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Member Confronts Canadian Investor

Section: Daily Dispatches


What follows was posted to a small, select group of financial editors in
South Africa and Sweden yesterday, February 16, under the heading The
Gold Price War Hots Up: -

Watch the action on the gold price battlefront with Bill Murphy,
chairman of Gold Anti Trust Action (GATA). GATA charges that Wall Street
bullion dealers are openly breaking anti-trust laws as they collude to
keep the price of gold pegged to under $300. A class action lawsuit is
being prepared.

Writing as MIDAS for the financial website he owns and edits -- Murphy today (February 16) shared with cafe
members how the bears were "ferociously" trying to drive the price down.
"They know that the specs are short 3,000 tonnes of gold and cannot get
out easily on a gold price rally."

#GATA's and Bill Murphy's mailing address is 1079 Ocean Blvd., Rye, N.H.
03870 USA. Its electronic mail address is
Its telephone number is 603-433-9389.

Here is an extract from Midas du Metropole's offering at the James Joyce
Table today:

J.P. Morgan led a ferocious attack on the gold market as the bears drove
the price down early and hard. As they have done in the past, they
struck at a strategic time when gold was vulnerable. This time they
picked the Chinese New Year.

Today's action leads us to believe they are more desperate than we
thought. They are definitely trying to break the back of the gold market
and completely destroy morale. Of interest to us was that the volume on
the down move early in the day was very large but lightened up later in
the day as gold closed well off its lows. While this is no fun, they
could not close spot gold below $285 which represents a very strong
physical support area.

Here is a kicker for you. We received a report today that even the
legendary bullion dealer, Rothschild, is baffled about what is going on
in the precious metals markets. They are one of the bullion dealers that
give us the London Fix twice a day. According to our sources, the
European central banks and various regulatory agencies are going to
start asking questions. This is so because the word is spreading that
the market is clearly being manipulated by a small number of bullion
banks ( several of whom have trillions of derivative positions on their
books )- see report below. Word is that we might see some coming
restrictions in the leasing activity to curtail this outrage. Time will

We have told you before that we believe the two most notorious bears in
recent years, the Union Bank of Swizterland and Merrill Lynch, exited
the gold derivative business because they knew it was only a matter of
time before the leasing game was scrutinized and they knew ( having been
instrumental in creating these huge short positions ) that those that
played this game too long would be destroyed. UBS and Merrill know
better than anyone one else how large the short positions have become.
We suggest the total short position is 8,000 tonnes ( 1998 mine supply
was 2529 tonnes ).

We still see a big bounce up in the price of gold. As the word spreads
of this collusive activity, we are likely to see some of the other big
boys take them on. As you are well aware by now, GATA will be out there
"saying it loud, saying it proud", "them boys are colluding and soon
will be brooding" . . .

Murphy, writing as Midas, goes on to relate the state of the big banks'
exposure to derivatives to the collusion to keep the gold price down.

Derivatives in the OCC reports are said to include swaps, future,
options, forward and structured debt obligations. Published statistics
on derivatives lag by six months and more. According to the July 30,1998
reports, U. S. banks held a mind numbing $28.176 trillion in all forms
of derivatives. Broken down, approximately $20 trillion is invested in
interest rate contracts and $8 trillion is in FX. Interestingly, only
$109 billion was involved in equity derivatives while an even punier $71
billion was committed to commodities. . .

Aside from the massive amounts of leverage employed on equity, the
levels of derivatives used are mind boggling. If you divide the amount
of credit exposed by risk based capital, Jo. P. Morgan has exposure of
728%, Bankers Trust was at 373% before it was sold and Chase is at 334%.
You can do the arithmetic yourself. A 10% to 12 % loss in the derivative
books at J. P. Morgan and Chase wipes out their capital base.

Remember, most of their derivative exposure expires this year and is
concentrated in interest rate contracts. As a result, a high level of
volatility in bond or stocks is the last thing the U.S. banking system
needs, but particularly so in bonds. This is why I believe the Fed
cannot raise interest rates, at least for the time being. Another trade,
another one way money making carry trade for the banks, a la the yen
carry trade, is going to have to be put in place to allow the banks to
earn their way out of this one. A one way decline in stocks or a sharp
rise in interest rates, will wreck havoc in the U.S. financial system.
Yet it is precisely this kind of leverage which produces such sharp
price moves. . .

This is why we believe there has been collusion by financial
institutions to keep the gold price down. They have substituted the gold
carry trade for the yen carry trade and in doing so, cannot afford to
let the price of gold rise above $300 per ounce. A rising yen ruined the
yen carry trade. A sharply rising gold price would ruin the gold carry
trade and its cheap borrowing cost; hence, collusion to keep the price

The gold carry trade has been going on for years now, but it's
importance is growing, because the yen trade is no more and as Larry
Jeddeloh says, major financial institutions could be in deep trouble
because of derivative trade exposure. . .

The financial institutions that are colluding to hold down the price of
gold are doing so because all is not well in the banking world. Pure and


There was also a move by a New York bank to refuse GATA account
facilities today. John Meyer, Vice-Chairman and Treasurer of GATA, has
had a business and personal account at Republic National Bank in New
York for 25 years. GATA has a local banking account near John Meyer's
home in the Berkshires, but wanted a better known bank to make GATA
contributors more comfortable.

John Meyer reports, "The lady from Republic National Bank of New York is
Zuhaidah Papush. After saying that the account was out of state and
likely to have a lot of wires she admitted that the bank felt
'uncomfortable' as they were gold bullion dealers. The decision could
not be appealed. She promised to send a letter detailing their

This is the same bank that put this out on the wires today:- Moscow,
Feb. 16
"Republic National Bank Offers to Arrange Loans for Russian Gold --
Republic National Bank of New York offered to arrange $100 million in
loans for Russian gold mines that would be repaid with gold to be
produced this year"

In other words, get the gold supply (via the defaulting Russians) out
there for the desperate bullion banks, but do not let a well established
customer open a money market and checking account with the name, Gold
Anti-Trust Action Committee.

This will not be the last Republic hears from GATA.




The full text from which the above is extracted is at the James Joyce

Bill Murphy excelled himself, as Midas du Metropole, once again.
I immediately emailed him: "When you write like that, I am right behind

And this was GATA Secretary, Chris Powell's enthusiastic response: -
Well, you've outdone yourself with tonight's Midas column, Bill.
Congratulations. I don't know how you do it.
It does now seem that the collusion against gold is a matter not only of
the explosive residue of the gold carry trade but also of the banks'
fantastic exposure in interest-rate derivatives. A rise in the price of
gold would be taken as a measure of inflation or likely inflation, and
that in turn would collapse bonds and the banks' derivative
positions.What a snake pit will be exposed if we are ever able to get to
discovery and deposition!

As for Republic Bank's rejection of us, well, I'll give them credit for
a little integrity -- for being honest enough to tell us that they are
on the other side in this fight and don't want to pretend that they can
serve us impartially. Good enough. We don't want just any bank looking
at our accounts.

Your essay tonight shows on the grand scale and John's experience with
Republic Bank shows on the intimate scale that we really are up against
the Masters of the Universe. And all this is adding up to a validation
of BW's (Boudewijn Wegerif's) general complaint about the expropriation
of the little guys around the world by the people we are fighting. I
couldn't be more convinced tonight that we are right and heading in the
right direction.