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What's Going On Here?
by Bill Murphy
Chairman, Gold Anti-Trust Action Committee
May 10, 2004
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May 9 - Gold $378.40 - Silver $5.56 Weekends are beneficial for someone like me who follows the markets all day long and writes a daily column. Two days without the markets churning all over the place allows some time for reflection and contemplation. It is also a period to think about what the heck is going on here. My equity is down a bit over 50% off its highs at the moment with no end in sight in this 5th month of the continuing gold share debacle. It is painful and can be disturbing, at least it is when I force myself to look at the statements. Knowing most Café members feel like me, with many completely demoralized, I thought it might be helpful to put all this in perspective. "We
have statutorily gone onto a fiat money standard and as a consequence of
that, it is inevitable that the authority, which is the producer of the
money supply, will have inordinate power." Which is just what The Gold Cartel and Working Group On Financial Markets (including The Fed) are doing. They are exercising their power. While perpetuating the notion we have free markets in the United States, they are trampling the little people, or average investor, most of whom are clueless about what is really going on behind the scenes. Years ago I stated the shenanigans of these powerful folks who were rigging the gold price would eventually lead the US into eventual financial market chaos, even resulting in small riots. We are not there yet, but signs are emerging that this scenario could easily become a reality. It is frightening, as that day appears closer at hand than ever before. The following is my take on what is happening and why it is important to stay the course with your gold and silver investments. Ironically, it all revolves around a supposedly rinky-dink gold market While it is an insignificant financial market in gross number terms, it is far more important in the overall financial market picture than is widely known and as far as the BIG SHOTS are concerned. Allow me to explain why I believe this is so: The
bond market began its deep descent in earnest around March 21: Oil
began its relentless run from $33 to $40 per barrel around March 29: Gold
topped out about March 28: Silver
topped out about March 28 and began its spectacular collapse days later: There is something remarkably wrong with this silver collapse. Silver went up methodically for many months and then falls more than 35% in less than 4 weeks, without being allowed to make an attempt at any kind of recovery, leaving huge gap after huge gap on its way down. Both gold and platinum have made sharp corrections, but they were only down around 15%. The savaging of silver is off the charts. I can’t recall a market EVER correcting like silver did when the fundamentals barely changed, or actually improved, making 17-year highs to boot. The silver takedown was nothing less than a mugging, done with white-collar thug/Mafia style precision. Compare silver to another bull market, say soybeans for example, one which has similar very tight fundamentals. Soybeans endured a steep 12% correction along the way to making new weekly highs, but notice how many rallies there were while it corrected. Silver was not allowed to rally at all and function like the free-trading soybean market, or most any other market in history for that matter - except when the Comex changed their rules on Bunker Hunt. May
beans Soybeans
closed in new high ground on the weeklies, which offers little credence
to the notion the giant commodity move of the past two years is over: So, we have two critical commodities, oil and soybeans representing the energy and food sectors, closing at decade-plus highs. Then we have the 30-year bond market collapsing in obvious response to the growing inflation in the US. Meanwhile, during the exact same period, gold tanks and silver is horrifically bludgeoned. This doesn’t sit right with the historical nature of the way markets have worked in America, to say the least. Clearly, this tends to support the findings of the Gold Anti-Trust Action Committee that some powerful people (as in plural) are interfering in conspiratorial fashion in the gold and silver markets to suit their own agendas. In doing so they are egregiously violating the anti-trust laws of the US. Which takes us to other aspects and motives behind this criminal operation: The United States has depended upon foreign buyers to take up a significant portion of our debt. Until recently both the Japanese and Chinese were huge buyers of this debt. Weeks ago the Japanese announced they would be pulling back somewhat and have done so since their fiscal year ended on March 31. The Chinese, although this has most likely been understood at the highest financial market levels for some time, have let it be known they are, and will, be doing the same: China
to diversify foreign exchange reserves China is looking to diversify its foreign exchange reserves out of US dollars, according to its top foreign exchange manager. China's chief forex regulator, Guo Shuqing, said in a recent Financial Times interview the make-up of the country's US$440-billion forex cash pile was being altered to include more European and Asian bonds, given concerns over a weaker US dollar. The mere thought of China offloading some of its vast US Treasury holdings is enough to send shivers down investors' spines, risking a further deterioration in the already-bloated US current account deficit and more dollar weakness. –END- This has to have The Fed and Working Group on Financial Markets a bit shook up. For if the Japanese and Chinese are going to pull back, who is going to take their place buying up our debt in this increasingly inflationary environment? I have used the word desperate in the past to describe The Gold Cartel. One might apply that term to the Administration as well. Look at what we have had of late: "Remember the cancellation of the PPI reports earlier this year, just when it became apparent commodity prices were soaring. The excuse given was they were going to change the PPI makeup somehow and couldn’t figure out how to do it, or ran out of time to do so. What! The United States Government can’t get out a timely report with all the resources they have to get any sort of job done? That is ludicrous. Sure it is ludicrous. Compare the cancellation of the PPI report (a negative for the financial markets) with what they have done with the employment reports and how they have spun them. All of a sudden jobs are miraculously going like gangbusters. It was the talk of the financial market TV shows this weekend. The March number was even revised up to 337,000 new jobs. What they soft-pedaled was that a good number of them were part-time and low paying jobs. This month the Labor Department shocked most of the economists by announcing the April job growth to be 288,000. However, the highly regarded Hoisington Investment Management Company in Austin, Texas, presents a completely different picture after dissecting this number: "Incidentally, 270,000 of the April job gains came from the birth/death model, a statistical extrapolation rather than a direct increase in the job head count. Previously the model was called a plug." So without this model adjustment, the job gain would have been 18,000 and a disaster politically for President Bush. No wonder the Fed is leaving its Fed Funds rate at 1%. The economy is nowhere near as strong as proclaimed by Wall Street. Meanwhile the last CPI was way above expectations at .5%, meaning short-term interest rates are going more negative by the month which, by the way, is normally an extremely gold friendly development. The bottom line: we have soaring inflation in the US, the jobs picture is not improving in the real world as widely trumpeted, and our biggest debt buyers, the Chinese and Japanese, are pulling back on their purchases. This is all hitting the fan at once. It gets worse when we take into account the geopolitical developments so far this year. The Iraq War is a complete fiasco with April bringing us the most deaths in a single month since the war started. Then, there is the building prisoner abuse scandal, one which has the Arab world inflamed, to put it mildly. Think about this. Amnesty International reported on what was going on 9 months ago in a formal report. The scandal was officially reported to the Defense Department two months ago. The only reason the outrageous disgrace has surfaced to any great degree in our part of the world is because the pictures were published. Clearly, the Bush Administration and the Pentagon did all they could to hush the scandal up and were caught doing so. Put all of that together and you have a recipe for a soaring gold/silver market, which was the case at the end of March when all of the above factors were known to The Gold Cartel, Working Group on Financial Markets, and the Bush Administration. AND, there was little, if anything, any of them could do about these developments. Now, it takes us to one of these entity's worst fears from a financial/political market viewpoint. If the gold market were to explode above $430, it could very likely set off not only the gold derivatives neutron bomb, but one in the interest rate derivatives markets as well. GATA has long held that one of the main purposes of rigging the gold price was to assist The Gold Cartel crowd to control their interest rates derivatives markets, which is a reason JP Morgan Chase has something like 25 trillion worth of these derivatives on their books. Were gold to bolt for $500, there is no telling what it might affect. Simplistically, a soaring gold price would have an impact on the financial markets as the investing/pundit public would cite the rising price as proof of growing US inflation which, in turn, would negatively influence the bond market even further. Every time gold shoots up, we hear talk of inflation in the financial market press. Just the way it is. This scenario has to have had The Gold Cartel and mainstream banking world in a twit. Therefore, a clandestine massive attack on gold and silver was orchestrated by the financial powers in the world. It is the one arena which they could affect, having had almost a decade worth of experience. Collectively, it is obvious as evidenced by: *The
unauthored outrageously negative FT article This all happened around the same time and was well coordinated. This latest assault on gold is so much larger than a simple "conspiracy," we need a more comprehensive description of what has occurred. Gold investors, gold companies, poor gold producing nations have all been taken to the cleaners. It has been a bloodbath. Except in our world, few care. That is about to change in the months and years to come. Why? Because what the "Orwellians" have done to us is going to spread over into the other financial markets. The Gold Cartel has corrupted the gold market beyond belief at this point. In doing so the Goldman Sachs, Morgan Stanleys and JP Morgan Chases have collectively and methodically ripped off your average Joe and Jane in America and around the world. These big New York banks/financial institutions, because of their collusion and inside information, have conducted a kind of class warfare against the average investor. They have stolen from us, hiding behind the sanctions of The Fed and Exchange Stabilization Fund. Their motive, besides greed, is to defuse potential disasters in the stock and bond markets and they will stop at nothing to accomplish their mission. Well, they have lied and falsified information so much it is ALL beginning to fall apart anyway. They are being found out and it is commencing to blow up. Inevitably, the dam is going to break, the volcano going to blow, and it will affect all the financial markets. The little guy average investor won’t know what hit him or her. Remember Enron. It was blowing up for a year. Those who said so were ignored, or fired. This corporation was voted the number one in America year after year by the likes of Fortune and Forbes magazines. Yet, their employees and shareholders were blindsided and left with nothing. That is a fact. Keep in mind the pornographic scandal in Iraq. The only reason for the scandal really surfacing and the subsequent outrage is the pictures were released. The disaster is more than a year old for gosh sakes. Americans are now rightfully outraged on both counts. Too late. The horse is out of the barn. The damage is irrevocable. The lies or denials in each scandal carries the day, which is just what is going on in the gold market. It is time the public be told the truth about the gold price rigging so they can manage their own financial affairs before it is too late there also. You think lies is too strong a term to describe what is going on? Allow me to refer you to some proof captured by GATA’s Andrew Hepburn and Mike Bolser, which is summarized by Australia’s Sid Reynolds. Sid's entire GATA recap can be read at: http://www.lemetropolecafe.com/matisse_table.cfm?cfid=74315&cftoken=84150657&pid=3548 GOLD PRICE MANIPULATION - VERSION 9, 22nd OCTOBER, 2003 #11. IMF has directed CB’s not to disclose how gold is leased/swapped, only total reserves (proof below). IMF have denied this, "This is not correct: the IMF in fact recommends that swapped gold be excluded from reserve assets." Refer http://www.gata.org/bofi.html, and search for "correct". However, numerous member countries/entities have proven the IMF has lied i.e.: • Philippines: "Beginning January 2000, in compliance with the requirements of the IMF's reserves …, gold under the swap arrangement remains to be part of reserves and a liability is deemed incurred corresponding to the proceeds of the swap." Refer www.bsp.gov.ph/statistics/sefi/fx-int.htm, and search for "swaps" • The Central Banks of Portugal, Finland & Italy confirmed in writing that swapped gold remains a reserve asset under pertinent IMF regulations. The staffs of the central banks of Canada, Ecuador, Finland, Holland, and Portugal have also confirmed this. Refer www.goldisfreedom.com/IMFgold.htm, and search for "Finland" • European Central Bank: "Following the recommendations set out in the IMF operational guidelines of … developed in 1999, all reversible gold transactions, including gold swaps, are recorded as collateralized loans in balance of payments and international investment position statistics. This treatment implies that the gold account would remain unchanged on the balance sheet." http://solutions.synearth.net/2003/02/21 This IMF recommendation should not be underestimated. For example, on its balance sheet the German Bundesbank lists "Gold and Gold Receivables" as a one line item. This approach is in direct conflict with Generally Accepted Accounting Principles (GAAP), which the central bank is obligated to follow as per German banking law. Thus, from their published financial statements there is no possible way to determine how much gold Germany holds in its vaults. The refusal of the Bundesbank to provide a breakdown between physical gold and gold receivables belies any notion of market transparency. Clearly deceptive accounting, countenanced by the IMF has allowed official sector gold to hit the market without a corresponding drawdown on the balance sheets of central banks. This has made it impossible for analysts to ascertain the exact size of official sector gold loans, swaps and deposits. The unwillingness of central banks to provide even a minimum level of transparency suggests that total gold receivables are substantially larger than the accepted industry figure of approximately 5,000 tonnes. For several unanswered questions to IMF, refer http://groups.yahoo.com/group/gata/message/903 -END- Just in, more support for GATA's arguments: Dear
friend: 16624.488 ounces of gold from the Central Bank of Spain are
missing from its vaults after 1998. According with the Spanish Tribunal
de Cuentas they are distributed as follows: 5.955.430 Fort Knox.
6.077.211 Bank of England. 4.591.847 BIS. In my opinion they are leased.
This information was published in Diario el Mundo, Monday 1 of May 2001
page 49. Assuming this email is correct, nowhere is this missing Spanish gold accounted for in the official central bank gold statistics. The establishment, via the IMF, is lying to the world about how much gold the central banks have left. The Gold Cartel is surreptitiously bombing the market with leased/swapped gold to maintain an illusion, to continue their fraud, even as the physical gold market is on fire. They are doing so for many of the reasons oft-discussed here. One is to take away the financial market barometer from the average investor. "See," they say, "there is no real inflation, look at the falling gold price. Joe and Jane investor, you don’t need fear inflation will hurt your stock market investments." There is another reason just surfacing, as expressed by two Café members in these emails I ironically received this morning: Bill, Of course, one day (soon, I hope) the Cartel will run out of the metal they need to enforce their agenda and we will get honest markets back. The thing to remember is that the Bullyon Boys can only get their way for a limited time and I don't think it is in their power to permanently sever gold's link to economic reality. It
also seems to me that what we are seeing now in precious metals is the
kind of panic selling that arrives on waves of margin calls and short
sales. If nothing else, this is how markets that don't have some hidden
supporting force act from time to time. Market action like this is never
allowed to happen in the major averages. The plunge protection team is
ever ready to step in when panic, or even serious anxiety, Go
GATA! Bill
Murphy, While the organized, systematic trashing of gold and silver is obviously designed to hide inflation, and to discourage them as potential investments, one might ask, "Why are they doing this just now?" With all the hints of future rate increases so obviously still out on the horizon, why are they trashing gold now? My answer is that more than knocking gold down to discourage the bond vigilantes from moving out of bonds into tangibles is involved. They are preparing the ground for the vigilantes to move into the vastly increased number of TIPS now being issued, instead of into gold, silver and the commodities. That is why I think they are trashing the metals now – to steer the vigilantes into the TIPS when the inflation signaling rate increases occur. Of course, the indexing of the inflation correction factor will remain under the control of, as your quote from Orwell implied, the "Ministry of Plenty's" control, where it can be sufficiently understated to permit the government to continue to pilfer the wealth of the bond-holders (only to a somewhat lesser degree). If you and Mike think there is anything to this, then it would seem to me that an all-out effort to discredit TIPS by highlighting the fraud of the inflation factor to all who will listen is a necessary pre-emption to defend the gold market, and to steer the bond vigilantes back into tangibles, and away from the paper the Fed so obviously wishes to keep them in. A pre-emptive attack on them in retaliation for the pre-emptive attack on gold and silver. Stuart Where I am going with all of this is four-fold:
This is a big breakthrough for us. We need to send copies, with accompanying letters, to the financial press around the world and ask why they are not covering what GATA has learned over the years. Why do they refuse to even mention us, or deal with the inordinate amount of evidence we have amassed concerning the manipulation of the gold price? By suppressing a known scandal, they are just making it worse in the end. Just ask the Enron executives, or Defense Secretary Rumsfeld. Now that "Smart Money Magazine" has brought this subject out of the financial market closet, others might not be so shy about dealing with this very important issue. More to come on this development. Meanwhile, Keep the Faith and remember: GATA BE IN IT TO WIN IT! BILL
MURPHY Appendix To further understand what is going on regarding the financial market storm which is coming, I strongly recommend everyone read what the savvy Jim Puplava has to say in his latest: ILLUSIONS -END- Adrian Van Eck’s commentary will be very helpful also: Adrian
Van Eck's Hotline on Money and the Economy (1 800 219 1333). In order to push its program, China had cut the value of its money in half against the U.S. dollar and then locked it in tightly to the dollar. They did this ten years ago. A few years after they carried out this plan, much of Asia collapsed financially. They had tried to compete with Chinese prices and had lost so much money doing so that they went broke. Indonesia in particular saw 30 years of patient construction of a middle-class wiped out in a few years, and once affluent people fell into the ranks of the poor. The Philippines also suffered mightily. Japan fell into a recession from which it has yet to fully emerge. South Korea also fell victim. For some reason, America praised China because they alone did not then cut the value of their money. It was not recognized that they had done so before everyone else and had triggered all the other nations’ problems and that their plague brought on the Russian and Latin America defaults. American big business, in its greed and ignorance of the fundamental principles of capitalism, fell in love with China’s planned economy and assumed that its workers would put up with slave labor wages and working conditions for two more generations. So dozens and then hundreds of American manufacturing plants moved there. The American Purchasing Managers Association changed its name to the Institute of Supply Management. They began putting out glowing reports on American productivity, production, new orders and employment. Their numbers have grown further and further away not only from the harsh realties of life in America (nine million unemployed, worst since the Great Depression of the Thirties) but even from the Federal Government’s own numbers - which all too often (as in the case of the alleged GDP growth, the CPI and recently the number of new jobs created) have begun to resemble only the vivid imagination of bureaucrats being pressured to come up with the "correct" numbers. Through it all I have watched the way China was absorbing $120 billion in trade surplus and another $50 billion in direct corporate and Wall Street investment per year. For an economy that totals only one and a quarter trillion dollars a year (about one-tenth the size of ours) that was a way-out-of-line sum of money. That money largely went into China’s four big government-owned banks and then was distributed via a constant series of make-believe "loans" (really subsidies) to Chinese corporations, especially the state’s BIG 35. The result was that the banks were increasingly holding worthless loans equal to two-thirds of their deposits, a number no civilized nation can tolerate. Once, twice, three times China announced "reforms" that consisted of gigantic government cash infusions into their banks, to help them get solvent. But bad loans have been building faster than the bailouts. They were getting cash transfusions while bleeding out 1000 holes. Then came the climax. China has few raw materials. To build new factories for Americans and themselves, they purchased iron ore, copper, aluminum cake and a host of other commodities - plus advanced machinery and more recently food to feed the millions of farmers who had flocked to cities and had given up growing foods. The volume of imports grew so high that Japan, Asia, Europe and Latin America were living off China, taking from China the money flowing in from America. I knew it could not last and in a recent Forecast I said so. I predicted that one day soon the bankers would call their biggest borrowers into their office and say: "The party cannot afford these huge subsidies we call loans. You will have to raise your prices to cover at least most of your costs." That is exactly what happened a week ago. Wall Street is desperate to hide the fact that its investments are at risk and that it peddled worthless junk to pension funds and mutual funds. They are using a pile of lies and are claiming all is well in China. I say they are lying. And the proof I have waited for appeared in Barron’s this past weekend. China has been buying U.S. Treasuries to fund a portion of our debt. That alone kept the Treasury from blowing the whistle on them and their big American CEO friends, who have shipped three million jobs to China and falsely called it productivity increases. (The ISM does not ask members where new orders are being produced.) But guess what: American banks have stripped their loan portfolio dry, cutting back every category except purchase of Government securities, which rose a shocking $15.7 billion. Over at the Fed, foreign holdings of U.S. Treasuries (which had been rising by $6 billion a week for a year actually fell by $1.86 billion). And Fed credit, which had only increased by $23 billion in the previous 51 weeks, jumped an astounding $5.7 billion in one week. In addition, the Fed bought outright $753 million worth of Treasury securities. We had been warned over a year ago they could and would do this when it was necessary. Greenspan had flown to Asia and told them he had a bottomless checkbook and a bushel basket and would buy any T-debt they wanted to sell. And Governor Ben Bernanke - a genuine scholar of both the Depression and the decade-long period ending in 1951 when the Fed had printed money and brought as much Treasury Debt as needed to keep both long and short Treasury rates very low, had pledged to send helicopters aloft all over America and dump cash out to the public, the way ranchers drop bales of hay to cattle caught in the fields after a snow storm. SO BRACE YOURSELF. If this is the beginning of the move that I think it is, America will experience a new round of inflation. It will be denied on all sides, as it is being denied now. (I know of no one who believes the government’s inflation numbers. If the real inflation data were subtracted from nominal GDP, it would be seen that both growth and productivity are well below what they claim today.) Nevertheless, while denying there is inflation, the government and the ISM are boasting that prices paid and received by businesses are climbing at the steepest rate in years, and they say this new pricing power has come just in time to save many businesses that were starved for funds before. So forget whether the Fed dropped the word "patient" from its new announcement. And don’t worry about a quarter-point "tightening" at the end of June or the middle of August. You are seeing the first bales of money dropping from Bernanke’s helicopters. Before they are done, true inflation will be up to 8%, although the government will claim it is either 5% or 6%. And everyone in the financial media, especially the Wall Street Journal and Investor’s Business Daily, will brag about how modest and benign inflation is. During this new period of DENIAL, Gold is acting as if there is no inflation and will be no inflation. Well, along with my son Jonathan Van Eck I believe they will be proven wrong about inflation and the value of Gold again today, as they were in late 1979. But this time the surprise will be to the upside. Copyright
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