Adam Aljewicz - Dow Jones Newswires

Section:

By Adam Aljewicz
Dow Jones Newswires
May 9, 2001

JOHANNESBURG -- It's around two years since the U.S.-
based Gold Antitrust Action Committee came out and
accused some of Wall Street's finest of conspiring with
the Bank for International Settlements and U.S.
government and Federal Reserve officials to depress the
price of gold.

In those two years GATA has been vilified by market
professionals for peddling harebrained conspiracy
theories -- and this looks set to continue as the
organization prepares to hold a "summit" in Durban May
10 on what is widely seen as the gold market's answer
to "Who shot JFK?"

A lawsuit filed in U.S. District Court Boston
by GATA consultant Reginald H. Howe claims that the BIS,
central banks, and investment houses are coordinating
the sale and leasing of gold and the sale of gold
derivatives to keep the price low, as well as to
prevent losses on gold short positions held by certain
banks.

Bullion banks, says GATA Chairman Bill Murphy, borrow
gold at a derisory rate from the central banks and sell
it on the open market.

As long as prices on the open market stay low, they
make money. But were the gold price to rise sharply
when the loans become due, the banks would have to buy
back the gold at higher prices than what they
themselves originally got in the first place.

"These cheap lending rates become prohibitive if they
have to pay back at higher prices," says Murphy.

And were central bank lending to stop, "it's like the
lid coming off the pressure cookerm, so the bullion
banks keep prices down in order to foster the scheme
they've designed," he says.

What's more, GATA believes that the gold price,
currently hovering just shy of its 20-year lows at
$267.10 a troy ounce, should be nearer $600/oz.

Contrary to what the U.S. Treasury department says,
GATA says it can prove that part of the U.S. Exchange
Stabilization fund -- which at end-March stood at
around $15 billion -- has been used to keep the gold
price low.

"We believe part of it (the fund) has been used as a
slush fund to keep the gold price down and help foster
the manipulation of the bullion market," says Murphy,
who wouldn't be drawn on how the group plans to prove
this claim.

In his lawsuit, Howe, a lawyer and gold analyst, cites
as defendants the BIS, Alan Greenspan, chairman of the
Federal Reserve Board and a director of the BIS;
William J. McDonough, president of the Federal Reserve
Bank of New York and a director of the BIS; five major
bullion banks, including JP Morgan & Co., Chase
Manhattan Corp., Citigroup Inc., Goldman Sachs Group
Inc., and Deutsche Bank; and Lawrence H. Summers,
former secretary of the Treasury, who by law exercised
control over the Exchange Stabilization Fund, subject
only to approval by the president.

Murphy says it all started with former Treasury
Secretary Robert Rubin and the U.S.'s strong dollar
policy, which, claims Murphy, sought to suppress the
gold price in order to keep interest rates down and
give the appearance that inflation wasn't an issue.

"The aim was to keep attention on the dollar, and
diminish the importance of gold as a reserve not only
for the U.S. but in the eyes of governments worldwide,"
says Murphy.

So why do so many market professionals, and market
bulls in particular, scoff at GATA's claims? Murphy
says they can't accept the facts. Market professionals,
meanwhile, think GATA's claims are just too off-the-
wall to be taken seriously, and add that gold's
lackluster performance is simply down to supply and
demand fundamentals.

"These claims don't do the industry any good at all,"
says Paul Walker, gold analyst at Gold Fields Mineral
Services in London, a company that specializes in
research into the gold mining industry.

"GATA is up against the harsh reality that the market's
fundamentals are poor, and this is why we see the price
where it's at, and they can't accept that" he says.

Murphy, unrepentant as ever, concedes he's one of the
"biggest gold bulls around" and waxes with almost
prophet-like zeal about the rally that will occur "when
people finally accept the truth."

"There's going to be some very painful facts
disclosed," said Murphy. "It's going to be bigger than
Watergate."