Published on Gold Anti-Trust Action Committee (http://www.gata.org)

Five Items and a Farewell

By cpowell
Created 1999-04-12 07:00

Friday night, May 7, 1999

Dear GATA Egroup members:

You may be interested in this major feature
article published about the Gold Anti-Trust
Action Committee tonight at TheStreet.com.

While this was a day of treachery in the gold
market, thanks to the Bank of England, this
treachery is so extreme and desperate that I'm
hopeful that it will open the eyes of many.

More and more evidence supports GATA's
contention that the gold market is being
manipulated and that the shorts are terribly
exposed. Please forward this to anyone who
might be interested, and remember that GATA
continues to seek financial contributions
for its law firm's investigation. Checks
may be made payable to Gold Anti-Trust Action
Committee and sent to GATA in care of John
Meyer, Treasurer, Box 885, Great Barrington,
Mass. 01230.

Gold Anti-Trust Action Committee Inc.
(GATAComm@aol.com [1])


There's Gold in Them There Black Helicopters

By Aaron L. Task

Senior Writer

5/7/99 3:31 PM ET

http://www.thestreet.com/markets/marketfeatures/744611.html [2]

Fact: For the two weeks ended April 6, noncommercial
short interest in gold totaled 88,363 contracts,
according to the Commodity Futures Trading Commission
in Chicago. That was the largest short position in
history (and just a fraction of total worldwide short
interest). Short interest has declined in subsequent
weeks but still remains at extremely high levels, equal
to about 10% of total production last year.

Fact: Michel Camdessus, managing director of the
International Monetary Fund, has extolled the virtue of
using gold-sale proceeds to pay for debt relief for
"heavily indebted poor countries," in the IMF parlance.
President Clinton has expressed support for the sale of
up to 10 million ounces of the approximately 103
million ounces of gold committed to the fund. To
varying degrees, the notion has been seconded by
financial and political luminaries such as Vice
President Al Gore, Treasury Secretary Robert Rubin,
U.K. Chancellor of the Exchequer Gordon Brown and
Switzerland National Bank President Hans Meyer. Even
German Finance Minister Hans Eicherl says Germany has
"relaxed" its once-staunch anti-gold-sale stance.

Fact: Last month, Switzerland voted to begin decoupling
the Swiss franc from its gold backing. The Swiss
central bank could begin selling gold as early as next
year, The New York Times reported.

Fact: The Gold Antitrust Action Committee, known as
GATA, has retained securities law specialist Berger &
Montague to assist in the "investigation of the alleged
manipulation of the gold market," according to a press
release from the organization. Bill Murphy, chairman of
GATA, believes so-called bullion banks, which include
many of Wall Street's biggest firms, have violated the
Sherman Antitrust Act by colluding to keep the price of
gold down. A senior partner at Berger & Montague
confirms the firm has been retained by GATA but says
"no decision to file a case has been made at this
time." He declined to comment further.

Fact: Last Tuesday, Murphy met with Rep. Jim Saxton
(R., N.J.), vice chairman of the Joint Economic
Committee. Congress must approve the proposed IMF gold
sale, and Saxton has "taken a strong position of
skepticism on the gold-sale issue," according to
Christopher Frenze, chief economist to the committee
vice chairman. Neither Saxton nor the committee has any
position or comment on the allegations made by GATA,
Frenze says. "Our focus is directed more at the IMF as
an institution and how gold sales would relate to IMF
finances and lending." (Those interested in more about
Saxton's position should visit www.house.gov/jec [3].)
Fact: Most market players deny there is any cabal
corrupting the gold market. And despite Murphy's 25
years as a precious-metals trader, broker and analyst
with firms such as the defunct Drexel Burnham Lambert,
the former Shearson Lehman and Veneroso Associates,
many believe his charge is, to be polite, meritless.

An English Surprise Knocks Prices

"I do not think his views hold much water," says Philip
Klapwijk, managing director at Gold Fields Mineral
Services in London. "The U.S. Treasury and Fed are
happier with gold at a certain level, but it's equally
wrong to suggest they are in favor of excessively low
gold, which sends a deflationary signal. It's a big
leap to say there is intervention or a systematic
campaign." Indeed, without Oliver Stone, it is a huge
(and ultimately unprovable) leap to say IMF gold-sale
proposals are part of some vast, multiwinged conspiracy
involving the top levels of government and so-called
bullion banks (among others).

Yet today, the price of gold tumbled $7.60 an ounce to
$283.10 after the Bank of England, much to the gold
community's surprise, announced its plans to sell up to
125 tons, or almost 60% of its reserves, between now
and March 2000. Before the announcement, gold had crept
up to the high end of its several-monthlong trading
range of $275 to $290 an ounce. Already unmoved by the
critics, the Bank of England's announcement today
stiffened Murphy's resolve.

"This is right on cue," he says. "Yesterday, the bonds
got clobbered and the gold market was surging and
getting close to the point where gold borrowings could
go under water. Then out of nowhere, right on cue, the
BOE comes out. It's unbelievable."

And other gold market participants are becoming
increasingly outspoken about the action (or lack
thereof) in the once-precious metal.

Barrick Gold (ABX:NYSE) Chairman Peter Munk railed
against central banks and the IMF for generating
"enormous negativism" in the market at the company's
annual meeting Tuesday. Munk also criticized hedge
funds and other speculators for using rumors and the
opaqueness of the gold market to exaggerate weakness in
gold prices.

Previously, Nicky Oppenheimer and Bobby Godsell,
chairman and CEO, respectively, of AngloGold (AU:NYSE
ADR) of South Africa, and Chris Thompson, chairman of
Gold Fields (GLDFY:Nasdaq ADR) of South Africa, made
separate but similar comments. Murphy cites these
public comments as evidence "the tide is turning about
what we're talking about." (More on Murphy and GATA can
be found at www.lemetropolecafe.com [4].)

Ghosts of Greenwich

What Murphy is talking about has its origins (where
else?) in Long Term Capital Management.

Murphy, among others, speculates Long Term Capital had
a large short position in gold -- he estimates 300
tons. "They borrowed gold from bullion dealers at 1% as
part of the leverage process," he says, then proceeded
to engage in a "gold carry trade" through which the
infamous fund shorted gold while simultaneously taking
a long position on U.S. Treasuries.

However, Murphy has no proof such a trade exists (or
ever existed), and Peter Rosenthal of Rubenstein
Associates, the hedge fund's public relations firm,
says, "Long Term never has and doesn't participate in
the gold market, either in the metal itself or any
derivative." Still, Murphy is not alone.

"It has been our observation that Long Term Capital was
involved in virtually every carry trade that was out
there -- yen carry trade, interest-rate convergence,
etc.," says Ronny Kraft, CEO of Gotham Capital
Management in New York, who is long various gold
stocks. "What makes it interesting is that the gold
trade is the only one with a physical commodity as the
underlying, which would make it the most difficult to

Kraft, Murphy and others believe that when Federal
Reserve officials brokered together a consortium to
rescue Long Term Capital last August, they were aghast
at the extent of the firm's gold short (among other
trades). Moreover, if Long Term's Wall Street clients
were mimicking the once-legendary hedge fund's
strategies, as some contend, many of the same firms
given the task of saving the hedge fund (and thus, "the
system") were also short gold. Thus, a rise in the
metal would not only add to the misery at Long Term
Capital, but many of the same institutions responsible
for its rescue.

Richard Torrenzano, spokesman for the consortium, says
this is "not a consortium issue" and defers to Long
Term Capital.

Greenspan's Golden Jawbone?

Meanwhile, Murphy believes the gold jig was up before
that meeting in August at the Federal Reserve Bank of
New York (which merely supplied a facility). "Central
banks stand ready to lease gold in increasing
quantities should the price rise," Fed Chairman Alan
Greenspan said July 24 during testimony before the
House Banking Committee regarding regulation of over-
the-counter derivatives.

"It was a comment not many people paid attention to,"
Murphy says. "Only in retrospect are people starting
focus on that. We know Long Term Capital didn't happen
overnight. Because the Central Bank of Italy and Fed
officials were invested in Long Term Capital, it's hard
to believe he just happened to come out with this

Fed officials deferred calls regarding gold sales to
the IMF. IMF officials declined to comment on the GATA.

A Treasury spokesman referred to the Treasury Web site
for the department's position regarding gold sales,
particularly Deputy Secretary Lawrence Summers' April
21 House testimony. The spokesman declined to comment
on the GATA.

Looking back, Murphy and his supporters say Greenspan's
largely overlooked comment was the first of a series
from global banking and political officials designed to
keep the price of gold suppressed.

"All of a sudden, you saw the market was stopped dead
as it would get anywhere near $300 an ounce," Murphy
recalls. "Bullion dealers were offering unheard-of
credit terms to producers to sell forward gold."
Because bullion banks are gold producers' main
creditors, Murphy declined to reveal the names of
producers he claims have come forward to discuss
potential gold price manipulation. The relationship
between the banks and producers is why many view the
comments from Barrick, Gold Fields and AngloGold as
being so extraordinary.

Murphy Not a Lone Wolf

While not espousing the same conclusion, Donald Coxe,
chairman of Harris Investment Management of Chicago and
chairman of Jones Heward Investments, also questions
recent trends in gold.

"The same political leaders who got the West into a war
that promises to be costly, messy and long -- after
promising us it would be cheap, civilized and short --
have announced that the [IMF] should sell bullion from
its gold hoard to pay off debts from bankrupt nations,"
Coxe wrote in a May 1 op-ed piece in The Globe and
Mail. "This strategy is being pushed piously, with the
backing of the Pope. It may also be motivated
cynically, with the backing of a shrewd ex-trader, U.S.
Treasury Secretary Robert Rubin. Announcements of
monster pending sales naturally drive down prices of
the merchandise that will soon be dumped."

Keeping the price of gold weak is "politically smart,"
Coxe added. "It will help convince economists and
central bankers that disinflation or even deflation is
still at work, despite rapid money-supply growth and
some of the lowest interest rates the world has seen."

Finally, one Nasdaq dealer who specializes in precious-
metals stocks recalls that when "every credit market in
the world was traumatized" last fall by Russia's debt
default, gold remained "incredibly placid."

The trader, who supports Murphy's efforts but requested
anonymity, acknowledges "no one knows for a fact if
Long Term Capital was a borrower. But it'd be
surprising if they hadn't considered the gold market."

As for the "outrageousness" of Murphy's claim, the
source notes John Meriwether, founder of Long Term
Capital, was "forced out of Salomon Brothers because
his subordinates were caught rigging the U.S. bond
market auctions." Furthermore, one rogue trader at
Sumitomo "clearly distorted" the copper market a few
years prior, he observes. "Is it so outrageous? I don't
know of any hypothesis more plausible. The market is
behaving in a strange way."

1999 TheStreet.com, All Rights Reserved.



Source URL: