Money, Markets, and Metals

Bill Murphy on
THE INVISIBLE HAND STRANGLING GOLD
 
 

People of the same trade seldom meet together, even for merriment and diversion, but their conversation ends in a conspiracy against the public, or in some contrivance to raise prices.

-- Adam Smith, The Wealth of Nations, Vol. I, bk. I, ch. 10

After graduating from Cornell University, Bill Murphy was a starting wide receiver with the Patriots of the old American Football League. Since he left professional football he has worked in the financial and commodities markets. He owned a futures firm in New York. that specialised in precious metals and was a contributor to Veneroso Associates, a global strategic investment firm and producer of the 1998 Gold Book Annual.

Today Bill owns http://www.LeMetropoleCafe.com/, a financial website that specialises in the gold market. He also chairs the Gold Anti-Trust Action Committee, http://www.gata.org/, which he helped found. Bill lives in Dallas, Texas. He kindly granted us time for this interview on January 25, 2000, and was very patient with an enthusiastic interviewer who couldn’t resist throwing in his two cents worth. As soon as Bill picked up the phone a 440 volt conversation exploded. Rather than re-arrange the interview, I’ll just jump here into the middle of things. (Rembmber, this was on January 25, when gold was trading around $284.)
 
 

MURPHY Have you heard what Greenspan did yesterday?

MONEYCHANGER Not yet.

MURPHY Senator Lieberman sent Alan Greenspan a letter with all the questions we [i.e., GATA] put in an open letter to Greenspan and [Treasury Secretary] Summers in Roll Call magazine, and Greenspan responded to Lieberman.

MONEYCHANGER What did he say?

MURPHY All kinds of things -- He said they weren’t doing this, they weren’t doing that, but left all kinds of openings. He wouldn’t mention the Treasury, he didn’t talk about the New York Federal Reserve Bank. He said that the "Federal Reserve doesn’t own any gold." Well, we know that. The Treasury owns the gold.

MONEYCHANGER That’s not clear from the law, Bill.

MURPHY Well, that’s what everybody we speak to says.

MONEYCHANGER If you read the law yourself, it’s not clear who holds title to the gold in Fort Knox.

MURPHY Greenspan says that the Federal Reserve doesn’t own any gold.

MONEYCHANGER But that’s a dodge, because the Federal Reserve system may not own gold, but the Federal Reserve banks own gold certificates, and they are the only ones whom the law allows to redeem gold certificates for physical gold.

MURPHY That’s also true, but it’s so confusing. It’s like asking, "Who owns the Federal Reserve banks?" Is Greenspan speaking for the system, or the New York Federal Reserve Bank, which operates on its own?

MONEYCHANGER Is there a conspiracy to suppress gold’s price?

MURPHY There is not a shadow of a doubt about it, and it implicates bullion banks and U.S. officialdom, either the Federal Reserve, or the Treasury, or the New York Federal Reserve, or some combination of those.

Today, for example, gold was up four dollars and the three "Hannibal Cannibals" – Chase, Goldman Sachs, and Deutsche Bank – sold the market down. Exactly what’s been happening for a year and a half.

MONEYCHANGER Yesterday’s stock market looked bogus, too. The Dow drops 250 points, nearly a hundred points under 11,000, and somehow manages to close eight points over 11,000? Normally a market that crashed through an important psychological round number like that would follow through hard on the downside.

Gold shows the same pattern. They wait until the end of the day and then hammer it with selling. They are manipulating the public relations effect of the closing price.

MURPHY No question about it.

MONEYCHANGER To prove a crime you need motive, means, and opportunity. Let’s start with the people you’ve accused, first of all, the Federal Reserve. What might motivate the Federal Reserve system to keep the price of gold from rising?

MURPHY The most obvious reason is that they don’t want gold competing with the dollar. Many people think the gold market is rinky-dink and unimportant, but ironically the Federal Reserve and the U.S. government think otherwise. The gold market serves as a barometer to gauge their monetary performance.

MONEYCHANGER Do you know who stated that publicly in the summer of 1997 or 1996? Alan Greenspan. He said any central banker who ignores the gold price does so at his own peril.

MURPHY Another reason for what they’re doing today. They don’t want the world to suspect there’s anything wrong with the policies here, or that there’s any inflation. Most of all, they want to keep gold down so that people don’t think about switching out of dollars into gold.

MONEYCHANGER Do foreign central banks share this interest in keeping gold low?

MURPHY They are simpatico, but they have nowhere near the interest that the US has in keeping gold down. The German, Italian, and French central banks are heavily loaded with gold. Suppressing gold has severely devalued those assets and hurt their balance sheets. We know that the Germans were extremely upset with gold at $252 and the Bank of England auction because it threw them out of compliance with European Central Bank financial requirements.

MONEYCHANGER Official propaganda says that gold has nothing to do with international finance or monetary matters – but why is 15% of the reserves of the new European Central Bank and about 15% of the reserves of the Federal Reserve kept in gold?

MURPHY Because gold is important, and what they’re doing to the gold market makes it more important that even I think it is.

MONEYCHANGER What interest do the US Treasury and the British Exchequer have in manipulating the gold price?

MURPHY Much the same reasons the Federal Reserve has. We feel that a lot of this started with Treasury Secretary Rubin. Before he became Treasury Secretary he served as the CEO of Goldman Sachs. Everywhere we turn, Goldman Sachs has its finger in manipulating the gold market, just as they were leading the selling this morning.

MONEYCHANGER Do you mean they are involved as a bullion bank, i.e., a banking company that acts as an intermediary in lending gold?. They don’t own the gold themselves. They borrow that from some central bank, loan it to a mining company, and the mining company sells it forward. They would probably also arrange a hedge for the mining company.

MURPHY Yes, for all of which they earn fees. That used to be what gold loans were all about, but then the big money funds – again, the Wall Street crowd – decided to use gold for a "carry trade" just as they had done with the Yen. They borrow gold at very low interest rates (as they borrowed Yen in Japan at less than 1%), sell it, and use that money to invest in stocks, Treasury bonds, or whatever.

MONEYCHANGER Wouldn’t Treasury bonds be the safest?

MURPHY Yes, and as long as the price of gold didn’t – or couldn’t -- rise, they made a fortune. How would you like to go to your bank and take out a loan at a one percent interest rate? Could you have made any money in the last two or three years with loans like that? That’s why we think there’s been a collusion or an orchestration to keep the price down.

MONEYCHANGER So the motive of the Federal Reserve and other central banks is to conceal how they are depreciating their own national currencies?

MURPHY That’s true, but it’s also to support the bullion banks so the very profitable gold carry trade can continue.

MONEYCHANGER Aren’t you alleging a crime?

MURPHY We have to be careful about what we say, but we believe that it looks like a fraud or scam is taking place, or at the very least a corrupt abuse of official power. When it is exposed, it will be one of the biggest financial scandals in U.S. history. Insiders have been given a free rein to invest money they borrow at practically no cost. Who is involved? Name your candidate: maybe part of the Treasury crowd, or some other part of officialdom, maybe big investment banks, and maybe big political backers.

MONEYCHANGER Because of their oversight positions, wouldn’t the scope of the conspiracy implicate Robert Rubin and Alan Greenspan to some degree or other?

MURPHY It’s hard to say who is doing what and how. It all appears to have begun when Robert Rubin was Treasury Secretary. All his life he has been connected to investment banking and bullion banking, and we believe that they all know what’s going on here. Some may not agree with it, but they’re certainly all aware of it.

On May 6, 1999, the day before the Bank of England gold sale announcement, I wrote in my financial web site, lemetropolecafe.com, that Deutsche Bank was telling its clients that the gold price would not go above $290. It was $289.50 that evening, and I put that in bold writing. The next day the Bank of England made a surprise announcement, informing the market in advance that it intended to sell gold. Gold dropped $35 in a matter of weeks.

MONEYCHANGER Why would the Bank of England stupidly announce the sale of an asset when the announcement itself would lower the price?

MURPHY We say that was done because gold was about to explode above $290. Gold share prices were surging all over the world, the market was desperate for supply, and then there were the gold loans. It’s very important to understand that they were all coming due again around $290. All these people short thousands of tons of gold would be squeezed flat if the price shot from $290 to $330. That gold loan which before was incredibly cheap now climbs to a loan shark rate, because you have to pay back gold borrowed at $290 with gold bought at $330. That raises your interest rate from one percent to 20, 30, or 40%.

The gold carry trade threatened to blow up like the yen carry trade, so somebody whistled for the Bank of England. Even now nobody over there will admit who made the decision to sell the gold. They’re running from it because they all know it’s a scandal.

That was last spring. In the fall when the European Central banks announced they were cutting back gold loans, gold rallied $85. Suddenly, there another historical first occurred. Without warning, Kuwait announced they were going to lend their gold to the Bank of England.

MONEYCHANGER And the next day US Secretary of Defense Cohen announced that the US was going to upgrade its defense installation in Kuwait to the tune of several hundred million dollars. What a coincidence!

MURPHY Why would I say that the US Treasury is involved in this sort of thing? It’s one big happy family in there. We’ll even go so far as to say we believe the center of the trading activity is at Goldman Sachs. We know it’s closely held, so only a few people are probably aware of it, but Goldman Sachs appears over and over again, out there stopping the market at every key juncture.

MONEYCHANGER Wasn’t Robert Rubin the mechanic for the market fix in 1987, manipulating the stock market back up (and the gold market down) after the crash?

MURPHY I really don’t know. I know there was some serious manipulation done there, but I would be guessing.

MONEYCHANGER It was not much of a secret. In December, 1987 he Wall Street Journal ran a series of very long articles about how Greenspan saved the world by manipulating the market back up.

MURPHY I have a copy of one of those articles that openly admits they orchestrated a market rise. At the same time, they clobbered the gold price, which had risen to $500 in the panic.

MONEYCHANGER They did that by shorting the platinum market after hours. At that time the platinum market in Chicago was open after the New York gold market. To force down gold, they hammered platinum. When the market saw platinum dropping (because traders assume all the precious metals move together), people panicked out of gold. These are not ham-handed amateurs who manipulate markets. They are very, very clever people.

You say that the motive of the hedge funds and bullion banks is profit. The motive of governments and central banking is to help their friends in hedge funds and bullion banks profit?

MURPHY And in return, to get political support from those friends.

MONEYCHANGER What about the means? Terry Smeedon, at the time director of foreign exchange operations for the bank of England, back about 1993 made a speech at an obscure gold show in Australia. He openly admitted what we had been guessing for years, namely, that central banks do operate in the gold market, selling futures and options and loaning gold. That was the first time to my knowledge any central bank official had every publicly admitted it.

MURPHY Smeedon acknowledged that the gold loans were already 3,000 tonnes (96.5 million ounces) back then.

MONEYCHANGER Until that time people just made fun of you when you alleged central banks were monkeying with gold. How long has this concerted effort to suppress gold down been going on?

MURPHY I think ever since April 12, 1996, but I can only speak from personal knowledge since the Long Term Capital Management (LTCM) bailout. That’s when I first spotted it. I’ve been a trader all my life and I know how markets work in general, and it was very clear. For a year and a half we had heard LTCM was short 300 tonnes [9.7 million ounces] of gold. When they blew up in September 1998 we thought they would have to cover it, but they didn’t!

MONEYCHANGER Combine that with Greenspan’s statement before the House Banking Committee in July of 1998, "Central banks stand ready to lease gold in increasing quantities should the price rise." It is very difficult not to conclude that Greenspan was anticipating – and trying to head off -- problems in the gold market with LTCM, and perhaps other hedge funds.

MURPHY That’s correct. We believe that he made that statement to signal the gold world, "Don’t worry – we’re not going to let it go up."

MONEYCHANGER That statement is buried in the usual Greenspan gobbledegook, but while you’re still struggling to match up subject and verb and keep your eyelids prised open, WHAM! He speaks with crystal clear meaning: central banks will loan as much gold as necessary to cap the price.

MURPHY I have a letter here from Alan Greenspan to Senator Lieberman answering a question about that July 1998 testimony. He writes, "My testimony before the House Banking Committee and the Senate Agriculture Committee in July, 1998 was concerned with the regulation of over the counter derivatives, and included a phrase at the end of the statement that has been wrongly interpreted. The statement merely means that more than one central bank stands ready to lease gold. It does not say that all central banks do so. Indeed I presume it would be understood that the statement was not referring to the Federal Reserve whose public balance sheets indicate no ownership of gold. I did not think it necessary to indicate that the Federal Reserve was not part of the group of central banks who do lease gold, since the Federal Reserve owns no gold, etc."

The point is that he felt compelled to answer this question. He is known as a man who couches every word in fog. He doesn’t make any mistakes, He put this out very clearly, but now he’s trying to cover his tracks.

MONEYCHANGER It’s also disingenuous to maintain the Federal Reserve doesn’t own any gold. Who holds title to the gold in Fort Knox may be a vexed question, but still the Federal Reserve banks own gold certificates. Moreover, they control all that gold in the New York Federal Reserve Bank vaults. He knows how much gold they control, and he knows that amount is notzero.

So your conspiracy has a motive and a means. The opportunity came in April, 1996?

MURPHY I think it may have started then, but I’d rather focus on what I’m absolutely sure of. I know the manipulation – or control or orchestration -- to keep the price down proliferated in September of 1998 and has infected everything for the past year and a half. By now we estimate central banks have lent out ten thousand tonnes [321.5 million ounces].

MONEYCHANGER That’s how many years’ mine supply?

MURPHY Four years. In September, 1999, the European central banks surprised the world with Washington Agreement. They announced they would curtail leasing, so leasing wouldn’t be adding supply to the market to hold the price down.

The price went berserk. The conspiracy crowd lost control, the market went bananas, and it put companies like Ashanti and Cambior out of business. The Agreement created all kinds of problems for the manipulators. Only by convincing Kuwait to lease its gold and mobilising other sources of physical supply could they calm the market down and regain control. Since then the market has locked in between $280 to $290, and they’re just stopping it cold like they did this morning. Chase Bank, Deutsche Bank, Goldman Sachs stopped it at $292, right on cue.

MONEYCHANGER But, Bill, if you were trying to control a market, you would work at the margin. At the end of the day when almost everybody has done his business and is ready to go home, you hop in with a handful of sell orders. The black shirts in the trading pit don’t want to be caught overnight long or short, so they do whatever they have to do to even out their position.

MURPHY That’s exactly right. Otherwise they only enter the market like today, when a key resistance point is threatened.

MONEYCHANGER They’re trying to control things at the margin because with a ten thousand ton short hanging over the market, there’s no way they could control the stampede once that short starts collapsing.

MURPHY That’s true, and that’s why we say there is an organised collusion. They all gang up at the margin, participating at that point in time.

MONEYCHANGER Will they lose control again?

MURPHY Oh, absolutely. Eighty-five dollars will look like nothing. At some point that’ll happen in an hour or two. The longer this goes on – too much gold being eaten up at too cheap a price -- the further the eventual correction will carry the price. For the market to reach equilibrium once these people are exposed, gold must rise to $600. It could overshoot that by a long shot, but we feel $600 is a fair equilibrium price.

MONEYCHANGER If $600 is an equilibrium and markets always move like pendulums, too far on the low side and too far on the high side, then the price might reach $1,200 an ounce.

MURPHY There’s no telling what could happen when it really blows up.

MONEYCHANGER Last fall the theory was rumoured that the Europeans were frightened and angry about the bubble that the English and the Americans had generated in the gold market with the gold carry trade, and were acting to curtail it themselves. Is that interpretation correct?

MURPHY That is right on target.

MONEYCHANGER Gold’s reaction from October high looks rather fishy. It rose from 253 to 324.50, a 28.3% gain, but at 284 today has given up 57% of that gain. At its low (276.50) it had given up 68% of its gain. For a commodity to come roaring off a bottom like that, and to give up that much, and then to go dead in the water makes it appear that the manipulators have gone back to their old tricks.

MURPHY It could not be more clear. The price of gold today is the same price it was at the end of ‘98 and of ‘97. Meanwhile bond yields have risen from 5% to 6.7%, oil has shot from $10 to $30 a barrel, all the commodity indices are in new high ground, and gold just sits there.

MONEYCHANGER For the last three years the gold price closed within a $1.40 range, year on year. That just doesn’t naturally happen in markets.

MURPHY No, it doesn’t, but think about it. These people are borrowing almost interest free, and making lots of money.

MONEYCHANGER We’re not talking about making 5% on $100,000, but ten million or forty million at a whack.

MURPHY That’s exactly right, and while their scheme is making them wealthier it is wiping out other people in the gold industry – investors, mining companies, mine workers. Not a fair game.

MONEYCHANGER Do you ever get a little nervous personally?

MURPHY Oh, yeah, when I jog down the street I look at the cars going by. It’s very unnerving. People who have gone against this kind of power don’t fare too well sometimes. I’m trying to get as visible as possible. We’re known in the Senate and the House where people are asking questions on our behalf. The more visible we get, the less apt we are to have "accidents" or "heart attacks."

MONEYCHANGER You started a web site, Le Metropole Café, primarily to discuss these issues.

MURPHY I started it as a financial website specialising in the precious metals and specifically gold, but it has other items, too, in the financial arena about the stock market.

MONEYCHANGER When and why did you start the Gold Anti-Trust Action Committee?

MURPHY The Gold Anti-Trust Action Committee began last January when one of the members of my web site said, "Bill, you’re complaining about this collusion. Why don’t you stop talking and do something about it?"

At that time J.P. Morgan and Goldman Sachs had formed a "Counterparty Risk Management Group" to control the risk among all these dealers. He said to me (and very appropriately), "If Chrysler, Ford, and GM got together to ‘manage risk’ people all over the world would be howling about violation of anti-trust laws."

So we formed the Gold Anti-Trust Action Committee. A month later I appeared on CNBC. Behind the scene three of the best known gold companies in the world support us. We’ve raised almost $160,000 in an effort to get to the truth.

MONEYCHANGER Will you eventually file a lawsuit?

MURPHY If we uncover enough evidence to do so, yes. We have retained Berger and Montague in Philadelphia, the finest anti-trust law firm in the country, and two outstanding lawyers. We‘re gathering evidence all the time.

We were concerned, for example, that once we get evidence of what they’re doing – which we will – they would claim, "The Federal Reserve made us do it."

Now the Federal Reserve has stated publicly, "We’re not manipulating the gold market." That makes it tough for them to use that defense down the road.

Yes, we are planning at some time to commence a lawsuit, but we’re not in it for that. We want to expose the manipulation and to get the gold price up. Then, if we can get enough evidence – locate a John Dean or somebody sends us a stained dress – we will commence a lawsuit with full fury.

MONEYCHANGER What about the gold in Fort Knox? In the 1970s the late Ed Durrell began questioning whether the gold was still there. For ten years or longer he tried to force an audit but they successfully stonewalled him. Do you think any gold remains in Fort Knox?

MURPHY I’ve got no clue, but GATA is asking congress for an audit. What asset doesn’t get audited for fifty years? It’s silly.

MONEYCHANGER I was in the Army and you wouldn’t believe the piddling stuff we had to account for. A combat engineer battalion has to keep up with drift pins, but the government can forget about auditing 262 million ounces of gold?

MURPHY It’s ridiculous, and we won’t back off until we get answers.

MONEYCHANGER You’ve had two recent successes. Normally corrupt government agents cover their tracks by stonewalling. They use "national security" or some other bureaucratic dodge to keep you from getting the actual evidence you need, if it still exists. They ignore you, or they announce there’s nothing to it and then walk out without answering any more questions. But recently your questions apparently forced an answer out of Treasury Secretary Lawrence Summers.

MURPHY A Boston reporter read our ad in Roll Call. That was an open letter to Greenspan and Summers asking them eleven questions and requesting an audit. Some of the best people in the industry put it together. Some of the questions were so sophisticated that I didn’t understand them, but we didn’t want to give them any wiggle room.

The reporter asked Lawrence Summers this question, and he just categorically denied the Treasury was selling any gold. Of course, we never asked if the Treasury was selling any gold. We asked the Treasury if they were leasing gold or writing calls against their gold position. He answered a question that we never asked him.

MONEYCHANGER Anybody who has ever raised children can tell you that when you ask a kid a question, and he answers a different question, there is a reason. (Laughing)

So Summers denies he was selling US gold reserves, which was not the question. Just the fact that you could force that answer out of him is an enormous victory.

MURPHY Thank you, and we agree. Now Greenspan has followed up. We’re getting them to come out and say things. There must be so much pressure about this behind the scenes, that they’re being forced to respond.

MONEYCHANGER Now it remains to be seen whether they have made B’rer Fox’s first mistake and put their fist into the Tar Baby’s face.

MURPHY You’re right on target. We’re the Tar Baby. Without the Internet, no one would know what we are saying, we wouldn’t get the information, feedback, or publicity. The press is the worst! GATA has been going one year, yet the United States press will not write about us. Yet we’ve had the press all over the world write about us, but not here in the US.

MONEYCHANGER Almost any newspaper printed outside the US is better than a newspaper printed inside the United States, but London’s Financial Times ignores gold the same way.

MURPHY A friend of mine met one of the writers there, and he asked, How come you’re not reporting on this stuff? He answered, well, I have to be honest with you. A lot of the people have been corrupted – they all have options in the stock or in the company that owns the Financial Times, and nobody wants to rock any boats.

MONEYCHANGER When you play blackjack you’re supposed to play with the odds. Generally that applies in markets, too, except that you’re always looking for that point where the odds are turning before many people realise it.

MURPHY That’s right.

MONEYCHANGER If you’re asking people to stick with gold now, you are definitely going against the odds and the trend.

MURPHY Absolutely.

MONEYCHANGER Not only are you bucking the trend, but you’re also bucking the most powerful people in the world.

MURPHY The owners of the casino.

MONEYCHANGER Exactly. In the face of all that, why should anybody stick with gold?

MURPHY Very good reasons. First, look at what happened just three month’s ago when gold rallied $85 in the fastest move up in history. It came out of nowhere, a total surprise.

Second, because the manipulation has lasted so long, the risk/reward ratio is getting better and better. They have already lost control once. We believe they’ll lose control again, because every month the supply-demand deficit grows by 100 - 150 tons a month. The market has to find that much supply every month just to hold down the price.

MONEYCHANGER One hundred fifty tonnes a month? Over four million, eight hundred ounces a month?

MURPHY That’s why they had to call on the bank of England. That’s why they had to call on Kuwait. That’s why they’re desperately holding it down until the Swiss start selling in May or June.

MONEYCHANGER There’s a rumour that the Russian mafiya stole Russian gold and deposited it with a Dutch bank for sale. Is there any substance to that?

MURPHY I don’t know, but it’s intriguing that Yeltsin suddenly resigns, but has to be given immunity.

We are going to win the day. The last two or three weeks have been incredible. Tell the people out there the gold market to hang with it. Gold will see a move of gigantic proportions. We’re not kidding ourselves. We know what we’re up against. We’re going to beat them, because we have truth on our side.

MONEYCHANGER How can my readers keep up with events in GATA’s fight and in the gold market?

MURPHY I have a financial website, www.lemetropolecafe.com. People can sign up there for a two-week trial membership or pay for a year’s full membership. To follow what GATA is doing, visit our website, www.gata.org.

MONEYCHANGER Can they make contributions to GATA from the website?

MURPHY Yes, and it’s also tax deductible. We’re doing things in the gold market that haven’t been done before. We’re smoking them out, and this is just our first salvo.

MONEYCHANGER Bill, thanks very much for your time.
 

Having enjoyed the wealth of interchange and intelligence on Le Metropole Café, I can highly recommend you subscribe. I wholeheartedly support Gold Anti-Trust Committee as well. Whatever you can contribute to GATA’s work would be money well spent. – F. Sanders

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