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GATA goes to Congress to get gold market investigated
Copyright 2000, www.LeMetropoleCafe.com
Not to be reproduced without the author's permission
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MIDAS COMMENTARY FOR APRIL 18, 2000
By Bill Murphy
Spot gold $280.70 down $1.10
Spot silver $5.09 unchanged
The volume continues to be very light. Any decent
buying that sent the gold price higher today and
yesterday was quickly squashed by Chase and Goldman
Sachs. Gold fought it all the way back to unchanged
today and Goldman Sachs bashed the close. Why is there
not more commentary from others? No one EVER challenges
me on what I report, yet the silence about Goldman
Sachs is deafening. It is clear as day that they are
the main ones causing such misery to the gold industry.
Price Action Makes Market Commentary
I received this email this morning from Johannesburg,
quot;With the extraordinary events of recent days on stock
markets generally, I am surprised gold has done nothing
other than go south. Why is this? Is it simply a
reflection of total investor indifference to the metal?
Is the market awash with cheap gold? Or what? And your
comparative silence on recent events is also somewhat
I cannot think of a bigger advocate for buying gold
bullion, gold coins, and gold shares than I am.
Especially now! World gold demand continues at a record
pace, inflation creep is all over America, and world
stock markets are in turmoil.
Cafe members reported to me over the weekend how it was
hard to get into many gold chat rooms as there was
great expectation of a gold price explosion because of
the events of last Friday. As is almost always the
case, the gold investment crowd was bummed out
yesterday when gold not only did not advance
significantly in price but finished lower.
It was very predictable. If there ever were a day in
which gold would not be allowed to rise in price, it
was last Friday and on Monday. All one has to do is
understand that gold is a manipulated market. So is
sister metal silver, for that matter.
Friday's quick spike up in the gold price was
immediately beaten back. When stock markets recovered
yesterday, gold was sent down on the day by the gold
orchestration crowd to give evidence of how useless it
is to buy gold in times of financial stress. Meanwhile,
the bond market swooned in a delayed reaction to the
U.S. inflation numbers released Friday, as bond yields
have risen to 5.95 percent. If gold were allowed to
trade freely, it would have rallied yesterday while the
bond yields were rising sharply and the CRB resumed its
The big money and big power crowd holding down the gold
price are pros at this. They know what to do and when
to do it. They suck in the press and get them to report
whatever market feeling they want out there. Even
worse, the most clueless individuals about what the
gold market is all about these days are the gold market
analysts/commentators and much of the gold industry
These quot;prosquot; know that price action will dictate press
commentary, and thus we get this from Reuters after
last Friday's close:
quot;Gold rose halfheartedly on Friday's U.S. inflation and
stock market jolts, a disappointing and possibly
defining moment for the metal that in its heyday had
been a preferred destination for investors panicked
about preserving their wealth.
quot;'The safe-haven issue has been thoroughly disproved
this morning,' asserted Leonard Kaplan, chief dealer at
LFG Bullion Services in Chicago. 'While there still
remain a few who seek it as a safe haven, those numbers
are dying quickly and today is the perfect example.'
quot;'Had you asked even the most ardent gold bug what
conditions would create a bull market, the two most
common they would say would be a collapse in the stock
market and a rise in inflation rates.' Kaplan said.
quot;Today we have a confluence of both of those factors.
The bottom line is: Gold is an industrial metal.'quot;
But Mr. Kaplan, if gold is just an industrial metal,
why did it not take off in price like so many other
industrial metals: aluminum, nickel, platinum, and
palladium? Or why, when surprise market events in the
past seven months caused gold to spike above its $290
price ceiling, was it beaten right back down again?
That is not how any of the other quot;industrial metalsquot;
The writer of this lengthy Reuters piece went out of
his way to denigrate gold as an investment because of
the price action. To see this kind of press coverage of
the gold market is particularly galling in this case
because I have taken the writer of this story to lunch
and he attended the recent dinner of the Committee for
Monetary Research and Education in New York. He knows
what the Gold Anti-Trust Action Committee has to say
and why we say it, yet fails even to mention it as a
possibility of why the price of gold does not respond
swiftly upward in such times, when it obviously should.
Instead, he calls up the same pablum sources and
reports the same drivel. Not content with Kaplan's
banal words of wisdom, Reuters went to say, quot;With its
status as a monetary asset downgraded, gold was said to
have become more of a lowly commercial commodity....
There are also many alternatives to parking hot monies
in gold. Nearly all other paper assets could bat the
near-zero percent returns that make the yellow metal
more attractive to borrow and short by selling forward
than to own.quot;
Not content to leave it at that, the writer found David
Rinehimer, head of commodities research at Salomon
Smith Barney, who gives us this:
quot;It doesn't seem like you are going to get much bang
for the buck in the gold market right now. Particularly
with the central bank selling that's going to occur
over the next two to three years.quot;
A summary of this wire service report that went all
over the world: Gold is lowly, not a safe haven, and
has no relation to inflation anymore, and central bank
sales will prevent the price from going up over the
next two to three years.
No wonder there is such demoralization in our camp. And
no wonder the big hedge fund buyers are shying away
Our case for $600 gold TODAY has been explained over
and over, so no need to go over that again. But the
agitating point here is that this writer at Reuters
will not even give his readers a chance to understand a
different, plausible explanation of why the price of
gold is not allowed to rally -- like that the loans
have all been written on average right under $290 for
the past couple of years. A sustained move above $290
puts them under water as a cheap source of funding
This kind of press and wire service reporting is
gradually lurching close to being irresponsible, and
history will prove that out.
The irony is that the mainstream world is coming to
understand more and more that U.S markets (not only
gold) are very likely manipulated. How many of you (on
Friday) heard Bob Pisani of CNBC belting out, quot;Where is
the white knight, where is the white knight?quot; It might
have been a slip, but whom do you think he was
referring to? Who is this quot;white knightquot; character who
is also the black knight when it comes to holding down
the price of gold?
Regard this from Cafe member Peter K.:
quot;Although there's probably no relation, you may have
heard of another Murphy -- Michael Murphy. He's pretty
well-known, I believe he writes a newsletter or two, one
which is called California Technology Stock Letter.
His stuff isn't bad, he seems to have a good record,
and I get a lot of mail solicitations for his
newsletters. I guess you would consider him almost
quot;He doesn't seem to be the type who would be holding
any precious metals shares, certainly not recommending
any to his readership. Anyway, I own stock in and
follow the Raging Bull message board for NanoPierce
Technologies. Someone posted his latest commentary from
over the weekend here. Much to my surprise he comes
right out and talks about the Plunge Protection Team.
Like it's a given and no controversy about whether it
quot;We have managed to navigate through a week here where
NASDAQ has lost more than 25 percent. We were cautious
for the first part of it. Certainly most of you
probably caught this drop on Friday. What will happen
from here is, over the weekend, perhaps the over-the-
counter market will strengthen in after-market trading.
(I would point out that the leading stocks in after-
market trading right now are Microsoft, Cisco, MCI
Worldcom, and they are all up.) So we might open up
Monday without any kind of a big disaster. There will
be some Europeans who will want to sell. There will be
some people who got caught on margin who will sell and
that would be the end of it.
quot;On the other hand, if we see that the stock market
futures are down very sharply on Sunday night or if the
market opens down very sharply on Monday morning, I
would expect the Fed to step in. I know that sounds
silly but they do it. They have what is called the
Plunge Protection Team. They operate through the New
York Fed. They buy stock futures on the Chicago board.
They do not want to have a crash, especially not in an
election year when they are trying to get Gore elected.
So they will step in to stop it....quot;
Another Cafe source tells me many institutional money
managers tell him they know all about the Plunge
Protection team and that the gold market is
manipulated. Why is it so hard for the gold market
community to understand what is really going on?
I also received this email yesterday from a plugged-in
quot;Back in 1987 a friend of mine told me how he had heard
from Paul Volcker's wife (whom he knew socially) that
the Fed had sold 25 tons of gold to keep the price down
right after the stock market crash. I don't know
whether this individual would want to testify this in
court, should things come to that. Anyway, I thought
you might find this interesting and potentially useful
in your fight against the perpetual manipulation of the
It is a most likely case that certain financial powers
became like sharks after having that first scent of
gold blood. Once they realized what capping a gold
price could do for them financially, it was only a
matter of time before some of the financial crowd put
their gold manipulation scheme into action. Hello,
Phil D. ties it together from Australia with more
related commentary to GATA:
quot;I was going to write and tell you that seemingly
mysterious forces had inexplicably driven down the
Australian dollar more than a cent last night (it had
risen quite strongly in the face of the Wall Street
debacle the day before) and to watch for the gold price
to drop as the silly Australian miners did some hedging
-- but I couldn't get to my e-mail quickly enough....
quot;At least this slimy move tells me once again that they
must be a bit short of physical and are getting a bit
sweaty. I suspect that with the Aussies being the only
hedging suckers left, Australia would be the best place
to turn to obtain additional backing for their
increasingly desperate plans.
quot;I see growth in China is surprisingly strong. That
won't hurt our cause either.quot;
Phil is right about China. Their papers are full of
stories about the gold supply/demand deficit and today
China reported GDP growth of 8.5 percent last quarter
with retail sales up 10.4%. That kind of economic
activity can only enhance worldwide record demand for
It would appear Phil's suspicions about the Aussie
dollar are right too.
More on the Aussie dollar (which rallied back a bit in
today's U.S. trading session) from yesterday's Reuters
quot;The Australian slipped back to 16-month lows against
the U.S. dollar Monday as large sell orders caught the
quot;Traders said U.S. names began to sell the Aussie
dollar round US$0.6020. Traders said there was nothing
fundamental behind this move.quot;
While the U.S press sticks its head in the sand, the
Financial Times reported today:
quot;UK watchdog to look at Treasury's auctions of gold.
quot;The Treasury's sale of more than half of Britain's
gold reserves is to be investigated by the National
quot;It said it would examine whether taxpayers had
received 'value for money' from the sale.
quot;In particular, it will consider whether the government
did what it could to maximize the proceeds from the
sale, what advice the Treasury took, and the effect on
the auction process paid by bidders.quot;
This is the first official investigative step into the
manipulation of the gold market. It will not be the
last. I cannot help but recall Fed Chairman Alan
Greenspan's public comment that the British announced
their sales ahead of time so as to quot;not take advantage
of the marketplace.quot; His saying so at the time implied
that all the other central banks that sold gold over
the past 20 years HAD taken advantage of the
marketplace. Which is it, Mister Chairman?
Greenspan speaks with an inconsistent tongue and he
still has not answered why he made his now-infamous
gold comment before Congress: quot;Central banks stand
ready to lease gold in increasing quantities should the
Maybe Greenspeak is OK with the public as long as the
stock market is rising. It does not fly with our camp.
Potpourri and the Gold Shares
Despair mounts in the gold share sector. The XAU was
last at 55.41, down 1.22.
The CRB chart shows a bullish flag pattern. Today it
finished higher at 212.80 up .80, and it appears
commodity prices are headed higher.
The commodity bear propaganda machine fights on with
London's Ted Arnold's latest. He is bearish on base
metals, including copper, lead, zinc, and aluminum:
quot;We're bearish about the price outlook for the next 18
months.quot; He went on sighting sinking share prices and
the bursting of quot;the stock bubblequot; as his main reasons.
In the other camp is James Flanagan, who writes the
quot;Past Present Futuresquot; newsletter. He believes that an
explosive bull market is coming that will feature
wheat, corn, soybean oil, cotton, and sugar. In his
latest report, he says, quot;We are seeing the maturing of
some powerful accumulation patternsquot; coming out of lows
made nine months ago. He expects all the above-
mentioned commodities to be soaring by August.
I go with Flanagan. One can go back a hundred years. I
do not think there has ever been such an extended time
without a really serious U.S. drought as it pertains to
soybeans, corn, wheat, etc.
The LME silver stocks are zero. Not sure what that is
Whether there is a Plunge Protection Team, as I
believe, or not, it is clear that the effect of the
bailing out of Mexico and Long-Term Capital Management
is that the U.S. public sees little risk in the stock
market. That talked-about moral hazard melt-up is real.
A market correction? Who is kidding whom! The doctors,
lawyers, plumbers, and others who have records amounts
of their 401K savings in the stock market, never
blinked on this correction. They never had time to.
Besides, everyone knows all corrections should be
bought, right? When the big kerplunkski comes, it will
be the shock of shocks to U.S. investors and is liable
to create a backlash never seen before in this country.
It will not be pretty.
And if there is a PPT propping up the stock market,
they should be held accountable just as the Black
Knights will be held accountable for holding down the
price of gold for their own money-making scheme.
Can someone tell me why there were $30 billion worth of
gold derivatives on Morgan Guaranty's off-balance sheet
books at the end beginning of 2000? Morgan has
basically closed down its U.S trading operation. That
is enormous exposure. What is going on over there at
this Counterparty Risk Management Group firm?
Chase Bank increased its off-balance sheet gold
derivative book from $14 billion to $22 billion during
the last quarter of last year and Citicorp, where
Robert Rubin now hangs out, increased its position to
$11.7 billion from $10 billion. Funny, I never hear
about Citicorp trading gold.
Last night I was out to dinner with a Cafe member who
came in from Taos, New Mexico, and he related to me how
his wife was urging him to buy more gold and gold
coins. He buys the manipulation story and is thrilled
that the goons are giving him the opportunity to add to
his position at such great prices.
Adding to physical positions in any bar or coin form
makes so much sense. The fair price of gold today is
$600. It it even goes to $560 in five years, the return
on buying physicals will be 20 percent per year. Of
course, the price could go much higher than that and do
it at any time. As a portfolio insurance play or
portfolio investment enhancer, I can think of nothing
better than buying gold at these levels.
While pondering what to do with gold and the gold
shares, it might be helpful to ponder the facts that
gold demand is going up while gold supply out of the
mines is going down. Normandy Mining just reported its
gold sales last quarter at 74,524 ounces, compared to
86,131 ounces the previous quarter. Cash costs rose 15
percent to 4.05 grams per tonnes, and recovery fell 2.3
It was well known that many miners have high-graded
these past years to compensate for a low gold price and
perhaps a wall is being hit by many of the miners that
are now unable to continue doing so very easily. Cafe
sources tell me that cash costs are rising in general
because mining companies have not kept up with proper
maintenance, and that is catching up to them. Higher
fuel costs are also kicking in.
Even Barrick Gold Chief Operating Officer John
Carrington said recently in a Reuters interview that
quot;current low prices are discouraging new exploration
and production, meaning prices may have to seek an
equilibrium at higher levels as supply falls further
short of consumption.quot; He went on to say: quot;Nobody can
afford to bring on new production at $280 gold. They
can barely keep their head above water with existing
Carrington concluded that it would take $350 gold to
achieve long-term meaningful production. That might be
right on the production side, but to bring gold into a
proper supply demand equilibrium will take a price of