GATA Claims To Have Evidence Of "Massive Physical Short Gold And Silver Positions That Can Not Be Covered"

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In a letter to the CFTC's Chairman, Gary Gensler, GATA Chairman William Murphy shares the following bombshell:

"GATA has evidence that there are enormous physical short positions
in the gold and silver markets that cannot be covered.
"

Even as the CFTC is meeting later this month to establish position limits in the gold, silver, and other precious metals' markets, it could be none other than the CFTC's core banks, and Mr. Gensler's former Goldman bosses, that form the very core of the biggest market manipulation collusion syndicate in the history of the commodity markets.

Because of the
decades-long interference with the gold market, we estimate that the
free-market price of gold is multiples of the current price. Growing
stress caused by burgeoning physical bullion demand is threatening to
lead to a price explosion, which will restore to the market the balance
that regulation has failed to maintain. In our view, the Comex paper
market will become dysfunctional, with "force majeure" having to be
declared as the concentrated shorts are unable to deliver on their
obligations."

If GATA is not bluffing and indeed has evidence of massively uncoverable physical positions, and should this evidence be made public, the repercussions for the price of gold will be unprecedented.

Full GATA letter to ex-Goldmanite, and Brooklandville, MD resident, Gary Gensler:

March 8, 2010

Gary Gensler, Chairman
U.S. Commodity Futures Trading Commission
3 Lafayette Centre
1155 21st St. NW
Washington, DC 20581

Dear Chairman Gensler:

The Gold Anti-Trust Action Committee (GATA) was formed in January
1999 to expose and oppose the manipulation and suppression of the price
of gold. What we have learned over the past 11 years is of great
importance in regard to the CFTC’s forthcoming hearings regarding
position limits in the precious metals futures markets. Our efforts to
expose manipulation in the gold market parallel those of Harry
Markopolos to expose the Madoff Ponzi scheme to the Securities and
Exchange Commission.

Initially we thought that the manipulation of the gold market was
undertaken as a coordinated profit scheme by certain bullion banks,
like JPMorgan, Chase Bank, and Goldman Sachs, and that it violated
federal and state anti-trust laws. But we soon discerned that the
bullion banks were working closely with the U.S. Treasury Department
and Federal Reserve in a gold cartel, part of a broad scheme of
manipulation of the currency, precious metals, and bond markets.

As an executive at Goldman Sachs in London, Robert Rubin developed
an idea to borrow gold from central banks at minimal interest rates
(around 1 percent), sell the bullion for cash, and use the cash to fund
Goldman Sachs' operations. Rubin was confident that central banks would
control the gold price with ever-more leasing or outright sales of
their gold reserves and that consequently the borrowed gold could be
bought back without difficulty. This was the beginning of the gold
carry trade.

When Rubin became U.S. treasury secretary, he made it government
policy to surreptitiously operate an identical gold carry trade but on
a much larger scale. This became the principal mechanism of what was
called the "strong-dollar policy." Subsequent treasury secretaries have
repeated a commitment to a "strong dollar," suggesting that they were
continuing to feed official gold into the market more or less
clandestinely to support the dollar and suppress interest rates and
precious metals prices.

Lawrence Summers, who followed Rubin as treasury secretary, was an
expert in gold's influence on financial markets. Previously, as a
professor at Harvard University, Summers co-authored an academic study
titled "Gibson's Paradox and the Gold Standard," (see Footnote 1 below)
which concluded that in a free market gold prices move inversely to
real interest rates, and, conversely, if gold prices are "fixed," then
interest rates can be maintained at lower levels than would be the case
in a free market. This was the economic theory behind the "strong
dollar policy."

Federal Reserve Chairman Alan Greenspan understood Summers' research
when he remarked at a 1993 meeting of the Federal Open Market Committee:

"I was raising the question on the side with Governor Mullins of
what would happen if the Treasury sold a little gold in this market.
There's an interesting question here because if the gold price broke in
that context, the thermometer would not be just a measuring tool. It
would basically affect the underlying psychology." (See Footnote 2
below.)

GATA has collected reams of evidence that Western central bank gold
has long been mobilized and surreptitiously dishoarded to rig the gold
market and influence related markets and that this rigging has drawn
upon the U.S. gold reserves.

President Obama has called for greater transparency in both the
federal government and the financial markets. In pursuit of such
transparency GATA has made Freedom of Information Act requests to the
Federal Reserve and Treasury Department for a candid accounting of
their involvement in the gold market, particularly in regard to gold
swaps. In a reply to GATA's lawyers dated September 17, 2009, Fed
Governor Kevin M. Warsh acknowledged that the Federal Reserve has gold
swap agreements with foreign banks but insisted that such documents
remain secret. (See Footnote 3 below.)

As a result, last December GATA sued the Federal Reserve in U.S.
District Court for the District of Columbia, seeking access to the
Federal Reserve's withheld records of gold swaps.

Understanding that the manipulation of the price of gold is
profoundly important to all markets and the American public, on January
31, 2008, GATA placed a full-page color advertisement in The Wall
Street Journal at a cost of $264,000. (See Footnote 4 below.) GATA's ad
warned, "This manipulation has been a primary cause of the catastrophic
excesses in the markets that now threaten the whole world." What GATA
warned against has come to pass.

GATA has long implicated the New York Commodities Exchange (Comex)
as being a mechanism by which gold and silver price suppression is
implemented. The smoking gun is the excessive concentration of bullion
bank positions in the gold and silver futures markets. This
concentration enables market manipulation -- just as market
concentration was the justification offered by the CFTC in 1980 when it
acted against the Hunt Brothers in the silver market.

The weekly commitment of traders report documents the total net
short position of commercial traders in the commodity markets. The
monthly bank participation reports disclose the holdings of U.S. banks
in various markets. In a letter to GATA dated February 19, 2009, Laura
Gardy, a CFTC legal assistant, wrote, "The commission determined that
where the number of banks in each reporting category is particularly
small, fewer than four banks, there exists the potential to extrapolate
both the identity of individual banks and the banks' positions. As a
result, as of December 2009 the CFTC no longer names the number of
banks when it is less than four."

The CFTC has been investigating possible manipulation of the silver
market for more than a year, so this reporting change is disturbing to
us, as it reduces transparency and the ability to uncover market
manipulation.

The CFTC's own reports of November 2009 show that just two U.S.
banks held 43 percent of the commercial net short position in gold and
68 percent of the commercial net short position in silver. In gold,
these two banks were short 123,331 contracts but long only 523
contracts, and in silver they were short 41,318 contracts and long only
1,426 contracts. How improbable is it that these two banks attract most
of the investors who want only to sell short? (See Footnote 5 below.)

It has been possible to extrapolate that the two banks that hold
these large manipulative short positions on the Comex are JPMorgan
Chase and HSBC because of their huge positions in the OTC derivatives
market, whose regulator, the U.S. Office of the Comptroller of the
Currency, does not provide anonymity when it publishes market data. 6
In the first quarter 2009 OCC derivatives report, JPMorgan Chase and
HSBC held more than 95 percent of the gold and precious metals
derivatives of all U.S. banks, with a combined notional value of $120
billion. This concentration dwarfs the concentration in the gold and
silver futures markets and should raise great concern about the lack of
position limits on the Comex.

It is also disturbing to us that HSBC is the custodian for the major
gold exchange-traded fund, GLD, and that JPMorgan Chase is the
custodian for the major silver exchange-traded fund, SLV. It is a
significant material omission to fail to disclose to GLD and SLV
investors that the custodian banks of the two exchange-traded funds
have an interest in falling prices in the futures and derivatives
markets.

Detailed daily monitoring of gold trading reveals these patterns:

1. In recent years gold price suppression has been apparent from the
near-complete failure of the gold price to rise more than 2 percent per
day on the Comex (what GATA calls the 2 Percent Rule) while there is no
corresponding restriction on days when the gold price is falling.

2. At option expiry gold almost always falls to a point where a
large number of call options have been written, nullifying the value of
the options. Typically, the price rallies immediately after option
expiration.

3. The gold price consistently falls at 3 a.m. New York time when
the gold cartel’s traders report to work in London, and again following
the PM gold price fix, when physical market pricing has concluded for
the day, and in the access market following the Comex close.

No other market trades so repetitively.

GATA has evidence that there are enormous physical short positions
in the gold and silver markets that cannot be covered. Because of the
decades-long interference with the gold market, we estimate that the
free-market price of gold is multiples of the current price. Growing
stress caused by burgeoning physical bullion demand is threatening to
lead to a price explosion, which will restore to the market the balance
that regulation has failed to maintain. In our view, the Comex paper
market will become dysfunctional, with "force majeure" having to be
declared as the concentrated shorts are unable to deliver on their
obligations.

We urge the CFTC to report fully and candidly on these markets and take appropriate action.

Sincerely,

WILLIAM J. MUPRHY III, Chairman
Gold Anti-Trust Action Committee Inc.

... Footnotes:

1. "Gibson's Paradox Revisited: Professor Summers Analyzes Gold Prices" by Reginald H. Howe. http://www.goldensextant.com/

2. http://www.federalreserve.gov/monetarypolicy/files/FOMC19930518meeting.p...

3. http://www.gata.org/files/GATAFedResponse-09-17-2009.pdf

4. http://www.gata.org/node/wallstreetjournal

5. http://www.cftc.gov/dea/bank/deanov09f.htm

6. http://www.gata.org/node/7307

 

h/t Jeff