John Embry and Gold, The NY Times on Barrick, Barrick and Bre X

 

The following is an interesting exert from an article on Rense, it provides insight into the mind of respected Gold investor John Embry on the state of gold back in 2003. It also provides further insight on Barrick Gold from none other then the New York Times.

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John Embry, the manager of last year's best-performing North American gold fund and manager of the Royal Precious Metals Fund for the Royal Bank of Canada, says he is putting his and his clients' money on the "lunatic fringe" in this dispute: "I've examined all the evidence gathered by GATA and everyone else, and I think these guys are anything but lunatics. They've done their homework and have unearthed a lot of interesting stuff. The problem, though, is that the market is sufficiently opaque that there is really no way to know who is right and who is wrong."

 

"The fact is," continues Embry, "a lot of this stuff is based on estimations. I do however believe that, based on the evidence dug up by Veneroso and Howe, they are presenting equally if not more credible numbers than the other side. I find the campaign to undermine their credence simply bizarre. I think these guys [GATA] are right and that the number put out by Gold Fields Mineral Services as the amount of gold loaned out by the central banks is definitely wrong. Now, whether it's as much as 15,000 is up for interpretation. The recent release by the Bank of Portugal is important. When a central bank has 70 percent of its gold loaned or swapped, I don't think it is operating independently, and I suspect there are an awful lot of them that have loaned out much more than has been reported."

 

Embry says, "I've made a fortune for my clients investing in gold and gold stocks because I have operated on the premise that the Veneroso/Howe reports are right -- that gold was significantly undervalued in the daily quote and that it was going a lot higher. The circumstantial evidence, and I bet my clients' money on it, was very much in favor of the guys who said a great deal more central-bank gold had entered the market and driven the price down far too low. GATA has had this story from day one. I think that they're right and that officialdom doesn't want this exposed. GATA is willing to have a public debate but the gold world won't debate. I think there is a tacit admission of anyone who has an IQ above that of a grapefruit that Veneroso and Howe have a pretty good point. I'm an analyst who has looked at both sides of the issue and I bet my money on GATA. So far they've been right."

 

Whether the gold bugs are right about the reasons for the meteoric rise in the price of gold is uncertain, but, according to GATA's Murphy: "It's all the more reason to have the central banks come clean about the actual amount of gold that physically exists in their reserves. Either way, the price of gold will continue to rise because, as we already know and others are discovering, the gold is gone."

 

Kelly Patricia O'Meara is an investigative reporter for Insight magazine.

 

I know what some of you are thinking. What rubbish. Gold gone. Conspiracy to keep the price depressed. Bollocks. Well, if it's bollocks, what about this story in NY Times?

www.nytimes.com/2003/03/02/business/worldbusiness/02GOLD.html

    After years of top performance, Barrick's stock price has slid, falling nearly 11 percent over the last year, as prices for gold have soared nearly 18 percent. Randall Oliphant was recently shown the door as chief executive and replaced by another longtime Barrick executive, Gregory C. Wilkins. Now, Barrick has been sued by a gold dealer and gold investors who say its success of the last decade relied on manipulating gold prices.

 

At the foundation of many of its troubles is a wide perception among investors that Barrick is not set up to take advantage of a rising market because of its strategy of locking in prices for future gold production. That strategy -- known as taking a hedge position -- has been used by Barrick for some 15 years, and company executives credit it with bringing in some $2.2 billion of additional profit during that time."

"Recent events have only fueled the debate. With a strategy described in exotic terms like "off-balance sheet position" and "fixed-forward contracts," the hedge program sounds the way the kind of toxic ploys used by Enron did. For conservative gold investors, they are the equivalent of the investment bogyman.

 

"As a percentage of Barrick`s total assets, its off-balance-sheet assets make Enron look like a champion of full disclosure," said Donald W. Doyle Jr., chief executive of Blanchard & Company, a gold dealer in New Orleans that is the lead plaintiff in the suit against Barrick in Federal District Court there.

 

Barrick insists -- and numerous analysts agree -- that its strategy is far simpler and more adaptive to market conditions than investors seem to believe. It begins with a contract between Barrick and a large bullion dealer, like Citigroup or J. P. Morgan Chase. Under the terms of the contract, Barrick is required to deliver gold at some future date. The contract, known as spot deferred, allows Barrick to postpone delivery, however, for up to 15 years.

 

With the contract in place, the bullion dealer then leases that same amount of gold from a central bank, selling it in the spot market. The dealer then effectively places the cash from the sale on deposit, where it earns interest. During the contract's life, the dealer pays interest to the central bank as a fee for borrowing the gold. Once Barrick delivers the gold, it receives the cash from the spot sale and the accumulated interest, less the lease rate and certain fees paid to the dealer."

 

"None of this is free of risk. If gold's spot price rises above the hedge price for more than a decade, Barrick would be forced to sell its gold for less than its nonhedged competitors would receive. Moreover, the bullion dealers could demand delivery if Barrick violated certain financial and performance requirements -- for example, if a disaster occurred at its production facilities that impeded its ability to deliver gold.

 

The hedging strategy also now faces a legal challenge. In the federal lawsuit filed late last year, Blanchard and the other plaintiffs accused Barrick of using its hedge program to manipulate gold prices in violation of federal antitrust laws.

 

In essence, the lawsuit says Barrick and J. P. Morgan Chase, which has participated in the hedge program for years, used the strategy to force down prices, allowing them to profit at the expense of other market participants.

 

"If you look over the past six years, you will see that when Barrick's hedge position has gone way up, the price of gold has gone way down and vice versa," said Mr. Doyle of Blanchard. "Barrick created an anticompetitive environment through the manipulation of the price of gold, and they did it with the knowledge and assistance of J. P. Morgan and perhaps some of the other bullion banks."

 

With the hedge program bringing future sales of gold into the immediate spot market, Mr. Doyle said, Barrick had the ability to cripple any rally in the price of the commodity. Because the program also allowed it to profit in markets that left competitors in poor shape, he said, Barrick was able to use its competitive advantage to acquire other companies, fueling huge growth."

According to NY Times, Barrick Gold, the darling that Kissinger, Bush Sr, and Brian Mulroney were involved in which brought us the Bre-X scandal, has been taking a beating in the markets of late. A few months ago, a broker friend of mine passed on a suggestion from his former employer (he's since left this company) that I buy into Barrick.

I sent him back an email saying, "don't you dare get me into Barrick. It's a scam and people are going to lose money."

It turns out I was right to invest elsewhere in the gold market. But gold has been going up steadily for a year. How could Barrick's shares be doing badly?

Things aren't going well because Barrick is heavily engaged in hedging. They supply the derivatives market by doing futures contracts to sell gold at a fixed price. According to GATA, they've been deliberately suppressing the price of gold on behalf of JP Morgan and others.

The entire mechanism is too complicated to explain here.

www.gata.org

    You can get the full lowdown at <http://www.gata.org/>www.gata.org and decide for yourself whether or not there's a relationship between Barrick's hedge position increasing and the price of gold going down. The evidence is compelling.

GATA's not the only one screaming bloody murder. Congressman Ron Paul (R-Tx), a Republican Libertarian, has been calling for an investigation for some time now.

www.house.gov/paul/congrec/congrec2002/cr060502.htm

www.house.gov/paul/congrec/congrec2002/cr091002b.htm

www.house.gov/paul/committeework/bankingtrans/99_2_24.htm

www.house.gov/paul/tst/tst2002/tst061002.htm

www.house.gov/paul/congrec/congrec99/bank031799pau.htm

Keep in mind, these sources I'm quoting, Fortune Magazine, Warren Buffet, NY Times, and Insight Magazine, aren't exactly conspiracy papers. This is no fringe lunatic set discussing the danger of hedging and derivatives, it's the players.

And the domino principle is real too. Sure, Barrick is fairly protected. But Morgan, Citigroup, the Federal Reserve, and countless others could get caught with their pants down. What if gold keeps rising, they need to buy gold to cover, and there's not enough cash or asset reserves to cover the difference between the low hedge price and the market price, for a really long time?

Meltdown. The banks, rather than go under, will start calling in demand loans. Almost all loans are actually demand loans. While there may be a payment schedule, the bank in most cases reserves the right to call in your loan or mortgage or line of credit on demand in order to cover their own losses.

So if they can't pay, they call in loans on property, and foreclose on assets. Except no one's going to pay book rate for assets or property into a declining economy and depressed dollar, so they end up having to foreclose on two properties to pay one bill for half the amount. And as the vultures move in as real estate prices to plummet, it affects other banks' situations, because EVERYONE has put up their mortgages as collateral for other loans and purchases.

So what was once five trillion in assets backing one hundred trillion in loans is now toilet paper, and more loans have to be called in to have sufficient collateral to stay legal. And so on and so on, until the interest rate is 0%, growth stagnates, currency devalues, and the economy implodes.

And all because some bastards want to buy time for a bankrupt economy so they can stay on top for a few more years.

Ask the Japanese about how quickly economic chain reactions related to loans backed by overvalued asset and property values can go wrong, and how hard it is to recover. They've been at 0% interest for their third year now, with no relief in sight, and the second largest debt in the world. Their stock market is at the lowest point since 1983. America's looking at itself a few short years from now.

http://news.bbc.co.uk/2/hi/business/2828189.stm

    So what do we take away from this as valuable information?

1. Barrick Gold is vulnerable if their ability to deliver is impeded. Such an obstacle to delivery could result in people calling in gold markers that they can't deliver. Perhaps someone should talk to Barrick's miners and explain to them how they're working toward their own enslavement and that of everyone else. Trouble at Barrick's mining operations could have a synergistic domino effect, crashing, or setting of a crash of the US economy.

2. The gold market appears to be deliberately depressed by certain parties, with the complicity of central banks. If this is not the case, I challenge the Federal Reserve to have a group of GATA auditors walk through the reserve and allow them to take a physical inventory of the US gold reserves.

3. While Barrick may be in a reasonably risk-free position should gold prices rise, their client bullion banks (JP Morgan Chase, Citigroup) most certainly are not. Watch for them to tank as gold prices rise above $400.

4. For the record, my Canadian shares are NOT in Barrick. Barrick sucks. The Bushies used Barrick and their genocidal pal Suharto to scam Bre-X investors out of billions, that's how they got where they are. If you buy Barrick, you support Bush and his gang of criminals. Go ahead and sue me Barrick, so I can make all your Bre-X shenanigans public record. I dare you.

 Source -
http://rense.com/general35/off.htm

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