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

Von Lars Schall

Montag, 31. August 2009

lemetropolecafe.com

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 10^th 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, 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 inEurope was around €100 billion in 2004. Around half of the issuance was inItaly, 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.

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 theUS.

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 todisaster.“

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 trueUS 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 inLondon, 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