Le Metropole Cafe is in full support of The Gold Anti-Trust Action Committee (GATA). In GATA's continuing search for the truth about what is really going on in the gold market, they presented the following centerfold, Gold Derivative Banking Crisis. This was published in Roll Call, a Washington, D.C. publication which is delivered to the House, the Senate, the White House, and many other venues in our country's capital.


An Open Letter to Senate and House Banking Committee Members

Gold Derivative Banking Crisis

Extensive research has led the Gold Anti-Trust Action Committee (GATA) to the conclusion that the gold market is being recklessly manipulated and now poses a serious risk to the international financial system.

Annual gold demand, currently at record levels, exceeds mine and scrap gold supply by more than 1,500 tonnes. In the Washington Agreement of Sept. 26, 1999, 15 European central banks announced that they were capping their lending of gold and would limit their official sales of gold to 400 tonnes per year for the next five years. Some major gold producers have reduced their forward sales, and speculators have reduced their borrowed gold selling. Commodity prices and wages are rising. Yet the price of gold has declined steadily. With demand so much greater than supply, the price of gold should be rising sharply.

According to the Office of the Controller of the Currency, the notional value of the off-balance-sheet gold derivatives on the books of U.S commercial banks exceeds $87 billion, which is greater than total U.S. official gold reserves of approximately 8,140 metric tonnes.

Gold derivatives surged from $63.4 billion in the third quarter of 1999 to $87.6 billion in the fourth quarter, after the Washington Agreement was announced. The notional amount of off-balance-sheet gold derivative contracts on the books of Morgan Guaranty Trust Co. went from $18.36 billion to $38.1 billion in the last six months of 1999.

Veneroso Associates estimates that the private and official-sector gold loans stood at 9,000 to 10,000 tonnes at the end of 1999. Most of these loans represent gold that has been sold in the form of jewelry and cannot be retrieved. Mine supply of gold for all of 1999, according to trade sources, was only 2,579 tonnes. Thus the gold loans are far too big too be repaid back in a short time. The swift $84 rise in the gold price following the Washington Agreement caused a panic among bullion bankers. But that was only a warning of what is to come.

Federal Reserve Chairman Alan Greenspan and Treasury Secretary Lawrence Summers, responding to GATA's inquiries through members of Congress, have denied any direct involvement in the gold market by the Fed and the Treasury Department. But they have declined to address whether the Exchange Stabilization Fund, which is under the control of the treasury secretary, is being used to manipulate the price of gold.

Several prominent New York bullion banks, particularly Goldman Sachs, from which the immediate past treasury secretary, Robert Rubin, came to the Treasury Department, have moved to suppress the price of gold every time it has rallied over the last year.

The Gold Anti-Trust Action Committee believes that U.S. government officials and these bullion banks have induced other governments to add gold supply to the physical market in recent years to suppress the price. Britain's National Accounting Office is now investigating the Bank of England's decision to sell off more than half its gold. Contrary to proper accounting practice, reductions in gold in the earmarked accounts of foreign governments at the New York Federal Reserve Bank are being listed by the Commerce Department as the export of non-monetary gold. These "exports" from the Fed occur upon rallies in the gold price.

Why would anyone want to suppress the price of gold?

1) Suppressing the price of gold has made it a cheap source of capital for New York bullion banks, which borrow it for as little as 1 percent of its value per year. Gold is borrowed from central banks and sold, and the proceeds are invested in the financial markets in securities that have much greater rates of return. As long as the price of gold remains low, this "gold carry trade" is a financial bonanza to a privileged few at the expense of the many, including the gold-producing countries, most of which are poor. If the price of gold was allowed to rise, the effective interest rate on gold loans would become prohibitive. 2) Suppressing the price of gold gives a false impression of the U.S. dollar's strength as an international reserve asset and a false reading of inflation in the United States.

Too much gold is being consumed at too cheap a price. Massive amounts of derivatives are being used to suppress the gold price. If this situation is not corrected soon, there will be a gold derivative credit and default crisis of epic proportions that will threaten the solvency of the largest international banks and the world standing of the dollar.

As you are aware, a 90 page document of our extraordinary findings was personally delivered to your offices last Thursday.

The Gold Anti-Trust Action Committee requests that a full and complete investigation be launched into this matter as soon as possible.

The longer the gold price is artificially held down, the bigger the eventual banking crisis.


Gold Anti-Trust Action Committee, Inc.
Bill Murphy, Chairman,
Chris Powell, Secretary / Treasurer,
Ethan B. Stroud, Attorney at law, formerly Justice Department, Treasury Department
John R. Feather, Attorney at law, formerly legal staff, Federal Reserve Bank
Suite 1203, 4718 Cole Avenue, Dallas, Texas 75205
(214) 522-3411 phone
(214) 522-4432 fax


The Original Roll Call Ad

Le Metropole Cafe is in full support of The Gold Anti-Trust Action Committee (GATA). In GATA's continuing search for the truth about what is really going on in the gold market, they presented the following centerfold, An Open Letter to Alan Greenspan, Chairman of the Federal Reserve Bank, and Lawrence Summers, Secretary of the Treaasury. This was published in Roll Call, a Washington, D.C. publication which is delivered to the House, the Senate, the White House, and many other venues in our country's capital.

Chairman, Federal Reserve System
Secretary of the Treasury

What Are You Doing With America's Gold?

Dear Chairman Greenspan and Secretary Summers:

On July 24, 1998, before the House Banking Committee, and six days later before the Senate Agricultural Committee, Chairman Greenspan made the following statement: "Central banks stand ready to lease gold in increasing quantities should the price rise."

Ever since that comment was made, there has been a growing controversy about whether the Federal Reserve and the Treasury Department have been actively involved in the gold market. There has been speculation that the U.S. government, through your agencies, has been seeking to lower the gold price to rescue certain financial interests, much as the Fed orchestrated the rescue of Long-Term Capital Management last year. Aggressive bullion dealers, hedge funds doing the gold "carry trade," and unwise price speculation disguised as hedging by gold mining companies are most frequently cited as the beneficiaries of this government intervention in the gold price. As with LTCM, there is concern about severe risk to the world financial system, this time because of irresponsible gold lending policies of central banks.

The gold controversy reached the floor of the British Parliament last June 16, after the Bank of England announced plans to sell 415 tons of its gold:

"We cannot allow these rumors to grow, because they are extremely dangerous to public confidence. It has been suggested that the market is very short of gold, that the short positions may be a substantial multiple of the total amount of gold currently held by the Bank of England, and that the bank's real motive is to save the bacon of firms that are running those short positions. If such a suggestion is being made seriously, it must be dealt with authoritatively and definitively, and we want an answer from the government now. ? Quentin Davies, Member of Parliament"

The Bank of England's announcement collapsed the price of gold from $290 to $252 per ounce. But when, on September 26, fifteen European central banks announced that they would restrict their gold sales and gold lending for the next five years, the gold price soared to $337. Word spread that the bullion banks were panicking again.

As if right on cue but in uncharacteristic fashion, the government of Kuwait then announced it was depositing its 79 tons of gold with the Bank of England for lending purposes. There was speculation that the New York Federal Reserve Bank was using all means at its disposal to push the gold price down to accommodate the financial interests that were short gold.

The Question Demands An Answer: Is the government of the United States intervening in the gold market and, if so, why? Chairman Greenspan, we will take you at your own word that you are intervening in the gold market as you said you would if the price rose.

The Federal Reserve Bank's Open Market Committee may have the authority to deal in gold coin and bullion, but all purchases and sales, according to 12 USC 263-359, "shall be governed with a view to accommodating commerce and business."

If, rather, the Federal Reserve Bank or the Treasury Department is depressing the gold price in order to help various and numerous gold short sellers, it is a clear and illegal violation of the bank's purpose clause. The government's intervening to help one side over another in a private contract is illegal, fraudulent and unconstitutional. For the U.S. central bank to use its powers to benefit one class of citizens to the harm of another class of Americans is a gross violation of the Constitution's equal protection clause.

If the Federal Reserve intervened in the gold market after the October price rise as you said you were prepared to do, it was not to accommodate commerce and business, but to accommodate one half of the parties to a private contract who had shorted gold. The other half of the parties to this same contract who bought gold were cheated and deprived of a fair market price, denied the equal protection of the law and cheated of profit potential. It would be an illegal and fraudulent act that was perpetrated by bankers who are unelected bureaucrats reigning like tyrants without legal or political supervision.

The manipulation of the gold market has caused irreparable harm to gold owners, gold companies and gold miners as well as all Americans. It destroyed a free market, depressed the fair value for an important financial asset, distorted the value of gold companies on the New York and American Stock Exchanges and decreased the value of its own and America's gold assets. The Fed's price fixing action should be investigated by the Securities and Exchange Commission and the Commodity Futures Trading Commission. Indeed, the SEC should be concerned that both the gold market and the stock market generally may be constantly manipulated now by surreptitious government intervention. Whatever the policy and practices of the Fed and the Treasury Department are in these respects, this is a matter of the most profound public policy and it should be a matter of public record.


1. Does the Federal Reserve or the Treasury Department, either on their own behalf or on behalf of others, including other government agencies, such as the Exchange Stabilization Fund, lend gold or silver, facilitate the lending of gold and silver, or trade in any securities, such as futures contracts and call and put options, involving gold and silver?

2. If the Fed or the Treasury Department do lend these precious metals, do they do so only on a swap or repurchase arrangement basis, or do they also lend unsecured?

3. What are the credit criteria that a potential borrower needs to establish with the Fed or the Treasury?

4. What credit limits are applied to borrowers? How do they vary between secured/swap lending and unsecured lending?

5. How often are counterparty positions marked to market in these transactions?

6. What happens if market price movements cause the credit limits to be exceeded?

7. Does the Fed or the Treasury have any counterparty credit utilizations in excess of 90 percent of the limit?

8. Have any precious metal-related credit limits been amended other than in credit limit reviews in the normal course of business?

9. Do the Fed or the Treasury Department or any other government agency ever own or deal in derivatives that are connected with precious metals? Do any of these agencies write call options against the Treasury's or Federal Reserve's gold holdings, or write naked call options?

10. Do the above-mentioned credit limits and mark-to-market provisions apply to derivatives as well?

11. Have the Fed, the Treasury, or any other government agency, either directly or through their management of foreign custody accounts, collaborated with the Bank for International Settlements, the Bank of England, or any other central bank with a view to managing, smoothing, or otherwise affecting the market price of gold?

There is also great concern that U.S. gold reserves have been lent or sold. Those gold reserves are a great national financial asset, yet they have not been audited officially since the Eisenhower Administration. So in addition to answering the above questions, we ask you to arrange an independent audit so that the country may be assured that its gold remains in public hands.

Bill Murphy

Chris Powell

Ethan B. Stroud
Attorney at law, formerly Justice
Department, Treasury Department

John R. Feather
Attorney at law, formerly legal staff,
Federal Reserve Bank

Suite 1203, 4718 Cole Avenue,
Dallas, Texas 75205