

*Huge gold reserves in, and above, the ground that the market values at only $2-$25 per ounce.

*These shares are like buying a call option on the gold price with NO expiration date. They should NOT be traded. Durban Deep is my largest share position and #1 gold play. Only I ain't PLAYIN, I am DEAD serious on makin' MONEY!

*800,000 ounce annual gold production, 42 million ounces in reserve and growing every day. Plans and actions are in place to increase production to over one million ounces by the year 2001.

*The profit potential is HUGE. My good friend Jim Blanchard in his "Gold Newsletter" mentions 2400% profit potential. Jim called me the other day and I told him that was REAL LOW. This share with a gold price of $500 plus could easy be in the hundreds of dollars. Reason- the whole world is used to makin' money in the STOCK market. Well, when the FAT LADY SINGS and she is singin' NOW and all them PO BOYS start lookin for safety and they want to make money they will turn to gold shares, the whole gold share market is less them HALF the value of EXXON stock. Now for you "A students" that potential is HUGE!

*Roger Kebble ( Durban Chairman) is one of the best miners in the world. He knows how to get the job done at the most reasonable price with the most efficient result. His son, Brett, is an attorney, an accountant and a FINANCIAL GENIUS. I TRUST my money with these guys! I have personally been to the DEPTHS of Durban Deep.

Now the name is misleading because much of the ore is on the SURFACE. DD now is many formerly separate mines under one management. It consists of surface operations, dump operations- where new technology is removing gold from formerly processed ore.

*Rand depreciation means huge profits for DD and other SA gold mines. Here is a very important point most people do not understand but is a very important reason why you should own SA golds. When the Rand drops in value to the dollar or British /Sterling, it in effect lowers the production cost to the mines. You see expenses are paid in local currency, the Rand, and the product, GOLD, is sold in foreign currency. When I was there, the miners were talking about the RAND falling to 10 to 1 to the dollar or 10 cents rather than the current 25 cents. They explained that every cent fall in the Rand, the more money (PROFIT) the mines made. Production costs have fallen to around $225 per ounce with the fall in the Rand.

*Durban Deep has recently acquired the Crown Jewels property just south of Johannesburg. This adds HUGE potential to reserves. Also the richest gold deposits are located in the gold veins in the area south of the city. There are places that have proven 3-5 ounces of gold per ton of ore. These veins are usually very shallow and are only 6 to 12 inches thick but very RICH. I have walked down an incline shaft in this area to such a vein.

*That is it in a nut shell. If you are serious about making money in this bull market in gold you should consider a position in Durban Deep for your portfolio.

Ray DeMoss

Midas