THE MATTERHORN INTERVIEW – Sept 2016: Bill Murphy &
Chris Powell
“The Gold Cartel Will Have To Retreat Big Time”
In this months’ Matterhorn Interview Bill Murphy and
Chris Powell, co-founders of Gata,analyse risks of the monetary system and
comment on changes to the London Gold fix procedures and participation,
liquidity issues and the difficult relationship between paper (futures) and
physical metals as well why, conveniently, mainstream media ignore the
most popular market intervention methods by Central banks.
17 mins
Lars Schall: Hello, ladies and gentlemen. For Matterhorn Asset Management, I
am now connected in the United States with Chris Powell and Bill Murphy from
the Gold Anti-Trust Action Committee. The first question would be for you,
Bill, and that would be: Why did gold perform so well, so far, in 2016?
Bill Murphy: I think a lot of people — the big money people — have come to the
realization of what’s really going on in the world in the sense of monetary
issues. I mean between the forcing down of interest rates and the growing
debt all over the world. It’s becoming very clear that there’s some very big
problems out there and a lot of the people in the mainstream, they thought we
would get $1,000 gold and never got it, and because of what you’re talking
about, all this investment demand is showing up in the marketplace and you
have of course the Chinese buying like crazy, which we can discuss. All of a
sudden it’s been feeding on itself and you’ve got gold wanting to go higher.
LS: Chris, you’re paying a lot of attention to research papers, and
in one paper or in one essay by Koos Jansen, he pointed out that the
International Monetary Fund says that monetary gold is the only financial
asset with no counterparty risk. (1) Is this interesting in the context of
what Bill has just mentioned?
Chris Powell: Certainly people are going to see that when you have the threat
of bank failures and bail-ins, and when central banks are striving to devalue
their currencies, a currency without counterparty risk has more and more
virtue every day. I’m sure that’s partly why people are buying more of it but
we can’t really know why gold is going up or down at any particular moment
unless we also know what central banks are doing in the market. Central banks
are the primary participants in the gold market. The director of market
operations for the Banque de France, Alexandre Gautier, told the London
Bullion Market Association three years ago that his bank is trading gold for
its own account and the accounts of other central banks “nearly on a daily
basis.” We know from the annual reports of the Bank for International Settlements
that it is trading gold and gold derivatives for its client central banks
constantly. So unless we really know the degree and objectives of that
trading, we only know partly why gold may be going up or down. We may figure
that there are more macroeconomic reasons for ordinary investors and
institutions to hold gold but that in itself may not be enough as central
bank policy is very much involved with the gold price.
LS: Yes, but if we talk about supply and demand dynamics as a
classical reason, why something goes up or down in value, Bill, is the demand
much higher or becoming much higher than the supply of gold?
BM: As Chris said, the real key is what the central banks are feeding
into the market and that’s where GATA got started years ago in understanding
what they are doing to supply the market with that physical supply. In the
last few years they have been able to supply enough to keep the price under
pressure. Look at the Chinese demand — only a year or two ago it didn’t seem
to mean too much at all because they would counter it by taking whatever
supply or wherever they could get to feed into the marketplace, but I think,
regarding what you were saying earlier, that it’s becoming so apparent that
there are some big problems out there, that the really biggest money in the
world wants to own gold. Of course that includes more of the Chinese also and
so you’ve got this demand from people who have not been involved as much in
the past and are stepping up to the plate and they’ve been pretty vocal about
it. I think the reasons for gold and silver to go up are so obvious that it’s
just starting to feed on itself. As I said, one of the keys is the zero or
low interest rates and then with all this debt that’s being created all over
the place, what’s it leading to? I think the big money has concluded it’s
leading to things that are going to create a lot of problems and gold is
going to be the go-to investment along with silver.
LS: Yes. You’re pretty confident when it comes to silver. Why so?
BM: It’s a long story. I know we don’t have that much time but
basically the smartest guys I know, supply-and-demand-wise, David Morgan and
Eric Sprott, have not been able to figure out where they’re getting the
supply from to keep the price so low. It’s ridiculous at below $20 an ounce
and I think it’s caused a situation where JPMorgan and the rest of the gold
cartel shorts have done whatever they could to find whatever supply to feed
into the market and that’s running out. It was tell-tale the way silver
traded at the beginning of the year — all awkward stuff. I can’t get into it
all but like the silver fix was about $14 one day in January. It dropped to
$13.58 for no reason on the fix, then right back above $14. It has
traded very disjointedly. You’ve had the open interest explode to all-time
highs, some 15 percent below the old all-time high. Some big money is
understanding it and very quietly buying up the futures contracts and the
physical supply, and since we’ve noticed this, the price has gone from
basically $15 to $20.5 and now it’s trying to get back above $20. I think
that once we get above $21, it’s going to identify or signify a loss of
control by JPMorgan. If I’m correct, and we’ll find out, the upside action in
the silver market is going to be extremely volatile when that occurs and a
lot of the upside move will be unprecedented in terms of the way the silver
price goes up.
I think the
silver market is going to get very exciting because basically it’s the gold
cartel’s kryptonite, which is a phrase coined by a fellow named James
McShirley, who spoke at our conferences and is an expert in the futures
industry. In other words, it means that silver, to the gold cartel, that’s
their Achilles’ heel in the sense that when they lose control of that and run
out of enough silver, it’s going to be the gradual ending of the gold price
oppression scheme. It doesn’t have to end but they’re going to have to
retreat big-time and you’re going to see the price of both gold and silver
explode.
LS: Yes, and do you think that silver has the potential to outperform
gold?
BM: Yes. I mean the gold/silver ratio is about 67/1 or so and there’s
no reason that can’t get back down to 20 or 30, and because of what they’ve
had to do, JPMorgan could have to go through all the physical supply of
silver to keep the price this low for this long, and it’s going to really
overshoot on the upside to compensate for what has been done here. It’s
sort of like Newton’s Law — for every action, an equal and opposite reaction.
LS: Chris, as I’ve mentioned, you take notice of scientific papers,
and there was one scientific paper recently that vindicated GATA. (2) Please
tell us about this.
CP: There’s a professor of accounting and finance at the University
of Western Australia, Dirk Baur, who rewrote this year a paper he had written
I think last year about gold market manipulation. He incorporated the gold
swaps and leases that central banks have been undertaking in recent years and
he concluded that the gold swaps and leases were now the main mechanisms by
which central banks were manipulating the gold market and suppressing the
gold price. I took this as vindication for GATA — first that the gold price
is manipulated by central banks and that central banks are doing this through
gold leasing and gold swapping as we have been documenting. Now this is a
respected academic in Australia and I don’t expect the mainstream financial
news organizations to take much note of this or anything that inconveniences
the central banks, but this is academic support for GATA’s work.
LS: Now you say that mainstream financial media outlets have some
difficulties in reporting on gold suppression efforts undertaken by central
banks, but is this also true when it comes to private commercial banks like
Deutsche Bank?
CP: Well, not so much. The ordinary commercial banks, they can be
reported on critically especially when they settle complaints of misconduct
by government regulatory agencies or when they are sued by investors.
Deutsche Bank, of course, has been sued in the class-action lawsuit in the
United States over gold and silver market rigging and reportedly has
acknowledged rigging the gold and silver markets in collusion with the other
defendants and reportedly has agreed to cooperate with the class-action
lawsuit. We don’t have this directly from Deutsche Bank itself. We have this
only from the plaintiff’s lawyers, but Deutsche Bank has not contradicted what
the plaintiff’s lawyers have announced, so I’m sure that it’s true to some
extent. The question is whether this class-action lawsuit will ever be fully
authorized by the court to proceed, whether it will go into settlement
negotiations. We don’t really know. This could take a long time.
LS: Meanwhile, the gold market in London undergoes some changes.
Bill, are these changes that you can believe in?
BM: Well, what does it mean really? It’s all about obfuscation. They
never get to the real deal. We talked earlier about how there’s no free press
about whatever’s really going on in the gold market. I think that the tale of
the London situation was the Rothschild’s, who have been in the gold fix
business for hundreds of years and got out in 2004 because they knew. They
think big-picture. They know what is coming down the road and this thing sort
of blowing up. It’s going to be a mess, and there’s all kinds of issues that
have to do with unallocated accounts and so on, and it’s just a matter of
time. So whether it’s JPMorgan and HSBC and Goldman going back and forth,
they’re all the same crowd.
LS: Yes, but would you say that N.M. Rothschild withdrawing from the
gold fix shows that they are smart people?
BM: Absolutely (laughing). They didn’t get their reputation for no
reason and they know what’s coming down the road. We talked about this years
ago and sure enough, it’s starting to get messy and this is just the
beginning.
LS: Now, you’ve mentioned that China buys gold big-time, and what is
your comment on this as far as GATA is concerned? I think you are watching
this with some special view.
BM: In my own report to our sources, we reported that China was
buying gold at the beginning of the decade for five years before any of this
buying was accounted for by the mainstream gold world. We said China is
buying through different sources and all of a sudden they announce they’ve
bought 500 tonnes, so they’ve been on this gold case for a long time. Nobody
knows really how much they have but they know what’s coming down the road too
and they’ve been gearing up for it and of course they think longer-term than
we do in the West, and all of a sudden it’s going to be stunning how much
gold they own. We know they are the major producer now and when gold becomes the
cornerstone of the monetary system again — more important because other
currencies are in such trouble — they’re going to be king of the hill.
LS: Now, you said that gold will take center stage at one point.
Chris, is GATA a supporter, an advocate of the gold standard?
CP: No. Our position is that we want central banks completely out of
the gold market. We want any trading they do in gold to be completely
transparent. Of course the problem, if you take the position we do, is that
if central banks ever get out of the gold market and the gold market trades
freely, the world very quickly will return to gold because gold’s price will
no longer be suppressed by government and gold will be seen as the superior
currency. I think if you are an advocate of the gold standard, you will get
the gold standard by default if central banks get out of the market and just
stop manipulating it because if gold is ever allowed to trade freely, the
gold price will go way up and the world will return to gold by itself.
LS: So in order to have a gold standard, you don’t have to have an
institutionalized gold standard?
CP: I think you just have to get governments out of the gold market.
LS: OK. Last question for both of you. Are the best days for gold yet
to come?
CP: (Laughing) The whole history of mankind has been what they call
the ascent of man. If you believe as GATA believes in free and transparent
markets, limited and accountable government, democracy, and individual
liberty, then gold will have a very big place in achieving those things. We
will return to free and transparent markets and people will have a choice in
currencies. I think they will resort to gold when government currencies are
managed irresponsibly and, yes, then gold’s best days are ahead along with
the best days for liberty and freedom and democratic accountable government.
I’d like to
believe in the ascent of man even now.
On the other
hand, George Orwell wrote in “1984” that if wanted to know the future, just
imagine a boot stomping on a human face — forever. So that’s another view of
the future. I really don’t know which future we’re going to end up with. I
know which side we’re working for.
LS: Yes. OK, Bill, what do you see in the crystal ball?
BM: Well, of course GATA’s point is that the price of gold has been
artificially suppressed, as Chris said, by this gold cartel, by the central
banks, and so on, and they’re gradually losing control of this thing because
of physical supply. It’s a matter of this thing becoming a pressure cooker and
blowing up and all of a sudden the worst nightmare of the establishment and
this gold cartel is gold exploding because it’s like a barometer or
thermometer of how the financial world is, and gold going way up. We think
about the headlines always. It’s always negative for the markets and economy
and so on. It’s always bad news for the politicians and for the bankers, so
they want to keep the price down. It’s really simple, so when it goes up,
it’s bad, and I think that because of what they’ve done, keeping gold down
way too low, it’s going to explode. So for the people who talk about these
bigger numbers — $3,000, $5,000, $10,000 — I mean they’re coming. I think
that will be a surprise to the investment world, so people who are buying now
— this big money we were talking about earlier — I think they know what’s
coming and they’re getting involved before the public finds out really what’s
going on.
(1) The IMF
classifies monetary gold in such a way.
(2) See: Vindicating GATA, academic study says
central banks rig markets with gold lending | Gold Anti-Trust Action
Committee
Bill Murphy,
chairman of the Gold Anti-Trust Action Committee, GATA (www.gata.org), grew
up in Glen Ridge, New Jersey and graduated from the School of Hotel
Administration at Cornell University in 1968. During his senior year he broke
all single season Ivy League pass receiving records and was Honorable Mention
on the All-America Football team. He went on to become the starting wide
receiver for the Boston Patriots (now New England Patriots) in 1968. Later
Murphy went on to a career in the futures industry as a commodities broker.
Early on he worked for Shearson Hayden Stone and Drexel Burnham before
starting up his own introducing brokerage on 5th Avenue in New York. In 1998
he opened up www.LeMetropoleCafe.com, a financial market website geared to
the gold market.
Chris Powell,
secretary/treasurer and director of the Gold Anti-Trust Action Committee
(GATA), has been managing editor of the Journal Inquirer, a daily newspaper
in Manchester, Connecticut, since 1974. He began working at the paper when he
left high school in 1967. He writes a column about Connecticut issues that is
published in a dozen other newspapers in the state and Rhode Island and often
appears on radio and television public-affairs programs in Connecticut. From
2004 through 2009 he was legislative chairman of the Connecticut Council on
Freedom of Information. In 2006 he was inducted into the Academy of New
England Journalists by the New England chapter of the Society of Professional
Journalists and the New England Society of Newspaper Editors.
In 1998, Chris
Powell and Bill Murphy founded GATA, which is recognized by the U.S. Internal
Revenue Service as a tax-exempt educational and civil rights organization.
Follow this link to Listen to the GATA interview