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Gold Manipulation: “They are about to hit the wall”

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Gold Manipulation: “They are about to hit the wall”
Von Lars Schall
Montag, 31. August 2009
The Gold Anti-Trust Action Committee (GATA) celebrates its 10th anniversary this year. GATA’s founder and director Bill Murphy about price suppressing schemes, the “real numbers” and a possible COMEX default on gold.
Mr. Murphy, GATA has its 10th anniversary this year. What are the most important discoveries
of this ten year journey?
The Gold Anti-Trust Action Committee (GATA) was organized in January 1999 to expose the manipulation of the gold price by a Gold Cartel consisting of the US Government and various bullion banks, such as Goldman Sachs and JP Morgan Chase, for more than a decade. Initially, GATA thought it was just the bullion banks. As time went by, we realized the US Government was behind the rigging.
Let’s get back into the year 1998. In September 1998 you started a website dedicated to observe the gold market called LeMetropoleCafe.com. A few days later a giant hedge fund named Long Term Capital Management (LTCM) crashed. Could you tell us a bit about this event and how it lead to the launch of the Gold Anti-Trust Action Committee in January of 1999?
Prior to opening my website, http://www.LeMetropoleCafe.com in September of 1998, I had been told from very good sources that LTCM was short 400 tonnes of gold as part of a gold carry trade. When they blew up, I expected the price of gold (below $300 at the time) to explode. Each time it went above $300, bullion banks such as Goldman Sachs, Morgan, Deutsche Bank, and Chase Bank would sell in unison and stop the upward movement in its tracks. Right then and there I knew something was fishy. Everywhere I turned, I received more feedback on the gold market which suggested it was managed. As a limit position futures traders some time ago, I knew something about how markets trade and it made no sense the way gold was trading at the time.
One more question with regard to LTCM. In order to handle that crisis there was an organization called the “Counterparty Risk Management Policy Group” (CRMPG). What was the purpose of that organization and what did it in 2002 when JPMorgan Chase was in trouble?
May I quote from an article I wrote in September 2006?
Sure.
Not only does it answer your question, as I think, but it reveals also the nature of the beast which caused so many problems years later. I have done back then a good bit of research trying to obtain some insight into the inter-relationship between the Federal Reserve, the government, and the large money center NYSE member banks. In my reading I kept coming upon the phrase ‘moral hazard’- as in “we want to avoid a moral hazard”. I tried to find the definition as they defined within the context of what I was reading – no luck.
Then I started reading Robert Rubin’s book, “In an Uncertain World’” As Secretary of the Treasury during the Clinton Administration, I thought I would try to get in the mind of one of the principals of the group we call the Plunge Protection Team (PPT). In the book he writes about his service at the White House. The book starts off with the Mexican Bailout and discusses that bailout and those that followed from the perspective of Mr. Rubin. After the first few pages he uses the term and defines ‘moral hazard’.
MORAL HAZARD – A problem whereas investors, after being insulated from the consequences of risk by intervention, might pay insufficient attention to similar risk the next time, or operate on the expectation of official intervention.
We traders know this government intervention more as the ”Greenspan Put”.
‘Private Counterparty Surveillance’ is another phrase that I read several times. This is basically the large NYSE member banks, a couple of well connected hedge funds, and that form the ‘Counterparty Risk Management Policy Group’. The one financial member of this group that is not a bank or a hedge fund is General Motors Asset Management. I guess with $300 billion in outstanding paper they want to be sure GM has a seat at the table.
What we also know is that we had a series of bailouts in the mid to late 90’s that started out with the Mexican bailout. Robert Rubin of Goldman Sachs was sworn in as Secretary of the Treasury on the evening of January 10th, 1995. That same evening an emergency meeting was held to finalize a plan to bail out Mexico.
I guess this could not be done until the well connected Rubin was in office. The administration waited until Rubin was confirmed and sworn in to move ahead. Greenspan’s “irrational exuberance” speech, Long Term Capital Management (LTCM) bailout, the “Asian Flu” economic crisis and Y2K followed. All contributed to what we all now know as a ‘moral hazard’. In 1999 the ‘Counterparty Risk Management Policy Group’ (CRMPG) was formed to address the issues with LTCM and to develop policy that would protect the financial world from another threat to the financial markets such as the LTCM incident.
Now fast forward to 2002. In May of 2002 the SEC appears to have fears that a major bank – one of two that clear government paper – may become insolvent due to derivative issues. The possible problem bank is JP Morgan. By the end of the year CRMPG recommends the foundation of a new bank be put in place just in case. The new bank would be a coordinated effort of the members of the CRMPG. The Federal Reserve and the SEC approve. 
Also in 2002 it just so happens that we see a big jump in the use of program trades. The major players are also members of the CRMPG. Those without large proprietary trading units such as Citigroup, start them. Citigroup is quoted as saying something along the lines that due to “new” innovations they see less risk in trading.
Remember JPM’s “problems”. Suddenly they went away. A “stealth bailout” is put in place. About year later the Wall Street Journal reported concerns that JPM was making a lot of money in the “risky” business of trading their own capital. They said, “Profits have been increasing recently due to a small and low profile group of traders making big bets with the firm’s money. Apparently, an eight man New York team has pulled in more than $100M of trading profit with the company suggesting it is a result of better market conditions and not greater risk.” Program trading was running at about 25% of all shares traded on the NYSE in early 2002. In 2006 program trading is running near 60%.
If you look at the members of the CRMPG you will find some foreign banks included. We are not looking at a group that deals solely with the US markets. Any market that could be contagious to the greater good is subject to control by the CRMPG.
In 2004 Greenspan acknowledged concerns about derivative growth. All markets had seen strong growth in the previous five years. In the OTC market, the notional outstanding of equity-linked derivatives was $4.5 trillion in June 2004, having tripled in size over the previously five years (source: BIS). The listed options market has also shown strong growth. For example, in 2004 the combined open interest of equity index options contracts on was around $3 trillion notional, double that of 1999. Turnover, at $200 billion notional per day in 2004, was triple that of 1999 (source: BIS). Data for the retail structured product markets is less comprehensive. Estimated issuance in Europe was around €100 billion in 2004. Around half of the issuance was in Italy, Spain and the UK (the other major European markets are France, Germany and Switzerland). On this basis, the market has doubled in size from 2000 to 2004.
However, free markets do not work this way. Their collusion at their highest ranks to secure the financial stability of the largest financial institutions could be at odds with the investments of smaller institutions and may be at odds with the small investor’s long term investments and goals. When LTCM failed many of us could have not cared less if you were not a shareholder of one on the banks that bailed them out. The bailout was simply put in place to save their own skins and the investors they serve.
In short, “Moral hazard” has led to moral decay at the highest ranks of our financial institutions.
Another organization which is not in the public spotlight is the “Exchange Stabilization Fund” (ESF), that was authorized by Congress. What is the aim of this specific group?
Well, here it is in their own words:
The Exchange Stabilization Fund (ESF) consists of three types of assets: U.S. dollars, foreign currencies, and Special Drawing Rights (SDRs). The ESF can be used to purchase or sell foreign currencies, to hold U.S. foreign exchange and Special Drawing Rights (SDR) assets, and to provide financing to foreign governments. All operations of the ESF require the explicit authorization of the Secretary of the Treasury (“the Secretary”).
The Secretary is responsible for the formulation and implementation of U.S. international monetary and financial policy, including exchange market intervention policy. The ESF helps the Secretary to carry out these responsibilities. By law, the Secretary has considerable discretion in the use of ESF resources.
The legal basis of the ESF is the Gold Reserve Act of 1934. As amended in the late 1970s, the Act provides in part that “the Department of the Treasury has a stabilization fund ….Consistent with the obligations of the Government in the International Monetary Fund (IMF) on orderly exchange arrangements and an orderly system of exchange rates, the  Secretary, with the approval of the President, may deal in gold, foreign exchange, and other instruments of credit and securities.”
GATA calls the force that is behind the price suppressing scheme of the gold market “The Gold Cartel”. Who are the main partners in this “Cartel” and how are they orchestrating their operations without the broader public taking notice of it?
I think I answered this one already. Nevertheless, as far as GATA is concerned, we are used to being shunned, no matter how right we have been for a decade now, as gold has rallied  NINE years in a row.  It all began ten years ago when somehow I got on CNBC and was interviewed by Ron Insana. Once they heard what GATA had to say, we have not only been blackballed by CNBC, but by most all of the US financial market press. We have hardly ever been mentioned no matter how much we contact the press, or send  blockbuster information to them. It is like there is a black hole out there when it comes to what GATA has to say.
The bottom line is that there is NO free financial market press in the US. They are a fraud in that regard and have contributed greatly to the financial chaos of the day with their refusal to cover one of the most significant financial market stories in recent years … that being the suppression of the gold price. The rich and powerful don’t like being challenged and the US financial press is petrified of offending them.
One person that you “like” is former US-Treasury Secretary Robert Rubin. You stated in the past that the whole rigged game was developed by him when he was working in London for Goldman Sachs a decade before. What was the basic innovation that Rubin came up with and how do you know about that exactly?
Before he was CEO of Goldman Sachs and then US Treasury Secretary, Robert Rubin worked in London for Goldman Sachs. One of his duties was to oversee their gold trading operations. We know this because the CEO of GATA supporter Kirkland Lake Gold, Brian Hinchcliffe, worked in London back then for Goldman Sachs and reported directly to Robert Rubin.
This was many years ago and interest rates in the US were very high, say from 8 to 12%. Rubin had Goldman Sachs borrow gold from the central banks, sell it in the physical market and use the proceeds to fund their basic operations They could do so at about a 1 % interest rate. This was like FREE money, as long as the price of gold did not rise to any sustained degree for any length of time.
Soon other major financial institutions realized what GS was doing and copied them. Rubin continued these operations as the Goldman Sachs CEO and then took it to a new level as US Secretary Treasurer. The gold price suppression scheme became the lynchpin of his widely acclaimed “Strong Dollar Policy.”
In the late 1980’s another future Treasury Secretary, Lawrence Summers, was dedicating his time as Professor at Harvard also on the inter-relation between gold and interest rates, wasn’t he?
GATA’s Reg Howe caught on to this notion in a paper titled, “Gibson’s Paradox and The Gold Standard,” co-authored by Lawrence Summers in 1988. Summers, a professor at Harvard at the time, succeeded Rubin as US Treasury Secretary. The bottom line of Summer’s analysis is that “gold prices in a free market should move inversely to real interest rates.” Control gold and it will help to control interest rates. How disturbing to have Summers, a man very responsible for America’s current market nightmares, back on the scene as Obama’s most significant economic advisor.
What is the motivation to keep interest rates low in the first place? Aren’t the long term risks higher than the short term advantages? And do you see a direct connection between artificially low interest rates and the current financial crisis with respect to derivatives and the housing market?
The motives of “the cabal” are to give support to the dollar, keep US interest rates lower than they should be, and to tone down the widely watched US barometer of US financial market health, that being the gold price. After all, whenever the price of gold soars, it congers up talk of what? Too much inflation, a sinking dollar, or a crisis of some sort … all negative for Wall Street and the incumbent administration. Therefore, “Shoot the Messenger” has been The Gold Cartel’s key mission for many years now.
The gold price suppression scheme has led directly to the financial market/economic crises that we face today. As a result of what we knew, GATA warned what was coming in a full-page color ad which we placed in the Wall Street Journal on January 31, 2008. The ad, titled “Anybody Seen Our Gold?” cost GATA $264,400.
The DOW was a little under 12,500 at the time and very few in the investment world were prepared for the coming financial market/economic chaos in the US.
GATA was. I am going to read some copy from this very telling ad, one that I believe will become a CLASSIC in the years ahead … AFTER the gold market blows up.
It opens with…
“The gold reserves of the United States have not been fully and independently audited for half a century. Now there is proof that those gold reserves and those of other Western nations are being used for the surreptitious manipulation of the international currency, commodity, equity, and bond markets.”
Now, anybody who has watched the DOW rally back in the last half hour to hour via The Plunge Protection Team’s Hail Mary play knows how true that is. When the market is in serious trouble, the PPT (The Working Group on Financial Markets) continues to prop it up late in the day, often floating rumours which mysteriously disappear the following morning.  By the way, how many of you have heard of the Counterparty Risk Management Group?  Do a Google and you will find another Goldman Sachs market rigging domain.  It is so telling about how the INSIDERS operate.
Later in the ad copy…
“The objective of this manipulation is to conceal the mismanagement of the US dollar so that it might retain its function as the world’s reserve currency. But to suppress the price of gold is to disable the barometer of the international financial system so that all markets may be more easily manipulated. This manipulation has been a primary cause of the catastrophic excesses in the markets that now threaten the whole world.”
… and then…
“Surreptitious market manipulation by government is leading the world to disaster.”
And this just what happened later last year!!!
Had gold been allowed to trade freely, the price would be sharply higher than it is now. If the price had been allowed to trade freely  to keep up with true US inflation, the price would be over $2,000 per ounce, according to most analyses. Interest rates would have also been sharply higher years ago, thereby curbing many of the excesses which have led us close to a second Great Depression.
How do banks like Goldman Sachs, JPMorgan Chase and the Deutsche Bank AG profit from those activities in the gold market? Why do they take part in all of this?
Borrowed central bank gold is virtually free money. That was a big deal years ago when interest rates were much higher. Then, as agents of the US, they are able to fleece spec longs whenever they are ready to attack from the short side, aided by physical gold being dumped on the market. Time and time again technical spec longs are sent running for the hills and the Gold Cartel covers when they sell. $20 here, $100 there. It adds up over the years.
In addition, gold is a small market compared to other major financial markets. Getting the inside scoop on what is going to occur is invaluable to their overall trading operations. Goldman Sachs has become commonly known as “Government Sachs” for a reason. The number of GS people who have gone on to the US Treasury is astounding. And most everyone knows JP Morgan is the Fed’s bank.
Can you describe in detail how the leasing and swap operations are put in place in order to pressure the price of gold? How many players does it take to carry this day-to-day process out? And furthermore how are those activities integrated between what happens in New York at the Commodities Exchange (COMEX) and the London PM Fix?
No, I don’t know exactly who gets what order and when, but it is not necessary. We have witnessed the price action for more than a decade and it is clear what is transpiring. Recently, ahead of US Treasury auction, gold traded EXACTLY the same way on the three days of the auctions. Going down into and through the COMEX openings after trading higher overseas.
Three other noticeable trading patterns include…
*Plan A – to pressure the market as soon as The Gold Cartel traders report to work, which is 3 AM NY time.
*Plan B – to pressure the market as soon as the PM Fix is concluded in London, or after the physical market pricing is over for the day.
*Plan C – to pressure the price in the lightly traded Access Market, which opens after the COMEX closes for the day.
One point: my guess is there are VERY few people in any one particular organisation who are part of the manipulation scheme … that know what is really transpiring.
One main protagonist of the past, former Federal Reserve chairman Alan Greenspan, stated in July 1998 before the US House Banking Committee:
“Central banks stand ready to lease gold in increasing quantities should the price rise.” 1
You believe this is exactly what the central banks have done?
They sure have. That simple. Although a number of them are getting cold feet. Central bankers are sheeples. They don’t want to be seen squandering what gold they have left in this precarious financial environment, which is why the European central banks have sold zilch the past month … when they could be selling hundreds of tonnes and still be in line with the Washington Agreements, first put into existence a decade ago.
What was the role of the German Bundesbank at that time? For example there are continuing rumours related to Germany’s gold reserves. Max Keiser published recently a documentary entitled “Brown’s Bottom” in which he stated that the total amount of Germany’s gold reserves are stored in the United States:
“The most fascinating thing I’ve heard is that all the gold in Germany is in New York.” 2
He also said that he received this information in March 2008 from officials at the German Bundesbank. Which information does GATA have about the question where Germany’s gold is located?
It appears there is a great deal of commotion behind the scenes in Germany about your gold reserves … one very opposed to mobilizing Germany’s gold and one that has been for it. Somebody in Germany wanted to stir up this issue nearly ten years ago when out of nowhere, there were back to back, unpenned articles in the Frankfurter Allgemeine Zeitung, like the one from August 25, 2000. Your readers can find this article at GATA’s web site under this link: http://www.gata.org/node/4226.
There is a great deal of controversy in our camp about where the 3400 tonnes of German gold is. GATA Secretary/Treasurer Chris Powell recently issued a missive which included the following:
Germany’s gold is in U.S. custody, Bundesbank confirms
International journalist Max Keiser has just posted a nine-minute documentary he has done about the British government’s gold sales that were begun in 1999 and now are disparaged as “Brown’s Bottom,” after then-Chancellor, now-Prime Minister Gordon Brown, who decided upon the sales and remains unashamed that they marked the bottom of the gold market. Keiser’s documentary is based largely on an interview with Conservative Party opposition Member of Parliament Phillip Hammond, who is shadow chief secretary of the treasury and who remarks that the British gold sales seem to have been structured precisely to knock the price of gold down rather than to maximize the return to the British government. Hammond also wonders aloud whether “something other than achieving the best price” might have been the objective of the gold sales scheme.
But Keiser’s documentary may be sensational for getting an acknowledgement from the German central bank, the Bundesbank, that Germany’s gold reserves are actually in the custody of the United States. This is a detail the Bundesbank long has denied to others who have inquired and is potentially a matter of great controversy in Germany. It raises the question of whether the German gold reserves are actually intact at all or whether they have been used by the U.S. government as part of its long-time gold price suppression scheme or have been comingled and diminished with the gold reserves of other countries held in the United States.
While Keiser’s documentary does not identify the Bundesbank spokesman who confirmed the transfer of the German gold reserves to New York, it does provide the date and location of the confirmation: March 17, 2008, at Bundesbank headquarters in Frankfurt. The documentary shows that Keiser was there and got the interview.
After his interview at the Bundesbank, Keiser remarks: “The most fascinating thing I’ve heard is that all the gold in Germany is in New York.” Indeed.
How long is this rigged game that you were talking about going on by now according to the research done by GATA? And has it changed since Barack Obama is US-President? Or is it more than just coincidence that Lawrence Summers is his top economical advisor?
The Gold Cartel has most likely been managing the gold price since Robert Rubin become Treasury Secretary in the Clinton Administration. Now that Summers is the man behind the scenes, nothing has changed. Worse, the Treasury Secretary now is Timothy Geithner, who heads the NY Fed, a bastion of the gold price rigging operation.
If all of this is true then the central banks wouldn’t have 30.000 tons of gold in their vaults as it is reported. What is GATA’s estimation of the real numbers and how do you reached those conclusions? Can you explain also your concerns related to the swap policies of the International Monetary Fund (IMF) in this context?
Years ago GATA consultants Frank Veneroso, James Turk, and Reg Howe, all using different methodologies, came to the same conclusion: that the central banks had far less gold in their vaults than they said they did. Even though some central bank gold has been restored as gold producer hedgers covered their forward short positions (2700 tonnes), the central banks still have less than half of the 30,000 tonnes they say they have in their vaults.
The good news is The Gold Cartel is gradually running out of enough available central bank gold to keep up with demand. We have a price explosion coming soon. Why….
*The European Banks have been withdrawing as sellers. They have sold next to nothing the past many weeks.
*The Russians revealed recently they are buyers.
*The Chinese are buying QUIETLY … and are likely to accumulate gold reserves at a rate of 300 tonnes per annum over the coming years.
*The supply/demand deficit is over 1,000 tonnes per year. The Gold Cartel needed other central bank gold to meet that deficit and they are dwindling away to nothing.
The last official audit of the US gold reserves took place during the years of the Eisenhower administration in 1955. What has GATA done in order to find out what is left in the United States Bullion Depository and what has been the outcome?
We have made that fact public many times. In addition we have filed two Freedom of Information inquiries to the Fed and Treasury about their activities in the gold market. They refuse to give us anything of substance, so we are filing an appeal. The Fed is withholding 137 pages of documents and we want to know what they contain. Perhaps we will have to go to the US Supreme Court to find out the truth.
I would also like to talk a bit with you about two independent reports that seem to support GATA’s findings that the gold price is kept artificially low. The first was published in August 2004 by the “Sprott Asset Management”, a firm based in Toronto.3 What did they say in their report entitled: “Not Free, Not Fair: The Long-Term Manipulation of the Gold Price”?
Their report was extensive and supports what GATA has to say throughout. Eric Sprott is one of GATA’s staunchest supporters and came to our Gold Rush 21 conference in the Yukon’s Dawson City in August 2005. Sprott Strategist John Embry (who presented at GR 21) is one of the most highly regarded men in the Canadian gold industry and was instrumental in the findings of that report.
The other report that comes outside of GATA is “The Role of Gold in the Unified Gulf Cooperation Council Currency” written by Eckard Wörtz for the Gulf Research Center.4 Can you tell us about the conclusions of this report, too?
GATA released the following in March of 2005:
DALLAS–(BUSINESS WIRE)–March 3, 2005–A study published by a research foundation in Dubai has endorsed the Gold Anti-Trust Action Committee’s findings that Western central and commercial banks have rigged the gold market but have much less gold than they claim to have and so are vulnerable to rising demand for gold. The study recommends that the oil-producing countries of the Middle East diversify their ever-depreciating U.S. dollar holdings into gold.
The study, “The Role of Gold in the Unified Gulf Cooperation Council Currency,” was written by Eckart Woertz, vice president of CFC Securities in Dubai, for the Gulf Research Center. It quotes the work of GATA’s consultants, including Frank Veneroso, and predicts that the gold price suppression scheme of the Western banks will fail just as their similar scheme of the 1960s, the so-called London Gold Pool, failed when the drain on Western gold reserves became too great. Once the scheme fails, the study says, “it will be highly difficult and expensive to accumulate a gold reserve. This is especially true for central banks that have low gold reserves like those in the Gulf Cooperation Council countries.”
The study concludes: “The paper dollar standard is a dead man walking. Its debt, accumulated over the recent decades, is too high to be effectively repaid. It will either default or be inflated to such an extent that it will not ‘hurt’ to pay it back. Therefore, the accrued imbalances in global finance and the inherent weakness of worldwide growth models that rely on a continuance of U.S. deficit spending are likely to usher in a serious crisis of currency systems in coming years…
The status of the US-Dollar as reserve currency of the world is the only thing that remains from the US economical power of the past. This status is secured since the 1970’s only because crude oil is paid in US-Dollars. If taken into context with the mentioned report by Eckard Wörtz, even this status linked to oil is in jeopardy, isn’t it?
All I can say is there has been a great deal of effort and talk lately to reduce the status of the dollar as the reserve currency … emanating from France to Brazil. If the dollar tanks in the coming year, as I suspect, certainly the link to oil will be in great jeopardy.
Could you also say something about China’s gold reserve policy during the last years? Didn’t China become increasingly active to accumulate physical gold exactly because the US-Dollar is a “paper asset” that loses its value? The Chinese use the low price of gold as long as they can whereas the West is getting extremely vulnerable?
Over the past 18 months I have been a part of three conference calls with the Chinese Investment Corporation, one of their Sovereign Wealth Funds. They wanted to know what GATA knew about the gold market and our opinion what was coming price-wise and why. We still don’t know what they are doing, or will do.
This year China announced they had quietly increased their gold reserves by 454 tonnes. In 2005 one of our GATA supporters reported the Chinese stealthily bought 510 tonnes of gold. We were pretty close to nailing the real deal years in advance … when it was occurring.
I mentioned the following in my commentary this past April…
GATA’s credibility took another leap forward this morning when China announced it has increased its gold reserves to 1,054 tonnes from 600 tonnes. For years and years and years GATA has claimed that the gold world establishment has failed to account for surreptitious gold lending operations by The Gold Cartel to suppress the price. For there to be greater gold supply hitting the market, there had to be greater demand to satisfy this undisclosed supply. As a result of Frank Veneroso’s brilliant supply/demand work in years past, we mentioned that one of the demand areas, that the likes of a GFMS was not accounting for, was China, and that someday their stealth buying would be reported. Voila…
China gold reserves apparently doubled
HONG KONG (MarketWatch) — China has added to its gold reserves and now holds 1,054 metric tons of the yellow metal, according to a Friday report by the Xinhua News Agency, which cited comment by Hu Xiaolian, head of the State Administration of Foreign Exchange.
Hu said that China’s gold reserves had risen by 454 metric tons since 2003 and that the total was being reported to the International Monetary Fund as per the organization’s rules…
According to my sources, China will be in the market for years to come and will be buying in size and as quietly as possible.
This trend shown by China and countries in the Middle East will gain even more momentum when it becomes clear to everyone that hyperinflation will come to the U.S.A., am I right?
YES!
Compared to eight years ago the price of gold has gone up three times against the dollar. If one would use a multi-year long perspective on things, one would come up with the conclusion that gold is the best store of wealth. Nevertheless, you say that the price of gold would be much higher without the market rigging techniques that we talked about?
True on all counts. It is critical to know what GATA knows to appreciate what is coming down the pike. Gold has now gone up 9 years in a row. The Gold Cartel has been MANAGING a retreat and keeping excitement to a minimum in the process … which is why the bullish sentiment with gold above $950 is so low today.
But, they are soon about to hit the wall, as mentioned above. We are at the Tipping Point in which physical demand buying overpowers supply. Once gold takes out $1,000 and stays above that level for a week or so, it is likely to explode. We are getting so close to that day.
There were two statements recently that I found quite interesting for the future developments at the gold market. Puru Saxena, the publisher of the “Money Matters“-report, said for example this:
“It is interesting to note that only 160,000 tons of gold has ever been mined from the face of this planet and at US$950 per ounce, it is worth US$4.9 trillion.  Now, consider that the total amount of paper money in circulation (currencies, savings, deposits, money-markets and CDs) is worth US$60 trillion or approximately twelve times the value of the gold in existence.  Now, there is no doubt in my mind that as world governments debase their currencies, many people will begin to question the viability of paper money as a store of value and they will turn to gold, silver and platinum.  Even if a small fraction of paper money rushes towards the small gold and silver markets, what do you think will happen to their prices?  No question, precious metals’ prices will explode!”5
Can you comment on this and put it maybe into the context that mining supply is decreasing?
He is correct. Mine supply has been contracting for many years and continues to head south … and there have been very few major discoveries to replace depleting mine supply. Most people don’t realise gold is way too cheap. They think gold is too expensive at $1,000 and is going to collapse. Not so. It will take a gold price of about $1500 for the industry to be really profitable as a whole. If a producer is going to start from scratch, building new infrastructure, etc., it will take a $2,000 gold price.
The other statement was coming from Frank Holmes of “U.S. Global Investors Inc.“ who said under the headline “Why now could be the right time for gold stocks“:
“Another bullish indicator for gold and gold stocks is that, for the first time in my 20 years at U.S. Global Investors, pension fund consultants and other gatekeepers for large institutional investors are advocating an exposure to gold.
These gatekeepers have influence over managers of many hundreds of billions of dollars in retirement funds, and they are advising a 5 percent to 8 percent allocation to gold, which is similar to the long-term exposure suggested by U.S. Global.”6
Can you comment on this, too?
Frank is one smart cookie and a quiet GATA supporter. I see gold becoming the GO TO investment in the months and year to come, even among the Wall Street crowd. The market cap of our sector is very tiny compared to others. Thus, just a shift in thinking among a number of major money managers could send the shares flying. When the public jumps on board, all boats will be lifted. Ten baggers among the VERY suppressed shares of the junior and exploration companies will be common.
Mr. Murphy, you have been a successful commodities trader before launching  LeMetropleCafe.com. Therefore I think you know a good deal about COMEX. I mention this because Trace Meyer and Avery Goodman see the danger on the horizon that COMEX might fail to deliver gold with respect to the rapidly grown size of future contracts.7 The Deutsche Bank AG seemed to have shown some difficulties to deliver gold on COMEX already.8 What are your expectations?
It is possible but a COMEX default would be a disaster for our financial markets. There never has been one and the credibility of our exchanges would come into question … especially after GATA’s claims all these years that the gold and silver markets have been rigged.
What is your experience with the Commodity Futures Trading Commission (CFTC) when it comes to the gold market?
They seem to be everywhere these days except in the most important issue of all: the rigging of the gold and silver markets aided by the extremely concentrated positions of a few shorts, like JP Morgan Chase. Instead they are jumping up and down about grains and oil.
At the G20 Summit that was held in April of this year in London there was a plan announced that the IMF should sell 403,3 tons of its gold to support Third World countries in these times of crisis via concessional loans. What is your point of view on this? Is this just marketing blather of some kind, and if so: what is the real deal?
Nobody knows how this is going to play out. The Gold Cartel is desperate for gold so there will be intense pressure to get the US Congress to approve the sale, which must happen. However, if my info is correct, there is a strong likelihood the Chinese will take it all for themselves.
Mr. Murphy, one last question. The biggest opponent that GATA has chosen to fight against is the Federal Reserve. Could it be that a lot of problems that you were talking about in the gold market take place because the Fed isn’t really a federal agency? In case it is true that the Federal Reserve System is “a consortium of very large multinational banks,”109  is it then any wonder that they seek to satisfy their interests instead those of the broader population? Isn’t this the main problem behind the problem that GATA is up against?
It certainly is a main one. Of extreme interest to us is Ron Paul’s HR 1207 bill to audit the Fed. More than 280 members of the House have signed up as co-sponsors. Barney Frank, who chairs the House Financial Services Committee, has been holding up its progress as a committee chairman. But, he now says the House will pass this bill.
IF the Fed is really audited, there will most likely be some stunning revelations regarding their activity in the gold market and might reflect on the status of US gold reserves. ANY activity, or lessening of official gold reserves, will be a bombshell of epic financial proportions.
To conclude, the price of gold is going to $3,000 to $5,000 per ounce. You can take that one to the bank.
Thank you very much for taking your time, Mr. Murphy.
SOURCES:

by Von Lars Schall
Posted originally  31 August 2009

The Gold Anti-Trust Action Committee (GATA) celebrates its 10th anniversary this year. GATA’s founder and director Bill Murphy talks about price suppression schemes, the “real numbers” and a possible COMEX default on gold.

Mr. Murphy, GATA has its 10th anniversary this year. What are the most important discoveries of this ten year journey?

The Gold Anti-Trust Action Committee (GATA) was organized in January 1999 to expose the manipulation of the gold price by a Gold Cartel consisting of the US Government and various bullion banks, such as Goldman Sachs and JP Morgan Chase, for more than a decade. Initially, GATA thought it was just the bullion banks. As time went by, we realized the US Government was behind the rigging.

Let’s get back into the year 1998. In September 1998 you started a website dedicated to observe the gold market called LeMetropoleCafe.com. A few days later a giant hedge fund named Long Term Capital Management (LTCM) crashed. Could you tell us a bit about this event and how it lead to the launch of the Gold Anti-Trust Action Committee in January of 1999?

Prior to opening my website, http://www.LeMetropoleCafe.com in September of 1998, I had been told from very good sources that LTCM was short 400 tonnes of gold as part of a gold carry trade. When they blew up, I expected the price of gold (below $300 at the time) to explode. Each time it went above $300, bullion banks such as Goldman Sachs, Morgan, Deutsche Bank, and Chase Bank would sell in unison and stop the upward movement in its tracks. Right then and there I knew something was fishy. Everywhere I turned, I received more feedback on the gold market which suggested it was managed. As a limit position futures traders some time ago, I knew something about how markets trade and it made no sense the way gold was trading at the time.

One more question with regard to LTCM. In order to handle that crisis there was an organization called the “Counterparty Risk Management Policy Group” (CRMPG). What was the purpose of that organization and what did it in 2002 when JPMorgan Chase was in trouble?

May I quote from an article I wrote in September 2006?

Sure.

Not only does it answer your question, as I think, but it reveals also the nature of the beast which caused so many problems years later. I have done back then a good bit of research trying to obtain some insight into the inter-relationship between the Federal Reserve, the government, and the large money center NYSE member banks. In my reading I kept coming upon the phrase ‘moral hazard’- as in “we want to avoid a moral hazard”. I tried to find the definition as they defined within the context of what I was reading – no luck.

Then I started reading Robert Rubin’s book, “In an Uncertain World” As Secretary of the Treasury during the Clinton Administration, I thought I would try to get in the mind of one of the principals of the group we call the Plunge Protection Team (PPT). In the book he writes about his service at the White House. The book starts off with the Mexican Bailout and discusses that bailout and those that followed from the perspective of Mr. Rubin. After the first few pages he uses the term and defines ‘moral hazard’.

Moral Hazard: A problem whereas investors, after being insulated from the consequences of risk by intervention, might pay insufficient attention to similar risk the next time, or operate on the expectation of official intervention.

We traders know this government intervention more as the ”Greenspan Put”.

“Private Counterparty Surveillance” is another phrase that I read several times. This is basically the large NYSE member banks, a couple of well connected hedge funds, and that form the ‘Counterparty Risk Management Policy Group’. The one financial member of this group that is not a bank or a hedge fund is General Motors Asset Management. I guess with $300 billion in outstanding paper they want to be sure GM has a seat at the table.

What we also know is that we had a series of bailouts in the mid to late 90’s that started out with the Mexican bailout. Robert Rubin of Goldman Sachs was sworn in as Secretary of the Treasury on the evening of January 10th, 1995. That same evening an emergency meeting was held to finalize a plan to bail out Mexico.

I guess this could not be done until the well connected Rubin was in office. The administration waited until Rubin was confirmed and sworn in to move ahead. Greenspan’s “irrational exuberance” speech, Long Term Capital Management (LTCM) bailout, the “Asian Flu” economic crisis and Y2K followed. All contributed to what we all now know as a ‘moral hazard’. In 1999 the ‘Counterparty Risk Management Policy Group’ (CRMPG) was formed to address the issues with LTCM and to develop policy that would protect the financial world from another threat to the financial markets such as the LTCM incident.

Now fast forward to 2002. In May of 2002 the SEC appears to have fears that a major bank – one of two that clear government paper – may become insolvent due to derivative issues. The possible problem bank is JP Morgan. By the end of the year CRMPG recommends the foundation of a new bank be put in place just in case. The new bank would be a coordinated effort of the members of the CRMPG. The Federal Reserve and the SEC approve. 
Also in 2002 it just so happens that we see a big jump in the use of program trades. The major players are also members of the CRMPG. Those without large proprietary trading units such as Citigroup, start them. Citigroup is quoted as saying something along the lines that due to “new” innovations they see less risk in trading.

Remember JPM’s “problems”. Suddenly they went away. A “stealth bailout” is put in place. About year later the Wall Street Journal reported concerns that JPM was making a lot of money in the “risky” business of trading their own capital. They said, “Profits have been increasing recently due to a small and low profile group of traders making big bets with the firm’s money. Apparently, an eight man New York team has pulled in more than $100M of trading profit with the company suggesting it is a result of better market conditions and not greater risk.” Program trading was running at about 25% of all shares traded on the NYSE in early 2002. In 2006 program trading is running near 60%.

If you look at the members of the CRMPG you will find some foreign banks included. We are not looking at a group that deals solely with the US markets. Any market that could be contagious to the greater good is subject to control by the CRMPG.

In 2004 Greenspan acknowledged concerns about derivative growth. All markets had seen strong growth in the previous five years. In the OTC market, the notional outstanding of equity-linked derivatives was $4.5 trillion in June 2004, having tripled in size over the previously five years (source: BIS). The listed options market has also shown strong growth. For example, in 2004 the combined open interest of equity index options contracts on was around $3 trillion notional, double that of 1999. Turnover, at $200 billion notional per day in 2004, was triple that of 1999 (source: BIS). Data for the retail structured product markets is less comprehensive. Estimated issuance in Europe was around €100 billion in 2004. Around half of the issuance was in Italy, Spain and the UK (the other major European markets are France, Germany and Switzerland). On this basis, the market has doubled in size from 2000 to 2004.

However, free markets do not work this way. Their collusion at their highest ranks to secure the financial stability of the largest financial institutions could be at odds with the investments of smaller institutions and may be at odds with the small investor’s long term investments and goals. When LTCM failed many of us could have not cared less if you were not a shareholder of one on the banks that bailed them out. The bailout was simply put in place to save their own skins and the investors they serve.

In short, “Moral hazard” has led to moral decay at the highest ranks of our financial institutions.

Another organization which is not in the public spotlight is the “Exchange Stabilization Fund” (ESF), that was authorized by Congress. What is the aim of this specific group?

Well, here it is in their own words:

The Exchange Stabilization Fund (ESF) consists of three types of assets: U.S. dollars, foreign currencies, and Special Drawing Rights (SDRs). The ESF can be used to purchase or sell foreign currencies, to hold U.S. foreign exchange and Special Drawing Rights (SDR) assets, and to provide financing to foreign governments. All operations of the ESF require the explicit authorization of the Secretary of the Treasury (“the Secretary”).

The Secretary is responsible for the formulation and implementation of U.S. international monetary and financial policy, including exchange market intervention policy. The ESF helps the Secretary to carry out these responsibilities. By law, the Secretary has considerable discretion in the use of ESF resources.

The legal basis of the ESF is the Gold Reserve Act of 1934. As amended in the late 1970s, the Act provides in part that “the Department of the Treasury has a stabilization fund ….Consistent with the obligations of the Government in the International Monetary Fund (IMF) on orderly exchange arrangements and an orderly system of exchange rates, the  Secretary, with the approval of the President, may deal in gold, foreign exchange, and other instruments of credit and securities.”

GATA calls the force that is behind the price suppressing scheme of the gold market “The Gold Cartel”. Who are the main partners in this “Cartel” and how are they orchestrating their operations without the broader public taking notice of it?

I think I answered this one already. Nevertheless, as far as GATA is concerned, we are used to being shunned, no matter how right we have been for a decade now, as gold has rallied  NINE years in a row.  It all began ten years ago when somehow I got on CNBC and was interviewed by Ron Insana. Once they heard what GATA had to say, we have not only been blackballed by CNBC, but by most all of the US financial market press. We have hardly ever been mentioned no matter how much we contact the press, or send  blockbuster information to them. It is like there is a black hole out there when it comes to what GATA has to say.

The bottom line is that there is NO free financial market press in the US. They are a fraud in that regard and have contributed greatly to the financial chaos of the day with their refusal to cover one of the most significant financial market stories in recent years … that being the suppression of the gold price. The rich and powerful don’t like being challenged and the US financial press is petrified of offending them.

One person that you “like” is former US-Treasury Secretary Robert Rubin. You stated in the past that the whole rigged game was developed by him when he was working in London for Goldman Sachs a decade before. What was the basic innovation that Rubin came up with and how do you know about that exactly?

Before he was CEO of Goldman Sachs and then US Treasury Secretary, Robert Rubin worked in London for Goldman Sachs. One of his duties was to oversee their gold trading operations. We know this because the CEO of GATA supporter Kirkland Lake Gold, Brian Hinchcliffe, worked in London back then for Goldman Sachs and reported directly to Robert Rubin.

This was many years ago and interest rates in the US were very high, say from 8 to 12%. Rubin had Goldman Sachs borrow gold from the central banks, sell it in the physical market and use the proceeds to fund their basic operations They could do so at about a 1 % interest rate. This was like FREE money, as long as the price of gold did not rise to any sustained degree for any length of time.

Soon other major financial institutions realized what GS was doing and copied them. Rubin continued these operations as the Goldman Sachs CEO and then took it to a new level as US Secretary Treasurer. The gold price suppression scheme became the lynchpin of his widely acclaimed “Strong Dollar Policy.”

In the late 1980’s another future Treasury Secretary, Lawrence Summers, was dedicating his time as Professor at Harvard also on the inter-relation between gold and interest rates, wasn’t he?

GATA’s Reg Howe caught on to this notion in a paper titled, “Gibson’s Paradox and The Gold Standard” co-authored by Lawrence Summers in 1988. Summers, a professor at Harvard at the time, succeeded Rubin as US Treasury Secretary. The bottom line of Summer’s analysis is that “gold prices in a free market should move inversely to real interest rates.” Control gold and it will help to control interest rates. How disturbing to have Summers, a man very responsible for America’s current market nightmares, back on the scene as Obama’s most significant economic advisor.

What is the motivation to keep interest rates low in the first place? Aren’t the long term risks higher than the short term advantages? And do you see a direct connection between artificially low interest rates and the current financial crisis with respect to derivatives and the housing market?

The motives of “the cabal” are to give support to the dollar, keep US interest rates lower than they should be, and to tone down the widely watched US barometer of US financial market health, that being the gold price. After all, whenever the price of gold soars, it congers up talk of what? Too much inflation, a sinking dollar, or a crisis of some sort … all negative for Wall Street and the incumbent administration. Therefore, “Shoot the Messenger” has been The Gold Cartel’s key mission for many years now.

The gold price suppression scheme has led directly to the financial market/economic crises that we face today. As a result of what we knew, GATA warned what was coming in a full-page color ad which we placed in the Wall Street Journal on January 31, 2008. The ad, titled “Anybody Seen Our Gold?” cost GATA $264,400.

The DOW was a little under 12,500 at the time and very few in the investment world were prepared for the coming financial market/economic chaos in the US.

GATA was. I am going to read some copy from this very telling ad, one that I believe will become a CLASSIC in the years ahead … AFTER the gold market blows up. It opens with…

“The gold reserves of the United States have not been fully and independently audited for half a century. Now there is proof that those gold reserves and those of other Western nations are being used for the surreptitious manipulation of the international currency, commodity, equity, and bond markets.”

Now, anybody who has watched the DOW rally back in the last half hour to hour via The Plunge Protection Team’s Hail Mary play knows how true that is. When the market is in serious trouble, the PPT (The Working Group on Financial Markets) continues to prop it up late in the day, often floating rumours which mysteriously disappear the following morning.  By the way, how many of you have heard of the Counterparty Risk Management Group?  Do a Google and you will find another Goldman Sachs market rigging domain.  It is so telling about how the INSIDERS operate.

Later in the ad copy…

“The objective of this manipulation is to conceal the mismanagement of the US dollar so that it might retain its function as the world’s reserve currency. But to suppress the price of gold is to disable the barometer of the international financial system so that all markets may be more easily manipulated. This manipulation has been a primary cause of the catastrophic excesses in the markets that now threaten the whole world.”

… and then… “Surreptitious market manipulation by government is leading the world to disaster.” And this just what happened later last year!!!

Had gold been allowed to trade freely, the price would be sharply higher than it is now. If the price had been allowed to trade freely  to keep up with true US inflation, the price would be over $2,000 per ounce, according to most analyses. Interest rates would have also been sharply higher years ago, thereby curbing many of the excesses which have led us close to a second Great Depression.

How do banks like Goldman Sachs, JPMorgan Chase and the Deutsche Bank AG profit from those activities in the gold market? Why do they take part in all of this?

Borrowed central bank gold is virtually free money. That was a big deal years ago when interest rates were much higher. Then, as agents of the US, they are able to fleece spec longs whenever they are ready to attack from the short side, aided by physical gold being dumped on the market. Time and time again technical spec longs are sent running for the hills and the Gold Cartel covers when they sell. $20 here, $100 there. It adds up over the years.

In addition, gold is a small market compared to other major financial markets. Getting the inside scoop on what is going to occur is invaluable to their overall trading operations. Goldman Sachs has become commonly known as “Government Sachs” for a reason. The number of GS people who have gone on to the US Treasury is astounding. And most everyone knows JP Morgan is the Fed’s bank.

Can you describe in detail how the leasing and swap operations are put in place in order to pressure the price of gold? How many players does it take to carry this day-to-day process out? And furthermore how are those activities integrated between what happens in New York at the Commodities Exchange (COMEX) and the London PM Fix?

No, I don’t know exactly who gets what order and when, but it is not necessary. We have witnessed the price action for more than a decade and it is clear what is transpiring. Recently, ahead of US Treasury auction, gold traded EXACTLY the same way on the three days of the auctions. Going down into and through the COMEX openings after trading higher overseas.

Three other noticeable trading patterns include…

*Plan A – to pressure the market as soon as The Gold Cartel traders report to work, which is 3 AM NY time.

*Plan B – to pressure the market as soon as the PM Fix is concluded in London, or after the physical market pricing is over for the day.

*Plan C – to pressure the price in the lightly traded Access Market, which opens after the COMEX closes for the day.

One point: my guess is there are VERY few people in any one particular organisation who are part of the manipulation scheme … that know what is really transpiring.

One main protagonist of the past, former Federal Reserve chairman Alan Greenspan, stated in July 1998 before the US House Banking Committee:
“Central banks stand ready to lease gold in increasing quantities should the price rise.” 1 You believe this is exactly what the central banks have done?

They sure have. That simple. Although a number of them are getting cold feet. Central bankers are sheeples. They don’t want to be seen squandering what gold they have left in this precarious financial environment, which is why the European central banks have sold zilch the past month … when they could be selling hundreds of tonnes and still be in line with the Washington Agreements, first put into existence a decade ago.

What was the role of the German Bundesbank at that time? For example there are continuing rumours related to Germany’s gold reserves. Max Keiser published recently a documentary entitled “Brown’s Bottom” in which he stated that the total amount of Germany’s gold reserves are stored in the United States:

“The most fascinating thing I’ve heard is that all the gold in Germany is in New York.” 2

He also said that he received this information in March 2008 from officials at the German Bundesbank. Which information does GATA have about the question where Germany’s gold is located?

It appears there is a great deal of commotion behind the scenes in Germany about your gold reserves … one very opposed to mobilizing Germany’s gold and one that has been for it. Somebody in Germany wanted to stir up this issue nearly ten years ago when out of nowhere, there were back to back, unpenned articles in the Frankfurter Allgemeine Zeitung, like the one from August 25, 2000. Your readers can find this article at GATA’s web site under this link: http://www.gata.org/node/4226.

There is a great deal of controversy in our camp about where the 3400 tonnes of German gold is. GATA Secretary/Treasurer Chris Powell recently issued a missive which included the following:

Germany’s gold is in U.S. custody, Bundesbank confirms
International journalist Max Keiser has just posted a nine-minute documentary he has done about the British government’s gold sales that were begun in 1999 and now are disparaged as “Brown’s Bottom,” after then-Chancellor, now-Prime Minister Gordon Brown, who decided upon the sales and remains unashamed that they marked the bottom of the gold market. Keiser’s documentary is based largely on an interview with Conservative Party opposition Member of Parliament Phillip Hammond, who is shadow chief secretary of the treasury and who remarks that the British gold sales seem to have been structured precisely to knock the price of gold down rather than to maximize the return to the British government. Hammond also wonders aloud whether “something other than achieving the best price” might have been the objective of the gold sales scheme.

But Keiser’s documentary may be sensational for getting an acknowledgement from the German central bank, the Bundesbank, that Germany’s gold reserves are actually in the custody of the United States. This is a detail the Bundesbank long has denied to others who have inquired and is potentially a matter of great controversy in Germany. It raises the question of whether the German gold reserves are actually intact at all or whether they have been used by the U.S. government as part of its long-time gold price suppression scheme or have been comingled and diminished with the gold reserves of other countries held in the United States.

While Keiser’s documentary does not identify the Bundesbank spokesman who confirmed the transfer of the German gold reserves to New York, it does provide the date and location of the confirmation: March 17, 2008, at Bundesbank headquarters in Frankfurt. The documentary shows that Keiser was there and got the interview.

After his interview at the Bundesbank, Keiser remarks: “The most fascinating thing I’ve heard is that all the gold in Germany is in New York.” Indeed.

How long is this rigged game that you were talking about going on by now according to the research done by GATA? And has it changed since Barack Obama is US-President? Or is it more than just coincidence that Lawrence Summers is his top economical advisor?

The Gold Cartel has most likely been managing the gold price since Robert Rubin become Treasury Secretary in the Clinton Administration. Now that Summers is the man behind the scenes, nothing has changed. Worse, the Treasury Secretary now is Timothy Geithner, who heads the NY Fed, a bastion of the gold price rigging operation.

If all of this is true then the central banks wouldn’t have 30.000 tons of gold in their vaults as it is reported. What is GATA’s estimation of the real numbers and how do you reached those conclusions? Can you explain also your concerns related to the swap policies of the International Monetary Fund (IMF) in this context?

Years ago GATA consultants Frank Veneroso, James Turk, and Reg Howe, all using different methodologies, came to the same conclusion: that the central banks had far less gold in their vaults than they said they did. Even though some central bank gold has been restored as gold producer hedgers covered their forward short positions (2700 tonnes), the central banks still have less than half of the 30,000 tonnes they say they have in their vaults.

The good news is The Gold Cartel is gradually running out of enough available central bank gold to keep up with demand. We have a price explosion coming soon. Why….

• The European Banks have been withdrawing as sellers. They have sold next to nothing the past many weeks.

• The Russians revealed recently they are buyers.

• The Chinese are buying QUIETLY … and are likely to accumulate gold reserves at a rate of 300 tonnes per annum over the coming years.

• The supply/demand deficit is over 1,000 tonnes per year. The Gold Cartel needed other central bank gold to meet that deficit and they are dwindling away to nothing.

The last official audit of the US gold reserves took place during the years of the Eisenhower administration in 1955. What has GATA done in order to find out what is left in the United States Bullion Depository and what has been the outcome?

We have made that fact public many times. In addition we have filed two Freedom of Information inquiries to the Fed and Treasury about their activities in the gold market. They refuse to give us anything of substance, so we are filing an appeal. The Fed is withholding 137 pages of documents and we want to know what they contain. Perhaps we will have to go to the US Supreme Court to find out the truth.

I would also like to talk a bit with you about two independent reports that seem to support GATA’s findings that the gold price is kept artificially low. The first was published in August 2004 by the “Sprott Asset Management”, a firm based in Toronto.3 What did they say in their report entitled: “Not Free, Not Fair: The Long-Term Manipulation of the Gold Price”?

Their report was extensive and supports what GATA has to say throughout. Eric Sprott is one of GATA’s staunchest supporters and came to our Gold Rush 21 conference in the Yukon’s Dawson City in August 2005. Sprott Strategist John Embry (who presented at GR 21) is one of the most highly regarded men in the Canadian gold industry and was instrumental in the findings of that report.

The other report that comes outside of GATA is “The Role of Gold in the Unified Gulf Cooperation Council Currency” written by Eckard Wörtz for the Gulf Research Center.4 Can you tell us about the conclusions of this report, too?

GATA released the following in March of 2005:

DALLAS – (BUSINESS WIRE) – March 3, 2005 – A study published by a research foundation in Dubai has endorsed the Gold Anti-Trust Action Committee’s findings that Western central and commercial banks have rigged the gold market but have much less gold than they claim to have and so are vulnerable to rising demand for gold. The study recommends that the oil-producing countries of the Middle East diversify their ever-depreciating U.S. dollar holdings into gold.

The study, “The Role of Gold in the Unified Gulf Cooperation Council Currency” was written by Eckart Woertz, vice president of CFC Securities in Dubai, for the Gulf Research Center. It quotes the work of GATA’s consultants, including Frank Veneroso, and predicts that the gold price suppression scheme of the Western banks will fail just as their similar scheme of the 1960s, the so-called London Gold Pool, failed when the drain on Western gold reserves became too great. Once the scheme fails, the study says, “it will be highly difficult and expensive to accumulate a gold reserve. This is especially true for central banks that have low gold reserves like those in the Gulf Cooperation Council countries.”

The study concludes: “The paper dollar standard is a dead man walking. Its debt, accumulated over the recent decades, is too high to be effectively repaid. It will either default or be inflated to such an extent that it will not ‘hurt’ to pay it back. Therefore, the accrued imbalances in global finance and the inherent weakness of worldwide growth models that rely on a continuance of U.S. deficit spending are likely to usher in a serious crisis of currency systems in coming years…

The status of the US-Dollar as reserve currency of the world is the only thing that remains from the US economical power of the past. This status is secured since the 1970’s only because crude oil is paid in US-Dollars. If taken into context with the mentioned report by Eckard Wörtz, even this status linked to oil is in jeopardy, isn’t it?

All I can say is there has been a great deal of effort and talk lately to reduce the status of the dollar as the reserve currency … emanating from France to Brazil. If the dollar tanks in the coming year, as I suspect, certainly the link to oil will be in great jeopardy.

Could you also say something about China’s gold reserve policy during the last years? Didn’t China become increasingly active to accumulate physical gold exactly because the US-Dollar is a “paper asset” that loses its value? The Chinese use the low price of gold as long as they can whereas the West is getting extremely vulnerable?

Over the past 18 months I have been a part of three conference calls with the Chinese Investment Corporation, one of their Sovereign Wealth Funds. They wanted to know what GATA knew about the gold market and our opinion what was coming price-wise and why. We still don’t know what they are doing, or will do.

This year China announced they had quietly increased their gold reserves by 454 tonnes. In 2005 one of our GATA supporters reported the Chinese stealthily bought 510 tonnes of gold. We were pretty close to nailing the real deal years in advance … when it was occurring.

I mentioned the following in my commentary this past April…

GATA’s credibility took another leap forward this morning when China announced it has increased its gold reserves to 1,054 tonnes from 600 tonnes. For years and years and years GATA has claimed that the gold world establishment has failed to account for surreptitious gold lending operations by The Gold Cartel to suppress the price. For there to be greater gold supply hitting the market, there had to be greater demand to satisfy this undisclosed supply. As a result of Frank Veneroso’s brilliant supply/demand work in years past, we mentioned that one of the demand areas, that the likes of a GFMS was not accounting for, was China, and that someday their stealth buying would be reported. Voila…

China gold reserves apparently doubled

HONG KONG (MarketWatch) – China has added to its gold reserves and now holds 1,054 metric tons of the yellow metal, according to a Friday report by the Xinhua News Agency, which cited comment by Hu Xiaolian, head of the State Administration of Foreign Exchange.

Hu said that China’s gold reserves had risen by 454 metric tons since 2003 and that the total was being reported to the International Monetary Fund as per the organization’s rules…

According to my sources, China will be in the market for years to come and will be buying in size and as quietly as possible.

This trend shown by China and countries in the Middle East will gain even more momentum when it becomes clear to everyone that hyperinflation will come to the U.S.A., am I right?

YES!

Compared to eight years ago the price of gold has gone up three times against the dollar. If one would use a multi-year long perspective on things, one would come up with the conclusion that gold is the best store of wealth. Nevertheless, you say that the price of gold would be much higher without the market rigging techniques that we talked about?

True on all counts. It is critical to know what GATA knows to appreciate what is coming down the pike. Gold has now gone up 9 years in a row. The Gold Cartel has been MANAGING a retreat and keeping excitement to a minimum in the process … which is why the bullish sentiment with gold above $950 is so low today.

But, they are soon about to hit the wall, as mentioned above. We are at the Tipping Point in which physical demand buying overpowers supply. Once gold takes out $1,000 and stays above that level for a week or so, it is likely to explode. We are getting so close to that day.

There were two statements recently that I found quite interesting for the future developments at the gold market. Puru Saxena, the publisher of the “Money Matters“– report, said for example this:

“It is interesting to note that only 160,000 tons of gold has ever been mined from the face of this planet and at US$950 per ounce, it is worth US$4.9 trillion.  Now, consider that the total amount of paper money in circulation (currencies, savings, deposits, money-markets and CDs) is worth US$60 trillion or approximately twelve times the value of the gold in existence.  Now, there is no doubt in my mind that as world governments debase their currencies, many people will begin to question the viability of paper money as a store of value and they will turn to gold, silver and platinum.  Even if a small fraction of paper money rushes towards the small gold and silver markets, what do you think will happen to their prices?  No question, precious metals’ prices will explode!”5

Can you comment on this and put it maybe into the context that mining supply is decreasing?

He is correct. Mine supply has been contracting for many years and continues to head south … and there have been very few major discoveries to replace depleting mine supply. Most people don’t realise gold is way too cheap. They think gold is too expensive at $1,000 and is going to collapse. Not so. It will take a gold price of about $1500 for the industry to be really profitable as a whole. If a producer is going to start from scratch, building new infrastructure, etc., it will take a $2,000 gold price.

The other statement was coming from Frank Holmes of “U.S. Global Investors Inc.“who said under the headline “Why now could be the right time for gold stocks”:

“Another bullish indicator for gold and gold stocks is that, for the first time in my 20 years at U.S. Global Investors, pension fund consultants and other gatekeepers for large institutional investors are advocating an exposure to gold.

These gatekeepers have influence over managers of many hundreds of billions of dollars in retirement funds, and they are advising a 5 percent to 8 percent allocation to gold, which is similar to the long-term exposure suggested by U.S. Global.”6

Can you comment on this, too?

Frank is one smart cookie and a quiet GATA supporter. I see gold becoming the GO TO investment in the months and year to come, even among the Wall Street crowd. The market cap of our sector is very tiny compared to others. Thus, just a shift in thinking among a number of major money managers could send the shares flying. When the public jumps on board, all boats will be lifted. Ten baggers among the VERY suppressed shares of the junior and exploration companies will be common.

Mr. Murphy, you have been a successful commodities trader before launching  LeMetropleCafe.com. Therefore I think you know a good deal about COMEX. I mention this because Trace Meyer and Avery Goodman see the danger on the horizon that COMEX might fail to deliver gold with respect to the rapidly grown size of future contracts.7 The Deutsche Bank AG seemed to have shown some difficulties to deliver gold on COMEX already.8 What are your expectations?

It is possible but a COMEX default would be a disaster for our financial markets. There never has been one and the credibility of our exchanges would come into question … especially after GATA’s claims all these years that the gold and silver markets have been rigged.

What is your experience with the Commodity Futures Trading Commission (CFTC) when it comes to the gold market?

They seem to be everywhere these days except in the most important issue of all: the rigging of the gold and silver markets aided by the extremely concentrated positions of a few shorts, like JP Morgan Chase. Instead they are jumping up and down about grains and oil.

At the G20 Summit that was held in April of this year in London there was a plan announced that the IMF should sell 403.3 tons of its gold to support Third World countries in these times of crisis via concessional loans. What is your point of view on this? Is this just marketing blather of some kind, and if so: what is the real deal?

Nobody knows how this is going to play out. The Gold Cartel is desperate for gold so there will be intense pressure to get the US Congress to approve the sale, which must happen. However, if my info is correct, there is a strong likelihood the Chinese will take it all for themselves.

Mr. Murphy, one last question. The biggest opponent that GATA has chosen to fight against is the Federal Reserve. Could it be that a lot of problems that you were talking about in the gold market take place because the Fed isn’t really a federal agency? In case it is true that the Federal Reserve System is “a consortium of very large multinational banks,”109  is it then any wonder that they seek to satisfy their interests instead those of the broader population? Isn’t this the main problem behind the problem that GATA is up against?

It certainly is a main one. Of extreme interest to us is Ron Paul’s HR 1207 bill to audit the Fed. More than 280 members of the House have signed up as co-sponsors. Barney Frank, who chairs the House Financial Services Committee, has been holding up its progress as a committee chairman. But, he now says the House will pass this bill.

IF the Fed is really audited, there will most likely be some stunning revelations regarding their activity in the gold market and might reflect on the status of US gold reserves. ANY activity, or lessening of official gold reserves, will be a bombshell of epic financial proportions.

To conclude, the price of gold is going to $3,000 to $5,000 per ounce. You can take that one to the bank.

Thank you very much for taking your time, Mr. Murphy.

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