- 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
- 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
- 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 you.
- 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
- 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
- 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 bursts.
- 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 dealers.
- 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,
- BILL MURPHY
- 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