Are the Gold Markets Rigged?

October 1, 1999

A former professional football player and commodity trader named Bill Murphy is shaking things up in the gold markets and perhaps in the boardrooms of some of the most powerful bankers in America too. Mr. Murphy leveled very serious, perhaps criminal charges against some of the most significant movers and shakers of our generation. He believes, for reasons laid out in the following interview, people at very high levels of our government, central banks (including our own Federal Reserve Bank) and major bullion banks have been manipulating the gold markets for the financial gain of some of the wealthiest people on earth. The losers in this alleged market rigging scheme are a considerable number of poor gold exporting countries, gold mining companies and thousands of their employees, as well as gold investors like you. In the final analysis, the biggest losers of all may be the American people because if Murphy's charges are true, the very fabric of our democratic system of government is being ripped to shreds.

I first met Bill Murphy in Montreal during the Spring of 1998 at a Cambridge House Investment Conference. At that time, he was an assistant to Frank Veneroso, one of the world's foremost authorities on the gold markets. I spoke to Bill once since then to tell him about Itronics, Inc., (OTC BB: ITRO), my favorite stock for 1999. After that, I lost track of him until suddenly, one day early this year he appeared on CNBC to tell millions of people why he believed the price of gold was being manipulated to lower levels by certain members of our political and banking establishment. My first thoughts were "Wow!, is Bill crazy or stupid or does he possibly have such compelling evidence that he just can't shut up". Yet, tangling with the power elite, as Bill has chosen to do, can, I believe, lead to one's unexplained accidental death or disappearance, even in America! When questioned about his courageous endeavor, Bill compared his experience as a professional football player, where he went head to head with some big name stars, with what he is doing now in the political and economic arena. Many folks may wonder if this man simply had his head beat in a few too many times playing football so that his judgement has been impaired. Others may suspect he has some emotional problem that causes him to think in grandiose or paranoid terms. Knowing Bill as I do, I am convinced he is of sound mind and judgement. I do not suppose he would think of himself as a patriot, but I suspect it is through divine intervention that he has been called to serve the cause of freedom. I hope you enjoy the following interview that took place during the afternoon of August 28, 1999 between myself and Bill Murphy.

Jay Taylor, Editor

Taylor: Thank you so much, Bill, for carving out some time for our subscribers. A couple of years ago I met you when your previous boss, Frank Veneroso, was suggesting a true equilibrium price for gold should be around $600 per ounce. I know Mr. Veneroso as a man of impeccable credentials when it comes to understanding and ferreting out the fundamentals of whatever market he chooses to focus on. One time he was hired by some major banks to study the copper markets before those banks spent hundreds of millions of dollars building a copper mine in South America. He was fired because the banks thought he was too bullish on copper. Subsequently, he turned out to be exactly right in his price forecast. He told me he began to study the gold markets several years ago when he became absolutely convinced gold was grossly undervalued. In any event, when you and I first met, gold was selling at perhaps $350 per ounce when Mr. Veneroso was still insisting gold's equilibrium's price was $600. As I recall, this value assumed no net new dis-hoarding by Central Banks and also that there would be little if any net new forward sales of gold. As a person who worked closely with Mr. Veneroso in the past, you are as familiar with the quality of his work as anyone. Of course, 99.9% of all investors laugh at the notion of a $600 gold price. But given your considerable knowledge about the quality of Mr. Veneroso's work, what are your thoughts about a theoretical $600 equilibrium price for gold under a free market assumption?

Murphy: Well, first I think Frank Veneroso's work in the supply and demand area for gold is the best in the world. I've known Frank for many years during which time he has been a consultant to foreign governments such as Chile & Mexico, the IFC and so on. His work is outstanding and highly regarded for very good reasons. And there is no doubt in my mind that Frank is right about this equilibrium price of $600. And as two years have passed since then, I'm sure it's higher now. You know we feel gold has been kept at an artificially low price. In large part because of this artificially low price, the deficit is growing dramatically. We now think that the amount of gold being taken off the market compared to supplies from the mines and scrap sources is between 160 and 180 tons of gold every month. So I think a price of at least $600 would be a fair price for gold right now if it were not being artificially suppressed.

Taylor: Right. If Veneroso's projected $600 gold price was two years ago, then it was just before the Asian crisis was about to rear its ugly head, right?

Murphy: Yes. A lot of things have happened since mid 1997. You had the Asian crisis that brought on scrap supply from all over Asia for liquidity purposes. There were 300 tons that came out of Korea alone. But what is ironic now is that many of these Koreans that sold their gold or helped the government with their liquidity problems are now rebuilding their own personal gold stocks. So they are replenishing their gold supply. The suppression of the gold price from Asia was a one-time shot that is behind us. As you know the Asia economy is building fairly strongly and gold demand is absolutely soaring there now.

Taylor: As I recall, Veneroso did not build any increase in investment demand into the assumptions underlying his $600 equilibrium price. I think he was really looking essentially at demand for jewelry and industrial purposes and supply from mining and scrap metal. Is that right?

Murphy: That's correct. But what is stunning about knowing Frank for as long as I have, is that his whole analysis was based just on looking at gold as a commodity. But he now thinks that because of what has happened in the world with the great amount of gold price suppression and what he sees in other markets is that there is going to be an incredible surge in investment demand for gold coming in the near future.

Taylor: So that would indicate that once the lid blows off, the price of gold could rise to levels much higher than $600?

Murphy: That is correct. Price makes commentary and practically none of the press these days understand or are even thinking about what is really going on in, the gold market. When this market starts to go, its going to go far higher than anyone can conceive. And it will happen very quickly!

Taylor: Right. And I suppose investors will be dumbfounded given their well conditioned beliefs to the contrary.

Murphy: They will be totally dumbfounded and of course as the gold price starts to move higher, everyone will start jumping on the band wagon. But now it is the time to focus on the gold markets like you are doing because this is what I consider to be one of the greatest risk/reward trades of all time - right now.

Taylor: Many of us who have held an interest in the gold markets during the yellow metal's 19 year bear market, have suspected our government and/or commercial banking system have been "managing" the price of gold to lower levels. We have believed this was part of a programmed behavioral policy aimed at keeping investors uninterested in gold and by default fully invested in paper denominated assets or fiat currency. Dr. Larry Parks of FAME demonstrates how central banks have made enormous profits because in effect they have the legal right to "print" money just as a counterfeit operator creates it illegally. In fact, the effect of this legalized counterfeit scheme is the same. Those printing money (commercial banks) profit at the expense of those members of society that are producing useful goods and services.

Hard money advocates like Dr. Larry Parks of FAME, James Turk, Doug Casey, Congressman Ron Paul and Harry Schultz, to name a few, are receptive to your message. They understand the monetary aspects of gold and understand how gold as money gets in the way of legalized counterfeiters (i.e. commercial bankers) in their quest to rob common working folks. But the vast majority of Americans think what you are saying is complete nonsense or at least they hope it is because to them, a constantly declining gold price is good news. The spin they have been given so frequently that they buy it without question, goes something like this. If gold prices fall, inflation is low. And, if inflation is low interest rates will be low. And if interest rates are low stocks can keep on rising. So most Americans think or at least hope that your message is untrue. They want to think gold prices are declining, not because they are being manipulated, but because of natural market forces. What evidence do you have, circumstantial or otherwise, that makes you sure the gold markets are being manipulated? And can you tell us who the players are and what you think their motives are?

Murphy: Well, this is a big subject and we have been gathering evidence now for over a year. But I will do the best I can to lay out the most important facts that convince us the gold markets are being manipulated. First, let me say this is the last thing I ever thought I would be doing. I opened the Le Metropole Cafe last labor day. Having following Frank Veneroso's supply/demand analysis for many years, I was looking forward to a gold bull market. With the central banks in the EMU saying they would not be selling any more gold in 1999 and because we were confident the scrap supply shock from distressed Asian sales was over, and because producers would start lightening up and so on, things were really looking bullish. We knew the demand numbers were such that we felt there would be a big surge in the gold price.

Right after Labor Day, 1998, I opened up the Café. We had heard 1 ½ years earlier that Long Term Capital Management was short a great amount of gold as part of a "gold carry trade". So we started licking our chops because everything appeared to be perfectly in place for a gold bull market. Because, in theory at least, the shorts, like Long Term Capital Management, would be forced to cover their positions. Then all of a sudden, around the time of the bailout of Long Term Capital Management, we noticed that as gold was rallying up toward $300 and started to take off, certain bullion dealers came in and started selling. At that time we observed all kinds of strange things beginning to happen. These same bullion dealers - Goldman Sachs' name came up every which way we turned - were going around to dealers offering the most incredibly liberal credit terms ever provided in these markets. And gold was not trading like a normal market where you would have a break out and it would run up and so on. The movement out of a pattern would last only one day or two at most. Interestingly, advances always ended when the same bullion dealers became heavy sellers. And there were many other little things that raised our suspicions such as when an analyst was told by his employer to tone down his bullishness posture on gold and…..

Taylor: Excuse me, Bill, but you said analysts were told to tone down their bullish views on gold. Could you give us some details on this?

Murphy: We know of one analyst who was very bullish but when he went to publish those views, he was told by his superiors to tone down his bullishness.

Taylor: Was this with a major firm?

Murphy: Yes, it was with a major firm. I can't get into it now.

Taylor: Why can't you give me the name and firm?

Murphy: Well, as you know, we and our lawyers are gathering information. We have to honor confidentiality wishes if we are to continue to gain access to information required to build our case, so I simply can't say more now. In time, this may well come out.

All these things were happening at once. Now I have been investing in commodities markets for 20 years and I have never seen market action like this. So I began writing about the strange behavior of the gold market about a year ago, suggesting something might not be kosher. Then in the first part of this year it was announced that Goldman Sachs and J.P. Morgan would head up what was called the Counter Party Risk Management Group "with the intent of enhancing best practices in credit and market risk management." Including Goldman Sachs and J.P. Morgan, the group was comprised of twelve major banks.

Taylor: Sounds like a good thing. Sounds perfectly innocuous.

Murphy: The problem is, very little is known about this new group. What are they doing is the question. Whose risk are they managing regarding gold? Their own or whose? It was at that point in time that Café member, Chris Powel, Managing Editor of the Journal Enquirer in Hartford, suggested to me that what I had been writing about, if true, would appear to be a direct violation of the Clayton and Sherman Anti Trust Acts. He posed the question, "would Chrysler, Ford and General Motors be permitted to get together to set prices and establish other market behavior? Chris suggested that such an effort would last about 5 minutes before government moved against them in an anti trust action! Yet this might be what members of the Counter Party Risk Management Group are attempting to do with respect to the gold and only God knows what other markets they may be tampering with. So it was at that point that we formed the Gold Anti Trust Action Committee (GATA).

From there we continued to hear many things that collaborated what we had seen and heard over the prior months. I went on CNBC, got some attention from well-informed gold people around the world and we kept talking about it. And then of course the eye opener of all time was the Bank of England gold sale. There were many people who were skeptical about our claims until that occurred. But after the Bank of England move, we received a landslide of support. Gold was about to break $290 on the upside. That day was Thursday, May 6th and I got a call from my people saying the bullion dealers, Deutsche Bank in particular, was going around telling their clients that price of gold would not go above $290. And that is an exact quote. On Thursday night I put that out in my café commentary and the next day the Bank of England announced a major gold sale in an unprecedented fashion. No central bank had announced a sale of gold in this manner in at least 20 years.

Taylor: How could any bullion dealer assure their clients the price of gold would absolutely not rise above $290 unless they had inside information that we mere mortals are not privy to?

Murphy: Of course - they had inside information!

Taylor: As I understand it, the Bank of England suddenly decided or at least announced that it was selling ½ of England's gold horde without any public discussion. Then they pre-announced the sale which is something that central banks have not done very often right, because it would mean the market would discount the price before thus ensuring the British people would not get top value for their gold, right?

Murphy: That's right. No central bank that is trying to get a good price for its citizens does something like that unless there is another agenda.

But it gets worse. No one would come out and say who in the English government was responsible for selling ½ of the country's gold. The Chancellor of the Exchequer (The Treasury), the Bank of England and Tony Blair all contradicted themselves publicly about who made the decision. I have documented all this in café articles and in a document I sent to Senator Phil Graham, Chairman of the Senate Banking Committee. His staff has been studying that document now and I have had an ongoing dialog with them.

Then, in addition, Alan Greenspan said the British gold sale was done in a manner so "not to take advantage of the public market place." Well, now this is the most ridiculous thing I have ever heard! If that were true, by his own definition, all central banks that have sold gold over the past two decades have been taking advantage of the public market for gold because none of them have previously pre-announced their plans to sell! You can't have it both ways!

This announcement came at a very crucial time. I knew within a couple of days of the Bank of England's announcement that the U.S. Congress was not going to permit the IMF to sell its gold. I'm sure you are aware that that the U.S. has virtual veto power over major actions of the IMF including gold sales. Now I knew the IMF sale was not going to get through Congress because solid support was lined up from all directions in both parties. Tom Daschle, Minority Senate leader of the Democrats, the Republican leadership, including Dick Army and James Saxton, and the black caucus were all lining up against Clinton's proposed sale of gold by the IMF, in one of the most unusual alliances ever on Congress. They were all against it. So I knew the IMF would not be selling gold just before the Bank of England suddenly announced their plans to do so. You did not hear this from the bullion dealers who had the same information. Neither did you hear it from the mainstream press who also had access to this same information.

The point of the story is that at $290 gold, the Australian gold shares were experiencing their biggest surge in six years. Everyone was getting excited about gold at that time. It became apparent then that market participants on the short side of the market were going to have a problem with their positions. Psychological reasons for selling gold were disappearing and the shorts could not count on covering their short positions from new supplies of gold hitting the market from the IMF, etc. So we think the bullion dealers pulled this Bank of England gold sale out of their hats.

Later, one English official said the plan to sell gold had been on the shelf for a year or more. If that is true, what a coincidence! They suddenly make the decision to sell gold on that very day when gold looks like it will break through the all important resistance level of $290.

Taylor: Who do you think may be orchestrating these moves?

Murphy: Well, we have documented the relationship between the New York Federal Reserve, Goldman Sachs and the powers that be in England. The chain is a very close relationship. A most significant link in the chain would appear to be former Secretary of the Treasury Bob Rubin. He had been the CEO at Goldman Sachs all these years before joining the Clinton Administration. What a connection for a bullion dealer to have!

Taylor: Was there a Gavin Davies tie between Goldman Sachs and The Blair Government?

Murphy: Yes. Gavin Davies is the chief international economist for Goldman Sachs and he is based in London while his wife works in the Chancellor of the Exchequer's office. And then of course, you have Dr. Sushil Wadhwani, former Director of Equity Strategy at Goldman Sachs International, who sits on the Bank of England's Monetary Policy Committee. How about Goldman Sachs senior partner, Ed Corrigan? He is the former N.Y. Fed Governor.

Taylor: So there appears to be some strange alliances of Americans who had previously held high positions at Goldman Sachs, with the English government and these people presumably enjoyed connections with Bob Rubin when he was Secretary of the Treasury, right?

Murphy: There are all kinds of alliances in this chain of command here.

Taylor: But of course these connections by themselves do not prove anything. They only show possible connecting points between the influence of power and money on the lives citizens who are becoming increasingly irrelevant in the "democratic" process, right?

Murphy: That's right, but when you put all the pieces of the puzzle together you begin to get at least an impressionistic picture of what seems to be going on.

Taylor: Bill, I want to ask you about a statement Alan Greenspan made before the U.S. Congress. I think it might have been in connection with an investigation into the Long Term Capital Management debacle about the price of gold. Greenspan made some comment to the effect that "central banks (plural) stand ready to lease gold to keep the price from rising?"

Murphy: The quote is "Central banks stand ready to lease gold in increasing quantities, should the price rise." Now he actually made that statement twice before Congressional committees in 1998, on July 24th and July 30th.. He most certainly knew that the Long Term Capital Management crisis was coming. He had to be aware of the crisis then because former federal reserve governor, David Mullins, was a partner in Long Term Capital Management and the Central Bank of Italy was also an investor in that infamous hedge fund. So he knew what was coming down. Greenspan made that statement to two congressional committee meetings I believe for the purpose of telegraphing to the bullion dealers and the world that the gold price was not going to rise.

Taylor: And by so doing, kill any ideas investors might have to move from stocks and bonds into gold and also to tell the bullion dealers that they could resume their "gold carry trade" shorting business?

Murphy: That's right and in so doing, it kept the pressure off Goldman Sachs, other bullion dealers, and other financial institutions who were short "borrowed" gold.

Taylor: Do you remember the context of his statement? Was it in response to a question or was it part of his prepared statement?

Murphy: He was talking about markets in general and not really about the gold markets, but this statement seemed to come pretty much out of the blue. Again, we believe he said this in order to signal to the bullion dealers that they did not need to worry about rising gold prices. In other words, Goldman Sachs and the other dealers could go ahead and continue on with their very profitable gold carry trade. And so far as Long Term Capital Management was concerned, it meant their short position in gold would be protected, thus helping them to avoid even more financial devastation.

Taylor: Bill, hasn't Long Term Capital Management denied they were short gold when they ran into trouble?

Murphy: Their attorney, James G. Rickards, sent us a letter with an affidavit from a general partner, Eric Rosenfeld, denying they ever traded gold. We never said they traded gold, we said they BORROWED gold maybe to the tune of 300 tonnes. Rickards just left Long Term Capital Management and never answered my follow up query about "borrowings."

Taylor: That's nice! So if what you suspect happened, our central bankers manipulated the price of gold to lower levels to protect the richest, most privileged members of our society by causing injury to the poor nations that depend on gold for export generated income. Of course, this would have also caused injury to our own gold mining industry. Nevada, for example, is the 4th largest gold producer in the world! And then there are people who subscribe to this newsletter and invest in gold mining shares that have been hurt badly too. But on the surface I suppose Greenspan would, in an "ends justifies the means" argument say that this activity was justified if it retained global financial stability right?

Murphy: Looks that way. But if certain key bullion dealers knew what was going on (and why and how) and then acted in concert with one another with central banks to rig the gold market, then they have committed a crime far greater than Watergate. Companies in the mining industry as well as their shareholders around the world are being destroyed by this violation of law. After all, tens of thousands of miners have lost their jobs as a result of this collusion. The IMF pretends it wants to help the poor countries, but what their proposal to sell gold has done is actually hurt most of the countries more than they could ever be helped by this action. So you must ask the question. "What is going on here?" One must suspect it is being done to satisfy the bullion dealers in New York or the power money elite with no regard for the suffering this market manipulation brings on the poor and middle classes. Is it "the ends justifies the means" here? Whose "ends" and "means?" Whether it is to protect a few major bullion firms and hedge funds, or to keep the stock market bubble going a little longer, you have to ask, "what is this country coming to?"

Taylor: Yes, well I can tell you that when I had my interview with Ravi Batra last month, he said that he would not be in the least bit surprised to learn that this kind of activity is taking place. The rich and powerful are taking advantage of the poor and underprivileged to perpetuate their own position of money, power and privilege. He said this is the kind of Crony Capitalism that is taking place in America. It is a bit more disguised than in some other countries, but he has no doubt it is going on here and the allegations GATA is making would not surprise him at all.

Murphy: This is Crony Capitalism of the worst kind. Remember, what we think these people have been doing is to borrow gold from the central banks at say 1%, sell the gold for one currency or another, then invested the proceeds in all kinds of other assets as say 5% or even 10%. And in effect, in this concerted action, they have been able to buy all this money without any risk! How would your readers like to be able to borrow money at 1% and invest it at 5% or 10%, knowing with confidence that the1% loan was a risk free loan? Talk about ill-gotten gains!

Taylor: Of course, there is no risk because they know the central banks will, as Greenspan said, sell gold in increasing quantities to ensure the price of gold does not rise! So they don't need to worry about paying more for their gold when it comes time to pay it back right? What a deal!

Murphy: Right. And it gets worse! According to The Federal Reserve handbook, the Federal Reserve can operate in the gold market. Not to sell it, but they can trade it. So the Fed can be in there writing calls or they could be loaning the gold out; that help to put a lid on the gold price. But thank God, markets are bigger and more powerful than governments and central banks. Here is the important things to realize. We think the gold loans are now over 10,000 tons and could be as high as 14,000 tons. The deficit (amount of gold supply vs. demand) is that large. Here is what we think the bullion dealers did not plan on. The shortage of new gold coming on to the market to meet demand is so big, they have to come up with 160 to 180 tons per month! The market has been kept down here, but with the deficit getting larger and larger, they will not be able to continue this game indefinitely. Mine supply is 2,529 tons/year. If we are right about the gold loans being over 10,000 tons, how will they be able to obtain gold at prices equal to or below the levels they initially borrowed it at? How will they not get pinched in a short position squeeze?

There is substantial evidence that they are having big problems with their manipulation right now. The one month lease rate just shot up to 4.2% (300% higher than normal). The physical gold market is on fire. There just is no short term gold around.

We have heard that just four hedge funds, the Tiger Fund, the Soros Group, Moore Capital and Martin Armstrong are short up to 50 million oz. of gold. I believe this calculates out to about 1,500 tons of gold. And that is from just four hedge funds! These funds are being squeezed as they roll their gold loans over.

Taylor: No wonder Martin Armstrong took the position that the markets were not being manipulated in a café dialog.

Murphy: Yes, exactly! And you need to understand these are big clients of the bullion banks. It is ironic that Martin Armstrong's firm, Crestvale International, is now under investigation by U.S. law enforcement authorities, U.S. regulatory authorities, and Japanese regulatory authorities. Analysts told Reuters, they thought Crestvale's Tokyo office "may have participated in so-called 'Tobashi' deals, in which Japanese institutions hide losses through complex derivative transactions."

Taylor: Do you think these are the kind of big corporations Greenspan would come to the aid of again, if he were able to?

Murphy: Well, this is the scary part and of course we don't know if he is setting this up by his recent comments about the markets. But there will be a bunch of us screaming "bloody murder" if it is announced that more gold needs to be sold to help out the financial system. We will know with even greater certainty at that point, most certainly a bailout of the bullion dealers and hedge funds is in process. It will be an outrage of the first order if Americans have to be buffoned like that, because at some point we think the gold price is going to skyrocket. Americans will have suffer a great financial loss if we give away our gold at a cheap price to bail out bullion dealers, etc, who have made fortunes shorting the stuff.

Taylor: Bill, another thing that I have heard is happening is that the bullion banks have put a lot of pressure on the mining companies to sell their gold forward. Could you comment on that?

Murphy: Yes, well I call the bullion trading firms, "Hannibal Lecters" because they have acted like Hannibal Lecter behaved toward people; they are eating the producer's lunch as the producers are dependent on the bullion banks for credit lines…

Taylor: Bill for the sake of our readers who may not be as well versed in history or literature, could you tell us who Hannibal Lecter was?

Murphy: It came from a great movie, Silence of the Lambs, about 10 years ago where Hannibal Lecter (portrayed by Anthony Hopkins) was a crazed psychiatrist and a genius of the highest order. But he also was a mad man who would go around and eat people's flesh. The movie was one of the most chilling movies of all time. And in the end, he escaped.

Taylor: Ok, so that's the backdrop. I guess you are accusing Goldman Sachs and other banks of acting like Hannibal Lecter with respect to the gold industry, right?

Murphy: Yes. What we believe they have done is that they have got together to control the market and slowly but surely push gold down to lower and lower prices. And let me just say that the markets can't trade in such an orderly fashion as they have over the past year, unless collusion is taking place between the players. So certain bullion dealers have to be involved here, almost like a Mafia hit man carries things out for the Don. Markets just don't trade like the gold market has been trading. Right after the Bank of England announced its sale, Goldman Sachs began taking aggressive short positions in the gold market every day. Selling from them was largely responsible for a $35 per ounce price decline. And now what has happened is what I call the "Hannibal the Cannibal" syndrome. The bullion bankers or the "Hannibal Lecters" go to the gold mining firms and say to them "listen, we think (actually they knew for certain) the market is going down from here and if you don't hedge yourself forward, we may take away your credit lines." So now, if you are on the board of directors of Newmont Mining or some other company, you start thinking: if I don't sell forward, the price declines and the survival of the company is in jeopardy, the shareholders might sue me. The panic button is the pressed.

Taylor: So Hannibal Lecter is in effect eating the flesh of their patients, the mining companies and by so doing, causing a spiral of lower and lower gold prices. And the mining companies have, unwittingly become a major part of the problem right? Because if they would refuse to sell, the chances of Hannibal Lecter getting squeezed and the price of gold suddenly turning around would be much greater.

Murphy: That's right. Of course, in their defense, the mining companies are between a rock and a hard place. Some have all this debt which in many instances they have borrowed from Hannibal Lecter. If they don't play ball with him, they really could lose their credit lines or credit ratings, or in some instances go out of business. In that case, these executives could face legal action or at least a loss of their jobs. So from the perspective of management, they figure they have far less to lose by handing over a foot or hand to Hannibal Lecter (i.e., selling "a little" gold) than to resist him. Of course as more and more of their flesh is given up, the patient eventually faces death. But he lives for his next quarterly dividend and hopefully his annual bonus.

Taylor: Yet, if these mining companies scrounged up the courage to stop selling short, they might help turn things around. Do you see any hope that the mining industry is getting the message that it is in fact destroying itself or that it is getting fed up with this manipulation? I know Wilson of Place Dome talked recently about "malign forces" in the mining industry that are pushing the price continuously to lower and lower levels. Do you see any hope of the mining companies finally kicking Hannibal in the groin then shoot him in the head?

Murphy: Well, yes there is some hope. Wilson of Placer Dome made his statement and Chris Thompson of Goldfields had to chastise the New York bullion dealers for spreading false rumors about his companies forward sales practices as they were trying to influence down the price of gold. Anglo announced they were not going to roll forward a certain percentage of their hedges. Normandy Mining has cut back on some of its hedges and some of the other mining companies have cut back their hedges too.

Taylor: Getting to your views on the gold markets. You recently turned very bullish on gold. On July 27th, you said in an e-mail to Lemetropole subscribers "it is time to be aggressively long on gold." Could you tell our readers why now is a good time to go long on gold?

Murphy: What has actually happened with respect to gold's fundamentals has been very bullish. As we noted a few minutes ago, the proposed IMF gold sale will not get through Congress. The central banks of France, Germany and Italy and the ECU have said they will not sell any gold. Also we have been hearing and saying on the café, that enormous pressure has been put on Tony Blair by African nations to stop the pre-announced British gold sales. There have been rumors that future sales of gold might take place in a manner that would be market friendly. How that would be achieved I do not know but there is talk of that. Even the proposed Swiss gold sale is in doubt. So at least much of the supply the shorts were counting on may be altered in a significant way. And so, if the supply of gold is getting cut off from the sources the shorts were counting on, they are going to rely even more on borrowed gold to meet their repayment obligations. Otherwise their "gold carry trade" business could blow up in their face. Evidence of increased short term gold borrowings can be seen by lease rates which have risen from 1% to 3.8% on the six-month rate. It has been up in the 3%-4% range for over one month now. What that tells us is that there is stress in the bullion borrowing market. We even hear that one hedge fund went to a bullion dealer and was turned down.

Taylor: Is that right?

Murphy: That is a fact. I can't give you the name but….

Taylor: So you believe Hannibal Lecter may be coming close to getting kicked in the privates and that the price of gold could quickly explode to much higher price levels?

Murphy: Yes, but to add to that, it is my understanding that Goldman Sachs just took 90% of the August gold deliveries from the Comox. We think Goldman was very concerned about a squeeze because they know there is not enough physical gold around to cover its short positions. They may now be concerned that they (or one of their clients) cannot get the gold they need to cover their obligations to pay gold back to the central banks. While gold supply is tightening up, gold demand is soaring all around the world. It was 4% higher than any quarter in history during the second quarter of this year and the third quarter is looking better than the second quarter! Gold off-take is booming in India and in Asia.

Taylor: Well, of course, if Hannibal Lecter or whomever keeps the price of gold below equilibrium, the quantity cleared off the market will be much greater than if the price of gold were permitted to reach its actual equilibrium level.

Murphy: That's right and this is what I was saying a little earlier. We think the bullion dealers did not realize how strong demand would be. And we believe Frank Veneroso is right and that the "Hannibals" are not working off the correct set of supply and demand facts. So now we think they are beginning to understand they have a tiger by the tail. Evidence of that is the almost squeeze in the August gold contract on Comex and the tremendous move up in the lease rates. That is telling us there is stress in the system.

In addition, in the general credit world, the swap rates between non-government paper and government paper, has risen to decade highs, even higher now than during the Asian crisis and the "Ted Spread" has gone to new recent highs. Government Bonds are having all kinds of problems rallying. Bank One just dropped 33% of its value because of credit card problems. That tells me that there are going to be very big credit problems in the months to come. That credit problem is going to spread to the gold loan markets. The banks are going to get very nervous about these gold loans just like they are getting scared about these other loans. They are going to contract their gold loans and that is going to reduce the amount of gold available for lease. And there could be some very big problems in this area soon. It is going to become apparent to people that this gold market has got to go up, quickly and sharply! And given where the price of gold now is, the risk/reward of buying gold and buying some of the gold shares is simply the best I have ever seen.

Taylor: So I gather you think this is going to come to a head fairly quickly. Do you suggest before the end of the year?

Murphy: Well, you have Y2-K concerns. Gold coin demand is absolutely booming because of this. This concern will accelerate as we head to year end, not only in the gold market but in other markets as well. Now another bit of our evidence of manipulation is the $2 rule put into effect by Hannibal Lecter. Anyone can check this, but for quite some time, I have noted and commented to the Café that gold is not allowed to rise by more than $2 in any one day. If it does, it gets slammed by the shorts immediately. One day it went up by $2.80. Somebody goofed. They got spanked and gold went down sharply the very next day. There is never any excitement "allowed" to be created about gold. In other words, the "Hannibals" never want any attention to shine on gold. You can go back in recent times to the reaction of the gold price to any news event, which historically was bullish for gold - the gold price has dropped 95% of the time; a price decline rather than rise! Incredible!

Taylor: Yes, I have noticed that pattern.

Murphy: They want to show the world that gold has lost the importance it used to have.

Taylor: And that will be noted in the Financial Times and Wall Street Journal too.

Murphy: That is right. And what is happening is that they are running out of ways to manipulate the price of gold to lower and lower levels. Now, they can do anything in the near term to continue to push gold lower. But if we are correct, we think there has been a big bail out of certain hedge funds. They had an emergency Central bank meeting in Philadelphia in early June.

Taylor: Yes, I remember on CNBC they made a brief comment about the meeting. But they noted that no cameras or reporters were allowed in that meeting. With the amount of importance CNBC gives to Greenspan, you would have thought they would have raised bloody hell about being shut out, or at least expressed some curiosity but they seemed to take it in stride.

Murphy: Yes, and one of the facts is that after that meeting, the credit spreads began to rise to levels higher than during the Asian crisis. So what we are saying is that the Fed tried to bail out one of these hedge funds. But now there is evidence Greenspan is getting pressure from some of the foreign leaders. Helmut Schmidt said there are "psychopaths running the U.S. stock market." The former finance minister of Japan, Sakakbara, has been raising hell. So I think Greenspan is concerned about this pressure. I think that may be the reason for the surprise increase in the discount rate that was followed up by Greesnspan's statements about the stock market on Friday at Jackson Hole. At the same time and if at all possible, they are not going to let gold exhibit any excitement.

Taylor: Right, they don't want people getting the bright idea of opting out of paper into gold.

Murphy: But I think you are going to see that happening any way because it is going to become more obvious to the market that something is not kosher in the gold markets. And of course, we at GATA are going to be turning the light on this activity as best we can at the café every week and every month.

Taylor: Last month, Dr. Ravi Batra, who was interview in these pages last month, said he thinks it is highly likely we will see a market crash by the end of this year. At the very latest, he believes we will suffer a catastrophic downturn during the first or second month of 2000. And the only long-term investment he is suggesting people make is in gold and gold shares.

Murphy: I could not agree with him more.

Taylor: What you are saying dovetails pretty well from a timing perspective not only with Batra's views but also with the views of Ian Gordon, a Kondrattieff wave student who also thinks the market will crash before year end. In fact, Ian has chosen a specific date early in September. I would not want to be so specific myself, but that is what he thinks.

Murphy: Well, let me just add something here if I may. A top-flight financial man in England named Kenny Butler Henderson told me he had lunch with Alan Greenspan in 1971. Greenspan told him then that his goal was to become Chairman of the Federal Reserve Bank. At that time Greenspan, was a Kondrattieff disciple himself. He told Henderson that he would do anything he could to prevent the Kondrattieff wave from crashing on his watch. And it appears to us that this is exactly what he has done. But we think he has only postponed the inevitable.

Taylor: So you think he has been doing all he can to fool the natural cycle of the Kondrattief Wave.

Murphy: Yes, we think he has been facilitating the bubble and part of this facilitation has been to hold the gold price down and to take all the money these institutions could borrow in the gold markets and use it for other purposes. I can't blame Greenspan solely for all this. He had Secretary of the Treasury Rubin there too with his powerful Wall Street connections so Greenspan may not have had all that much choice in the matter.

Taylor: Of course, Greenspan wanted to do his job well and nearly everyone worships this man.

Murphy: They do now. What will they say if the markets collapse? Watch what happens when folks begin to see their 401-k savings evaporate. There will be a witch-hunt. Meanwhile, the big guys, i.e., the Roberts Rubins of this world will have retreated from the market while the average Joe will not know what hit him. We think this process may already be underway evidenced by the continued weakness in the stock market. Although the popular averages have held in pretty well, the average stock on the NYSE is down something like 20% from its peak this summer.

Taylor: On another note, have you ever been concerned about your personal safety in your hunt for the truth regarding potential manipulation of the gold markets?

Murphy: Yes, I have been warned by many sophisticated people to very careful and I respect the, but I have played against some big boys in that past. After college I was a 180 lb. pass receiver for the Boston Patriots of the old American Football League. I recall a game against Kansas City when I went over the middle to catch a pass. Hall of Famer, Willie Lanier punched me in the face out of nowhere and down I went. I remember stumbling back to the line of scrimmage only to look up at 6'9" 280 lb. Ernie Ladd and 6'10" 280 lb. Buck Buchanin. I thought if they hit me at the same, I would be a goner. They were football giants. Now I face Wall Street giants. Both formidable adversaries. Part of the game. But with regard to my safety, I have been told to be as visible as possible. So I appreciate the coverage you are giving me here because it helps me get the GATA story out there. Hopefully, more visibility will reduce the chances of something serious happening to me. I have read all the stories about what happens to people who oppose Clinton and that makes me somewhat concerned. Let's just say that when I jog I'm watching the cars as they pass by.

Taylor: Bill, I thank you for your time. I know you entered into this business to make money and not for a political cause. But I am personally grateful for your willingness and courage to take on an issue that is enormously unpopular, but I believe just.

Murphy: You are right. Getting involved in a political or controversial issue was the last thing I wanted!

Taylor: Well I admire your act of courage because even though you may have acted initially out of a desire to earn a buck, you are, in my opinion, taking on an issue bigger than making money. Thanks again Bill. You can be sure that our prayers, best wishes and tangible support - to the extent we are able - will be with you and GATA, until the truth of all this is sorted out.

Next Month's Interview is with Dr. Lawrence Parks, Executive Director of the FAME. I expect Dr. Parks will explain how our fiat currency system is at the heart the kind of scandal Bill Murphy spoke of this month and how, more importantly, it undermines our democratic government and the stability of our financial system. You won't want to miss this interview if you care about your future.

Minting of gold in the U.S. stopped in 1933, during the Great Depression.