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Gold shorts are in for a surprise

Section: Daily Dispatches

1p EDT Thursday, June 17, 1999

Dear Friend of GATA and Gold:

Long-Term Capital Management has sent our lawyers a
formal denial of involvement in the gold business,
though its wording is something less than comprehensive.
The following dispatch from Dow Jones Commodities
Service today explains the situation.

As veteran of quite a few libel lawsuits and threats of
lawsuits during my 30 years in the newspaper
business, I can tell you that if LCTM ever presses this
matter into court, anyone it sues will have full access
to its books and accounts, which would be terribly
interesting and no doubt shed much light on those of
the company's practices that were so irresponsible as
to threaten the international financial system and
prompt the Federal Reserve Bank of New York to
arrange a bailout last summer.

I can guarantee you that in everything it does GATA
tries to be more responsible than Long-Term Capital
Management -- and to accomplish that, we don't have
to try all that hard. But if we ever behave as
irresponsibly as LTCM, maybe we can provoke the
federal government's bailout of the gold mining industry.

Secretary, Gold Anti-Trust Action Committee Inc.

* * *

LTCM Rejects Gold Group's Market Manipulation Claims


Dow Jones Commodities Service

NEW YORK (Dow Jones) -- Long-Term Capital Management
L.P. has rejected claims by a group of gold investors
that it was involved in the manipulation of gold

LTCM sent an affidavit to lawyers for the Gold
Antitrust Action Committee, or GATA, in response to
allegations by GATA Chairman Bill Murphy that LTCM was
involved in manipulation of the gold market. GATA sent
a copy of the affidavit to Dow Jones Newswires

quot;None of LTCM, LTCP (Long-Term Capital Portfolio), nor
their affiliates has ever entered into any transaction
involving the purchase or sale of gold, including
without limitation spot, forwards, options, futures,
loans, borrowings, repurchases, coin or bullion, long
or short, physical or derivative or in any other form
whatsoever,quot; Eric R. Rosenfeld, a principal of LTCM and
member of its management committee, said in the

In a cover letter signed by LTCM General Counsel James
G. Rickards, LTCM requests that Murphy quot;take immediate
and effective steps to retract the defamatory comments
regarding LTCMquot; that have appeared on internet sites
and elsewhere.

A LTCM spokesman told Dow Jones Newswires that the
quot;affidavit speaks for itself. We've totally researched
and taken early legal steps to convince this group
that, as far as Long-Term is concerned, there's no
basis for their claim.quot;

The spokesman declined to say whether LTCM would
consider suing Murphy if he fails to retract is

quot;I'm not going to speculate on our next action,quot; he
said. quot;All options are open. quot;

Earlier this year, GATA Chairman Murphy alleged that
LTCM was short 300 metric tons of gold at the time of
its near collapse and that investment banks bailed it
out in order to avoid a spike in the price of gold.

quot;It might have been better to say they were exposed to
the tune of 300 tons,quot; Murphy told Dow Jones Newswires

quot;We never said they did transactions. In essence, what
we've been told is that many people lent them money,
including bullion dealers,quot; he explained. quot;People were
using this method of financingquot; -- the gold carry trade
-- quot;so much that when Long-Term Capital blew up,
everyone was looking at each other and saying: What are
we going to do?quot;

GATA alleges that the gold carry trade is at the center
of what it alleges is gold market manipulation. The
gold carry trade involves financial institutions
borrowing gold at 1 percent interest, selling the gold,
then using the return to invest elsewhere.

The group is alleging that a cabal of unnamed Wall
Street investment houses and bullion banks involved in
the gold carry trade have been manipulating the gold
market to ensure that the price doesn't rise.

As long as the price of gold holds steady or declines,
gold carry trades are profitable. But an unexpected
increase in gold's price would cause borrowers to
scramble for supply, in turn driving the price of gold
substantially higher, and making the cost of the loan's
principal prohibitively expensive.

Murphy says GATA isn't investigating LTCM. But he is
alleging that the fund's bailout is evidence of
collusion in the gold market.

In late April, GATA retained Berger amp; Montague, a
Philadelphia-based law firm specializing in anti-trust
suits, to further its investigation and possibly launch
a lawsuit.

So far, the group has raised more than $80,000, quot;with
more promised or coming,quot; said Murphy.


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