You are here

Merrill Lynch accused in copper scheme

Section: Daily Dispatches

1:30p EDT Friday, May 21, 1999

Dear Friend of GATA and Gold:

Today's commentary by Michael Kosares at may be of interest. Like so much
other commentary lately, it echoes what we've been
hearing since last September from GATA Chairman Bill
Murphy at

Secretary, Gold Anti-Trust Action Committee Inc.

* * *

By Michael Kosares

Friday, May 21, 1999

Gold resumed its wastrel ways giving up this morning
everything it gained yesterday. The bears were back
in force trying to do something to drive the metal
lower and make those $265 July puts a winning bet.
One London trader noted in a FAN report that
amp;quot;the existence of many put options below $270
'may ultimately pull levels down further in due
course.amp;quot; Although that is an end devoutly to be
wished on the part of the shorts, it is not a
foregone conclusion.

There is considerable demand for the physical metal
as the price drops and this could be the arrow in
the bulls' quiver that finds its mark. Most of the
action has been in New York over the past few months
and nearly all the downside has to do with options
strategies designed to drive the metal lower in
advance of the British auctions. Later today the
CFTC's Commitment of Traders report will be released
and few believe that the report will show anything
but a heavily expanded short position. That could
have a major impact on the market later in the day.

On the physical side of the market, the yellow metal
continues to enjoy strong international demand and
words of support from key financial figures in
Europe and the United States. The World Gold Council
yesterday reported a 67 percent increase in demand
for the metal year on year for the first quarter of
1999 led by a recovery in Asia and strong growth in
the United States where concerns about Y2K, the
overvalued stock market, and inflation have become
considerations for many investors. The Council also
reported good growth in China and Japan.

Yesterday in Congress the metal got an additional
boost from an unexpected quarter when both Fed
chairman Alan Green span and Treasury Secretary
Robert Robin suggested that it was unlikely that the
United States would sell any of its prodigious gold
reserve. Alan Greenspan was particularly vocal,
saying that gold was an element of stability in most
nations' reserve mix.

Also helping gold was the building currency problem
in Argentina, where concern is rapidly growing that
there might be a devaluation. A devaluation in
Argentina could set off a wave of copycat
devaluations in South and Latin America and ignite
the next wave of the currency contagion that has
plagued the world economy since last year.

Bridge News reported yesterday:

quot;Gold prices will return to their upswing as soon as
the UK Treasury's announcement that it plans to sell
more than half of its gold reserves is fully
absorbed in the market, and that will not take as
long as some people are suggesting, said George
Milling-Stanley, manager of gold market analysis for
the World Gold Council. Milling-Stanley said that
fundamentals for gold are still looking positive, as
demand is showing strong gains and the UK move is
'out of step' with the current thinking in the
official sector.quot;

Lastly, I could not conclude today's report without
at least a brief mention of the charges being filed
against Merrill Lynch for collusion in manipulating
the copper price. For years we have complained about
the one-sided view of the gold market on the part of
Merrill Lynch and warned that its analysis was less
than objective and evenhanded. As a matter of fact,
Merrill Lynch has never seen a gold price it liked
and we have always thought there were reasons for
this having to do with its own position, or the
position of key clients, in the gold market. With
the copper revelations, some concrete evidence is
now in the public record that this sort of thing
goes on.

Though we stress that the charges filed by the U.S.
Commodity Futures Trading Commission now must be
treated as allegations, it serves to buttress
warnings we have issued here repeatedly to read
financial press reports with an educated eye and an
understanding that the Wall Street financial firm
being interviewed may have an ax to grind -- in some
cases a very large ax to grind. Sumitomo Corp.,
which was allied with Merrill Lynch in these copper
market operations, has already paid an $8 million to
British regulatory agencies for manipulating the
market. The CFTC is now alleging that Merrill Lynch
quot;aided, abetted, and assistedquot; in the manipulation
scheme -- as a matter of fact, it may be that
Merrill Lynch was at the center of it.

II relay this story for the benefit of all our
readers who put some faith and trust in the analysis
contained in these pages.

We strive to call it as we see it, and it is not
always that we can point to direct proof of what we
ascertain. This time the proof is beginning to
surface. I hope the CFTC finds cause to pursue
what's gone on behind the scenes in other Merrill
Lynch market operations, and we applaud these
regulatory efforts aimed at creating a fair and open
commodity market. The firm is claiming no knowledge
of unlawful conduct by Sumitomo and others involved
in the manipulation, thus trying to pass the blame
to its clients -- something others doing business
with the firm will not fail to recognize and


------------------------------------------------------------------------ home: a href=