GATA - Gold Anti-Trust Action Committee

GATA is an organization whose aim is to investigate, expose and oppose collusion in the price of gold and related financial instruments.

The Gold Anti-Trust Action Committee (GATA) alleges that the quantity of gold that is held and traded by central banks and other international institutions is considerably overstated and that prices are artificially kept low. It also claims that this gold cartel systematically sells gold on the market from central banks in order to contain its price.

History of GATA

GATA was established by Bill Murphy, a financial commentator and former employee of Merrill Lynch, and Chris Powell, a newspaper editor. Murphy stated in his essays that since 1995 there has been collusion among the world’s biggest financial institutions aimed at suppressing the price of gold. Powell replied with essays urging investors and gold mining companies to bring lawsuits against the institutions controlling it. Readers responded to the essays favorably, and in January 1999 GATA was formally created in Delaware, as a corporation advocating for and helping to bring lawsuits against the companies controlling the supply and demand of gold. Today Bill Murphy is chairman of GATA and Chris Powell is secretary.

GATA’s Activities

From 2008 to 2009, GATA tried to gain access to the Federal Reserve’s records related to gold. In February 2011 the courts decided that most of these records should remain secret, but allowed one to be published – the meeting minutes of the G10 Committee on Gold and Foreign Exchange that took place in April 1997. They included a discussion about how to coordinate policies on the gold market.

GATA also tried to force the US Government to reveal how much gold is held at Fort Knox – the United States Bullion Depository. As of May 2011, this case remains open.

GATA has collected and published documents stating that treasuries, central banks and other financial institutions do intervene in the gold market, attempting to control its price. Since its inception, it has held four international conferences: in Durban, South Africa in 2001, in Dawson City, Canada in 2006, in Washington, D.C. in 2008 and in London, UK in 2011.

GATA members believe that huge short positions in gold are taken by many institutions. According to them, 10,000 tons or more of gold have been sold short, while the yearly supply is only about 2,500 tons.

On March 23, 2010, Andrew Maguire, a gold trader from London, in a series of emails with the Commodity Futures Trading Commission, gave some evidence confirming GATA’s allegations. In a message sent on February 3, 2010, he correctly predicted price movements (supposedly due only to manipulative transactions) that took place two days later. Later that year, in a court hearing a former trader at Goldman Sachs revealed that the London Bullion Market Association (LBMA) trades 100 times the amount of gold it holds physically. This confirmed what GATA previously suggested – that the quantity of gold on the market is significantly overstated and thus the price is kept low. The naked short in the gold market has been called the world’s largest Ponzi Scheme. GATA fears that if the demand for physical gold were to suddenly increase, we could witness “the biggest bank run in history” that could cause the collapse of the U.S. Dollar and other currencies.

Criticism

Many analysts call the allegations made by GATA “conspiracy theories” and “far-fetched”. It is also described as a “one-man show,” even though other GATA members play an important role.

“The bullion banks have sold far more metal than they can deliver, and more and more customers are asking them to deliver. This has led to back-door bailouts and cover-ups. Anyone who has "unallocated" bullion should be very concerned. The LBMA itself describes owners of "unallocated bullion" accounts as "unsecured creditors." That means that the account holder has no collateral or title to any bullion.”

Metal Leasing

Metal leasing – as reported by GATA – is a source of profit for many central banks. Central banks act here as lenders; bullion banks, like J.P. Morgan or Goldman Sachs, as middlemen; and mining companies as borrowers. Central banks, who possess large quantities of gold or silver, lend the precious metals to bullion banks, who promise to repay them from the future production of mining companies. Mining companies can use or sell them until repayment. Metals are offered by central banks on a loan with an interest rate equal to the lowest interest rate.

There is a difference between metal leasing and other types of leasing. The leased item always has to be returned eventually. Borrowed metal also has to be returned, but it doesn’t have to be the exact same bar of it. Therefore the leased metal can be sold on the market and the proceeds may be invested in higher yield investments (unless, of course, gold rises considerably, which has been the case in recent years). T-bills and government bonds have higher yields than the interest on leased metal. Thus the bank can make guaranteed profit. However this arbitrage can only work if the price of gold doesn’t rise dramatically. Metal leasing results in the appearance of an oversupply of gold or silver on the market. Consequently, it drives their prices down.