Manipulation of the Gold Market

Brad Zigler's recent feature, "Has Gold Been Manipulated?", which dismissed the possibility of price manipulation in the gold market, ignited a firestorm of comments and emails from our readers. That's why we decided to sit down with Bill Murphy, chairman and director of the Gold Anti-Trust Action Committee [GATA], and hear the other side of the story.

GATA is a nonprofit advocacy and education group dedicated to exposing and opposing manipulation in gold, precious metals and other financial markets. Before he helped found GATA, Murphy worked as a commodities broker on Wall Street; in 1998, he launched the popular gold market website, Le Metropole.

Recently, HAI's associate editor Lara Crigger chatted with Murphy about GATA and its mission, including how manipulation would occur, where gold prices ought to be and who's really pulling the strings.

Lara Crigger (Crigger): GATA argues that for over a decade, gold prices have been kept artificially low. Who's behind the manipulation, and why?

Murphy: It's what we call "The Gold Cartel": The United States government is the main culprit, with "hit men" like Goldman Sachs and J.P. Morgan Chase, and other central banks, like the Bank of England. It's been going on for some time now.

Basically, it all started with [former U.S. Treasury Secretary under the Clinton Administration] Robert Rubin, back when he was the head of Goldman Sachs in London. He would borrow gold from the central banks at a 1% interest rate, and then sell it. He took this idea and made it the essence of his "Strong Dollar Policy" [while at the U.S. Treasury].

Then there was Lawrence Summers, who followed him as Treasury Secretary. He once articulated the relationship between gold and interest rates in his paper, "Gibson's Paradox and the Gold Standard": Keep the gold price down, he said, and you keep interest rates down.

Now, the U.S. [government] is very concerned about stock market interest rates, the dollar and so on. The main way to control all that is to keep the gold price down. So they'd borrow central bank gold and surreptitiously put it in the marketplace, via various leasing and swap operations. It's this gold that has kept the price from being $2,000 - or well over it.

Crigger: And the banks, why are they involved?

Murphy: Well, it's a very close relationship between Goldman Sachs and the U.S. Treasury. Half the Treasury is staffed by Goldman Sachs people. And the Federal Reserve - J. P. Morgan is the Federal Reserve's bank. They've worked closely together, sharing information, certainly helping in trading.

Being able to borrow gold - it's like free money when you lease it in the marketplace, as long as the price stays the same or doesn't go up too much. So they've made money trading this market against the specs, with the government's help, for well over a decade. And they made a lot of money doing it.

But now they're running out of central bank gold to meet the heavy demand showing up from everywhere. It's reported that the central banks have 30,000 tons of gold in their vaults. Three of our consultants have shown through different methodologies that they have a good bit less than 15,000 tons, which is less than half of what they say they have. The difference is the gold that's been used over the past decade in the gold price suppression scheme. So it's become a very risky deal.

Crigger: How so?

Murphy: Think of it simplistically: If gold were to shoot up $250 in the next few weeks, what would everyone talk about? They'd talk about too much inflation, the dollar falling apart; they might talk about a crisis. It would be all negative for the politicians in power, the banks and Wall Street. Gold is a barometer of U.S. financial market health, which is why they try to control it.

Crigger: Can you walk me through how such a price manipulation would work? You said banks let out gold "surreptitiously" - how do they do it without attracting notice?

Murphy: Basically what happens is J.P. Morgan goes to a central bank and borrows gold, leases it at, say, a 1% interest rate. Then they take the physical gold and they dump it into the marketplace, which adds to the supply. That supply helps to meet demand; without that supply, demand would overpower the dwindling stuff coming out of mines and scrap supply.

Gold has gone up nine years in a row. It's way up this year. Now they're in what we call a "managed retreat," because they can only stop the excitement so much, and they're just trying to manage it. They don't want it to get out of control. But it's coming, and it's so strong that they're in deep, deep trouble.

Crigger: What evidence is there suggesting price manipulation?

Murphy: Well, we have nothing but evidence that we've collected for 10 years. We haven't found anything in 10 years that shows us we were wrong, and we're always looking.

A lot of it is on the public record, such as Alan Greenspan saying "Central banks stand ready to lease gold in increasing quantities should the price go up." Well, that's what they did.

Crigger: Right, but rather than what officials have said or not said, is there any evidence in the market itself that you could point to and say, "That means manipulation?"

Murphy: Look at the concentrated position of JPMorgan Chase in the gold and silver markets. Their percentage of the shorts - theirs and HSBC's - are almost the entire short position in the silver market. That's far more of a concentrated position than you see in oil, corn or any other commodity. Nothing else shows anything like it.

In fact, J.P. Morgan is short more silver than Nelson Bunker Hunt was long. But they allow that to occur. It's just ridiculous. They're not supposed to be having such concentrated positions. That's one of the mandates of the CFTC [Commodity Futures Trading Commission], to make sure these things don't occur, because that's how manipulations can happen.

Crigger: Is the fact that two or three banks have a majority in these short positions necessarily indicative of manipulation?

Murphy: They told Nelson Bunker Hunt that his concentrated long position was not to be allowed, and they forced him out. Well, why do they allow J.P. Morgan to do the same thing on the short side?

They said that Bunker Hunt manipulated the silver market. We're saying that J.P. Morgan is part of the manipulation of the gold and silver market.

This all developed from Robert Rubin to Lawrence Summers, from the Clinton administration to the Bush administration and now Obama - who, by the way, is going through with the same policies. When Geithner as treasury secretary was the head of the Fed [Federal Reserve Bank of New York], he carried out the manipulation of the gold market. The guy who helped originate it, Lawrence Summers, is now the top economic guy for President Obama. It's very entrenched. But the difference is now they're running out of available central bank gold to carry it out.

Crigger: How do you know?

Murphy: At the GATA African Gold Summit, in May 2001, Frank Veneroso, who is a consultant of ours, delivered a brilliant presentation that said they would run out of gold in 7 to 10 years, based on his work. Well, that's about where we are.

In addition, European central banks can sell 9.7 tons of gold per week as part of the Washington Agreement. But they're not even selling 1 ton.

So we believe demand is 1,000 to 1,200 times greater than mined and scrap supply. That deficit was being met by the Gold Cartel's surreptitious selling of central bank gold. But now instead of getting 500 tons from the European central banks to help, their supply is drying up. They don't want to sell anymore.

Crigger: A few weeks ago, Brad Zigler wrote an article pointing out that banks have lopsided positions in all sorts of commodities contracts, and that large concentrations of short positions by banks are not necessarily an indication of manipulation. Do you want to comment on that?

Murphy: I totally disagree with that. As far as I know, there's nothing like it, in the sense of what J.P. Morgan and HSBC have in the silver market specifically. That concentration is far greater than any other position a bank or any other firm has. It's very abnormal to have this size of concentration for the open interest.

Crigger: What about platinum and palladium? In those markets, the banks only have short positions, right?

Murphy: That's basically what they have in the silver market also. But you're talking many banks, versus just one or two. Now if there were 10, 15, 20 firms with these positions, good for them. But in silver's case, it's just J.P. Morgan and HSBC. Their short position stands out far more than anyone else's.

Crigger: Assuming the price of gold has been kept artificially low, how much has the price been altered as a result? You threw out $2,000 earlier - where did that figure come from?

Murphy: This is a pretty commonly used number, even in the mainstream world. Had the price kept pace with U.S. inflation, it would be $2,300 per ounce, let's say between $2,000-$2,400 an ounce.

Back when we had our Gold Rush 21 Conference [in 2005], the price was $436, and I said it was going to take $3,000-5,000 an ounce price to clear the market. And I think that's the kind of price you're going to see in the years ahead. Once it takes out $1,000, gold's just going to take off like you won't believe.

Crigger: But what about manipulation? Won't that keep the price down?

Murphy: They'll lose control. That doesn't mean they won't do whatever they can to calm things down again, with whatever gold they have left. But that's the problem: They keep letting loose the gold they have left.

Nobody knows how much U.S. gold is left [in the U.S. Gold Reserve]. We're trying to find out through the Freedom of Information Act, and the Fed and Treasury won't tell us. They keep redacting or holding back information. Now if gold's just sitting there, and they've never done anything with it as they say, then what's there to hold back?

Crigger: Well, it could just be an issue of bureaucracy. Or stupidity.

Murphy: Well, why hold back 400 pages of something where nothing's going on? President Obama has called for transparency in our government. Well, we're asking for transparency. There hasn't been an official, independent audit of our gold reserves since the Eisenhower administration in 1955; can you imagine owning something since 1955 with no audit?

Crigger: Certainly, many things about all this appear strange. But just because something looks suspicious doesn't necessarily make it proof that manipulation is going on.

Murphy: Well, it's like a jury listening to a murder trial. As you sit there, I could probably come up with 250 things that all fit together. At the end of the trial, you'd say some of it's circumstantial to prove guilt beyond a reasonable doubt. But there's just so much of it.

People have said they're going to [manipulate]. Here's an exact quote from the Bank of International Settlements: "There are five main purposes of central bank cooperation, and one of them is the provision of international credits and joint efforts to influence asset prices (especially gold and foreign exchange) in circumstances where this might be thought useful."

Or this: the Reserve Bank of Australia said, "foreign currency reserve assets and gold are held primarily to support intervention in the foreign exchange market." This is all on record. I don't even know why there's a debate about this.

Crigger: If it's true that the Fed is instrumental in this price manipulation, then how do you reconcile quantitative easing? One of the side effects of that is that gold prices are just going to shoot up, right?

Murphy: That's a very good question. Because that's where they're in trouble.

They're doing everything they can to keep the price of gold from going sky-high, and they're desperately trying to keep interest rates and Treasury bonds down, and with all this money they're printing, they're petrified. So it's actually making them more aggressive in trying to keep the prices of gold and silver down.

But it's such an obvious thing for people to see that demand is exploding all over the world. Whether it's with ETFs, the Chinese, or big hedge fund managers, the big money is pouring in, buying up the physical gold and silver. So they, I think, are on their last legs to try and hold the prices down, because if they don't keep interest rates down, the troubled real estate market's going to go right back in the tank. The quantitative easing will be the final straw that breaks the camel's back.

But they shouldn't have done this in the first place. That's what caused the problem. Had they not rigged the gold prices for the past 10 or 12 years, interest rates would've gone way up, and it would've had self-correcting mechanisms. This is hurting a lot of people, and yet they keep doing the same thing. But they're going to get beat.

Comments

[E.D. Hart:]

The statement that the inflation adjusted price of gold should be $2000-$2400 is based on bogus US inflation numbers. By my calculations, and relying on shadowstats.com to keep me informed with a constant CPI methodology, the real CPI inflation adjusted price of gold should be closer to $4000-$4500. I wish the author would cite the fact that the inflation adjusted gold price is itself twisted by government subterfuge. The gold price is manipulated and CPI is manipulated, together they give us a very cheery, and false picture of the economy.

Jun 07 08:12 PM

[Fighting Yoda:]

I don’t quite understand the “conspiracy” or the issues with “concentrated short positions”. It is the job of Central banks to manage currency, interest rates – since these are linked to gold prices – they manage the gold price with the help of designated bullion dealing financial institutions. So I don’t see any more conspiracy than I would see in the Treasury market.

As regards the actual gold reserves in vaults – if you are selling short and people take delivery – you would dwindle the inventory. That is what is the whole game– longs vs. shorts. It is multi inning game – play on.

Jun 08 02:47 AM

[SW Richmond:]

Yoda, I believe you are correct in as much as gold being a currency and/or linked to currency rates, and the "job" of central banks is to manage currency values via intervention. The conspiracy IMO revolves around the government doing so with public property (Treasury gold) while claiming to still hold the gold under safekeeping, lack of transparency, obfuscation through the use of third parties (JPM / UBS et al), legal tender laws, etc. If gold really were regarded as a "barbarous relic" then the CB's should just sell all their gold, disclose same, and be done with it.


On Jun 08 02:47 AM Fighting Yoda wrote:

> I don’t quite understand the “conspiracy” or the issues with “concentrated
> short positions”. It is the job of Central banks to manage currency,
> interest rates – since these are linked to gold prices – they manage
> the gold price with the help of designated bullion dealing financial
> institutions. So I don’t see any more conspiracy than I would see
> in the Treasury market.
>
> As regards the actual gold reserves in vaults – if you are selling
> short and people take delivery – you would dwindle the inventory.
> That is what is the whole game– longs vs. shorts. It is multi inning
> game – play on.

Jun 08 07:53 AM

[sdavid0419:]

GLD and SLV and the other paper gold trust funds where people can supposedly own precious metal without having to deal with holding or protecting it on their own turn out to be additonal vehicles used to perpitrate the manipulation. Most of these funds have options where they can be advance purchased or sold without having to have any gold of ones own yet can have tremendous effect on vast amounts of the precious metals. ie. more control over the metals than the amount invested calls for. However, as more investors like myself convert from paper gold to the real thing the TRUE demand for gold and silver will soar. Once every ounce of gold and silver jewelry has been smelted and the miners cannot keep up with the demand then and only then will we finally see the manipulators with their pants down.

NOTE: Even though I fully expect this day to come, I dread the thought of it as it will mean an end of the world as we know it.

Last night helicopter Ben Benanke gave "60 Miniutes" and the world a look inside our treasury department where unbacked $100 bills were frantically being printed 24 hours a day 7 days a week. He acknowledged this WILL cause inflation and stated he is prepared to raise interest rates when it does. Friends the second interest rates go up the recovery (if there is one) ENDS.

Jun 08 08:22 AM

[raytaythemd:]

..."Now, the U.S. [government] is very concerned about stock market interest rates, the dollar and so on. The main way to control all that is to keep the gold price down"...and the logic behind such a sweeping statement?????...now, what I REALLY want to know is who was on the grassy knoll....

Jun 08 08:26 AM

[cihat:]

I totally agree with GATA there is a secret war to keep the gold price under control.
That is exactly why G20 meeting they declared to sell small amount of gold (it is peanuts but word gives a lot of scare to people who want buyers to get scared)
My logic is simple:
1- If gold is a bad investment and not paying dividends and interest, why all central banks (top 10 gold holders are also top 10 economies or IMF itself) holding all that gold?
2- If gold is over valued as some claim it should be down to 600 USD an ounce, why are all these central banks not selling their stocks now at 950 USD and buy it later when it is down to 600USD ?
All commentators stating gold is not worth maybe twice as much, please reply above 2 questions..

I would be even more scared if our counties central banks are ran by stupid people not to make money buy selling their gold at 950 USD... and Chinese as the biggest buyer of gold recently should be all stupid to do so...

Jun 08 09:16 AM

[Mad Hedge F...:]

Long term it's still a great hedge. Brace yourself for the impending gold shortage. Gold shortage? Yup. Last year, South Africa suffered its steepest decline in gold production since 1901, falling 14%, to a mere 232 tons. It now ranks only third in global production of the yellow metal, after China and the US. Severe electricity rationing, a shortage of skilled workers, and more stringent mine safety regulations have been blamed. Choked off credit has frozen the development of new capital intensive deep mines, as it has for everybody else. Rising production costs have driven the global breakeven cost of new gold production up to $500 an ounce. In the meantime, the financial crisis has driven flight to safety demand for gold bars and coins to all time highs. Last year, the US Treasury ran out of one ounce $50 American Gold Eagle coins, now worth about $980. Competitive devaluations by almost every central bank, except Japan, mean that currencies are not performing as the hedge that many had hoped. It all has the makings of a serious gold shortage for the future. Could last year’s downturn be a blip in the eight year bull market? When we break $1,000, which could happen any day now, watch out above!

Jun 08 09:51 AM

[DONE_SONZ:]

The cartel could get crushed because of the debt monetizing going on.Printing money and buying bonds.The fed is working both sides.The pressure building for higher gold prices could blow up in their faces.What a shame that would be.lol.Other countries are buying gold and talking about gold backed currencies for example.Jim Rogers was talking about a currency crisis recently(on CNBC's website today)When the cat gets out of the bag,they could be in big trouble,especially if we don't have the physical gold we say we have.Food for thought.

Jun 08 11:11 AM

[5142152-337:]

Terrific article and rebuttal! I have a lot of respect for Hard Assets NOW! Let's face it. To hear ONE SIDE of an issue, all one has to do is tune in to ABC, CBS, NBC, and CNN and of course CNBC. Any THINKING person looks for the other side of the coin (gold or silver, eh).

This exchange and the lucid posts by SWR and others gives us all hope!

All we can do as individuals is to continue to buy PHYSICAL gold and silver and wait. We will be glad we did...and so will your loved ones!

Jun 08 11:42 AM

[bruno12:]

Personally I hope the governments of the world continue to successfully manipulate the currencies of the world, including gold and silver in such a way that chaos is avoided. Actually, everything is manipulated. The Plunge Protection Team manipulates the stock market. Opec manipulates the price of oil (or at least they try to), etc. The only way to survive as an individual is to anticipate the moves the manipulators are going to make and take advantage ot them. I would rather trade the swings in gold and silver with moderate amounts than put my whole wad in and hope they go parabolic.

Jun 08 11:55 AM

[Mike10613:]

I agree that physical gold is a good investment. You know you have it for sure. It's not part of a Ponzi scheme. We know governments run Ponzi schemes to take from the young to pay welfare to the elderly. We know that the US constitution says all currency should be in gold or silver. We know gold coins are still legal tender in the US. But you get paid with a $5 gold coin and put that down on your tax return and it tax evasion. The US government says there is gold in Fort Knox. Can we be sure? If so how much? The price has been manipulated and the British government dumped gold around around $250 an ounce not so long ago. Even stock certificates are just paper unless they represent something solid. A company, no matter how big, is not solid without proper regulation and auditing.

Jun 08 12:22 PM

[kohalakid:]

Gee, I don't understand the equation and conclusion put forth here:

Banks for 10 years have borrowed gold at 1% then sold it, going short.

And Murphy says the banks have made "a lot of money".

How do you make money being constantly short a commodity that has quadrupled in 10 years????

Jun 08 01:53 PM

[Emerald_Dra...:]

>Total baloney! CPI in 1925 was 10.19.
>In 2009 it the CPI is 123.8 Gold in 1925 was 20.67.
>Today gold is $956.
>If gold had kept pace with U.S. inflation it would be at $250.

err...CPI afaik, has been re-defined multiple times and is just another manipulated gov't-provided statistic used to make them look like they're doing a good job keeping inflation at bay. it's not reliable.

Jun 08 04:08 PM

[Emerald_Dra...:]

>How do you make money being constantly short a commodity that has quadrupled in 10 years????

you don't, which is why their manipulation is doomed to fail.
unless they can somehow cause people to lose faith in gold and make it worthless, wherein they cover their short positions. as long as gold is volatile and manipulated, they can cover.

Jun 08 04:32 PM

[kohalakid:]

Emerald Dragon 2012---

That's kinda like me going into a casino and playing craps for 10 years making bigger and bigger bets knowing the odds are against me, but I'm gonna make it up on volume.

I know the big bullion banks are smarter than that. They know where the bodies are buried.

To think they've been losing money for 10 years waiting for some big pay-off is just not realistic.

Why wouldn't they go long and make gold be $2500 where it should be? Sounds like that would be a lot easier to pull off.

Jun 08 05:49 PM

[mr freddo:]

For those that still have dry powder out there, it appears that now is a good time to switch out of short term treasuries and into CEF, GLD, GDX, or SLV. I understand the benefit of physical over paper but not all of us can set up a machine gun nest outside our bunker like Market Sniper.

Jun 08 06:00 PM

[Dean M:]

Hey everyone, forget gold - I can do you one better. Horse manure futures!. Think about it, plenty of US supply, unlike gold it decomposes naturally creating constant need for replenishment. The number of horses available is finite. The benefits go on and on. I predict the price octuple in the next 13 months. And if you want me to get you some I will take those gross disgusting dollars off your hands as a favor.

Jun 08 09:11 PM

[capt Brian:]

I have been exposed to the 'conspiracy' senario for years, over 20.
I will admit that it all sounds plausable, but somthing needs to be investigated by [MYTHBUSTERS]. It seems this is all a great theme for a TV series, and I just may begin one. Sure has all the cloak and dagger of the best of the Sherlock Holmes mysteries or the Charlie Chan's if u want to drag in the Chinese as so many seers and soothsayers like to do.

IF they are conspiring to control the price of gold, then I ask you, why? To what end? If we have inflation, so be it, having a nice painting by Gogan, or Rembrant will stand you in good stead, or a bunch of silver, which I defy anyone to 'control'...

Oh well, if you must have a reason for the price not going to the stratosphere, then fine, that is as good as any.

I say, gold will rise when gold rises, and under the same and real fundamentals that has been propelling it for years.

Gold will continue to rise in here, and perhaps we are simply seeing the base building. I am buying more almost daily as my purse allows, in fact I bought another 1/4 oz today, and about 15 oz of silver and 5 morgan dollars of various vintages. In the last three weeks, I could only find a few ounces of silver that I was willing to step up to, but believe me, there is all the investment grade silver you can buy if you want to.

Yes, I think silver and gold and platinum and palladium will rise nicely and soon, and I should say, continue to rise well into the near future. Soooo... my advice to you.

Buy on weakness, don't sell anything 'til you have doubled your money, then sell half and keep the rest for the grins coming. I am convinced the prices of PM's will rise pleanty, but if you stay in the bounds of sane investing, keep everything else in cash, avoid the stock market, even PM stocks, and ETF's keep your PM stuff in hard hands on in the 'floor', and your cash will be king soon, then buy more silver and gold as it dips and you will be ready if I am wrong with cash to buy stocks after the bull is back for sure, and then you can sell off ur PM's when u feel like it.

Good navigating

Capt Brian

Jun 08 09:11 PM

[User 228479:]

IMF nations had been selling gold. The U.S. is an IMF nation. So it stands to reason it had dumped gold too. New Scientist has stated there are 7-8 years of mineable gold left in the earth. When the massive shorts should be covered and when the leased gold should be returned, you can bet the rules will be changed to benefit the big boys, the free market be damned. They were changed during the Hunt brothers' episode, weren't they? In the long run, gold buying nations like China will benefit from the manipulations of the precious metals markets and the selling nations will lose as fiat " money" becomes worth less.

Jun 09 05:39 PM

[Emerald_Dra...:]

>To think they've been losing money for 10 years waiting for some
>big pay-off is just not realistic.

i don't see them "losing" money for 10 years. i see them maintaining the illusion that the dollar is strong by showing that it can still purchase gold at a reasonable price, regardless of how much money is created.

How much is printed/created vs. how many tons of gold which it can buy? That's the manipulation and how/why its been done for the last 10 years.

This fiat system is coming to an end in my opinion, as well as many others. Spend your dollars on real estate or commodities. You're only losing money (purchasing power) by keeping it in a bank. Gold is the simplest, easiest commodity. Platinum would be good too. It's more rare and only slightly more expensive.

Jun 11 02:47 PM