Metal Bulletin - Buried Treasure
By Josephine Mason
September 12, 2004
Bill Murphy is fired up. He's been fired up for a good five years now -- ever since he claims to have unearthed evidence that the price of gold was being suppressed by a gold "cartel," operated by global financial institutions, including the U.S. Federal Reserve and the International Monetary Fund.
But his latest assault came on September 3, immediately after UBS precious metal analyst John Reade speculated that central banks might reduce their gold sales over the next five years under the new Central Bank Gold Agreement to half the 500 tonnes they agreed.
Murphy reacted to the news in his usual explosive manner, telling his followers that a reduction in gold sales is yet further evidence that the central banks are running out of gold reserves.
"The Gold Anti-Trust Action Committee has predicted that the Gold Cartel is going to hit the wall and won't have enough of their surreptitious gold to go around any more to keep the price down much longer," he said. "The UBS report ... is a first sign that day is very close at hand: that The Gold Cartel is in deep trouble and it has created rumblings in the central bank world."
He described it as a "very big deal" that could push the gold price up some $60 or more from current levels of around $400 per oz in a matter of weeks.
And that is still a long way from where the gold price should be, according to Murphy. He reckons that once the Gold Cartel and its "nefarious" activities are revealed, the yellow metal will shoot toward $1,000 per ounce, given that all the fundamentals -- greenback weakness, massive U.S. twin deficits, and turmoil in Iraq -- are in place for such a rally. Some of his more fervent followers even consider $4,000 per ounce more realistic.
"The price of gold should already be north of $600," he tells MB. "I expect it to go well above $1,000 per ounce."
And Murphy lays the blame squarely at the door of global central banks, including the U.S. Federal Reserve and the European central banks.
He concludes his commentary with: "Once the psyche really turns in the investment world on the central bank issue, look out above!"
Murphy is fanatical about gold. "I get worked up. It's part of my nature," Murphy says from his home in Dallas, Texas.
Murphy, who has been crowned "King of the Gold Bugs" by some in the industry, has been a staunch advocate of gold for some 30 years.
After graduating from the School of Hotel Administration at Cornell University in 1968, Murphy played professional American football for the Boston Patriots. He then began his career in commodity trading as a Merrill Lynch trainee before working for brokers Shearson Hayden Stone and Drexel Burnham.
He formed his own introducing broker firm in the mid-1980s and in 1998 he turned his back on Wall Street and launched his gold-focused website, LeMetropoleCafe.com.
But Murphy and fellow gold bug Chris Powell, a Connecticut newspaper editor, first came into the public eye when they founded the GATA in 1999, a crusade aimed at exposing the illegal price-fixing "cartel" that, Murphy claims, has been controlling the price of gold since the 1990s.
Running the LeMetropole website is now Murphy's full-time job. The aim of the venture was to create a virtual café for gold investors similar to the French cafes of the early 20th century, where intellectuals and artists met to discuss the pressing issues of the day.
And if his membership numbers are anything to go by -- he has a paying membership base of around 3,500 people -- he seems to have been successful in creating a lively community of fellow gold bugs.
Members of the café receive daily economic and financial reports from five financial commentators: Murphy calls them his "economic dream team." They are then given the opportunity to discuss the issues in forums on the Internet.
"The Minds of LeMetropole" are indeed prolific writers, posting missives to their following that never miss an opportunity to rail against the alleged conspirators, naming the bullion banks the "Goon Squad."
Above all, the postings recommend investors buy the precious metal so that they can benefit from the spike in prices that Murphy believes is inevitable once the alleged manipulation is exposed.
He himself has invested every penny he has in gold and silver shares and some bullion, which is worth around $2 million
Murphy works in his spare time to promote and raise funds for GATA aimed at publicising his conspiracy theory. Originally, the movement wanted to bring down the establishment through a lawsuit and funds went towards those costs. According to Murphy, GATA has received a staggering $480,000 in donations from individuals and gold corporations since its launch in 1999.
"The South African gold producers have been especially helpful," Murphy says. "Years ago a number sent us between $10,000 and $70,000. I would guess around 40 companies in total have made contributions to GATA."
Staunch GATA supporter Reg Howe filed the suit in 2000 against the Fed, several banks, Federal Reserve Chairman Alan Greenspan and then-Treasury Secretary Lawrence Summers for their alleged manipulation of the gold market.
Howe, who was described by one industry analyst as "ferocious," had his day in court but the case was thrown out on a series of technicalities.
There has been no sign of another lawsuit from Howe since then, and Murphy has dedicated his time to spreading the word of GATA at gold industry conferences and through his commentaries.
He is, according to people who have seen him speak at his own conferences, a charismatic performer, exuding an almost-religious fervour in his belief in gold as a vital asset in any investor's portfolio and in his conspiracy theory.
"He's all: 'The day is nigh: buy gold before it's too late,'" says one observer who saw him speak at a GATA conference. "He's like a preacher and the audiences have a messianic vision. He can really pull a crowd in."
But it is an emotive issue and one that generally provokes ridicule and derision from the gold industry. Analysts variously describe GATA and its members as "loons," "crazy," and "raving mad."
When asked for his opinion on Murphy, one high-profile London gold analyst even quips: "What? Printable thoughts?"
"If you believe it, then the moon's made of cheese," he adds.
With irrepressible anger and incredulity that the mainstream does not agree with his theory, the former football pro stands his ground with grim determination.
"They have no backbone, no great leader," Murphy says of his critics. "They're afraid of the central bank governors and banks. They're doing business with banks" involved in the alleged conspiracy.
After the failed lawsuit, GATA hit the headlines again this summer after well-known Canadian market strategist John Embry of Sprott Asset Management issued a 71-page report that said there is a core of truth to the claims that gold is being "managed" by central banks and financial institutions.
Embry is a long-time supporter of GATA and the report largely draws on GATA data, but his endorsement is viewed as the new jewel in the movement's crown.
With his usual fighting talk, Murphy told Metal Bulletin after the report was published in August: "Things are finally starting to happen. The battle is still on."
GATA disciples are mostly members of the public without ties to the investment community. One critic said his followers come from "deeply conservative middle America that does not trust paper or the government."
Unsurprisingly, Murphy is shouting about the report from the rooftops.
"To believe that central banks and bullion banks have worked together for years to keep the gold price down no longer puts you on the fringe in the investment world," he subsequently told his followers. "The Sprott study reflects the growing conviction among mainstream investment professionals that the banks have been playing with the gold market to mask their recklessness with the world economy."
He and his team of researchers have gathered evidence to prove that central banks have acted in concert as part of a government-sanctioned plot with certain investment banks to manipulate the price of gold.
Central banks are thought to have intervened in the gold market in the late 1990s to prevent a meltdown among bullion banks as the gold price ran up.
Central banks strategically timed announcements of large sales of gold to coincide with a rally in the gold price with the specific aim of supporting the value of the dollar. A strong gold price might encourage foreign investors with dollar-denominated assets to sell in favour of gold.
GATA cites the Bank of England's well-publicised announcement of a sale of 415 tonnes of gold in early 1999 as evidence that the central banks deliberately manipulated the gold price that was on the brink of a rally. Gold lost $30 in value on the news to $260 per ounce.
It is widely understood that uncoordinated central bank gold sales unnerved the market and pressured prices. And it was for this very reason the original Central Bank Gold Agreement, also known as the Washington Agreement, was signed in September 1999.
The industry considers the agreement as having been fundamental in stabilising the price of gold when equities were a more attractive investment vehicle during the dot-com boom.
"The agreement provided sufficient certainty as to the volumes and timing of sales, thereby helping to minimise their impact on the price," UK-based precious metals consultancy GFMS said in its April Gold Survey.
The tone of the latest pact, first announced in March, was similar. "Gold will remain an important element of global monetary reserves," the banks said jointly.
The World Gold Council also welcomed the new terms. "We believe this reaffirms the confidence of the central banks in the future of gold as a reserve asset," it said.
But GATA dismisses these proclamations as a cover up because the signatories are involved in the "cartel."
GATA follower James Turk responded to the central bank statement with a commentary on March 15 entitled "Eight reasons to ignore the new central bank gold agreement."
Central banks "operate in secret, and any pretence of openness is just a sham," he wrote.
But the GATA conspiracy is more complicated than just the timing of these gold sales.
Murphy also believes that the central banks have never actually sold the gold but have instead been involved in "carry trades" whereby they lend gold reserves at a low interest rate to the bullion banks, which have in turn sold or lent the metal out at a higher rate.
As the theory goes, the Gold Cartel has had to continue selling gold reserves, despite running low, to suppress the gold price and prevent the chaos that would ensue should the loans be called in with a strengthening gold price.
And the central bank reserves are now dangerously close to running out, with GATA estimating stocks at only 16,000 tonnes.
According to consensus estimates calculated by GFMS, central banks hold significantly more -- around 32,000 tonnes of gold -- and have lent out only 4,000 tonnes, the bulk of which has been used for hedging purposes.
Market participants concede that "carry trades" were probably carried out but not on the size and scale of the GATA claims.
"In 1998-99, there was some of it going on," says one London analyst. "But there was several hundred tonnes of gold in activity, not several thousand tonnes."
GATA's detractors also say GATA is very selective in its use of statistics and twists facts to fit its theory. In fact, some have long since given up even debating the allegations with Murphy and his clan. Analysts say attempts to discuss the issue simply degenerate into mudslinging and personal snipes.
"The government agencies have said there is no conspiracy," one seasoned industry analyst observes. "The U.S. Federal Reserve gives reasonably detailed information on U.S. gold holdings and locations. But GATA alleges that these people are lying."
"How do you have a debate" about that, he asks.
Another London-based analyst voices concerns that Murphy and his clan could actually damage the precious metal's reputation as a long-term valuable investment tool.
"We chuckle at them, but they've done damage," the analyst says "People think: 'If this is the quality of the investors [in gold], then gold must be pretty marginal."
However marginal Murphy may be, he is not going to be deterred until his theories are proved right.
"We are waiting for the right opportunity to move next," Murphy says. "For the moment, we are doing what we can to get the press and gold companies to read the Sprott Report on gold."
In the meantime, he has a busy schedule. He will be speaking in Toronto in early October and has a GATA luncheon planned for the middle of November at the New Orleans Investment Conference.
Undoubtedly, all this will be handled with gusto and dedication to his cause. After recovering from one particularly heated conversation with Metal Bulletin, he says: "I am much calmer today. Disgusted at the bad guys as usual, but calmer."