AIC INVESTMENT ADVISORS, INC.
30 Stockbridge Road, Great Barrington, Massachusettes
413-528-9779(November 1, 1999) METALS: Although noticeably absent from the front pages of America's major financial newspapers, developments in world gold markets continue to support expectations of higher gold prices in the months and years ahead. Kuwait, an oil-rich breakaway province of Iraq and long a nation known for its perchance to hold and invest in gold, was enticed to lend 79 tonnes of its gold reserves to the Bank of England in a desperate effort to assist gold short sellers from default and bankruptcy. Make no mistake about it; those who wish to destroy confidence in gold as a reserve asset and participated in this scam during the past several years have been dealt a fatal blow. Borrowing from Arab interests to save their comrades in financial deception and deceit (the hard-pressed short sellers of gold) from financial ruin and bankruptcy will be an expensive adventure. Imagine the ludicrousness of the hitherto venerable Bank of England, which is now engaged in auctioning off 400 tonnes of gold because it wishes to diversify their reserves into fiat dollars, seeking solace (in the form of gold) from Arab interest! When the Bank of England was questioned on their participation in bailing out short-sellers and producers who engaged in forward selling of gold bullion--several times over in some instances--the bank reportedly declined to comment on the deception. However, the entire financial world now is aware of their past manipulations of the gold market and will likely ignore the self-serving comments of the mouthpieces of the entrenched apologists of the New World Order. Meanwhile, the Bank of England has yet to respond to the accusation of intervening on behalf of some gold producers over-burdened by losses in the derivatives market from hedging against a sustained rise in the gold price.
A London-based newspaper, The Independent reported that the Bank of England asked several banks to allow mining companies additional time to repay debts incurred from betting against the recent rise in the price of gold. Some gold analysts have surmised that Kuwait was someway persuaded to announce its willingness to lend gold in order to calm the markets from the rush to cover short positions in the metal. The mechanics of the latest Kuwaiti gold loan are yet under-reported. The bottom line is that no more physical gold exists in the world than that obtained from new metal production. Paper gold is not as good-as-gold, as the once mighty dollar was prior to August of 1971.
Turning to recent developments among over-stretched forward sellers (mentioned in our previous Investment Bulletin of October 18) Reuters News reported that Ashanti Goldfields Co. had secured a third reprieve from a margin call and had "secured a 'short' extension of the standstill agreement from counter parties." Were Ashanti to receive a margin call, all parties realize that the company would be placed in bankruptcy. According to the latest reports from Reuters, mining analysts said that if gold prices remain below $305 per ounce, Ashanti could escape margin calls because of its existing line of revolving credit arrangement. However, Ashanti would face a margin call in excess of $270 million at a gold price of $325 per ounce. At $350, the company's margin liability escalates to $500 million.
10/26/98 9/28/99 10/26/99 Bullion Gold $291.45 $301.50 $296.40 Silver 4.90 5.77 5.23 Platinum 341.70 407.80 413.60 Coins American Eagle $313.00 $321.17 $315.67 Austrian 100 Corona 298.18 312.78 307.49 British Sovereign 68.58 70.94 69.74 Canadian Maple Leaf 313.29 317.50 311.22 Mexican 50 Peso 368.48 370.60 364.33 South African Krugerrand 306.60 309.50 304.40 U.S. Silver Coins (1 bag) 4,343.00 4,561.00 4,176.00 Phil. Gold/Silver XAU Index 68.93 86.18 67.71 During the past month, short-term gold leasing rates have retreated to more normal levels bordering the 2.0% level down from recent levels of 8.0% to 10.0%. The surge in leasing rates came in the aftermath of news that fifteen European central banks were imposing a lending cap for the next five years (excepting previously announced gold sales.) Central bank sales during the past decade have been a constant overhang in the gold market.
The retracement in precious metal prices from their recent highs is normal and should be expected. We continue to believe that the downside price risk in the dollar gold price is minimal. We expect the next significant move in precious metal prices to outpace the former at the first whiff of problems from the derivatives market. As yet, there has been little movement to increase allocations to precious metals by the average investor. When this movement occurs, it will be obvious to all.
Richard F. Maloney and Paul Maloney
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