From the desk of Chris Powell of GATA:
12:35a ET Wednesday, February 7, 2001
Dear Friend of GATA and Gold:
Daan Joubert, a widely read newspaper financial
columnist in South Africa, wrote the following
article about gold and GATA this week as the
GATA delegation arrived for the Indaba 2001
mining conference in Cape Town. I'm not able to
reproduce the chart that accompanies the article,
but you'll get the point without it.
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
* * *
By Daan Joubert
About two years ago a few people in America accepted
that there is intervention in the gold market to keep
the price of gold under pressure and proceeded to form
an association to expose this practice.
Bill Murphy, chairman of this group, the Gold Anti-
Trust Action Committee (GATA), is now in South Africa
to publicise their efforts and to recruit general and
financial support.
Funds are urgently needed, as a members of GATA, Reg
Howe, in December brought suit against some of the
people and institutions who, according to information
available to GATA, are involved in this practice.
Howe is doing this in his personal capacity, with
support from GATA, as he is an experienced attorney and
long-time member of one of the foremost legal firms in
Boston. He also has extensive knowledge of the gold
market on which he writes with authority at his
Internet site, www.goldensextant.com.
Just the idea that a few common people who have
gathered on the Internet at Murphy's website,
www.lemetropole.com, could dare to challenge some of
the giants of the financial world sounds very
farfetched, but we also know what happened when David
met Goliath.
The respondents in the case include Messrs. Alan
Greenspan, chairman of the Federal Reserve; Lawrence
Summers, former secretary of the treasury; and
institutions such as Goldman Sachs, J.P. Morgan, and
the Bank for International Settlements, the central
banks' central bank.
The question is, of course, whether David has the right
stone to load in his sling and hit the bullseye. I
enjoyed the privilege of meeting Murphy on two
occasions and listening to what he had to say.
At the moment some of the material GATA hopes to lay
before the court in March should perhaps not be
divulged. But readers can access the public court
documents at the GATA website at www.gata.org, in which
many facts are already made known.
From conversation with Murphy it would appear that the
experts in and outside the gold industry who treat the
idea of a conspiracy as a laughing matter may well have
to eat crow when they try to explain why they
themselves could not draw the necessary conclusions
from what is essentially public information.
There is, for example, a statistical analysis of the
gold price that in terms of the accepted statistical
view of price behaviour for all practical purposes
confirms suspicions that there is intervention in the
gold market.
The academic view of periodic changes in prices -- hour
by hour, day by day or week by week -- is that changes
in direction occur with equal probability while the
extent of the changes follows well-known statistical
patterns.
If it should be found that the price behaviour of some
commodity deviates from the standard model, it can
firstly be determined to which direction the deviation
is biased, whether the deviation is constant over time,
and, thirdly, the probability that the deviation could
be a statistical aberration in the market or whether it
has to be ascribed to some intervening force can be
calculated.
An analysis of changes in the price of gold between the
closing of the U.S. markets and the next AM fix in
London -- a time during which gold trades mostly in
Asia and in early-morning trade in Europe -- shows that
over a long period the behaviour of the gold price is
close to that predicted by the models. Increases and
decreases occur almost evenly, as they should in a
normal market.
When the same analysis is done for the time from the AM
fix through to the close of the U.S. market, it is
found that more often than not the price of gold ends
lower in U.S. trade.
The statistics show that the probability that this
deviation can arise from normal supply and demand
conditions is truly negligible and that for all
practical considerations it has to be due to long-
lasting and persistent intervention in the gold market.
The main complaint originates in the fact that bullion
banks can lease gold from central banks for as little
as 1 percent. The gold is sold in the market and the
funds so obtained are invested in other instruments at
a much higher rate of return.
Further, if by the time the gold has to be returned to
the central banks the gold price is lower than at the
time of the lease, the bullion banks would score
additional profits. On the other hand, if the gold
price should increase substantially, the banks stand to
lose a great deal of money. GATA contends this is one
reason why the price of gold is being kept artificially
low.
GATA is reputed to have hard facts in its possession
that prove the complicity of many persons and
institutions in this practice. It will thus be very
interesting to watch how this case unfolds -- and of
course what the effect on the price of gold will be!
(A chart of the gold price appears here.)
Today we examine a weekly chart of the gold price. It
is clear that the yellow metal is still trapped within
a bear channel and that for the past few weeks it is
hovering just above important support. Should the price
now break lower to end a week below the level of, say,
$260, it would imply that the sad story of gold has
another chapter to go.
But should gold build on the early signs of life we
have seen recently, it could reach the strong
resistance level at $281 and even at $302 -- again as
per the Friday PM fix.
A break to above $300 would not only be psychologically
important, but technically it would mean a break from
the medium-term bear channel -- which would imply the
potential for the price of gold to increase rapidly
from then on, perhaps even reaching as far as $400.
This will not happen easily, as there are very strong
forces ranged against gold. Should gold nevertheless
manage to reach $300, then even the institutions united
against the gold price could be compelled to become
buyers. Should they not do so, given their short
positions, the people responsible run the risk of being
held personally liable for the consequences of their
decisions, and that would be a real nightmare.
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