Suggestions for GATA

June 11, 2000

Although I have never been part of the organization, I've watched the founding and development of GATA (the Gold-Anti Trust Action Committee) with great interest and hope. GATA seemed to grasp the real issue of manipulation in the gold and silver markets early on, and has demonstrated persistence in attempting to expose that manipulation. For this, they are to be commended. They are on the right side. After writing about the fraud and manipulation in the markets, due to leasing/forward selling, for years (and feeling very lonely at times), I was as gratified to see GATA formed last year as anyone could be. I still am. Just as I am gratified to see more and more participants recognize and then write about the fraud and manipulation of leasing. It is in that spirit that I offer advice intended to help GATA succeed. I'm doing it openly and publicly because that's my style.

GATA is correct when they label what they are involved in as a war. But it is not a war of equals. While they are armed with the truth, and the Internet, they are badly outgunned. That is not to say they shouldn't fight, as people tell me all the time, but they should review their tactics. When you're outgunned, you don't fight straight-on. You fight guerrilla-style. You blow up bridges and knock down power lines. Let me be clear - I want GATA to succeed. I just don't see how you beat them by playing to the opponent's strength. Battling through the Washington political process, requires big money, power and votes, things GATA doesn't have. The system runs on backroom deals, hidden agendas and political favors. Knowing the depth and skill of the financial establishment, it is hard to imagine GATA getting a fair and full hearing. When they stab you in the back there, sometimes you don't even know it. But the intent of this piece is not to knock GATA's effort, but to offer suggestions that will aid them in their battle. Some, I've mentioned before, one is brand new. The key point I will try to make, is to keep it as simple and specific as possible. Here are my suggestions for GATA;

1. Instead of dumping the whole problem into the laps of Congress and the world, and demand they fix it, identify a key issue and focus on that. The artificially low interest rate on gold and silver leases is such a key issue. Regular folks don't know much about derivatives measured in the billions of dollars. But they do know a thing or two about interest rates. GATA should focus on the artificial lease interest rate. Why shouldn't lease rates on metal be in line with all unsecured interest rates? Like Prime+2%? When you think about it, since we know that these gold and silver loans can't be collectively paid back, the interest rate should reflect that. These metal loans should carry rates of 50 and 100%, not one percent. If highly secured residential mortgage rates go for 8%, why should an inferior unsecured loan be priced at 1%? Congressmen and regulators have mortgages, they'll see and understand the inherent fraud and unfairness of pricing an inferior debt with a beyond-superior rate. GATA should use the existing body of law to fight against such unfair, uneconomic and artificial lease rates. It goes without saying, of course, that the minute lease rates are properly priced, the manipulation is dead. Keep it simple.

2. GATA should focus more aggressively on the short-selling miners. They are the weak link is the leasing daisy-chain. The Central and Bullion banks are just as guilty, but the short-selling miners are easier targets. GATA should initiate legal proceedings against those miners short more than one year's production, like Barrick Gold.The case is straight-forward - it's a simple case of dumping. Miners who sell more than one year's worth of production are dumping on the market, pure and simple. The fact that they have borrowed the material being dumped, makes the case more airtight. People intuitively understand the concept of dumping. It is not a complex concept. There has never been a clearer case for dumping, than exists in gold and silver. GATA has distinguished between the super short-sellers and the miners who rely on mining, but more support for GATA will develop from the non shorting miners, as it becomes clear that they were seriously harmed by the dumpers, like Barrick. Companies who dump product, lowering the price of that product, and then acquiring other producers valued on the artificial product price, are clearly guilty of predatory pricing and unfair business practices. GATA should dump on them.

3. GATA should use the power and enthusiasm of its membership to change the rules relating to short sellers on first notice day of delivery on the NYMEX, the home of precious metals futures trading. GATA should demand that the CFTC and the NYMEX institute the rule requiring shorts to be holding delivery receipts on first notice day. It's OK for the longs to put up full cash value by first notice day, but the shorts must demonstrate their ability to deliver, too. It will level the playing field and greatly strengthen the integrity of the markets by eliminating the possibility of default. It's a no-brainer. Better than that, it's like motherhood and apple pie. No one has, or can, attack this rule change, because it's fair. It may not immediately end the manipulation, but it will detract from the shorts' bag of unfair tricks. By helping to effect this important rule change, GATA will gain prestige and credibility and strengthen its cause.

4. GATA should use the power of its membership to jump on issues that will aid its cause, regardless if they emanate from within the organization. A few months ago, I challenged the CFTC and the NYMEX over how four or less traders could be short one-third of world silver mine production. The NYMEX's response was clearly defensive, the CFTC didn't even bother to respond, even though this is their main thrust of preventing market manipulation. GATA should expand on the issue and demand that the CFTC reinstate position limit rules in gold and silver. These position limit rules were abandoned, in the middle of the night, many years ago. GATA should demand that the NYMEX institute rules limiting position size, for LONGS and shorts, that allow no speculator (or speculating bank or dealer or miner) to hold a position larger than what the biggest producing companies produce in a year. Why should a speculator be allowed to hold more than what a real producer produces in a year? The very soul of the commodity futures markets rests on the premise that the markets exist for the purpose of hedging. The markets don't exist to allow hedge funds and dealers to play games with the price. The markets have evolved into "what's the next computer signal". The biggest miners in the US produce no more than roughly 10 million ounces of silver a year, or 2000 contracts on the COMEX. Why should speculators be allowed to hold, long or short, 5000 and ten thousand contracts, or more? GATA should attempt to bring back position limits in futures trading that will level the playing field. They will be amazed at how weak the argument will be against imposing such rules.

I hope GATA and its supporters receive these suggestions in the spirit they are offered. If I didn't think they might make a difference for the better, I wouldn't have offered them. Of course, I would be happy to clarify and assist GATA with any questions about implementing these suggestions. To be clear, the manipulation in gold and silver, caused by leasing and forward selling, will end one day. It will end because it cannot be sustained indefinitely. So, in a sense, it will end no matter what anyone says about it. It's just that I've always felt, as I'm sure has GATA, that it could possibly be ended sooner, rather than later. I'm ready for sooner, and I think these suggestions will do that.

With gold stolen by Conquistador Francisco Pizarro from the Inca Empire in 1532, Spain financed its conquest of Europe.