Wasington, DC -- (ReleaseWire) -- 07/31/2015 --DAWN BENNETT: Bill Murphy is the Chairman and director of the Gold Anti-Trust Action Committee, which was founded as a result of Murphy's essays on collusion among large financial institutions to suppress the price of precious metals. Bill, welcome to Financial Myth Busting.
BILL MURPHY: Great to back. Thank you very much.
BENNETT: Last Monday night, just before the Chinese market opened, precious metal—mostly gold—flash-crashed in milliseconds. Do you think this was due to high frequency trading algorithms that were on full tilt?
MURPHY: Well, yeah, it was that in some degree. It all depends on who you think the culprit was. From the Gold Anti-Trust Action Committee's standpoint, it was just part of the same scene we've seen for many, many years. And in April in 2013, over a long weekend when no one was around also, it dropped the price almost $200 in a couple of days, few days. And now, two years later, the same thing has happened. It always happens in the gold pit, and we believe it's a part of the same group that are doing everything they can to suppress the gold price; they've been at it aggressively since 2011 in September.
BENNETT: Underlying fundamentals for holding gold, in an account or under your bed, whatever it may be, remain solid. Prudent individuals increasingly have hedged their portfolios with gold, which should give them a lot more liquidity and stability, but it's not there. Why do central banks balk at that concept? If the price of gold rallies with a flight to safety into the precious metal, does that reflect negatively on central bank policies? Is that why they're balking at it? Is it a financial system stability issue?
MURPHY: Yeah, it's the same sort of issue as it's been for decades. In other words, when gold goes up—think about it, anybody who's talking about the markets, if something's bad, it's too much inflation, bad for the dollar, bad for interest rates, it's bad for the Wall Street banks, it's bad for the politicians; it's a barometer of US financial market health, like it or not. And that's why they're on the case, and we believe it's because things are percolating behind the scenes. They're fairly ugly, as a result of all the QE they've done and so on. I mean, just look at what QE has done and at money printing, and look at what gold has done compared to all other assets, real estate, the stock market, art. And yet, all of a sudden, mysteriously, gold has diverged from all these things, including what the Fed balance sheet has done in the past couple of years.
DAWN: It's been speculated, and we're speculating right now, that our Federal Reserve and other central bankers want to drive down the price of gold to help preserve confidence in fiat and paper currencies like the dollar. Do you think there are any other large institutional actors that have an interest in pushing down the gold price?
MURPHY: Oh, absolutely. It's laughable, because think about all the major banks and all the the billions in fines that they paid over the past years, because of being charged with rigging different markets; currencies, interest rates, Libor, mortgages, even in the oil market. Supposedly, they rig every market. I mean, JP Morgan has paid 30 billion dollars of fines these past number of years, and why wouldn't the gold and silver market be rigged when it has effect on all the other markets and so on, as I expressed? And of course, they've been doing it for a long time.
BENNETT: Despite the fact that the price of gold is falling, demand is actually increasing. The U.S. Mint reports that it sold 143 ounces of physical gold in July alone, the most in a month since April, 2013. Does this surging demand, alongside dropping prices, lend more credence to the idea that the gold price is being artificially pushed down?
MURPHY: Well, we would think so. And of course, the Chinese have been buying very aggressively for years, all the official reports of gold going into that country. And they're able to do it, and we called this group, the Bank for International Settlements, the Fed, the treasury, these billion banks, the gold cartel. That's our term for it. And they just decided to take gold from central banks and feed it into the market whenever they need to hit the price. And they changed their tactics dramatically; from the turn of the century to 2011, gold went up 12 years in a row, then they made a decision to attack aggressively, and they've done it with both gold and silver.
BENNETT: If the mysterious market manipulators out there are the US Federal Reserve and other major central banks and maybe some agents of theirs, the investment and banking community; if they're doing this to gold right now, does that mean that the central banks are signaling to all of us that there are intensifying existing systemic difficulties out there, and they're afraid?
MURPHY: Well, you've hit it right on the money. The way I see it and they way my group sees it, that's exactly correct. Again, think about all the stuff they try to do to stimulate economies and get things going. And things are just, you know, getting by, and interest rates have been near zero forever and everyone's talking about this big change. Well, you know, all of a sudden, things are liable to just hit the wall where they can't control it anymore, and we believe not only that they kept the gold market down, manipulated other markets, as well. I heard you talking about the breadth situation earlier; that's deteriorating, obviously, because they're probably in there, holding up the agencies. At some point, this thing is just going to break. And we've had these things happen before, and the odds are we're coming into a similar situation ahead where there's going to be a lot of chaos.
BENNETT: I was talking with my executive producer before you came on, Bill, and I was telling him, 'My industry's changing overnight. People are leaving left and right. There's no reason to manage money anymore, because there's no reason to have research. You become obsolete, the need for you becomes obsolete.' We've been in this for six years; when is it going to break? When are we going to get back to free markets again?
MURPHY: Well, it's a great point again. It's just having a break out of nowhere, something that we can't see, we don't expect. There's been so much talk of late about the amount of derivatives built up, these financial instruments used to hold all this together, and in fact they have gone up trillions and trillions everywhere. I mean, even just in our world, JP Morgan and Citigroup and the gold arena. And at some point, what they've done to try to hold us together will break, by some event that you can't predict. And it's liable to come in this derivatives arena, and then you get what they call a counterparty risk situation that goes nuclear. One thing affects another, affects another, affects another, and gets out of control. And yeah, it's been going on for some time. There's no way for us to predict it, I can say that, but we think it's getting closer, by what we're seeing in markets and by their aggressive nature with taking gold down; it suggests that they're really afraid of something.
BENNETT: I'm going to go a little technical with you here. The 1080 gold price is actually a multi-decade channel support level, and I believe HSBC actually anticipates not dropping below that. They said they just don't expect another heavy dose of heavy selling in gold. Do you think we're at a bottom? I mean, it's often darkest just before the dawn, so I'm asking that for all of our investors out there.
MURPHY: It's hard to know. What gold has to do fairly quickly to be out of trouble is get above back where it broke down last week, which was at 1130. If it can take that out to the upside—it had a really late surge out of nowhere on Friday afternoon, and I suspect that was some of the people that bombed the market decided they wanted to do some covering. Now, the proof will be in the pudding, and that would be my key thing; get above 1130 fairly quickly and silver can show signs of life—it's been the heaviest acting market I think I've ever seen in 40 years. If that can change, then it could signal a bottom in. And of course, the upside is staggering. Once this thing blows up, as I would call it, with what they've done with the gold price and the silver price and how they mobilized physical gold, that can change dramatically and very quickly this time. It won't be the slow move up that we had the first 10, 11 years of this century; it's liable to be very dramatic.
BENNETT: Because of the pricing where it is today, do you expect more retail investors to take advantage, or do you think they're afraid? The headlines aren't exactly helping their psyche, so I'm curious about that.
MURPHY: That's exactly what the bad guys, as we would call them, are doing. They want to create this kind of a sentiment, and it works. The irony is, the big money is buying. I know this for a fact. I mean, one of the biggest hedge fund managers in the world, an old buddy of mine, Ray Dalio of Bridgewater Associates, came out recently saying, 'If you don't have some gold, you don't realize what's going on.' And he's about as smart as they come in that world and a multi-billionaire.
BENNETT: I'm going to talk a little bit about China. They recently announced, at least we think, a truthful report on their gold stockpile. And even though I think it was less than what analysts suspected, it's still a lot. Do you think China's being truthful about their actual stockpile, and why would they want to downplay its gold holdings? Is that to keep the price down?
MURPHY: Well, I mean, there's no way they don't have probably double what they announced, some 1600 tons of gold. From 2003 to 2008, through my sources, we knew China was buying. It wasn't reported, nobody in the establishment reported it. We were not surprised. This increase the past five, six years has been the same amount as they did back then when nobody never heard about it, and recently there's talk of 500, 1000, 1200 tons a year going into China. So to answer your question, yes, they probably want to buy more. They think much longer term, and so if they can get the price down, keep it down longer, then that's good for the way they see it.
BENNETT: What do you think they're doing that for? Is it because they see systemic weakness to their system, or is this part of a possibility of backing their currency, the yuan, with gold, even if it's by a portion?
MURPHY: I think it's to back their currency with gold, and all of a sudden, there's going to be a dramatic announcement. We don't even-- we're supposed to have 8135 tons in the US, but there hasn't been an audit in 50, 60 years, nobody knows. And all of a sudden, down the road, when they want to do it in their interest, they'll probably come out as the biggest gold holder in the world, and use it again to support their currency and then make it a dramatic statement, yes.
BENNETT: If gold were to truly exist in a free market, without any large outside institutional manipulators, central banks, and so on, what do you think would happen to the price?
MURPHY: Well, if it had just kept pace with inflation, it would be about $2600 an ounce, forget all the rest of the stuff that the Fed has done with the money printing issues and QE and so on. So I would say right now, it would be between $3000 and $3500 an ounce.
BENNETT: With all the effort at keeping gold cheap here, do you think that it's still worth buying for, let's say, wealth preservation liquidity? For whatever reason, do you still think it's worth buying?
MURPHY: Well, I'm prejudiced. Yeah, because I think it's going up when this thing eventually, as I call it, blows up. So this is probably the best buying opportunity we've ever seen, because of what else has occurred over all these years. And at some point, and it's got to be mentioned, they've gone through so much more central bank gold and even physical silver in that arena to keep the price down that eventually they're going to hit the wall and they're not going to be able to stop it. And when it goes up this time, it will explode. And if all heck is breaking loose in other financial arenas, as you've suggested could be happening, then this is a place to have some of your money.
BENNETT: Russia added, I understand based on reports that I read, another 25 tons in June. They've been coming in with those type of numbers almost every single month. What do you think is going on there?
MURPHY: Well, it's interesting, because Andrey Bykov, who was an economic consultant with Putin, has come to GATA's conferences in the Yukon in 2005, and London in 2011. And he knows that GATA knows what we're talking about, and I know after his first visit the price of gold exploded, hundreds of dollars in months, right after he left. So I think they know what's going on. Of course, they're a producer themselves, and they realize what's coming and are doing what they think is the prudent thing to do.
BENNETT: Do you think they view gold as a 100% guarantee from legal and political risk?
MURPHY: Well, the holy shenanigans that go on all over the place in the high political arena, I would think that Putin is a pretty smart cookie. He knows what's going to come down the road, and at some point, his investment in gold's going to be a big deal for Russia. You've got a natural resource country, and he's using it to get greater credibility in what the Russians are doing. And it may not show now, but it will down the road.
BENNETT: Do you think US investors would be wise to follow Russia's example by reducing their exposure to debt and allocating more to physical gold or physical silver?
MURPHY: Well, you know, we're talking about Greece recently all the time, but the United States, you can make a point that we're in worse shape than Greece is, with the US financial market debt and what's going on here, and it just keeps going and going. And at some point, it's liable to create havoc. And the interest rate arena could really be in trouble in different areas. So reducing debt is very advisable at this point, in my humble opinion.
BENNETT: Bill, thanks for your time.
All data sourced through Bloomberg
Securities offered through Western International Securities, Inc., Member FINRA & SIPC. Bennett Group Financial & Western International Securities, Inc. are separate and unaffiliated companies. About Dawn Bennett
About Dawn Bennett
Dawn Bennett is CEO and Founder of Bennett Group Financial Services. She hosts a national radio program called Financial Myth Busting http://www.financialmythbusting.com
She discusses educational topics and events in the financial news, along with her thoughts on the economy, financial markets, investments, and more with her live guests, who have included rock legend Ted Nugent, as well as Steve Forbes and Grover Norquist. Listeners can call 855-884-DAWN a as well as take podcasts on the road and forums for interaction.
She can be reached on Twitter @DawnBennettFMB or on Facebook Financial Myth Busting with Dawn Bennett or firstname.lastname@example.org