Earlie, FYI:
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Interviews Homepage
Stockhouse.com Interview - Jan. 29, 1999
THE GOLD BUG WHO FIGHTS BACK
Grass Roots Investigation into the Long-Term Capital Management
Bailout that May Explain WHY Gold Prices Aren't Rising
A StockHouse Interview with Bill Murphy,
Chairman of the Gold Anti-Trust Action (GATA)
• • •
Bill Murphy and a small group organized GATA in response to what they believe are recent admissions by major Wall Street investment houses and U.S. Federal Reserve officials. GATA believes Wall Street and the Fed have been colluding, and continue to collude, to control the price and supply of certain financial securities, some of which involve gold. GATA plans on mobilizing the gold community: mining companies, their shareholders, and people who believe in gold's monetary function. The purpose behind this action is to file an antitrust lawsuit against the appropriate parties for manipulation of the price of gold.
Mr. Murphy was interviewed late Thursday night, prior to his Friday appearance on CNBC-TV, about his loud investigation into gold-price manipulation by Wall Street brokerage firms, international banks, the U.S. Federal Reserve and members of the Clinton Administration, and one or more willing accomplices among the world's major gold companies. In this interview, Mr. Murphy appears closer to announcing a major class action and anti-trust lawsuit against the parties that he believes have intentionally held the price of gold below US$300/ounce.
STOCKHOUSE: HOW DID YOU START GATA AND WHY?
BILL MURPHY: This just came into being a week ago. I wrote an article and another person wrote "Invitation to a Lawsuit." We then formed a committee and put out a press release so that we could get information from all kinds of people to determine our course of action. We felt there have been violations of anti-trust law. The mining industry and the investors involved in the gold markets have been traumatized by things that we think are wrong and possibly illegal.
SH: WHAT EXACTLY IS GATA DOING?
BILL MURPHY: What we're hoping to do is rally the gold industry, rally the shareholders, and find out more about collusive activities. We are now going into discovery. We're gathering together forces in the gold industry to put together our case. We're organizing in response to some things that are very wrong in the marketplace. We're gathering information to determine where we are going to go. There are many people in the gold industry that know what is going on, but they haven't said anything because they don't have a forum. A lot of them can't say anything because the same people that are "bearing" them is where they get their financing. I've gotten lots of information in the past three or four days about what's really going on. Watergate-type "mole" information is being fed to us so that we can get the information and go towards where the (law) suit should go. Once we get all of our material, we will go into action.
SH: WHAT IS THE FOCUS OF YOUR INVESTIGATION?
BILL MURPHY: The bailout for Long-Term Capital Management. We think there is an attempt to control price and supply of derivatives. The Counterparty Risk Management Group, which was formed by some of the same Wall Street investment houses, headed up by Goldman Sachs and J.P. Morgan, to collude with competitors in business to manage risk, to seek to control price and supply. If General Motors, Chrysler and Ford got together to determine what their costs would be and what their sales would be, would that stand?
We're looking specifically at the people involved in the Long-Term Capital Management bailout. We're looking specifically at the people involved in the Counterparty Risk Management group. They're (Goldman Sachs and J.P. Morgan) part of it, too. We're going to look at all the activities of all in this group. The last thing these people want is to have it exposed how short gold they are, as a group.
SH: WHERE DOES THE U.S. FEDERAL RESERVE FIT INTO THIS?
BILL MURPHY: Greenspan announced (to the U.S. House Banking Committee) on July 24th: "central banks stand ready to lease gold in increasing quantities should the price rise". After that, the price of gold tanked. Alan Greenspan is famous for (his vague and ambiguous) "Greenspeak." Why did he come out and make that blunt a statement? I think (he's involved in this) absolutely and there are reasons for it. I believe the Federal Reserve, because of the Long-Term Capital bailout, Goldman Sachs - that's Robert Rubin's old firm, and the New York financial institutions know how much short gold they are, because of how much money they can borrow at 1% and put it into these (gold) derivatives.
SH: WHY WOULD THE FEDERAL RESERVE BE CONCERNED ABOUT THE PRICE OF GOLD?
BILL MURPHY: They (the Federal Reserve) fear a rise in the price of gold because you have the euro coming on stream. We believe there's an Asia Financial Institute in the works, an Asian financial entity of sorts, where the yen will be the dominant currency with a gold backing. We know that at the end of last year, the Asian sector was buying gold and they were told twice last fall, according to our sources, to back off from the gold market - by our (U.S. government) officials. They were aggressive buyers of gold last year and we think they are ready to come back into the market in a major way.
SH: WILL THIS INVESTIGATION END UP IN A LAWSUIT?
BILL MURPHY: Yes. We're not waffling. We want to make sure. We think it's clear that there is collusion going on. We're putting our facts together to most likely bring anti-trust lawsuit and collusion violations against the people we think are guilty. I would say that the U.S. Federal Reserve Board is involved because of Alan Greenspan's statement. We want to know why he made that comment (see above). We know the Federal Reserve in New York was involved in the bailout. We want to look at all the people involved in the Counterparty Risk Management group.
SH: IS U.S. TREASURY SECRETARY ROBERT RUBIN INVOLVED?
BILL MURPHY: He certainly is aware of what's going on. There's no way he could not be aware of what's going on.
"How did Long-Term Capital get let out of that (short) position? The reason they got let out is they couldn't go buy it in the open market. We believe there was collusion here. What we want to find out is who let them out..."
SH: WHAT MAKES YOU THINK U.S. GOVERNMENT OFFICIALS ARE INVOLVED?
BILL MURPHY: Because Brooksley Born (former Chairperson of the CFTC) resigned from the CFTC, in part, because she could not get any co-operation, could not get anywhere, with the rest of the government or government officials with what was going on. She was complaining about derivative abuses in financial institutions that there could be some serious problems there. Nobody was paying any attention to her so she just quit. She happens to agree with me that there are big problems in this area. We're going on the same tact as she, except we're mobilizing as many gold companies as we can and as many shareholders as we can.
SH: WHEN WILL YOU BE ABLE TO "NAME THE NAMES" INVOLVED IN THIS?
BILL MURPHY: In about a month, we'll have the Top Ten names. We're launching the investigation to get that information. That's why we are doing this. The last thing we want to do is name names or go after individuals. We're on a discovery. We're going to discover where the grievances are and then we'll name names. We're going to do our homework and then discover our course of action.
SH: WHY ARE YOU SNIFFING AROUND LONG-TERM CAPITAL FOR ANSWERS?
BILL MURPHY: How did Long-Term Capital get let out of that (short) position? The reason they got let out is they couldn't go buy it in the open market. We believe there was collusion here. What we want to find out is who let them out. It's all the kind of material we're putting together in a puzzle. You will hear different stories from different people. The common story is that the people were given back the gold - the bullion dealers had to take back the gold in some deal worked out by the bailout group. They were bailed out by banking institutions.
SH: WHAT TIPPED YOU OFF THAT THERE MIGHT BE MANIPULATION?
BILL MURPHY: Ted Arnold and Andy Smith are the only two big bears in the gold market who have been correct in the past three years. Andy Smith was the touter for Union Bank of Switzerland and Ted Arnold was the tout, the main caller of the bear market for Merrill Lynch, and both were correct. Andy Smith was a raging bear as was Ted Arnold. They knew, because they had the physical orders, what was going on. Both the Union Bank of Switzerland (which has been taken over) and Merrill Lynch announced, after last year, that they had gotten out of the gold derivative business. They know how short the market is. The question is: Why are they no longer doing what they were doing for those companies? They know how big the shorts are - that's why they got out! They know how big the problem could be! That's a fact.
SH: HOW BIG IS THE SHORT SITUATION IN GOLD?
BILL MURPHY: We think that gold loans, right now, are 8,000 tonnes. We think that the gold loans have gotten so big that the people who knew it best were Merrill Lynch and the Union Bank of Switzerland - because they encouraged it. We believe that just the speculative loans, the carry trade, are as much as 3,000 tonnes. We think that Long-Term Capital Management were short hundreds of tonnes of gold. This is where we think there is collusion here. They got everyone together and got them (LTCM) out in an "off market" transaction. The new head of the European Central bank announced they will not be selling any gold in the foreseeable future. To sell gold in the United States requires an Act of Congress. You can't just get "the gold."
SH: IS THIS GOING TO POSE A PROBLEM FOR GOLD BEARS?
BILL MURPHY: The bullion dealers that are short are in trouble. On the COMEX alone, there is a short position of about 200 or 225 tons net speculator short. The over-the-counter market is at least 10 times that. All the heavy players trade in the over-the-counter market on (gold) derivatives. If they're short 200-250 tons on COMEX, it's at least 10 times that on the over-the-counter market - so that's at least 3,000 tons.
They know if they are short 3,000 tonnes of gold, which is what we believe, that if the price of gold rises, they can't cover it in a short period of time. That's because the mining supply is 2529 (tonnes) according to Goldfield Mineral Services. So, they've got a real problem. There's great concern about this issue in the gold bullion community. If the price goes up, they can't cover it. If the price of gold were to start to go and they need to get it out of their gold vaults, in a short period of time, they can't. This is why we want disclosure, such as in the Long-Term Capital situation.
SH: HOW DID THIS SHORT SITUATION GET THIS SERIOUS?
BILL MURPHY: It's the same analogy as the "yen carry" trade. It was a sure-fire way to make money. Why did people do the "yen carry" trade? Because they thought the yen was going to get weaker and weaker, or at least be steady against the dollar. The yen-carry trade blew up in August. That was part of the Long-Term problem. The whole thing blew up and helped cause the problem because everyone thought the yen was going to go to 180. Interest (rates) are about the same. People can borrow gold at 1%, same as the yen. But, the gold-carry trade is only good if it's like the yen -- if it stays where it is. If the price of gold explodes, instead of being the cheapest loan in the world, it now becomes the most expensive. There is a problem here - there is a chronic shortage of gold, right now, in refineries. The yen-carry trade went on for years and then it blew up. Here's what we think is going to happen. If it's not cleared up fairly soon, we are going to have an absolute explosion (in the price of gold) on our hands that's going to make the yen-carry trade blowup look like small-time stuff.
SH: WE HEAR RETAIL GOLD SALES ARE BRISK.
BILL MURPHY: The gold coin market is going bonkers. It's the same in silver. The premiums in silver are going bonkers. The premiums in India for gold and silver are at the highest levels you can think of. The demand (for gold) around the world is very strong. What's happening is they (the shorts) have to continue to find more and more borrows and borrowers of this gold.
SH: IS THERE A "GOON SQUAD" INTENTIONALLY KEEPING THE GOLD PRICE DOWN?
BILL MURPHY: There are so many little things (going on). Every time the market gets up around $300, Goldman Sachs is a major seller. Last year in the fall, after Long-Term Capital bombed, Goldman Sachs was running around South Africa offering credit terms that were unheard of, almost zero credit terms for people that would sell forward. This was done by J. Aron, one of their (Goldman Sach's) bullion arms. They were offering gold at credit terms for hedges if they would just sell it forward. That's a fact. At some point we will name names. I'm not going to go out and talk publicly against them (Goldman Sachs, others). We're putting all this together. We're going to go after the people involved in the areas that I mentioned.
SH: WHERE WILL THE GOLD PRICE RALLY TO, IF THERE IS MASSIVE SHORT COVERING?
"We're going to expose them. We're going for greater transparency. We're trying to make the gold market transparent. I call this the Field of Dreams. First you build it, then they will come...."
BILL MURPHY: Probably about US$450/ounce. If the shorts can't get any, they will have a force majeure if they can't deliver it. No telling what could happen then. That's why we say that Greenspan made these statements. The whole industry is being made to suffer. People that invested in the industry are being made to suffer. We think (that this is happening) by unlawful means. If the market forces were left alone, and there wasn't collusion on this, the price of gold would be $450. If it weren't for what is going on in the paper market right now, the price of gold will go to between $400 and $500 to clear. This means that will be the kind of price level for equilibrium between supply and demand in the gold market. It would take that kind of a rise to clear.
SH: WHAT DO YOU HOPE TO ACCOMPLISH WITH GATA?
BILL MURPHY: I have had more people in the gold industry call me in the past three or four days, since this was started, than I have had call me in the past year. We expect that that's going to accelerate. People are going to give us more information on where we want to go. I expect to get information from people in the industry. The people in the industry are dependent upon the bankers to finance their operation. That's why they won't be public about it, but behind the scenes, in anonymity, we're looking at where the bodies are buried. Information will come to us. We think that they're scared and we know that if we know how short they are and we know the Federal Reserve knows how short they are. We're going to expose them. We're going for greater transparency. We're trying to make the gold market transparent. I call this the Field of Dreams. First you build it, then they will come.
BACKGROUND
Bill Murphy's contrarian financial website (www.lemetropolecafe.com) is available only by subscription. He has assembled a team of financial experts that discuss the U.S. and global financial markets, Asia, gold (and commodities) and international events. After graduating Cornell University's School of Hotel and Restaurant Administration, Bill played professional football (starting as a wide receiver for the New England Patriots) for the American Football League (now incorporated into the NFL). He later worked as a commodities broker for Shearson and Drexel. More recently, he helped market Venoroso & Associates, a highly respected gold research firm.
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