TUESDAY / MAY 11, 1999 ------------------------------------------------------------------------ Trouble in the gold market? Analysts see move to manipulate prices By Jon E. Dougherty © 1999 WorldNetDaily.com Whether influenced by uncertainties stemming from Y2K or because global financial markets took a dramatic turn for the worst, most gold analysts agree that 1998 was a "record year" for sales. So far, in 1999, record buying has not subsided, according to the U.S. Treasury, and most gold brokers and retailers say there is no sign of a buying slowdown anytime soon from the private sector. However, recent investor activity in the gold market suggests there may be a move to illegally influence prices. In fact, entire nations, such as Great Britain, are poised to release hundreds of tons of gold into the market over the next few years in a move some believe is an attempt to artificially deflate gold prices and possibly to de-emphasize gold as a valuable commodity. Beginning July 6, the Bank of England will begin selling over half of Britain's present gold stocks, or 415 tons, which is currently worth about $6.5 billion (U.S.). Last week, when the bank made the announcement, it stunned gold dealers and traders all over the world, resulting in the price of gold falling to below $280 an ounce -- its lowest price in recent years. It was this announced sell-off, as well as several previous disturbing gold market reports, that prompted the formation of GATA -- the Gold Antitrust Action Committee -- and a potential antitrust lawsuit aimed at breaking up the alleged control over gold market prices. GATA has retained noted antitrust and securities law firm specialist, Berger & Montague of Philadelphia, in order to assist in its investigation into the alleged manipulation of the gold market. Bill Murphy, chairman of GATA, told WorldNetDaily, "I've been a trader for 25 years, and I began noticing that the gold market was just not trading the way it was supposed to." He said that when gold reached the $295-300 per ounce range, "I began noticing that the market price for gold would always stop (at a certain level), lose, then come right back" to the previous level -- but never higher. That didn't follow the established rules of supply and demand, he explained. "At about that time, we heard that (gold) producers were going around offering credit terms in South Africa to foreign producers in different countries at unheard-of credit terms, if they would just 'sell forward'" -- or put supply in the marketplace. He said GATA also received a number of reports that "officialdom" in the U.S. were asking officials in Asia not to aggressively buy gold. These two incidents were occurring simultaneously, Murphy said. The only explanation that makes sense, he said, was that somebody is trying to keep gold prices down. Other government and market analysts who were following the same gold trends, said Murphy, "were told to 'tone down' their reports," in an effort, he says, to conceal other investment activity based on lower gold prices. Murphy said he initially brought his concerns to other experts -- some of whom eventually became GATA members -- and they agreed it was possible that antitrust violations may have materialized within the gold market. The GATA chairman said the essence of the issue rests with the number of "gold loans" currently out versus the annual output of gold from the world's combined producers. "Right now, we feel the total gold loans amount to about 8,000 to 10,000 tons. But mine supply, or annual production, is only about 2,529 tons. Consequently, we think the speculators -- the gold-borrowing crowd -- are borrowing gold at just one percent interest rates versus the 8 to 10 percent they'd have to take to borrow money at a bank." He sees "collusion" among producers and speculators to keep the price of gold artificially depressed in order to obtain cheap loans on money used for other investments. "Basically, they're getting interest-free money to invest in Wall Street for free," he explained. "So hedge funds like Long Term Capital Management, who got in trouble last year for doing this same thing with the Japanese Yen, and all of these investment people in New York are borrowing gold and investing it. That's fine, as long as the gold price doesn't go up." Murphy said the advantages to doing this were obvious. "Say these people borrow gold at $290 an ounce but end up having to pay it back at, say, $320 an ounce, the cheap loan suddenly becomes an expensive loan." He told WorldNetDaily that recently the price of gold was set to go above $290 an ounce, "which we feel has been the borrowing price for about the past year or so." But when he publicly questioned where the supply of gold was going to come from, within a day the Bank of England announced they were going to sell over half of their gold inventory. "That came out of nowhere," Murphy said. "Why would the Bank of England do that -- sell early, and make it a very public announcement -- when they could have waited and made more money from the sale of their gold if the price had gone up?" The veteran trader said the activity in the gold market followed a familiar pattern. "I've seen this kind of activity before in other markets," he said. "It's clearly manipulation to me." "One of the reasons that various financial institutions are acting in concerted action to hold down the gold price is that they are now short hundreds of tons of borrowed gold and that the speculative community in total is short 3,000 tons, or more," Murphy said. The evidence GATA has compiled, he said, suggests that gold loans have become so large that an international "systemic risk" problem has now been created. "If the price of gold rose unexpectedly even to a moderate degree, many gold borrowers would not be able to find enough gold quickly enough without driving the price into the stratosphere," Murphy said. "That is one of the reasons that we believe certain financial entities have been manipulating the market in collusive fashion to make sure the gold price does not rise sharply above $300." Robby Noel, a U.S. gold retailer and market analyst, as well as a daily talk show host, agreed with Murphy's conclusions. He said that somebody seems destined to drive down gold prices, but instead of just greed, he sees another reason for the depressed prices. Noel believes that since over 60 percent of all above-ground gold is privately held, some countries -- led by internationalists -- may want to "devalue" the commodity and establish a monetary system based on a more arbitrary, controllable method of wealth. "If that were to happen, what would the gold people now hold be worth? Almost nothing," he said. Noel told WorldNetDaily that Michel Camdessus, head of the IMF, recently said he "extolled the virtue of using gold-sale proceeds to pay for debt relief for 'heavily indebted poor countries,'" such as those in Africa. But, Noel pointed out, that makes little sense if the ultimate goal is to raise those nations out of poverty. "If the sale of gold is to help pay poor Black African countries' debt, why destroy the price of gold when the single largest export of these counties is gold?" he asked. Indeed, Noel has some merit for his concerns. Research analyst Gillian Moncur told Agence France Presse (AFP) last week, "Gold is becoming an outdated asset." She also said that she anticipated Britain's surprise sale "would likely herald further official gold sales around the world," which would, undoubtedly, further depress gold prices. Murphy agreed that there could be a move to devaluate gold permanently. "He (Noel) is talking about a monetary system based on 'fiat' money," he said. "He's right about that. The central bankers use the gold price as a report card, so to speak. If the price of gold climbs dramatically, everybody is bound to start asking, 'What's the problem here?'" But, he added, he is more inclined to believe that some investors are merely trying to keep the dollar as the primary global trading currency, rather than the gold standard. Either way, Noel added, "The relationship between physical gold and the current prices is out of whack. In a nutshell, there is no doubt to me there is some sort of a scam going on here." John Meyer, treasurer of GATA, stressed that the information the group has so far only amounted to "circumstantial evidence," but, he added, "there's a lot of smoke there. And, it seems the farther into this we get, the more smoke there is." The producers, said Murphy, are also starting to get into the fight. He said most of them are upset at current price trends in gold, and see any attempt to keep prices low as a threat to their survival. "The producers aren't happy these days," Murphy told WorldNetDaily. "Many of the smaller producers are going out of business" because prices, in some cases, barely outstrip mining costs. Meyer said that although private individuals had already begun contributing to GATA's legal expenses, many gold producers were finally beginning to bankroll the effort. Most of them, however, had requested anonymity. GATA's legal team, Berger & Montague, is currently engaged in researching the basis for an antitrust lawsuit. Merrill G. Davidoff, an attorney at the firm who is familiar with the case, said GATA had just recently contacted Berger & Montague with their antitrust concerns. "We're at the point now where we're just getting into this," he said. Davidoff could not comment about GATA's case, but he did say they were likely to be looking for potential plaintiffs for the lawsuit as well as potential witnesses willing to provide information confidentially about gold market manipulation. "That would be a normal process for the client," he said. "As a law firm, however," Davidoff said, "rounding up potential plaintiffs is just not something we do." Merrill also declined to comment about whether or not his firm had been in contact with any government stock market regulatory agency. WorldNetDaily contacted the offices of the Securities and Exchange Commission (SEC), the Federal Trade Commission (FTC), and the Commodities and Futures Trading Commission (CFTC) in Washington, D.C., but they also declined to say whether or not they had received any complaints regarding price-fixing on the gold market. ------------------------------------------------------------------------ Jon E. Dougherty is a senior writer and columnist for WorldNetDaily, as well as a morning co-host of Daybreak America.
