The Story That's GATA Be Told

Now that a thin layer of dust and familiar silence has settled over a series of shocking revelations about the markets for gold and silver, I had an opportunity to discuss these topics with a man who has stood at the epicenter of this long-standing controversy.

GATA start from the beginning
Bill Murphy co-founded the Gold Antitrust Action Committee (GATA) back in 1999, shortly after the implosion of the hedge fund firm Long Term Capital Management. What Murphy observed as gold price manipulation in the wake of that crisis set him upon a quest for truth and transparency in the gold market.

At a hearing of the Commodity Futures Trading Commission (CFTC) this past March, Murphy entered into testimony emails from London metals trader Andrew Maguire that blew the whistle on alleged silver price suppression by bullion banks, including JPMorgan Chase (NYSE: JPM  ) , and his efforts to tip off the CFTC before (and during) specific incidents of questionable price action.

Since the respective custodians for SPDR Gold Shares (NYSE: GLD  ) and the iShares Silver Trust (NYSE: SLV  ) are the very pair of bullion banks alleged by GATA to maintain market-making short positions on the COMEX, wary Fools detect a potential conflict of interest. When combined with the shocking insinuation that the over-the-counter bullion market in London is leveraged 100:1 over the underlying physical supply, the result is a natural erosion of confidence by discerning precious-metal investors in the unencumbered status of physical holdings reported by the popular bullion ETFs. Not surprisingly, the new bullion alternative Sprott Physical Gold Trust ETV (NYSE: PHYS  ) has met with robust investor demand.

Bringing it home to you
To ensure that readers contemplate the implications of these issues, I asked Bill Murphy to join me for an exclusive interview.

Christopher Barker: The story still doesn't seem to be gaining a lot of traction outside the gold community.

Bill Murphy: Why do you think that is?

Barker: I think it's a failure of investors to understand the implications of this story, whether they're invested in precious metals or not.

Murphy: Well that's one thing we tried to do with the Wall Street Journal ad; that's why we paid $264,000 to wake people up, and that was two months before the financial markets collapsed.

Barker: One part of your testimony that jumped out at me was actually a quote from your Wall Street Journal ad, where you said: "Manipulation is a primary cause of catastrophic excess in the markets." Could you explain to my readers how gold price suppression could facilitate market excess?

Murphy: What's important for your readership to understand is that the markets have been made dysfunctional by U.S. policy and what these bullion banks are doing. Even Alan Greenspan said recently that interest rates were left too low for too long. Had the gold price been allowed to trade freely, interest rates wouldn't have been able to stay down as low as they were. It would have been a warning sign for people not to get involved in the behavior that they did ... not to go with all of the risks that developed. And there's a good likelihood that the disaster would have been nowhere near as bad as it was.

Alan Greenspan called gold a "thermometer." So they diffused the thermometer by keeping the gold price managed. And what's important for people to understand now is that the same thing is going on. If we're correct, it's going to lead to a bigger catastrophe, because no one has learned any lessons.

Barker: In your view, what is needed to convert these myriad allegations into the kind of slam-dunk case that commands widespread media scrutiny or prompts a regulatory overhaul?

Murphy: How has every scandal that has really been an important one broken? Revco, Enron, Madoff ... it has to blow up. And it's so sad. All the whistleblowers at Enron, and in the Madoff scandal, were ignored or ridiculed, like we've been ridiculed for the last 10 or 11 years. It's always the same, because we're taking on the rich and the powerful in America ... and they don't like it. Unfortunately, that's what it's going to take. It might be some kind of default on gold and silver delivery. It takes the markets to blow up, and then you have the big to-do about 'how could this have happened?' It makes me sick to my stomach.

Thank goodness for the Internet, though, because it's changing everything. The story that we're telling, which we believe will go down as one of the great financial scandals in American history, would never have been discovered without the Internet, because none of us would have met each other. It's truly remarkable what the Internet is doing, and it's allowing the little guy to take on the big guys. As hard as it is still, at least we have a chance.

Question by CAPS member AvianFlu: [solicited from my blog]
I would like [Murphy] to speculate as to what the motivations are for manipulation of the metals markets. There is a reason for everything.

Murphy: Gold's a tiny market, but it's a featured market. When the gold price goes up, everyone's aware of it. The fact is, the government has been messing with the gold market forever. This shouldn't surprise anybody. What's important is to realize what they've done to the average person by making its usefulness dysfunctional.

Question by CAPS member fndr489:
With a view to the long-long term, if the manipulation stops and gold/silver prices are allowed to rise, what does Mr. Murphy think about the government possibly confiscating the physical bullion to balance the budget, a la FDR?

Murphy: In terms of the confiscation, the world has changed since then. I think the rest of the world now, with China and Russia as big gold producers, and their populace buying gold (especially in China and India), and with the dollar in such a precarious position with our fiscal policies and all that ... the rest of the world would laugh at the United States and the price of gold would go beserk. Everybody would want it.

Second of all, the American public is almost totally not involved in gold. There's very little interest yet. That's how much of a bull move we have left. If I can do nothing else, I hope your readers will go and get to some sharp gold bulls and find out which of these little gold stocks to buy. It hasn't even started. It's like in the Internet in the first year when it was founded. That's how much money is going to be made by those people who are willing to do their homework and look into this.

Gold is a hot topic on the blogs at Motley Fool CAPS. Join the free service today and see just how many Fools are taking the long view when it comes to investing in gold. The "Gold" tag at CAPS lists 52 potential investments, and you'll find Christopher's comments on most of them.

Fool contributor Christopher Barker carries a silver coin which reads: "Honest value never fails." He can be found blogging actively and acting Foolishly within the CAPS community under the username TMFSinchiruna. He tweets. He owns no shares in the companies mentioned. Try any of our Foolish newsletters today, free for 30 days. The Motley Fool's disclosure policy is 0.999 pure.


Read/Post Comments (6) | Recommend This Article (36)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On June 22, 2010, at 8:07 AM, tisirishiam wrote:

    The question asked in the above article re: "why manipulation" was not fully explained to my satisfaction. (I suspect sloppy editing). The answer, as Bill Murphy and GATA say constantly, is that physical gold is the arch enemy of the paper dollar bill and the Treasury note. Manipulation of the physical gold market is necessary to hold public confidence in the dollar bill, allowing the Fed to inflate (or deflate, if they like) the dollar bill in your pocket. You can't have confidence in both.

    That manipulation is accomplished by the Federal government, working with NY bankers, to short the market and drive prices down. GATA www,gata,org has tons of info pointing to 'naked shorting', meaning the feds and banks DO NOT HAVE THE GOLD THEY SELL SHORT, an illegal and corrupt practice. They create "gold" the same way they create dollar bills....on paper or with a computer keystroke. Keeping the market down depresses interest in the market and discourages owners of gold, while scaring away buyers, therefore keeping the value (price) of gold down.

    The Fed and bankers also heavily influence main stream media to pooh-pooh gold at every opportunity in the US. The media is paid by Wall Street, not by the little guy holding some gold coins. That's an entirely different story in Europe and Asia where thousands of years of failed governments and failed currencies have taught Europeans and Asians that gold and silver are the only true store of wealth. Gold has been a store of wealth for 5,000 years, except from 1980 to 1999, when the US media said it wasn't. (What good is gold...you can't eat it. Well, put some salt and pepper on a dollar bill and chew on that.) (Gold and silver make no interest while you hold them....Well, seen the returns on your money market funds lately, or the loss of value of your savings being inflated away?) (How do you spend a one-ounce bar of gold at the store? Well, I'd ask how do you spend the Euro or the Ruble at a store in the US....you convert it to local currency first, that's how.) (But what about confiscation? Well, why worry about that if gold isn't valuable? If that's the case, are you also worried about confiscation of fine art, valuable antique furniture and cars, your wife's diamond ring or your lawnmower or anything else of value that can be turned into currency when sold?) Confiscation didn't work very well in 1933 and it won't work now. (Gold looks like it's in a bubble at $1200. That's what the news said. Well, the dollar looks like the bubble to me at $600 trillion in unfunded liabilities that even your great great grandchildren will still be paying off when they die and which the media love to ignore.)

    Why has the gold price quadrupled over 10 years in the face of this illegal manipulation? The answer is the market is bigger than the banks and the governments. And the human spirit to be free is bigger than the government's effort to control your wealth. The Fed and the banks can only do so much in the face of public sentiment. And since they cannot control the physical market, they control the price by 'creating' gold on paper. Central Banks around the world understand this, as does the US Fed. The Founding Fathers understood that, too. If you own gold on paper, you don't own gold, you own paper. Think about that.

    For miners to get an ounce of gold out of the ground takes money, planning, hard, sweaty, dirty work, and sometimes men even die for it through accident or at the hands of thieves There just isn't that much of it. That's why it's called a 'precious' metal. But for JP Morgan, other banks and the US Fed to get an ounce of gold to sell short takes a keystroke on a computer. Which one do you think is the more valuable?

    The price of gold has risen 4 fold since 1999 in spite of efforts to control it. The rising price of gold tells us there is less and less confidence in paper money. It's not gold that's getting more expensive--it's paper money that's losing value. The price of gold today tells us the dollar today buys 25% of what it bought in 1999, and 5% of what it bought in 1913. You shudder at buying gold at $1200. Do you also shudder at buying an apple for a dollar? At paying $4 or more for a gallon of gas that cost $1 ten years ago and 28 cents in 1964? At paying $4 for a cup of coffee that cost 5 cents in 1924? Ever wonder how Motel 6 got its name? It's because in 1960 when the first one was built in California, $6 is what it cost to stay there.

    I am 63, a retired journalist and a subscriber to GATA. There aren't that many of us. There needs to be many, many more. I've been exchanging paper currency for physical gold and silver for many years. The money I hold in precious metals held wealth far better than the money I had in stocks over the past 10 years. And it will do better in the future, by many, many times, no doubt whatsoever. The explosion in price will come when the debts of banks and governments come due and cannot be paid. And we are very close to that day.

  • Report this Comment On June 22, 2010, at 8:19 AM, Jihans wrote:

    To me, its amazing how GATA's story can be so surpressed when they have been soooo right! And right for 11 years in a row! Now, after the first time ever open metals hearing on March 25th, a documented scandal with the Mcquire emails and car chase, a DOJ investigation on the silver market, and 11 years of rising gold - we finally hear something about it in the mainstream press in the US. At least the Fool might appear to be trying to listen.

  • Report this Comment On June 22, 2010, at 8:50 AM, Bleyer wrote:

    JP morgan is quoted as saying:

    "We fix the price of gold and silver to make them valuable or not."

    And for those of you who have yet to cotton on, the prices is fixed. It's called the london fixing - as soon as you realise this then the whole concept of supply and demand goes out of the window and you realise what the game really is.

    Understand this and profits are yours for the taking - bullion is soo easy to trade!

    Keep well you all

    Bleyer

  • Report this Comment On June 22, 2010, at 1:51 PM, shanejd wrote:

    I've traded gold/silver futures and started loading up on physical bullion coins in earnest a decade ago. If it were not for the GATA.org and Bill Murphy's daily analysis at www.lemetropolecafe.com and Jim Sinclair at www.jsmineset.com, I'd of been shaken out of my gold/silver positions and holdings in frustration years ago. Instead, I sleep well at night, don't sweat the volatility, and am very grateful to them both, along with the GATA continuing revelations.

    I don't know how anyone can embrace, or reject for that matter, gold/silver without first diligently exploring for themselves their decade long proven insights into what moves these markets.

    - Shane

  • Report this Comment On June 22, 2010, at 3:22 PM, SundayRider wrote:

    GATA is typical Gold Bug BS, and ranks right up there with other 'Conspiracy Theory' stuff. Of course JP Morgan plays around with gold futures, especially since they help run the bullion ETFs. But they don't run the US Treasury or the Fed, and would bet against them if it was profitable. There's certainly no business reason to maintain huge shorts on gold when it isn't profitable. But no doubt, JP Morgan and many of the hedge funds will pile into both long and short positions in gold when it's moving up or down, causing more volatility. But this is also a problem with stocks and everything else. They should only allow futures and shorts based on actual gold/stocks/bonds that exist to be delivered, not 100 times as many contracts as there are real things to be traded.

  • Report this Comment On June 22, 2010, at 11:23 PM, tisirishiam wrote:

    Hello, Mr. SundayRider: JP Morgan doesn't merely "play around" with gold futures--they, along with a few other banks, all working in collusion, CONTROL the options and futures markets. They do it with computer generated gold, not with real gold. And there is tons of money to be made illegally and immorally. And that is GATA's argument, for which there is mountains of written evidence and testimony under oath. You might take time to study that research, before, like the US media, pooh-poohing the HARD EVIDENCE. It IS A CONSPIRACY, extending to silver and probably many other investments we don't even know about, one that is illegal, immoral and a conspiracy that happens to be under investigation by some federal agencies. You say, SundayRider, that "they should only allow futures and shorts based on actual gold/stocks/bonds that exist..." (I agree.) So, tell us why are "they" allowing it, and why haven't "they" stopped doing that? You say "JP Morgan....will pile in....when gold...(is) moving up and down." Ha! It's JP Morgan and a few other banks WHICH FORCE GOLD down, while the rest of the planet's market forces have made gold the investment of the decade despite the efforts of the US Fed, the Wall Street Banks and uniformed naysayers.

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 1214146, ~/Articles/ArticleHandler.aspx, 11/28/2014 9:45:25 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement