Manipulation Of The Gold Market

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.

There's a great book called "The Creature From Jekyll Island", that talks about the creation of the Federal Reserve. 7 financial firms along with Nelson Aldrich created the Federal Reserve and manipulate the economy with it. 2 of those banks are Goldman Sachs and JP Morgan. Basically these 2 "boys" can do whatever they want because "daddy" Fed will always be there to bail them out, either in plain sight or in secret. TARP was in plain sight, AIG was in secret (most of the bailout money to AIG went back to Goldman Sachs).

Of those 7 firms, 4 of them are not American. The Federal Reserve has shareholders, and they are financial institutions. Each year the Fed takes in all money from taxes and everywhere else, then distributes 97% to the treasury. But where does the 3% go? And why would an entity that is responsible for controlling a nations money supply and it's interest rates be allowed to have shareholders?

The prevailing theory (some would call it conspiracy theory) is that recessions and booms are artificially created to maximize profits and eliminate competition. That was the original intent behind the creation of the Fed in 1913. The idea was that the Fed would loosen lending controls, which would prompt all banks to start giving out loans to everyone and become highly leveraged. Then a few years down the road those lending controls are tightened, tightening consumer pocketbooks and creating defaults on those loans. A bank becomes insolvent and is quickly scooped up for pennies on the dollar by one of the bigger ones. But the clever big banks would keep the name on the door, giving the illusion of free market competition. Good examples of this are Bear Stearns and Washington Mutual, both of which were bought out by JP Morgan. But the name on the doors are still the same.

Several fascinating books on the fed - one of them tracing the origin of the Fed activities to Willian Penn - that dastardly prime minister of UK, who always used to get elected, due to a sudden surge of good times just before elections (money supply/easy money).