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An open letter to the central banks about their leased gold
10p ET Wednesday, July 31, 2002
Dear Friend of GATA and Gold:
GATA Chairman Bill Murphy has sent the
following letter to the U.S. Senate's
Permanent Subcommittee on Investigations, and
we ask that our supporters in the United
States send similar letters to their own
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
* * *
J.P. Morgan Chase Chief Executive Officer
William B. Harrison's response to the
Senate's Permanent Subcommittee on
Investigations was notable for what it did
Morgan Chase and Citigroup have been
unlawfully manipulating the price of gold for
many years, according to the findings of the
Gold Anti-Trust Action Committee, of which I
am chairman. Our evidence of that
manipulation may be reviewed at www.GATA.org.
The committee might want to query Morgan
Chase and Citigroup Weill about their gold
derivative positions, as these are related to
the Senate's investigation. According to the
U.S. Comptroller of the Currency, two-thirds
of the total gold derivatives at reporting
banks are concentrated at these two
institutions. Significantly, the gold
derivatives at Morgan and Citibank jumped in
the first quarter of this year, in stark
contrast with gold derivatives at the other
Following are some questions you might like
to ask Mr. Harrison. He should have no
problem answering them, since he stated the
following in his written response to the
committee: quot;As the largest corporate lender
in the world, transparency is key to our
1. Have J.P. Morgan Chase, its subsidiaries,
its special-purpose entities, related
companies, or agents acting on its behalf
conducted any gold-related transactions with
the U.S. Federal Reserve System, the U.S.
Treasury Department, the U.S. Exchange
Stabilization Fund, or any other part of the
U.S. government, directly or via an
intermediary, in the last 20 years?
2. If so, specifically what transactions were
3. Do such arrangements continue? If so, what
is their status?
4. What is the size of such transactions?
5. What was the purpose of such transactions?
Were they conducted for investment reasons,
or was there a stated or implied intent to
depress the price of gold?
6. According to the Quarter 1 2002
derivatives report from the Office of the
Comptroller of the Currency, the notional
value of gold derivatives on the books of
Morgan Chase stood at $45.234 billion, a
12.24 percent increase from the Quarter 4
2001 figure of $41.049 billion. Exactly what
accounts for this large increase? Is the
expansion of the gold derivative book the
result of increased gold borrowing or
swapping with one or more central banks?
7. Does the figure of $45.234 billion
effectively represent the size of Morgan
Chase's gold loan book? Further, does this
figure represent position data indicating the
size of Morgan Chase's gold loan book at a
point in time, or is it transaction data
representing the turnover of various gold
8. Is Morgan Chase aware of any effort on the
part of bullion banks or central banks aimed
at depressing the price of gold?
9. Has Morgan Chase, including its
predecessor, subsidiary, and related
companies or related entities, ever engaged
in a gold swap with the Federal Reserve, the
U.S. Treasury Department, the U.S. Exchange
Stabilization Fund, or another U.S.
government agency? If so, how large was the
transaction and what was its purpose? Does
such an arrangement continue?
10. Has any government entity, domestic or
foreign, provided any sort of guarantee to
cover losses suffered by Morgan Chase in the
gold market? If so, specifically what
guarantees? Did Morgan Chase engage in any
gold-related transactions with the knowledge
that a government entity was prepared to
cover any of Morgan Chase's losses?
11. Morgan Chase maintains the largest gold
derivative position of all U.S. banks at $41
billion. Does Morgan Chase carry those gold
derivatives as balance-sheet assets?
12. What entity is the original source of
gold used for those derivatives? What records
exist for any such transactions?
13. Was the gold involved purchased? If so,
where, when, and at what price? If the gold
was borrowed, how is it the Morgan Chase gold
derivatives are now listed as balance-sheet
14. Are the Morgan Chase gold derivatives
established largely to enhance the
counterparty's short or long side of the
15. Was Enron ever a counterparty to any
Morgan Chase precious metals derivatives?
16. Did Morgan Chase's long-standing precious
metals derivatives trading manager, Dinsa
Mehta, recently leave his job? Why?
17. How much in terms of troy ounces and U.S.
dollars are Morgan Chase's direct, indirect,
and contingent liabilities to pay gold? What
is the maturity of each of those liabilities?
I believe that Morgan Chase is a subsidiary
of the Morgan bank holding company. So you
might want to expand the investigation to the
non-bank parent as well as the bank
subsidiary to something like the following:
18. Have Morgan Chase (the holding company
and banking subsidiary), its subsidiaries,
special-purpose entities, related companies,
or agents conducted any gold-related
transactions with the U.S. Federal Reserve
System, the U.S. Treasury Department, the
U.S. Exchange Stabilization Fund, or any
other U.S. government entity, either directly
or via an intermediary in the last 20 years?
19. Was Morgan Chase ever formally implicated
in inappropriate metals market trading
practices? Did it pay a fine? In that
inappropriate metals trading activity (the
Hamanaka, Sumitomo copper market case in
1993), did Morgan Chase use offshore accounts
similar to those in the Enron operations?
What was the design goal of the trades -- to
enhance the counter-party's short or long
side of the trade? Did Morgan Chase or
Sumitomo's Hamanaka first suggest the
offshore account technique?
You might also like to ask Enron the
1. Did Enron possess a precious metals
trading license from the London Bullion
Market Association? What did that license
2. What was the nature (which metal) and
magnitude (quarterly size) of Enron's
precious metals trades?
3. Were precious metals trades integrated in
any way with Enron's energy trades?
4. Were the Enron precious metals trades
facilitated in any way by Morgan Chase or any
of its offshore affiliated entities such as
Mahonia? Which Morgan Chase entities were
involved? To what quarterly magnitude?
5. Who first suggested that Enron get
involved in precious metals activities? When
was this suggestion made?
6. Was Enron ever a counterparty to any
Morgan Chase precious metals derivatives?
7. Did Morgan Chase's long-standing precious
metals derivatives trading manager Dinsa
Mehta recently leave his duties? Why?
It would be my pleasure to go Washington to
meet with your committee on this matter.
All the best,
BILL MURPHY, Chairman
Gold Anti-Trust Action Committee