Transcript of Murphy interview


11p EST Tuesday, December 21, 1999

Dear Friend of GATA and Gold:

Charles Peabody of Mitchell Securities, one of the few
financial analysts who called the rise in interest rates
exactly right this year, as well as the weakness of bank
stocks, has just recommended purchase of ... gold.

Peabody sees the Federal Reserve's Y2K timidity in the
face of inflation, cites the continued rise in interest
rates, and advises his friends to accept from the
central banks their Christmas gift of cheap gold.

Peabody pretty much endorses GATA's case here. We
couldn't be in the company of a more sober, conservative,
insightful, and accurate writer.

His latest advisory follows, borrowed from GATA Chairman
Bill Murphy's web site,

Please post this as seems useful.

CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.

* * *


By Charles Peabody
Mitchell Securities
December 22, 1999

The three kings (central bankers, producers, and
financial hedgers) have come bearing gifts -- gold at a
cheap price. So I'd like to take the other side of that
trade and "receive."

My position has been that the Fed would be dragged into
a tightening mode, kicking and screaming, by the bond
vigilantes. And thus I am not surprised by the bond
market's negative reaction yesterday to the Fed's
decision to leave interest rates unchanged while
maintaining a neutral bias. The bond market smells
inflation and the Fed's decision to drag its feet now
(because of Y2K fears) means only that the incipient
inflationary forces will become even stronger in the
first half of 2000.

Thus I reiterate my belief that bond yields will sport
a 7 percent handle in the first half of 2000 and that
interest-sensitive sources of income will continue to
be a source of negative fundamental surprises for the
banking industry. I continue to recommend the sale of
Bank of America (BAC $49), Chase Manhattan (CMB $75),
Fannie Mae (FNM $62), First Tennessee Corp. (FTN $28),
and J.P. Morgan (JPM-$128).

To the extent that the Fed increasingly finds itself
behind the curve in its fight against inflation, I want
a hedge against this political foot dragging.

For me, that is gold.

Bill Murphy, patron of Le Metropole Cafe
(, to which I am a contributor,
has done a good job of exposing the fundamental
imbalances in this market. I would like to add my 2
cents' worth, as viewed through the banking system.

The recent spike in gold shows the kind of volatility
that can be created when a market is not in balance and
a catalyst is revealed. In the case of gold, there are
two possible catalysts -- inter-connected -- to another
move up in the first half of 2000; that is, a weakening
U.S. dollar and more visible signs of inflation.

But a catalyst can provoke a reaction only if there is
a fundamental imbalance. Evidence of an imbalance in
the gold markets can be seen in the U.S. banking
industry's gold derivatives activity.

During the third quarter of 1999, the notional value
for gold contracts increased an amazing 36 percent from
second-quarter levels. Almost three-quarters of the
increase (in consecutive quarterly activity) was in
short-term contracts, suggesting to me that stopgap
measures were taken in panic fashion during third
quarter of 1999 to hedge against the spike in gold.

In other words, the marketplace was net short gold in a
phenomenal way and needed to cover. But to the extent
that the steps taken in September 1999 were short-term
or stopgap measures, then there is still another day of
reckoning to be had before October 2000 (when these
contracts mature).

It is also worth noting that Chase Manhattan and J.P.
Morgan experienced the largest dollar increases in the
notional value of their gold derivative contracts,
suggesting that they were the two banks most tied into
the hedging practices of the marketplace.

Even more noteworthy was the dramatic rise in gold
derivative contracts at CMB and JPM with maturities of
greater than five years. Even by the Office of the
Controller of the Currency's own admission, contracts
with maturities longer than five years house the
greatest market and credit risks.

In short, for CMB and JPM, the stakes are high if the
gold market does not maintain some sort of orderly
state. I believe imbalances, as reflected in the huge
jump in the notional value of gold derivative
contracts, will lead to even greater volatility in the
year ahead.

It is my expectation that this increased volatility
will be resolved to the upside in terms of price. Thus,
I recommend the purchase of gold (spot, $287.50).