Was Bank of England bailing out the Fed?


11:10p EST Thursday, December 2, 1999

Dear Friend of GATA and Gold:

Here's a special "Midas" commentary by GATA
Chairman Bill Murphy at www.LeMetropoleCafe.com,
wherein he says that the gold shorts are still
very much in trouble and appeals for support
for GATA's forthcoming advertising campaign to
ask the crucial questions about manipulation
of the gold market.

Please post this as seems useful.

Gold Anti-Trust Action Committee Inc.

* * *


December 2, 1999

Spot Gold $284.50, down $4.80
Spot Silver $5.08, down 8 cents

Throw out the technicals when a market is rigged. This
is not sour grapes talk. I had thought the market was
sold out. For whatever reason, it was not. I was wrong.

Despair is everywhere again. One would think by the
price action of gold and silver that we are in for some
tough times ahead. That is what many of you told me
today. Well, that is JUST NOT THE CASE.

Ironically, the feedback I am receiving from all my
very good sources is that the shorts are in dire shape,
that the surprise $80 rocket move up in the gold in
early October devastated bullion dealers and gold
producers alike far more than is realized.

The word is that several other Cambiors and Ashantis
are being kept under wraps. The word is that United
Bank of Switzerland is laying off 65 of its personnel
in the foreign exchange and gold operations. We have
alluded that to you for some time now. Other bullion
dealer operations are also being pared down. That can
mean only that the derivative selling game of the past
years is winding down to a significant extent.

I will have much more to say on this soon. Today was a
very busy day. The Gold Anti-Trust Action Committee
received more favorable commentary from highly regarded
gold industry people than any other day this past year.

For it is becoming apparent to even those most
skeptical of us that certain powers are manipulating
the gold market. Because of that recognition, forces
are being mobilized to fight back.

In addition, I received a call today from a highly
respected hedge fund manager who told me that he
chucked his entire Barrick Gold stock position as a
result of the company's refusal to change its hedge
strategies. I can tell you that his (or her) position
was greater than 3 million shares and this person
pleaded with the company to change its ways, but to no
avail. He wanted Cafe followers to know that he agreed
with the great novelist, Arthur Hailey, who also sold
his long-held Barrick Gold position recently.

The bottom line is that it makes no sense to own that
stock. If Barrick does not even believe in its own
market, why own it? Sell it and come back another day
when Barrick thinks the gold price is going UP. In the
meantime, invest in some other industry or some other
gold company.

This is a significant development and I have been
passing this word on to other money managers: Owning
Barrick Gold is a trip to mediocrity. Many other senior
gold companies that are superb investments, especially
now. So why not buy the ones that will benefit most
when the price rallies, which it surely will?

CANNIBALS," and they are beginning to really feel it.
That is what I was told today. For one year GATA has
labeled Goldman Sachs "Hannibal Lecter." At times we
called them the leader of the goon squad that killed
every rally attempt that gold made. You know why by

For one year many looked askance of that description of
such an esteemed financial operation as the lordly
Goldman Sachs. Who were we to suggest that Goldman
Sachs was acting like a cannibal toward its own

Well, take a gander at this Financial Times article.

* * *

Thursday, December 2, 1999

The Financial Times


The various roles played by Goldman Sachs came under
strain when a rising gold price hit Ashanti, write
Lionel Barber and Gillian O'Connor.

On Friday, October 1, a worried Mark Keatley, finance
director of Ashanti, the Ghanaian gold mining company,
flew from Accra for a crisis meeting in London. Mr
Keatley knew his company was in trouble, but he was
about to discover that things were a great deal worse
than he had feared.

Mr Keatley was carrying a three-inch stack of papers.
The papers summarised several thousand derivatives
contracts which Ashanti had entered with 17 banks,
including Goldman Sachs, the company's main financial

Six days before, the European central banks had
announced they were limiting sales and loans of gold.
The price of gold, which had been falling steadily
since spring, suddenly surged, rising from $269 an
ounce to $307 over the week.

On the face of it, a rising gold price should have
benefited one of the world's biggest gold producers.
But the papers Mr Keatley was carrying told a different
story. For Ashanti, aided by Goldman, had for months
been placing a huge bet on gold prices continuing to

Ashanti was not the only one in trouble. Goldman Sachs'
multiple roles as corporate adviser to Ashanti, seller
of over-the-counter financial derivatives, and trader
in the bullion market were about to converge in a way
that was to test not only the bank's expertise but its

The full extent of the crisis began to emerge that
Friday evening at Goldman Sachs' headquarters in Fleet
Street. With Mr Keatley's agreement, Goldman secretly
ran Ashanti's trading positions -- over 2,500 in all --
on a computer model.

The results were shocking. Ashanti's "hedge book" of
derivatives contracts was deeply in the red. If the 17
banks that were its "hedge counterparties" demanded the
cash deposits they were entitled to, Ashanti would go
into default. Ashanti would also squeeze the bullion
market in closing all its contracts because it would
need to purchase gold.

Over the next few days, under the watchful eye of the
Bank of England, an extraordinary sequence of events
unfolded as the banks, led by Goldman Sachs, sought to
rescue Ashanti and prevent a crisis in the bullion
market. The effort was successful, but it left
lingering questions among rival banks in the City about
Goldman's role.

Ashanti was built up on the century-old Obuasi mine in
Ghana. In 1994, it became the first black African firm
to list on the London Stock Exchange. Thanks to the
charm and political connections of its boss, Sam Jonah,
the company expanded rapidly through acquisitions in
other African countries.

Goldman became the main corporate adviser to Ashanti in
1996. Like other investment banks, Goldman allowed the
two sides of its operations - the private advisory arm
and the public trading operation - to deal with the
same client.

It imposed safeguards to prevent confidential
information passing across the "Chinese wall" from
private to public. This arrangement was subject to
constant monitoring by a "control room" of compliance
officers and corporate lawyers.

In the case of Ashanti, Goldman's special place in the
bullion market made these arrangements highly
complicated. Goldman sold a wide range of financial
derivatives to gold companies. It was the leading
member of a so-called "big four" of investment banks
with which Ashanti traded. The others were Credit
Suisse Financial Products, Socit Gnrale of France
and UBS of Switzerland.

For Ashanti, derivatives were much more than an
insurance against a falling gold price - they were a
source of profit and cash. This was important for
Ashanti which had a heavily indebted balance sheet,
partly because it had been forced to borrow to finance
acquisitions rather than issue equity.

The main reason for this was that neither of Ashanti's
two principal shareholders -- the Ghanaian government
and Lonmin, the rump company originating from Tiny
Rowland's empire -- wanted to have their stakes in the
company diluted.

Sam Jonah boasted that Ashanti had "earned" more than
$700 million by using derivatives to make forward sales
of its future gold output. As long as the gold price
was falling, Ashanti was able to make a profit from the
gap between the current and future price. By the middle
of 1999, the company had "pre-sold" some 50 percent of
its reserves.

But when Europe's central banks intervened on September
26, Ashanti's hedge book suddenly turned from an asset
into a crushing liability. And as its derivatives
positions spiralled into loss, its counterparties
started to demand cash deposits -- known as margin
calls. At the end of June, Ashanti's hedge book had a
positive value of $290 million. In early October it was
$570 million in loss, and there were margin calls
pending of $270 million.

The dramatic deterioration in Ashanti's financial
position was being closely watched by Goldman's
derivatives salesmen. But they did not know that their
colleagues in Goldman's advisory team were also taking
an active interest in Ashanti's affairs.

For over a year, advisers led by Richard Campbell-
Breeden had been working on a possible merger between
Ashanti and its shareholder Lonmin. But Mr Campbell-
Breeden had not yet fully grasped the implications of
Ashanti's financial hedging activities.

"We thought that if the gold price went up it was good
for Ashanti because it enhanced its long-term value,"
says Mr Campbell-Breeden, "We did not appreciate that
it could produce a short-term liquidity crisis."

The truth dawned when he was told of Ashanti's looming
cash crunch by Ron Beller, co-head of fixed income,
currency and commodity sales for Goldman in Europe. Mr
Beller told Mr Campbell-Breeden that J. Aron, Goldman's
commodity trading subsidiary, would soon have the right
to make margin calls.

Mr Campbell-Breeden immediately called Mr Keatley in
Accra. Mr Keatley assured him there was "no margin
problem." But three days later he called Mr Campbell-
Breeden at 1am and modified his position. There was
indeed a margin problem, but he insisted it was

Later that day -- Thursday, September 30 -- Ashanti
issued a statement to the London Stock Exchange, saying
it had reorganised its hedge book. It said the
"management was satisfied that the hedge portfolio is
robust in the current gold market."

As the market absorbed news of Ashanti's problems, Mr
Beller tried to stabilise the company. He assured
Ashanti and Mr Campbell-Breeden that J Aron would
temporarily waive its right to margin calls. Mr Beller
then took on an additional role. At Ashanti's request,
he approached SocGen to inform the French bank of
Goldman's decision to waive margin calls. At the same
time, he informed SocGen about the merger talks with

As Mr Keatley prepared to fly to London, Goldman was
becoming entangled.

First, it was trying to prevent a client from going
bankrupt, with the risk of turmoil in the gold market.
Ashanti's heavy derivatives exposure made the position
more serious because other gold companies could come
under pressure.

Second, Goldman had to avoid the suspicion that it
would exploit its access to Ashanti's books in its
trading. Goldman admits this required "extraordinary
measures". Mr Beller and a few Goldman traders were
operating full-time during the crisis on the advisory
side of the Chinese wall.

Third, Goldman had to reconcile its position as
corporate adviser with being Ashanti's principal
counterparty. The former role involved Mr Beller not
only advising Ashanti and Lonmin on derivatives, but
acting as an intermediary with 16 banks. By its own
admission, Goldman found these multiples roles
extremely hard to manage. It created special
confidentiality agreements for several people from
Goldman's trading side before they were seconded to
Ashanti. It also kept the Bank of England informed.

Over the weekend of October 2 and 3, Goldman led
frantic efforts to sort out Ashanti's hedge book and
persuade the hedge counterparties not to make immediate
margin calls. There was a brief break from negotiations
on Sunday as some of those involved watched a football
match, in which Chelsea beat Manchester United 5-0.

Linklaters, the law firm, helped in negotiations with
the "big four", some of which were wary about agreeing
to a moratorium on margin calls without similar
commitments from others. On Monday evening, most
counterparties met in Fleet Street. Others took part by
telephone. Later one executive from Westdeutsche
Landesbank was tracked down on his honeymoon in
Australia. He was told his bank had an exposure of $3
million -- 10 times the amount he had believed.

After agreeing to a series of temporary standstills --
and after the appointment of CIBC in place of Goldman
as principal corporate adviser to Ashanti -- the 17
banks extended the moratorium to a three-year margin
holiday. But they extracted a price: the right to
acquire 15 per cent of Ashanti's equity through cheap
warrants issued by an offshore subsidiary of the

Ashanti was saved, although the Lonmin bid ultimately
failed because the Ghanaian government was determined
not to lose control. But one month later, questions
remain over the role of Goldman. Many involved pay
tribute to its skill in resolving the crisis. But some
rivals remain concerned about Goldman's privileged
access to information.

One complaint that went as far as the Bank of England,
concerned a large trade executed by Goldman in the
middle of the crisis. Some rivals believe it traded
gold heavily at $325 an ounce in an effort to extricate
both itself and clients from derivative liabilities.

Goldman agrees that it traded heavily at $325 on
Monday, October 4. But the bank insists it was trading
options on behalf of clients, rather than spot trading
for itself. Any information used for trading was gained
from its own exposure to Ashanti, as well as market

The bank says it offered to resign as corporate adviser
to Ashanti several times, but Ashanti resisted. As a
compromise, Goldman says it encouraged Ashanti to
appoint CIBC as its lead financial adviser in charge of
discussions with the other banks, as soon as possible.

With hindsight, some Goldman executives admit that some
of the derivatives it sold Ashanti may not have been
ideal for a heavily-indebted company. But it argues
that the deals were "client-driven transactions" - the
responsibility of Ashanti's management.

Wherever responsibility lies, the result is beyond
dispute. Ashanti is heavily in debt, and dependent on
the goodwill of its banks. In the words of one person
involved, the company is "a prisoner on the run."

* * *

Nice huh? Weeks ago I told you that a friend of the
Cafe spoke to Sam Jonah. Jonah told him that Goldman
Sacks was squeezing them by the balls. Go back and
check the record. Even the FT article is more polite
toward Goldman Sachs than they really would like to be.
The libel laws in Britain are tough so the authors have
to be careful. Who wants to fight the Goldman Sachs

GATA is a different story. If they come after us they
will have to open up their gold books. Forget about it!

That is yesterday's story. Tomorrow's is: What are we
all going to do about it, especially since the
mainstream world is getting the drift now about what
the gold market has been all about for some time?

I can assure you that this FT article has REALLY raised
the heat on Goldman Sachs. I received a call today from
France assuring me that is the case. Our supporters in
Europe also told me it is time to be very aggressive,
so we are going to go all-out against the gold market

Much of our plan has been inspired by the famed
newsletter writer Harry Schultz, who continues to urge
his readers to support GATA. Because of his followers'
support, money has been coming in so that we may soon
be able to launch an effective counterattack on the
Cannibals and their sugar daddies in officialdom. We
are not too far from launching that campaign, but we
need a bit more money in the till to make it effective.
GATA would like your support and that of all the gold
companies NOW.

The following letter was sent to many of the major gold
producers today and now is being sent to you:

* * *

Dear Friend:

Last spring I met in Washington with U.S. Rep. James
Saxton, vice chairman of the Joint Economic Committee
of Congress. He told me that the best way to gain
congressional support for the Gold Anti-Trust Action
Committee was to tell congressmen that we are on a
mission to find out the truth about the gold market.

GATA now believes it is time to accelerate that quest.
The gold market is rife with rumors that the U.S
government is intervening in various ways to hold down
the price of gold. The rumors grew the other day after
the government of Kuwait's extraordinary announcement
that it was sending its 79 tonnes of gold to the Bank
of England for leasing purposes.

This should not be a surprise to any of us in the gold
industry. After all, on July 24, 1998, Federal Reserve
Chairman Alan Greenspan told a House committee:
"Central banks stand ready to lease gold in increasing
quantities should the price rise."

Gold mining companies and their employees and
shareholders, less-developed countries that produce
gold, and investors in gold bullion and coins have all
been hurt by the unnaturally low gold price. Everyone
connected to the gold industry wants to know if the
gold price is being held down by some sort of concerted
action and, if so, the reason and parties behind it.

GATA would like the Federal Reserve Board and U.S.
Treasury Department to answer 11 questions. We believe
that the following plan is best suited to ferret out
some truth:

1. Place the attached letter to Fed Chairman Greenspan
and Treasury Secretary Lawrence Summers as an
advertisement in The Wall Street Journal, Barrons, and
The Washington Post so that we may be heard in
government and financial circles.

2. Following publication of the ad, begin an Internet
campaign to gain congressional attention for our
agenda. GATA will request that all gold-oriented
Internet sites get behind this campaign.

3. Once the campaign begins, GATA will ask its
congressional contacts to help us get a response from
the Fed and the Treasury Department.

Posing our questions in public is essential. A
spotlight must be focused on our issues to raise hopes
that we might actually succeed. We must let the U.S.
government know that if it is acting surreptitiously to
hold down the price of gold, congressional inquiry will
make the scheme difficult to maintain.

The Treasury Department is responsible for the U.S.
gold at Fort Knox, and GATA is going to call for an
audit of the gold there. It would be the first gold
audit since the Eisenhower Administration. Gold
reserves are an important government financial asset
and the American people have a right to know that it is
all accounted for. They and we also have a right to
know if any government gold has been lent out. This
specific request for information should be helpful in
gaining public support, as it is easy to understand.

GATA is not re-inventing the wheel here. We are just
following in the footsteps of Peter Hambro, president
of Mines d'Orde Salsigne SA; Chris Von Christierson,
chairman of Rio Narcea Gold Mines Ltd.; and John
Morris, CEO of Gold Mines of Sardinia. They recently
asked similar questions of the Bank of England.

To achieve our goals, the Gold Anti-Trust Action
Committee needs your support. We have received
substantial contributions from two senior gold
companies. Without them we would not have been able to
retain our excellent lawyers and gain publicity around
the world in the last 11 months. We hope that you also
might help us, particularly by contributing to our ad
campaign. We need additional support to pull this off,
as the ads will be expensive -- but well worth it.

If you do want to help our ad campaign financially,
your contribution will be used only for that.
Communications and contributions to GATA are kept in
strictest confidence. You will not be identified with
us without your permission.

GATA has received financial support from many gold
company shareholders. Because of it we have made great
progress. But we have to keep plowing ahead on behalf
of gold. We can do so with your help.

Thanks for your consideration.

Best regards,

Gold Anti-Trust Action Committee Inc.

* * *

The following advertisement is under final construction
and was presented to many gold companies in the
following manner:

ADVERTISEMENT, layout under construction

To: Alan Greenspan, Chairman, United States Federal
Reserve System, and Lawrence Summers, Secretary of the

From: Bill Murphy, Chairman, Gold Anti-Trust Action
Committee; Chris Powell, Secretary, Gold Anti-Trust
Action Committee; B. Ethan Stroud, Attorney, formerly
Department of Justice, Treasury Department, Washington
D.C.; John R. Feather, Attorney, formerly Legal Staff,
Federal Reserve Bank.

Dear Chairman Greenspan and Secretary Summers:

On July 24th before a House Banking Committee and on
July 30th before a Senate Agricultural Committee, Alan
Greenspan made the following statement: "Central banks
stand ready to lease gold in increasing quantities
should the price rise."

Ever since that comment was made, there has been a
swirling controversy about whether the United States
Federal Reserve and or The United States Treasury has
been actively involved in the gold market. The
speculation is that there are official efforts carried
out to affect the gold price in order to rescue the
follies of one group or another. Aggressive bullion
dealers, hedge funds doing the "carry trade" and unwise
price speculation disguised as hedging by mining
companies are most frequently quoted. Universally the
stories talk of severe risk to the financial system
because of irresponsible lending policies of the
central banks.

The controversy has even reached the House of Commons
in England on June 16,1999:

"We cannot allow the rumours to grow, because they are
extremely dangerous to public confidence. It has been
suggested that the market is very short of gold, that
the short positions may be a substantial multiple of
the total amount of gold currently held by the Bank of
England, and that the Bank's real motive is to save the
bacon of firms that are running those short positions.
If such a suggestion is being made seriously, it must
be dealt with authoritatively and definitively, and we
want an answer from the Government now." -- M.P.
Quentin Davies.

That statement was made after the Bank of England pre-
announced in the most extraordinary manner that it was
going to sell 415 tons of its gold reserves, resulting
in a drop in the gold price from $290 to $252. However,
when 15 European central banks announced on September
26,1999 that they were restricting their gold sales and
gold lending for the next 5 years, the gold price
soared to $337 per ounce. Word spread that the bullion
banks were panicking again. Right on cue, but in
uncharacteristic fashion, the Government of Kuwait
announced it was depositing 79 tons of its gold with
the Bank of England for lending purposes. The rumors
were that the New York Federal Reserve Bank was
orchestrating the gold price down using all the means
at its disposal to accommodate the shorts.

The question goes begging: Is the "official" sector of
the United States intervening in the gold market and,
if so, why? We will take you at your own word that you
are intervening in the gold market as you said you
would do if the price rose. After all, it is public
knowledge that the New York Fed orchestrated the
bailout of Long Term Capital Management the Fall of

The Federal Reserve Bank's Open Market Committee may
have the authority to deal in gold coin and bullion,
but all purchases and sales, "shall be governed with a
view to accommodating commerce and business." - 12 USC

However, if the U.S. Federal Reserve or Treasury is
depressing the gold price in order to help numerous and
various gold short sellers, it is a clear and illegal
violation of the Bank's purpose clause. Accommodating
one side of a private contract is illegal, fraudulent
and unconstitutional. For the country's central bank to
use its own powers for the benefit of one class of
citizens to the harm of another class of Americans is a
gross violation of the constitution's equal protection

If the Federal Reserve intervened in the gold market
after the early October price rise as you said they
were prepared to do, it was not to accommodate commerce
and business, but to accommodate one half of the
parties to a private contract who had shorted gold. The
other half of the parties to the same contract who had
gone long gold were cheated and deprived of a fair
market price, denied the equal protection of the law
and cheated of profit potential. It appears that we
have an illegal and fraudulent act that was perpetrated
by bankers who are unelected bureaucrats reigning like
tyrants without legal or political supervision.

The manipulation of the gold market has caused
irreparable harm to gold owners, gold companies and
gold miners as well as all Americans. If, as we
suspect, there has been "official" U.S. intervention to
hold down the gold price, it has destroyed a free
market, depressed the fair market value of an important
financial asset, distorted the true value of gold
companies listed on the New York and American Stock
Exchanges, and decreased the value of its own and
America's gold assets. The Fed's price fixing action
should be investigated by the SEC since it may be the
sole proximate cause of the artificial dramatic
fluctuations in prices of gold shares. The SEC should
be very concerned that the stock market is being
regularly and daily distorted by Federal Reserve Board
intervention to the benefit of gold short positions.
Why doesn't the Federal Reserve Board buy gold to
benefit the long positions? Why doesn't the Federal
Reserve Board stay out of the market altogether?

To clear this matter up, the Gold Anti-Trust Action
Committee would like to know the following:

1. Does the Federal Reserve, either on its own behalf
or on behalf of the US Treasury or any other US
government agency, such as the Exchange Stabilization
Fund, lend gold or silver or facilitate the lending of
gold and silver?

2. If it does lend these precious metals, does it do
this only on a swap or re-purchase arrangement basis or
does it also lend unsecured?

3. What are the credit criteria that a potential
borrower needs to establish?

4. What are the credit limits applied to a borrower?
How do they vary between secured / swap lending and
unsecured lending?

5. How often are counter-party positions marked to

6. What happens if market price movements cause the
credit limit to be exceeded?

7. Does the Federal Reserve have any counter-party
credit utilizations that are presently in excess of 90
percent of the limit?

8. Have any precious metal related credit limits been
amended other than in credit limit reviews in the
normal course of business?

9. Does the Federal Reserve, or the Treasury
Department, or any other government agency ever own or
deal in derivatives that are connected with precious
metals? Do any of the foregoing agencies write call
options against the Treasury's gold holdings?

10. Do the above-mentioned credit limits and mark to
market provisions apply to derivatives as well?

11. Has the Federal Reserve, the Treasury, or any other
government agency, either directly or through the
agency of its management of foreign custody accounts at
the NY Fed collaborated with the Bank of International
Settlements, the Bank of England, or any other central
bank with a view to managing, smoothing, or otherwise
affecting the market price of gold?

There are also great concern and omnipresent rumors
that some of the gold in Fort Knox has been lent out or
sold. That gold is one of America's great financial
assets, yet there has not been an official audit since
the Eisenhower Administration. Therefore, the Gold
Anti-Trust Action Committee is calling for an official
audit so that Americans may truly know that their gold
is intact.


* * *

There will be much more on this from me in the
weeks to come. If you are financially able, we
request your support. Contributions for our ad
campaign may sent to:

Gold Anti-Trust Action Committee Inc.
c/o Chris Powell, Secretary-Treasurer
7 Villa Louisa Road
Manchester, Connecticut 06043-7541

Or contributions may be wired to:

Gold Anti-Trust Action Committee Inc.
c/o Savings Bank of Manchester
923 Main St., Manchester, CT 06040
Bank routing number:
211-170-185 for Account No. 9500-574-053

Any contribution of $500 or more will receive an Alan
Despert fine art limited edition print that has a
retail value of $750. The contribution is tax-

You might like to know that original works of Alan
Despert, one of the renowned Absolut Vodka artists,
are briskly selling for $5,000 to $10,000 at the Art
Gallery at the Fairmount Hotel in Dallas, Texas. What
a great Christmas or holiday present!

I know this is a brutal time for us all, but wonderful
times are right around the corner. And you can be a
part of history. GO FOR IT!