E-MAIL CAMPAIGN, the first of what will be weekly postings


Friends of GATA and gold,

Here are two
EXTRACTS FROM LE METROPOLE CAFE www.lemetropolecafe.com

In the first, Bill Murphy writes about the GATA Committee trip to
Philadelphia to meet with lawyers at Berger and Montague, and reviews
GATA's plan of action.

In the second, Marshall Auberback, who works in the City of London and
is a good friend of Bill Murphy, shares a clear insight into how the
Central Banks help the Investment Houses that are suppressing the price
of gold through their bear shorts.

Both are highly relevant to the GATA cause.

GO GATA, Go Gold,

Boudewijn Wegerif (Bodwin)
Moderator GATA E-mail Group

- - - - -
By GATA Chairman Bill Murphy, posted in his Midas essay,
left at the Le Metropole Cafe James Joyce Table on Friday, 26 March:

GATA is methodically marching forward. Yesterday, Chris Powell, John
Meyer and I flew to Philadelphia to meet with Merrill Davidoff and
Jerome Marcus of Berger & Montague, GATA's future attorneys. GATA is so
very, very lucky. Merrill Davidoff is extremely knowledgeable about the
gold market and follows it very closely. He has also won many BIG, well
known cases. Jerome Marcus is a tiger, too. Philadelphia Magazine just
wrote a story about him and his behind the scenes role in the Paula
Jones case. As John Meyer said on the way back, "this guy is so good, he
strategized a way to win a judgement in a case that had been thrown out
of court". As you are all aware, there are many details that we cannot
get into in a public forum. Our attorneys would prefer we say nothing at
all, but they also know that we need to mobilize support and enthusiasm
for GATA. That cannot be accomplished in a vacuum, so I will lay out as
much as I can for you.

We should officially retain Berger & Montague very soon. That will
coincide with our intention to retain Edelman Public Relations
Worldwide. We will then announce that we are launching an investigation
into the activities of various bullion banks and financial institutions
that we believe have colluded to hold down the gold price.

We intend to dig up additional evidence of collusive activities that
will bolster the evidence that has come to us already.

Remember, the attack plan we laid out in Shaka..Zulu. It calls for the
formation of a diamond formation that will turn into an enveloping horn.
At the front of the diamond, will be our efforts in the legal area.
While engaging the manipulators head on with our legal, investigative
efforts, our left and right flanks will fan out and engage the colluders
from the sides.

On the left flank, will be our PR effort to counter the negative
publicity officialdom spin meisters are pitching at the media. We will
let the investment world know that we believe they gold borrowing
speculative crowd is short over 3,000 tonnes of gold and that is more
than one year's mine supply. We will pound away at the fact that this is
a very dangerous situation and could cause some economic chaos for the
financial markets if the size of this speculative short position is not
sharply reduced. Our purpose will be to focus on this issue to draw
attention to the precarious situation of the gold lenders and gold
borrowers. We hope that by raising investment community awareness of the
vulnerability of the shorts, that other big players in the investment
world will begin to want to take them on. Remember, future longs will
have the natural supply/demand deficit and Asian official sector buying
as allies. We have been told that certain bullion banks have already
become a bit nervous about GATA's activities. It is our goal to make
them really sweat.

We also want to alert the public as to the harm this activity is causing
certain poor, but mineral rich, African countries. Thus, we will oppose
IMF gold sales, for the reasons we have already explained to you in
previous Midas commentary. We intend to state our case to some members
of the Joint Economic Committee of the US Congress sometime in April and
will attempt to bring other sympathetic politicians up to speed as to
the shenanigans going on in the gold market.

The right flank activity will be our efforts to solicit the support of
the gold mining companies and, in time, to alert gold company
shareholders as the stance by individual companies on the issues raised
by GATA. The three U.S. GATA Committee members own shares in gold
companies. We cannot see any point investing in a gold company that is
contributing to holding down the price of gold needlessly (might as well
invest in a tiddlywink company someplace else where there is hope and
there is at least a chance for the share price to go higher). That is
not to say we do not appreciate what hedging has done and can do for
certain gold producers (that subject for a different time). However, if
they feel compelled to hedge, even at these horrendous price levels,
they can still support the efforts of GATA. Already, we have received
feedback that some of them agree with us about collusive price activity
but continue to hedge because they know what is going on. We hope all
the gold companies will give us their support in one way or another.

The back of the horn is open and is where the shorts can retreat and
scurry for safety by buying back their positions. To take on some of the
most powerful financial interests in the history of world is a
formidable task, but one that we can win because we believe we have the
truth on our side. But this battle can only be won with the support of
many and a building of momentum so the REAL story of the gold market is
heard around the world.

- - - - -
By Marshall Auberback

As the worlds largest holders of above-ground stocks, the actions of
the worlds central banks in the gold market have arguably been the
major determinant of behaviour on the part of the bullion markets main
participants over the past decade. Since the early 1990s, a number of
central banks have conducted widespread dishoarding of their gold
holdings, viewing this asset in their respect balance sheets as
something akin to nuclear waste from a previous era. In its eagerness to
rid itself of the barbarous relic, however, the official sector has
probably not fully considered the implications on the markets of its
aggressive dumping of the metal.

In effect, these sales have long created the impression amongst funds,
producers, and bullion bankers, that shorting gold is an easy one-way
bet. During the past 4-5 years, any time a large speculator, gold
producer, hedge fund or bank went to cover a short position in the
market, the institution concerned was usually met with a comparatively
large barrage of selling on the part of a central bank (often one of the
European central banks, which was hoping to offload as much excess
gold as possible in advance of the formation of the ECB). But in
allowing the speculators to cover their gold shorts in such a relatively
painless manner, the central banks were inadvertently signalling that
such shorting activity was a risk-free way of earning income, as well as
suggesting that there would in the future exist a wall of selling
pressure which would ever preclude any sharp rise in the metal again
(the latter impression was particularly reinforced by constantly
misleading statements by the official sector regarding their future
sales intentions).

The official sector was, in effect, inviting more leveraged speculation
to develop in the bullion market as a consequence. The gold producers
and bullion bankers have duly taken note. The past 2-3 years in
particular have been characterised by a vast increase in producer
hedging activity. In addition to a significant increase in hedging
activity, there is now increasing anecdotal evidence to suggest that
gold carry trades are being implemented by the bullion banks to fund
positions in the credit markets. This may seem like an extraordinary
action to take, but with yen/dollar carry trades shown to be less risk
free than was hitherto suspected by the markets, the gold market stands
out as the last possible source of low cost financing to sustain these
carry trades.

Again, the central banks have inadvertently fostered this new
speculative excess in that they have been encouraged (duped?) by the
bullion bankers to lend out their gold holdings in order to generate a
return on what is commonly thought to be a barren asset (despite
econometric studies which show that over centuries, gold has averaged a
3% real rate of return - see The Gold Book Annual 1998, Frank
Veneroso, published by Jefferson Financial Services). It is thought that
over 80 central banks now engage in some form of gold leasing activity.
A several hundred tonne gold position used to finance such a carry
trade, whilst huge within the context of the tiny bullion market, is
peanuts within the context of a bank balance sheet, already leveraged up
to the gills with trillions of dollar derivative interest rate swaps.

In implementing such trades, however, the banks interests begin to
diverge from those of the gold producers, although the latter might not
realise it yet. In fact here we come to one of the great paradoxes
inherent in the leasing of gold. The current depressed gold price means
that virtually no producer can now use the gold contango and ensure a
profit mining gold. Yet the bullion bankers attempts to use low cost
gold to finance long positions in the treasury market can only be
achieved whilst there are ample supplies of leased gold, the sheer size
of which helps to keep the gold price down, thereby rendering more and
more mines uneconomic and decreasing the potential universe of the
bullion bankers for gold lending activities to finance mining (rather
than speculation). The sheer scale of gold leasing, therefore,
ultimately kills the industry it was initially designed to help.

What happens should the supply of lending from the central banks dry up?
Should vast supplies of gold stop being leased, the low cost of funding
the gold position would go and, hence, the whole rationale for the
banks carry trade would be eliminated. As supplies of leased gold
diminished, the banks would be forced to unwind these large positions,
which would undoubtedly cause a sharp rise in the price of gold in much
the same manner as the yen skyrocketed suddenly against the dollar last
year, as yen/dollar carry trades were unwound.

Here is another potential scenario in which the interests of the banks
and gold producers diverge. In order to protect themselves against the
risk (however unlikely it may appear in the current depressed market) of
a rising gold price, it behoves the bullion bankers to offload some of
their balance sheet risk by inducing even more borrowing on the part of
the majors. Sure enough, this appears to be what has happened whenever
the gold market has started to rally. As prices rose to $300 last
October amidst the Long Term Capital induced turmoil, a number of mining
chief executives professed to be swamped by phone calls from bullion
bankers offering extraordinarily large lines of credit (relative to the
mines production profile) on increasing lax credit terms. In many
instances, no margin provision was demanded as a condition of taking the
gold loans. Should the market ever rise again substantially, which party
bears the credit risk for this loan, the bank or the mining company?

The mining company surely would not be off the hook for the loan which
it had taken out under the confident assurance that the price of gold
would never go up. It might also be the subject of lawsuits from its
sure to be irate shareholders, which may have bought the equity in the
hopes of benefiting from a sharply higher gold price. Of course, should
the mine be unable to pay back the loan against its production, the
finances of the bullion bankers are also endangered. So in the long term
nobody wins from such speculation, although the bullion bankers would no
doubt cite Keynes in this instance as to what the long term means to
us investors in the here and now.

One would think that the financial regulatory bodies would frown on the
sort of speculative activity described, particularly in light of the
market upsets generated by the near collapse of Long Term Capital
Management, the blow-up in the Russian treasury bill market, the
unwinding of the huge yen/dollar carry trade, etc. Whilst Greenspan and
other central bankers have often warned of the markets irrational
exuberance, however, very little in the way of concrete action has been
taken to curb this financial leverage. In the case of the gold market,
the relevant regulatory bodies might not have taken action simply
because they are likely unaware of the magnitude of the problem which
awaits them. Very little work has actually been done by the relevant
regulatory bodies as to the extent of lending in the gold market.
Estimates of a likely short position range from 2-4 years gold mining

The regulators also find it difficult to curb financial speculation
because many of the relevant bodies have been co-opted into the process
and thereby unable to deal with the foregoing problems at arms length.
When Franklin Roosevelt appointed noted stock market speculator Joseph
Kennedy to head the SEC, it was commonly joked that this was a case of
poacher turned gamekeeper. In todays world, we have the opposite
phenomenon - gamekeepers turning poachers. The former chairman of the
New York Federal Reserve, Gerald Corrigan, is now a partner at Goldman
Sachs. Goldman Sachs is one of the major participants in the gold
lending market.

It has already been exposed that in addition to regulating its bond
market, the Bank of Italy also invested money into Long Term Capital
Management; one of its officials actually joined the fund as an advisor,
presumably to help guide the funds leveraged activities in the
Italian bond market. Eight other thus far unnamed official sector bodies
are also said to have made investments in Long Term Capital.

A former Fed governor, David Mullins, was also a general partner in the
fund. When this sort of cross-over occurred in Asia, we railed at this
corrupt, crony capitalism. There may be no actual corruption here but
as the LTCM blow-up illustrates (where the Bank of Italy actually had to
write off a portion of its reserves), it is dangerous, both financially
and ethically, for financial authorities to be co-opted into
organisations which actively speculate in these bodies assets (e.g.
gold) and liabilities (e.g. government debt).

In the case of the yen/dollar carry trade, the unwinding of such
positions, when it did come, was violent and utterly shocking to market
observers. The experience of the Russian treasury market last year also
shows the dangers when funds and proprietary traders establish massive
positions which, on a combined basis, are too large for the market
concerned. The gold market is an even smaller, less liquid market, where
supplies cannot be readily printed by the principal holders - the
central banks. The gold which they have lent to the bullion dealers
cannot be readily returned since much of it has been melted into

The shorts taken out by the bullion dealers might be of such a degree
that their respective balance sheets are endangered, and write-offs
commensurate with those taken on emerging market debt might be the
result. What is a small market therefore may become a huge source of
financial instability. Except this time, the blame can be laid right at
the door (vaults) of the worlds central bankers.

- - - - -
Posted by
Boudewijn Wegerif (Bodwin)
Moderator GATA E-mail Group