for the bugs

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    Rod

    NEW ORLEANS -- Bill Murphy owns the Le Metropole Café Web publication and heads up the Gold Anti-Trust Action Committee.
    Mineweb: Bill, thanks for agreeing to this interview. Let’s get straight to it – gold is $130 per ounce higher than its 2001 lows. Surely that is sufficient evidence that there is no conspiracy to suppress the price of gold?

    Bill Murphy: Au contraire! Two years ago when we met with gold around $265, the GATA camp was saying where the price of gold was headed and why. You could barely find a bull in the mainstream world in those days who would talk about gold even clearing $300.

    The price of gold is shooting up despite the efforts of the Gold Cartel to contain it. The physical market has been on fire as the Russians, Chinese, Turks, Indians, and Arabs keep loading the gold boat as a group. Meanwhile, the gold producers continue to reduce their hedges. In addition, there has been a “paradigm shift” about gold as an investment. Volatile bond markets, shaky stock markets, and a sinking dollar have sophisticated investors buying gold these days. The yearly gold supply/demand deficit has been running about 1,400 tonnes and is growing. The cabal is finding it difficult to come up with enough supply to ration this surging demand.


    Mineweb: Why would the “cartel” allow gold to go up at all if the avowed purpose is to demonetize it?

    Bill Murphy: The Gold Cartel has no choice. They are running out of physical gold to keep the price down. Significant findings of the GATA camp reveal that half the central bank gold is gone. The work of Reg Howe, James Turk and Frank Veneroso shows that 15,000 tonnes of central bank gold have been swapped or lent out, more than three times the amount postulated by the gold establishment, like Gold Fields Mineral Services. It is this loaned or swapped gold that has been used to suppress the price.

    This is astounding and the ramifications are huge. It means the central banks don’t have the gold the financial world thinks they do. The Gold Cartel is running out of “ammo” to stop an inevitable gold price explosion.

    How can GATA be so right and the gold establishment so wrong on the gold loan/swap numbers? Simple. The International Monetary Fund has instructed the central banks to count gold loans and swaps as part of their reserves even though the gold isn't in the vaults anymore. In essence, they have instructed member central banks to lie to the investment world. As an example, it was discovered this year that 80 percent of the 546 tonnes of gold reserves of the Bank of Portugal have been leased or swapped out. Nowhere is this explained in the official statistics compiled by Gold Fields Mineral Services and the World Gold Council. And that’s only one central bank!


    Mineweb: You were among those who predicted that once gold rose much above $300 per ounce, there would be a short covering panic to send gold soaring. Similarly, you forecast that JP Morgan was imminently close to collapse because of reckless derivative trading. Why shouldn’t those failed forecasts be the fatal flaws that knock you out as a reputable gold prognosticator?

    Bill Murphy: Gold shot straight up to $388 when it broke above $330, just as we said it would. Panic was in the air when the Comex increased its margin requirements, and the Gold Cartel went on the attack soon after U.S. Treasury Secretary John Snow took over from Paul O’Neill. From the day O’Neill resigned in early December of last year until early February, the gold price soared, as there was no one at helm of the U.S. Exchange Stabilization Fund, a key Gold Cartel operative.

    As far as Morgan goes, yes, GATA raised a stink about their enormous derivatives position. Morgan felt compelled to make a public statement on the matter -- it got so bad for them. Something unusual has happened since then. Morgan’s official gold derivatives position, according to the U.S. Office of the Comptroller of the Currency, has gone down quite a bit, yet the gold derivatives on the books of the Bank for International Settlements have been going way up. How can this be as gold producers have reduced their hedge books from about 4,000 tonnes to 2,500 tonnes according to most accounts?

    From calendar end of Q1/2002 to Q1/2003, the gold producers reduced their forward sales commitments by an enormous 647 tonnes, a drop of more than 20 percent. From Q4/2001 to Q4/2002, the notional value of the gold derivatives at the BIS rose dramatically, from $231 billion to $315 billion, up 36 percent. They went up $36 billion in the last half of 2002 alone. We are waiting for the latest BIS numbers. The mainstream gold world refuses to reconcile this dichotomy because the obvious answer is that the Gold Cartel is using derivatives to manipulate the gold price.

    My guess is that Morgan felt the heat from GATA and their gold derivatives were shifted to other banks. Meanwhile, Morgan's interest rate derivatives have continued to rise.


    Mineweb: For an argument to be valid, it must be falsifiable. What is falsifiable in Gata’s case; is it possible that you are wrong and how will we know it?

    Bill Murphy: Hundreds of years ago it was thought the Earth was flat. Once it was discovered the Earth was round, you cannot go back and say maybe it is flat. Since Chris Powell and I started GATA five years ago, the credibility of our assertions has grown immensely. We are not lone wolves these days. Some of the most highly regarded people in the industry routinely talk about the manipulation of the gold price. They include:

    *John Embry, president of Sprott Asset Management. Before going to Sprott, John was one of the world’s most successful portfolio managers at Royal Bank of Canada.

    *Ferdinand Lips, a co-founder and managing director of the Rothschild Bank in Zurich. In 1987 he opened his own bank, Bank Lips, and he is the author of the acclaimed book “Gold Wars.”

    *Jim Sinclair, known as “Mr. Gold” in New York when the gold price was on its way to $800 in 1980, who constantly speaks of the Gold Cartel and the ESF’s price-rigging operations.

    * Frank Veneroso, world-renowned financial market consultant and author of "The Gold Book in 1998." At first Frank derided the idea of manipulation of the gold price, but now he speaks of official sector gold market management and says GATA was right all along.

    *GATA supporters such as former trial lawyer Reg Howe, who sued the Gold Cartel in U.S. District Court in Boston; former securities lawyer Robert K. Landis, and former Chase banker James Turk of GoldMoney, editor of the Freemarket Gold & Money Report.

    You'll be able to prove that GATA is wrong when you can have full access to the books and vaults of the central banks and the dealings of the Exchange Stabilization Fund. You should try holding those public agencies to account half as much as you seek to hold GATA to account. See if you can even get them on the phone, much less audit them.


    Mineweb: History shows us that market manipulation, even on a minor scale, unravels very quickly and spectacularly. Do you really believe team Greenspan is so skilled and powerful that it can, year-after-year, orchestrate interest rates, gold shorting, economic statistics, money supply, stock and bond markets, currencies, futures etc to create a false but pleasing outlook that dulls the public into complacent satisfaction?

    Bill Murphy: Yes, but Greenspan is just one cog. This is what the “strong dollar policy” of the United States has been all about. Everyone talks about this policy, but, incredibly, no one explains exactly how it is carried out. What did the United States DO to effect the “strong dollar policy?” GATA knows: They suppressed the gold price. This has been the cornerstone of the “strong dollar policy.” Now that they are running out of physical gold, the policy is failing, no matter what they say in Washington.

    The “strong dollar policy” was formulated by Clinton Treasury Secretary Robert Rubin, who was a Goldman Sachs alum too. Most likely Rubin got the idea from a paper co-authored by his deputy and successor, Lawrence Summers, when he was a professor at Harvard. It was titled “Gibson’s Paradox and The Gold Standard.” Summers analysis is that “gold prices in a free market should move inversely to real interest rates.” By keeping the gold price in check, Summers figured, the United States could hold down interest rates, attract money to the U.S., stock market, and bring prosperity to the United States at the expense of the rest of the world.


    Mineweb: If the cartel is as all-powerful as GATA suggests, then surely you should trade in its slipstream?

    Bill Murphy: Not when you know they are going to blow up. Investors who know what GATA knows and have invested accordingly the past couple of years have cleaned up. We knew what was going to happen and why and told everyone so. Back then you could buy the junior golds and quality explorations on the cheap and many at bankruptcy prices. My two biggest holdings, Golden Star Resources and Samex Mining, have risen more than 1300 percent.

    The KEY is to know what GATA knows. Once the light bulb goes off, it changes everything in gold investing. The big picture becomes clear. All that is required is for investors to do their homework and study our findings. Compare our record to the official price forecasts of the bullion-banking folks. Most of them have been neutral to bearish all the way up and remain that way. Two years into a bull market and the gold establishment still can’t get it right. Disingenuous or inept? Take your pick as far as most of them are concerned.


    Mineweb: If gold should be much higher, what is the fair price and how do you arrive at this level?

    Bill Murphy: For the past couple of years I have mentioned $800 to $1,000 per ounce as a reasonable objective. But now I believe the price will have to go much higher to ration future gold supply. There is going to be a gold rush such as the world has never seen before.

    Frank Veneroso is the smartest supply/demand numbers man I have ever known. He felt the fair commodity price of gold in 1997 was $600 an ounce, prior to the Gold Cartel's forcing the gold price down from the $400 area. After all that has transpired these past years, it is easy to envision gold doubling that number.


    Mineweb: The longevity of the Blanchard suit against Barrick and JP Morgan owes a good deal to the quirkiness of the Louisiana legal system. Do you think the case will ever get past a circuit court appeal?

    Bill Murphy: That's not correct. The Blanchard suit is in federal court in New Orleans, not a Louisiana state court, and follows the same rules of procedure as the federal court in Boston where Reg Howe filed the lawsuit underwritten by GATA. The sole important difference in the Blanchard case is the lack of government defendants. The Howe suit was dismissed in large part on grounds of "sovereign immunity." While Barrick and Morgan tried to get the Blanchard case dismissed on "sovereign immunity" grounds, they failed, because Blanchard is suing no government agencies. So GATA is very hopeful about the Blanchard case and supports it completely.


    Mineweb: Why do you think some of the companies that have sponsored Gata won’t admit it to their investors?

    Bill Murphy: While many companies are glad to be on record as GATA supporters, some do keep it quiet. Two reasons why:

    *The major gold producers need certain bullion banks to do their project financings. GATA is explaining to anyone who will listen that a few of these banks, like JP Morgan and Goldman Sachs, have manipulated the gold price to the detriment of the gold companies and gold shareholders and have violated U.S. anti-trust laws in the process. So some mining companies don't want to get on the wrong side of banks that can make it very hard for mining companies to get credit. People are understandably afraid of the big banks.

    * Bullion banks are the agents of governments in suppressing the gold price, and governments have control over mine permitting and operations. Mining companies understandably don't want to get on the wrong side of governments on this issue either.


    Mineweb: What Gata successes would you like to remind us about?

    Bill Murphy: One of the biggest was our campaign against the big hedgers, which began four years ago. From the feedback we have received, it's clear that we put a great deal of pressure on various hedgers to reduce their hedge books. We urged investors to dump the big hedgers in protest for their contributing to the low gold price. The famous novelist Arthur Hailey ("Airport," "Hotel," etc.) announced he sold all his Barrick sales and bought Gold Fields. Many others acted accordingly. What a great move by Arthur, who is an ardent GATA supporter. On a similar note, three years ago Newmont traded on a par with Barrick. Now Newmont is trading more than $22 higher than the heavily hedged Barrick. Investors who listed to GATA are knocking the ball out of the park.

    Our biggest accomplishment was alerting the investment world that the gold market has been rigged and that this rigging has hurt a lot of innocent people. GATA's African Gold Summit in Durban, South Africa, on May 10, 2001 was a big success. Five nations attended, as did the major South African gold producers, the National Union of Mineworkers, the South African Reserve Bank, the South African Broadcasting Co., and other major news organizations. It was prime-time news in South Africa.

    We alerted the gold-producing nations in sub-Saharan Africa to what the Gold Cartel, including the U.S. government, was doing and the damage it was causing. Ferdi Lips put it best in an interview earlier this year with Jim Puplava of www.financialsense.com:

    “I think you’re exactly right and I would even say it’s a crime against the gold-producing companies, against their shareholders, and against their countries. I have followed this in Africa, and especially in the gold-producing countries of Africa. They were under severe pressure because the gold price was capped for many years. Manipulated. And I think it is absolutely stupid because in all these countries you could have had prosperity. Even in the United States and in Canada a prospering gold-mining business is beneficial. There is a multiplier effect. Other industries benefit too. Salaries go up and more tax receipts come in. So it is absolutely stupid to destroy this industry, and it was almost destroyed.”


    Mineweb: Are you confident that we’ll see $400 an ounce this year still?

    Bill Murphy: $400 or $500? We might have seen $400 by now if JP Morgan Chase had not stomped all over gold in the last half hour of last Friday’s trading.

    One thing I am sure of is that a gold derivatives banking crisis is coming. It will create havoc. The Gold Cartel is going down to defeat. The gold price could get closer to $500 by the end of this year than $400. $500+ by the end of next year ought to be a layup.
 
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