Murphy Commentary for 5/13/99


11:45 p.m. EDT Friday, May 14, 1999

Dear Friends of GATA and Gold:

GATA Chairman Bill Murphy is on the road for a couple
of days and there doesn't seem much to share tonight
about the gold market beyond the usual sources that you
probably check anyway, so I'll share this correspondence
between myself and Martin Armstrong of Princeton
Economics. I hope it's better than nothing!

Secretary, Gold Anti-Trust Action Committee Inc.

* * *

May 14, 1999

Dear Chris:

I understand your frustration that gold has been
perhaps the worst investment for the past 20 years. But
to argue that it is being manipulated due to large
short positions is not justified.

There is no interest in gold at this time and the
central banks are all sellers. After they sell their
gold, then we will see a bull market. Once those
supplies are gone, no one will be able to lean on that
supply and your bull market will begin.

I hate to tell you, but gold will drop to under $200
before it turns.

I find it extremely one-sided how a Buffet and company
of tagalongs is not a manipulation because they buy,
while selling is a manipulation. The very guys you
argue are manipulating gold down were big sellers of
gold and buyers of silver during the Buffet rally.

GS or not, the economy simply does not support your
position. And I do not want to hear how I am short or
some nonsense to try to discredit my views, because it
is not true. PEI owns a 51 percent stake in a public
gold mine in Australia. That is my long-term view; it
does not change my short-term view.

You cannot make a case for gold manipulation when
central banks are willing sellers. They have
demonetized gold and that is a simple fact of life. If
you want a free market, then don't stand in the way of
this bear market. Let the central bankers sell
everything they have and then there will be no overhead
supply to worry about. You cannot argue manipulation
and take the position that these guys are not allowed
to sell what they have.

The banks know what is coming and if they sell ahead of
the central banks, so be it -- that's a free market.

Princeton Economics

* * *

May 14, 1999

Dear Martin:

Thanks for yours of today. It was good of you to write.

I may not be the best qualified to reply on behalf of
the Gold Anti-Trust Action Committee, but I'll try,
since GATA Chairman Bill Murphy is traveling today and
may not be reconnected for a day or two.

You write: "There is no interest in gold at this time."

We disagree here. Our information is that gold
purchases by ordinary people are at record levels. For
example, American gold eagle coins are being rationed
by the mint. I happen to think that Y2K fears are
wholly unjustified, but the buying public thinks

You write that after the central banks sell their gold,
we'll see a bull market. Possibly. I wish that the
central banks were not using their gold supplies to
manipulate the price, but I don't think that there's
any question that they are. Last summer Fed Chairman
Alan Greenspan told Congress that they would; it's a
matter of public record.

You dislike calling what the central banks are doing
"manipulation." But I don't know what else you can call
the proposed IMF gold sales in the name of debt relief
for poor nations when the amount of debt relieved would
be a tiny share of total debt and when the debtor
nations, being exporters of raw materials, including
gold, probably would do better with a higher gold
price, not a lower one.

And I don't know what other than "manipulation" you
can call it when the Bank of England announces its
gold sales in advance even as it says it is selling
gold because it wants a better return on its assets. If
the Bank of England really wanted a better return on
its assets, it would not announce its gold sales until
they had been completed; it would not do anything to
drive down the price of the asset yet to be sold.

Obviously the IMF and Bank of England gold sales have a
primarily political purpose, a purpose other than the
stated purposes. We believe that this purpose is to
manipulate the price of gold, thus to tamper with this
traditional gauge of the integrity of currencies.

We also think "manipulation" is fairly applied to the
bailout by Wall Street, at the behest of the New York
Federal Reserve Bank, of Long-Term Capital Management
last summer. That bailout was ADMITTEDLY manipulation;
the Fed believed, and the Wall Street investment houses
were persuaded, that the free market could not be
allowed to work in the ordinary way, which would have
meant LTCM's bankruptcy and collapse and with great
losses suffered by LTCM's counterparties. So these so-
called capitalists were all bailed out under government
sponsorship when their casino bets went against them
and threatened to take them all down. GATA believes
that LTCM and its counterparites had troublesome
liabilities related to gold.

Contrary to your suggestion, GATA hasn't argued that
central banks should not be allowed to sell their gold.
We may not consider that a wise policy, but our
objection is a matter of HOW they are handling their
gold. Are they, for example, leasing it in circumstances
that put its recovery at risk? GATA argues that so much
of this gold has been leased, sold, and absorbed by the
market that its recovery could prove impossible in a short
squeeze when gold's price direction changes, and that
many financial institutions are at serious risk because
the "gold carry trade" has gone too far. Further,
there's some reason to think that the Bank of England's
gold sale -- or at least its announcement that it plans
to sell its gold -- was meant largely to rescue one of
the big shorts in the market, another financial
institution that, like LTCM, is deemed "too big to

You write that the central banks "have demonetized
gold." I agree that demonetizing gold is one of their
goals; they would monpolize money with their paper.
They also, as I have said, seem to want to tamper with
the traditional measure of the integrity of currencies.
But I would argue that their success is not yet
assured. Gold surely is down and its advocates are
badly demoralized -- GATA works to reverse that. But
the world at large, rather than governments and central
banks alone, will decide ultimately what constitutes
money. Gold may be out of fashion and it certainly has
its limitations, but it also has its advantages. It is
real rather than a promise, someone's liability, or an
idea; it survives governments, regimes, and even whole
civilizations. That is why it has a tradition
everywhere, even in the United States in the Age of Dot

Indeed, gold lately has done pretty well as money in all
currencies but the U.S. dollar. My guess is that the
business cycle has not been repealed and that the
dollar and gold will come into a substantially different
balance eventually -- but not as soon as they would
have done without the collusion of certain financial
institutions and central banks.

It is this collusion, this defeat of free markets, that
GATA takes direct aim at. We think more evidence of
this develops each day. That is why we carry on with
our investigation, our lawyers, our publicity, and,
yes, our fund raising.

I'll forward our correspondence to Bill Murphy, to
GATA's vice chairman and treasurer, John D. Meyer, and
to GATA's email group members for their information and
in case they want to make a better explanation than
I've been able to do here.

Thanks for writing.

Secretary, Gold Anti-Trust Action Committee Inc.