April 5, 2005 - MIDAS ALERT
The Gold Cartel Is Dead Meat!
Bill Murphy, Le Metropole Cafe, LemetropoleCafe.com
I consider the following
news which hit the tape to be of such importance to do a special recap for you:
Congress, Bush will block IMF gold sales
Washington, DC,
Apr. 5 (UPI) -- U.S. Congress and President Bush will stop the International
Monetary Fund from selling its gold, the chairman of the Joint Economic
Committee said.
The IMF is
considering gold sales as a way of covering bad loans it has made to
impoverished borrowers now unable or unwilling to repay, but Congressional
approval would be required.
JEC Chairman Rep.
Jim Saxton, R-N.J., said he favors IMF debt relief through write-offs financed
out of the IMF's other resources.
"The
potential profits on IMF gold sales rightfully belong to the original donor
countries and their taxpayers," he said. "These IMF gold sales would
amount to a hidden appropriation from the donor countries that were the
original source of the gold."
Saxton said the
IMF failed to implement the proper lending safeguards and accounting controls
for making such loans.
"Not surprisingly,
some of its loans have gone bad, and the consequences should not be papered
over," he said. "The IMF's mistaken forays into development lending
have proven counterproductive, and should not be repeated."
-END-
As long stated by
the GATA camp, The Gold Cartel is running out of gold to cap the price. The
Swiss are done selling and the cabal had to lean on the ECB for a surprise 47
tonnes. The one hope for the bums was to keep the market subdued, partly via
talk of IMF gold sales to keep the market off balance. The psychological ploy
was clear - one which they dearly needed to work until they could somehow get
the IMF to dump gold, and to play for time to defuse the interest rate
derivatives neutron bomb which is now lit.
First the
Bundesbank, in a stunning rebuke of Germany’s Finance Minister, came out
against the IMF gold sales. Now James Saxton, Chairman of the JEC, has stated
Congress will oppose the sales. Last week I covered why GATA may have played
some role in the Bundesbank coming out the way they did.
Tonight I lay out
GATA’s efforts in the past which may have played a role in Saxton’s riveting
comments. I say riveting because I think The Gold Cartel and even the Bush
Administration got bagged here. WE KNOW the US is desperately trying to control
the price of gold. Thus any public comments against the sales by our US
Treasury are a red herring, especially with their apologists like Gordon Brown
of England begging for the sales.
I will have more
on this in days to come as events unfold. However, this KILLS any potential for
IMF gold sales in my book and should give a HUGE lift to the gold price in the
days and weeks ahead.
The following is
from 1999 MIDAS commentary. It will sound very familiar. Only time will tell
what effect GATA has had on James Saxton and the JEC. You can make your own
conclusions. However, one thing is clear. It wasn’t the World Gold Council who
had any impact here. SUPPORT GOLD RUSH 21!
The following
letter was sent to Chairman Saxton to prepare him for GATA's meeting on April
27, 1999:
Honorable James
Saxton
Chairman Joint Economic Committee
339 Cannon House Office Building
Washington, D.C. 20515-3003
April 26, 1999
Dear Congressman
Saxton,
The purpose of my
visit is to try and be of some assistance to you and your committee regarding
the issue of the proposed IMF gold sale. It is the opinion of the Gold Anti
Trust Action Committee that the real reason for the intense lobbying and
orchestrated PR barrage about selling IMF gold by the White House and the
Treasury is not being revealed to Congress. We believe that the real reason to
promote the IMF sales has to do with a concerted manipulation of the gold
market to keep the price down in order to bail out the gold shorts of Wall
Street (ie bullion banks, hedge funds, and other financial institutions).
That has been
going on for some time but began in earnest when Alan Greenspan made this
statement before a Senate Agriculture Committee on July 30, 1998, "central
banks stand ready to lease gold in increasing quantities should the price
rise." We would like someone in Congress to ask Mr.Greenspan exactly what
he meant by that comment when he is testifying again before committee.
It is important to
understand that there is a natural supply/demand deficit in the gold market,
meaning that demand for gold far outstrips natural mine supply. Our associates
figure that deficit is around 1200 to 1600 tonnes and that deficit has been met
by gold producer forward selling, some central bank sales, scrap supply, and
gold lending. We think that the gold lending is now so large that it has
created a potential "systemic risk" problem. Bullion dealers have
been lending out central bank gold to financial institutions at 1% interest
rates. The gold is sold into the physical market (depressing the price) and the
proceeds are then invested elsewhere. This is called the "gold carry
trade" which operates under the same principle as the "yen carry
trade" which blew up late last summer when the yen rallied strongly
against the dollar. The short term demise of the yen carry trade caused great
financial consternation.
The "carry
trades" only represent cheap sources of capital if the price of the entity
borrowed stays the same, or decreases. When the price of the yen suddenly rose
sharply late last summer it caused great financial distress as very inexpensive
loans became onerous. But, at least they could get out of the loan via
liquidating the yen; in essence giving it back.
We believe that
the speculative gold loans are now as high as 3,000 tonnes of gold and that the
total gold loans (producer forward sales, etc) have reached 8,000 to 10,000
tonnes. If we are correct, and at some future date the price of gold rallies
like the yen did, there will be financial turmoil. As yearly mine supply in
1998 was only 2529 tonnes, the borrowers will not be able to lay their hands on
that much gold very quickly. Inevitably, there will be defaults and many
financial institutions here and abroad will go bust. Many of the banks are
getting in this too deeply and are at risk of becoming "Long Term Capital
Managements." Panic is definitely not too strong a word to be used here.
This appears to us
that the current administration and the NY investment houses are in cahoots and
what we may have here is one of the great financial scandals in US history.
Financial commentators often point to the muddling, low gold price as to how
all is well in the economy and administration officials point to a low gold
price with pride, almost using it as a report card on the great job they have
done. The bullion banks and investment houses have picked up on this and are
making sure that the price does not go up by supplying gold to the market
place. They feel they can borrow gold with impunity, even at these low prices,
as a result of Mr. Greenspan's comments. And of course there is the connection
of Wall Street to Secretary of the Treasury, Robert Rubin. Everywhere we turn
in our investigation, we find Goldman Sachs, his former firm, involved in gold
bashing efforts.
Our committee
(GATA) has retained one of the premier anti-trust firms in the United States,
Berger & Montague of Philadelphia, to assist us in our investigation into
this matter. If further evidence corroborates what we already have, we intend
to sue some New York bullion dealer/investment houses for violation of the
Sherman and Clayton acts. These firms are making fortunes (while many
associated with the gold industry are being destroyed) through investments,
after borrowing gold at 1% interest rates. However, we think that some of them
are making these fortunes illegally as a result of collusive activities and in
the process have created a "ticking time bomb" that could blow up to
be a financial disaster in the future.
It is this cozy
arrangement the administration has with these investment houses that we believe
is the real reason behind the constant calls to sell the IMF gold. They both
benefit from the sale of the IMF gold, but the poor countries in South Africa
and West Africa lose as their mining industries deteriorate. I know you have
had other experts testify on all of this to you so I will not get into that.
But the American public, as well as this country's mining industry, could
really lose too. Our last monthly trade deficit was $20 billion. At some point,
there will be an attack on our dollar. Our gold resources are one of our
greatest assets. Why sell any of them at these very, very low prices? We can
point to our gold stocks in defending our dollar in the future. There are many
financial analysts that think a financial bubble has been created. That may or
may not be the case, but to advocate gold sales at this point in time will be
looked on as great folly if there is a bubble, and it bursts.
Yes, the current
administration and the greedy Wall Street houses are winning the day today with
this gold market manipulation. But, if this charade about gold is not stopped
now, someday the American public will be big losers if a financial panic sets
in. If someone had stopped the Savings and Loans from their over-extensions a
decade ago, we might not have had that big a crisis. The potential gold loan
crisis could dwarf the Savings and Loan one if the orchestrated gold selling
game is not curtailed now. I have attached some material for your perusal,
which elucidates much of what I have brought to your attention. That material
is:
1.An April 16
Reuters PRNewswire in which Chris Thompson, the Chairman of one of the world's
biggest gold producers, Gold Fields Limited, decries the tactics of the New
York based bullion dealers.
2. An essay by
John Hathaway, the highly regarded senior portfolio manager of The Tocqueville
Fund in New York, entitled, " Bullion Dealer: Spin Meisters of the Gold
Market."
3. Commentary from
Veneroso Associates entitled, "Gold Zaitech - A Bear Bubble Driven By
Cheap Credit". Frank Veneroso wrote the 1998 Gold Book and is one of the
leading authorities in the world on the gold market. He has been economic
policy advisor to the World Bank, the I.F.C. and the O.A.S. as well as many
countries.
Frank Veneroso is
also one of the leading authorities on the gold loan issue. I was with Frank
when he determined out how large the gold loans are and I saw how he figured it
out by learning what the gold loans were at individual bullion banks. In
addition to that, I was there when he spoke to Terry Smeeton, who just retired
as England's Chancellor of the Exchequer, about the gold loans last year. Five
years ago Mr. Smeeton was very chatty with Frank about the loans. Last year, he
would say nothing and could not get off the phone fast enough when Frank told
him how large he now thought the gold loans had become.
4. Commentary from
the highly regarded James Turk, who publishes the Freemarket Gold & Money
Report. James is one of the other leading authorities in the world on the gold
market and is known by all in the industry. His April 26 piece is very timely
and covers the problem of the payback of the gold loans. His work shows that it
could take a gold price of $608 to $923 to solve this very sizeable problem.
5. Brief
commentary from the well established "International Harry Schultz
Letter." Harry Schultz also expounds on the nefarious tactics of the
bullion dealers.
I look forward to
meeting you on Tuesday at 1:15 and hope that we may of help to you regarding
this IMF gold sale issue.
Best regards,
BILL MURPHY
Chairman, Gold Anti Trust Action Committee, Inc.
***
In September 1999
the price of gold went ballistic after the surprise Washington Agreement
announcement on September 26, leading to the infamous comment by the Bank of
England’s Eddie George, as stated in Reg Howe's court case aginst The Gold
Cartel to be found at:
http://www.gata.org/howe_complaint.html
"We looked
into the abyss if the gold price rose further. A further rise would have taken
down one or several trading houses, which might have taken down all the rest in
their wake. Therefore at any price, at any cost, the central banks had to quell
the gold price, manage it. It was very difficult to get the gold price under
control but we have now succeeded. The U.S. Fed was very active in getting the
gold price down. So was the U.K."
Do you think GATA caught Chairman Saxton's
attention when the gold price rise was a worldwide fuss and potential disaster
5 months after our meeting?
***
4/28 Report on
GATA goes to Washington/Deutsche Bank conference call
April 28, 1999 -
Spot Gold $282.70 up 70 cents - Spot Silver $5.25 up 8 cents
Feedback to the
Café about my trip Washington and meetings with Jim Saxton, Chairman of the
Joint Economic Committee, the Staff Director of the Joint Economic Committee,
the senior macro economist of the Joint Economic Committee, the Senior Counsel
of the House Banking and Financial Services Committee and the Staff Director of
the Capital Markets Subcommittee
Washington is in
full bloom this time of year and it is extraordinarily beautiful and bustling
with activity. One cannot help but be inspired walking around the Capitol while
gazing at its majestic buildings and thinking of what they stand for. It is one
great country we have here, with all its flaws, and an awesome, proud feeling
came over me as I traversed from the Capitol building to the Rayburn Building,
to the O'Neill building, etc. America is special because anybody can do
anything here. It is a land of individuals and we are very lucky to be living
in such an environment. I thought as such as Mitch McConnell, Barney Frank, and
other House of Representative Members sauntered by - all just part of the
crowd.
My first meeting
was with the Staff Director of the Capital Markets group that is investigating
Long Term Capital Management. I cannot get into too much about this one, but I
can tell you that I almost fell off my chair when he told me that they were
investigating Long Term Capital Management for "anti-trust"
violations. It was not my place to probe further. But, now we understand why
Long Term Capital Management has reacted so expressively to the Gold Anti Trust
Action Committee and is sending our attorney a letter. I am sure that we are
just a coincidence that happened to show up at the wrong time for them, but no
one I have spoken on Wall Street had heard that anti-trust activity is the
reason a Congressional subcommittee is looking into their previous operations.
Later on, the
Senior Counsel of the House Banking and Services Committee came by and we had a
long session about the "the sizeable gold borrowings." He took
copious notes. I stressed to him that it was our opinion that a danger had been
created by speculative gold borrowers who had become so greedy that we believe
that there are now about 3,000 tonnes of these loans out there. And, that the
total gold loans may now be 8,000 to 10.000 tonnes. I stressed that the
borrowers were making a fortune with virtually interest free money! But, in
doing so, they have created a potential banking disaster. If the price of gold
were to unexpectedly shoot up and go sharply higher (like the price of oil did
the past two months), the gold borrowers could not find 3,000 tonnes of gold to
pay back their loans, even if they wanted to. Panic could ensue. Major banking
defaults may occur and they could have 10 Long Term Capital type, systemic risk
problems on their hands, all at once!
I told him that I
was here today to alert the Banking Committee to this potentially very serious
problem and that this situation could be likened to the Savings and Loan
crisis. After the Savings and Loan crises erupted, it was queried by many as to
why someone did not do something about it before it became a crisis. I told the
Staff Director that there is no reason for history to repeat itself. NOW, is
the time for the Banking Committee to ask the bullion dealers and major
financial institutions what their gold books look like; ask them to reveal the
gold books (confidentially) to a banking or economic committee. If they will
not do so, ask why? If they do and we are we are right, somebody had better
blow the whistle. If we are wrong, then it was a waste of just a little time
and a few phone calls.
We discussed the
gold loans issue in great detail. You know much of our reasoning and evidence,
so there is no point going into all that. What is important is that at the end
of the meeting the Senior Counsel got up grinning and said, "Geez, got a small
order here, have to save the banking system".
The next meeting
was with Jim Saxton, the Staff Director of the Joint Economic Committee and
their senior macro economist.
Jim Saxton is one
class act. We had some fun talking about my cousin, Bobo Sullivan, who also has
been a force in New Jersey Republican politics for many years as he ran the
election campaigns for Bush and Reagan in that State. Jim just got back from a
fact finding mission in Yugoslavia and now is also preparing legislation to
reform the Exchange Stabilization Fund by introducing the, ESF Transparency and
Accountability Act.
"This
legislation will end the legacy of secrecy and obscurity at the ESF,"
Saxton said in his press release. The ESF was established in 1934 at a time
when the dollar was pegged to gold, but has survived into the current era of
flexible exchange rates despite its lack of clear objectives and its secretive
operations."
"This
legislation will end the legacy of secrecy and obscurity at the ESF,"
Saxton said. "We need this kind of secrecy in our nuclear weapons
programs, not in our international economic policy, but most Americans have
never heard of it. The American people have the right to know how billions of
their tax dollars are being used. Excessive secrecy is part of an even larger
problem: the lack of accountability to congress or the American people."
I told Jim that
GATA was concerned about the lack of transparency in the gold market too and
that we felt there were many shenanigans occurring in the gold arena. GATA
applauds his efforts, and intended legislation, which could cut off another
potential source of manipulation of the gold market.
Most of the
discussion was about: 1) what GATA felt was the real reason behind all the IMF
proposed gold sale PR commotion and 2) GATA's opinion that gold loans had
become so large that they had become a danger to the U.S. banking and financial
system.
I went on to say
how large we felt the gold loans had become and that if something were to
happen to cause the price of gold to rise sharply, and the gold borrowers
wanted to get out of their gold loans and pay the gold lenders back with
physical gold, that it would be impossible for them to do so in a short period
of time without the price of gold skyrocketing. With 1998 mine supply at 2529
tonnes in 1998, it just cannot be done. I followed with what I had told the
Senior Counsel of the Banking Committee, that I felt the resulting turmoil
could produce 10 "systemic risk problems," not just the 1 that our
Fed had with Long Term Capital Management. What would the Fed do in that case?
It was stressed by
me that almost no one thought there could be a Long Term Capital Management
either; that even the Central Bank of Italy invested in Long Term because of
the supposed lack of risk in investing with them. The biggest and the best
invested in Long Term. "And look what happened," I told Jim. I then
pointed out that it is these same "biggest and best" that are
borrowing gold at 1% interest rates and are thus, in effect, short gold to a
staggering degree. In essence, they are investing all over the place for
practically free (as long as the price of gold does not go up). I asked him if
he would like to be able to go his bank and take out virtually an interest free
loan? Did he think his investment performance would look pretty good if he
could do so? That is what I told him I felt was behind all this IMF gold sale
talk spewed forth by our administration, the bullion dealers, Wall Street and
anyone else who's arm they can twist. I do not think it proper to recant any of
his conversation, but I think I can comfortably say that he has a great smile.
All 3 committees
want to very much hear whatever more we have to convey on this matter.
***
THE GOLD PRICE IS GOING MUCH, MUCH HIGHER!!!
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