Long-Term Capital Management seen closing


1:50a Saturday, October 2, 1999

Dear Friend of GATA and Gold:

Here's Friday night's "Midas" dispatch from GATA
Chairman Bill Murphy to his subscribers at
www.lemetropolecafe.com. Because of its importance,
I'm sending the whole thing to you and urge you to post
it wherever you can and bring it to the attention of
political authorities and gold investors everywhere.

It appears that the manipulators that have driven the
price of gold down so far by shorting the market are
now defaulting on their obligations to deliver gold --
and that the Federal Reserve is trying to rescue them.

When this becomes known, it will have an explosive
effect on the market and perhaps bring more justice
to Wall Street in a day than it has seen in a decade.

Please post this as seems useful.

Gold Anti-Trust Action Committee Inc.

* * *


By Bill "Midas" Murphy

October 1, 1999

In the last "Midas," I reported that several sources
had told me that the Federal Reserve was "jawboning"
futures commission merchants not to pressure firms to
deliver gold. In other words, they all know that the
gold is not there for the shorts to deliver and, as I
have long suspected, it appears that the Fed is
protecting the positions of certain bullion dealers and
other financial institutions that are short gold.

This is clear evidence that the gold market has been
manipulated just as the Gold Anti-Trust Action
Committee has alleged.

Two days ago I received information that a futures
commission merchant had been told by another futures
commission merchant that it was not prepared to deliver
gold on its gold forward or futures contract
obligations that were expected to be fulfilled for a
client of the firm who wanted delivery. In essence, the
shorts were declaring "force majeure," proclaiming: "We
cannot deliver."

This is not a Comex problem as far as I know. From what
I am hearing, it is a problem in the over-the-counter
market, where few people really know what is really
going on behind the scenes.

The firm that expected delivery was stunned. It was
about to be "floored."

According to our sources, the firm then got a phone
call from the Federal Reserve requesting that it not
pressure the shorts into making delivery and assuring
the firm that the Fed would make sure that it received
its gold eventually. I am not privy to exactly how that
would happen.

According to another source, there were actually a
couple of firms that told the longs that they were not
prepared to deliver forward contract gold in the size
expected. Goldman Sachs is said to be one of the firms
not prepared to fulfill its obligations. .

It should be of no surprise to you that the co-chairs
of the Counterparty Risk Management Group, Goldman
Sachs and J.P. Morgan, were all over London CNBC this
morning talking down the gold market. Goldman is
reported to have suggested on the tube that the big
gold shorts covered on the recent price runup, while
Morgan's Kevin Crisp called for $275-$280 gold when the
current blip was sorted out. So whose risk are they
both concerned about?

Strange. Today Goldman Sachs and Chase banks were big
BUYERS of gold options on Comex. Why buy options if you
are not bullish or if you believe that the gold market
has topped out for the time being? Yes, the buying can
be for clients. But are their clients not listening to
them? On that note, maybe for the first time in Comex
history the gold option volatility is higher than that
for the silver contract.

There are other Goldman Sachs stories out there but I
want more confirmation of them before I present them to

Last night I received a phone call from a very informed
hedge fund manager who confirmed that George Soros is
long "forward" gold, but not Comex gold. Soros is also
long aluminum and silver, according to this source.

This source also tells me that Soros most likely does
Comex business with Refco, as do many of the big hedge
funds. I do not know where Soros does his OTC business
with or whom he trades with in London. But according to
this hedge fund manager, one should start at Refco for
tying all this altogether. Is that the firm that is
being denied delivery?

This extraordinary development is an affront to all who
believe in free markets.

There has been an orchestration by some bullion dealers
and government officials to hold down the gold price so
that their own selfish interests can be served.
Meanwhile miners are out of work, mining companies are
going bankrupt, and shareholders have been decimated

This is an outrage of the highest order and it has been
going on for some time.

Back on April 27 the following letter was sent to U.S.
Rep. James Saxton, chairman of the Joint Economic
Committee of Congress, to prepare him for a meeting
with me.


Dear Rep. Saxton:

The purpose of my visit is to try to be of some
assistance to you and your committee regarding the
issue of the proposed IMF gold sale. It is the opinion
of the Gold Anti Trust Action Committee that the real
reason for the intense lobbying and orchestrated PR
barrage about selling IMF gold by the White House and
the Treasury is not being revealed to Congress. We
believe that the real reason to promote the IMF sales
has to do with a concerted manipulation of the gold
market to keep the price down in order to bail out the
gold shorts of Wall Street (i.e., bullion banks, hedge
funds, and other financial institutions).

That has been going on for some time but began in
earnest when Alan Greenspan made this statement before
a Senate Agriculture Committee on July 30, 1998,
"central banks stand ready to lease gold in increasing
quantities should the price rise." We would like
someone in Congress to ask Mr.Greenspan exactly what he
meant by that comment when he is testifying again
before committee.

It is important to understand that there is a natural
supply/demand deficit in the gold market, meaning that
demand for gold far outstrips natural mine supply. Our
associates figure that deficit is around 1200 to 1600
tonnes and that deficit has been met by gold producer
forward selling, some central bank sales, scrap supply
and gold lending. We think that the gold lending is now
so large that it has created a potential "systemic
risk" problem. Bullion dealers have been lending out
central bank gold to financial institutions at 1%
interest rates. The gold is sold into the physical
market (depressing the price) and the proceeds are then
invested elsewhere. This is called the "gold carry
trade" which operates under the same principle as the
"yen carry trade" which blew up late last summer when
the yen rallied strongly against the dollar. The short
term demise of the yen carry trade caused great
financial consternation.

The "carry trades" only represent cheap sources of
capital if the price of the entity borrowed stays the
same, or decreases. When the price of the yen suddenly
rose sharply late last summer, it caused great
financial distress as what had been very inexpensive
loans suddenly became onerous. But, at least they could
get out of the loan via liquidating the yen; in essence
giving it back.

We believe that the speculative gold loans are now as
high as 3,000 tonnes of gold and that the total gold
loans (producer forward sales, etc.) have reached 8,000
to 10,000 tonnes. If we are correct and, at some future
date, the price of gold rallies like the yen did, there
will be financial turmoil. As yearly mine supply in
1998 was only 2529 tonnes, the borrowers will not be
able to lay their hands on that much gold very quickly.
Inevitably, there will be defaults and many financial
institutions here and abroad will go bust. Many of the
banks are getting in this too deeply and are at risk of
becoming "Long Term Capital Managements." Panic is
definitely not too strong a word to be used here.

This appears to us that the current administration and
the New York investment houses are in cahoots and what
we may have here is one of the great financial scandals
in U.S. history. Financial commentators often point to
the muddling, low gold price as to how all is well in
the economy and administration officials point to a low
gold price with pride, almost using it as a report card
on the great job they have done. The bullion banks and
investment houses have picked up on this and are making
sure that the price does not go up by supplying gold to
the market place. They feel they can borrow gold with
impunity, even at these low prices, as a result of Mr.
Greenspan's comments. And, of course, there is the
connection of Wall Street to Secretary of the Treasury,
Robert Rubin. Everywhere we turn in our investigation,
we find Goldman Sachs, his former firm, involved in
gold bashing efforts.

Our committee (GATA) has retained one of the premier
anti-trust firms in the United States, Berger &
Montague of Philadelphia, to assist us in our
investigation into this matter. If further evidence
corroborates what we already have, we intend to sue
some New York bullion dealer/investment houses for
violation of the Sherman and Clayton Acts. These firms
are making fortunes (while many associated with the
gold industry are being destroyed) through investments,
after borrowing gold at 1% interest rates. However, we
think that some of them are making these fortunes
illegally as a result of collusive activities and, in
the process, have created a "ticking time bomb" that
could blow up to be a financial disaster in the future.

It is this cozy arrangement the administration has with
these investment houses that we believe is the real
reason behind the constant calls to sell the IMF gold.
They both benefit from the sale of the IMF gold, but
the poor countries in South Africa and West Africa lose
as their mining industries deteriorate. I know you have
had other experts testify on all of this to you so I
will not get into that. But the American public, as
well as this country's mining industry, could really
lose, too. Our last monthly trade deficit was $20
billion. At some point, there will be an attack on our
dollar. Our gold resources are one of our greatest
assets. Why sell any of them at these very, very low
prices? We can point to our gold stocks in defending
our dollar in the future. There are many financial
analysts that think a financial bubble has been
created. That may or may not be the case, but to
advocate gold sales at this point in time will be
looked on as great folly if there is a bubble, and it

Yes, the current administration and the greedy Wall
Street houses are winning the day today with this gold
market manipulation. But, if this charade about gold is
not stopped now, someday the American public will be
big losers if a financial panic sets in. If someone had
stopped the Savings and Loans from their over-
extensions a decade ago, we might not have had that big
a crisis. The potential gold loan crisis could dwarf
the Savings and Loan one if the orchestrated gold
selling game is not curtailed now. I have attached some
material for your perusal which elucidates much of what
I have brought to your attention. That material is:

1. An April 16 Reuters PRNewswire in which Chris
Thompson, the Chairman of one of the world's biggest
gold producers, Gold Fields Limited, decries the
tactics of the New York based bullion dealers.

2. An essay by John Hathaway, the highly regarded
senior portfolio manager of The Tocqueville Fund in New
York, entitled, " Bullion Dealer: Spin Meisters of the
Gold Market"

3. Commentary from Veneroso Associates entitled, "Gold
Zaitech - A Bear Bubble Driven By Cheap Credit." Frank
Veneroso wrote the 1998 Gold Book and is one of the
leading authorities in the world on the gold market. He
has been economic policy advisor to the World Bank, the
I.F.C. and the O.A.S. as well as many countries.

Frank Veneroso is also one of the leading authorities
on the gold loan issue. I was with Frank when he
determined out how large the gold loans are and I saw
how he figured it out by learning what the gold loans
were at individual bullion banks. In addition to that,
I was there when he spoke to Terry Smeeton, who just
retired as England's Chancellor of the Exchequer, about
the gold loans last year. Five years ago, Mr. Smeeton
was very chatty with Frank about the loans. Last year,
he would say nothing and could not get off the phone
fast enough when Frank told him how large he now
thought the gold loans had become.

4. Commentary from the highly regarded James Turk, who
publishes the Freemarket Gold & Money Report. James is
one of the other leading authorities in the world on
the gold market and is known by all in the industry.
His April 26 piece is very timely and covers the
problem of the payback of the gold loans. His work
shows that it could take a gold price of $608 to $923
to solve this very sizable problem.

5. Brief commentary from the well established
"International Harry Schultz Letter." Harry Schultz
also expounds on the nefarious tactics of the bullion

I look forward to meeting you on Tuesday at 1:15 and
hope that we may of help to you regarding this IMF gold
sale issue.

Best regards,



I will elaborate on this new development this weekend.

Meanwhile, I am presenting this latest information to
the appropriate congressional committees. In addition
to the Joint Economic Committee, GATA has established
contacts with the Senate Banking Committee, the House
Committee on Banking and Financial Services, the
Capital Markets Committee, and U.S. Rep. Ron Paul.

I am hoping these latest revelations will lead to a
full investigation by U.S. government authorities of
the manipulation of the gold market.