FSO Editorials

Jeffrey M. Christian Responds to Chris Powell

by Jeffrey M. Christian April 23, 2010
  1. Response to the comments in Chris Powell’s 20 April document.

In his second paragraph, Mr. Powell declares that Mr. Townsend and I have acknowledged that the words “physical market” can be misleading, which is accurate. But then he goes on to make the absurd statement that this is just a polite way of dismissing “something deceptive”. Neither Mr. Townsend, myself, or anyone else ever claimed that the interbank trading that occurs in London only involves spot trading of physical gold for two-days settlement. No one has ever said that, except perhaps GATA themselves. What Mr. Townsend and I have said is not new information! It has been a well known fact for decades, actually centuries, that gold trading in London consists of physical spot deliveries, requiring settlement in two days in physical metal, forwards, options, and other forms of gold trades. Bona fide experts in the industry are well aware of these facts.

The very notion that this was a revelation to GATA and to Andrew Maguire should raise serious questions in the minds of all readers that perhaps GATA and Andrew Maguire are not nearly as familiar with the international gold market as they would like their followers to believe. For GATA to have been surprised by facts that are well known to bona fide industry experts tends to suggests they are not experts in the gold market at all. Mr. Maguire, who says he has been a major trader in London certainly should have known this. He also should have known better to misrepresent my CFTC testimony, as did GATA, by using the term leverage inappropriately. I find it very difficult to believe than an experienced trader would ever have made that mistake.

Mr. Powell then goes on to say that Mr. Townsend says self-contradictory things, when he does not. Throughout his piece, he repeatedly misrepresents what Mr. Townsend wrote, and what others, me included, have said and written..

  1. Comments related to the things GATA has admitted it does not know.

In recent weeks Mr. Powell and his colleagues Adrian Douglas and Bill Murphy have written several commentaries that have laid bare the extent of their ignorance about the markets.

They have expressed great surprise that the 20 million ounces or so of gold that clears through London bullion banks each day includes forwards and other gold derivative contracts, and does not consist solely of physical gold trading on a spot basis.

They made a big deal over a comment that I made at the CFTC hearings that the market uses the term “physical” to refer to the over the counter market. (“Physical” as opposed “futuers” in the market jargon.) I added that the CFTC had not done the market a service when it used the term physical in the same way in its second response to the unsupportable Ted Butler accusations regarding silver. GATA seized on this, alleging that using this term in this fashion amounted to “fraud” on the part of the LBMA. Unfortunately for GATA, the LBMA does not use the term in this way. The problem for GATA is that the LBMA does not use the term that way, at least in its presentations to the public.

If you go to the LBMA’s website, www.lbma.org.uk site, you can see how the LBMA describes the London market. I went today, and not once did I see the word “physical” used in reference to the metal traded across London banks. There are all sorts of comments like the following, which is on the “Loco London” discussion on the website.

“A credit balance on a loco London account with an LBMA member represents a holding of gold or silver in the same way that a credit balance in the relevant currency represents a holding of dollars on account with a New York bank or yen with a Tokyo bank.”

That does not sound like a misrepresentation of what they trade. They do not use the term physical. They speak of a credit balance in an account. It sounds to me as if no one from GATA has ever visited the LBMA’s website.

They have expressed shock that gold held in unallocated accounts are seen as deposits on the books of the banks and dealers holding those accounts, just like money deposited in a bank, and can be lent against. When they realized this, they began to rant against the fact that unallocated gold can be lent out by a bank holding it. They claimed I had admitted that gold in unallocated accounts was a form of fractional reserve banking. It is a form of fractional reserve banking, but I did not “admit” that. It’s a well understood fact in the industry, and was even the subject of a recent FinancialSense interview with another expert guest. No “admission” was involved.

They then went on to rail against fractional reserve banking, implying that it was the root of all evil. They seemed to ignore that fractional reserve banking has made modern life possible, and has been around since at least the time of Christ.

Mr. Townsend has done a commendable job in his article pointing out that the GATA spokespeople clearly misconstrued the concepts of gold market turnover and leverage. I do not need to repeat that.

  1. They have not responded to Mr. Townsend’s comments about their wild insinuations related to Andrew Maguire and other topics.

We have heard little of Mr. Maguire in recent weeks. If he in fact had forewarned the CFTC of a secret plan to whack the silver market, why has not the CFTC said anything? The CFTC has not even admitted receiving any communications from him prior to February. He complained they had not called him to testify. Perhaps they had investigated him and saw reasons why they did not feel he was qualified to testify at their hearing? No one knows and GATA does not seem to be doing anything to prove independent verification of anything he has claimed. Maybe they cannot verify his claims. Maybe they have investigated the claims, and know they cannot verify them. Only they know, and they have been quiet on the subject, like a child caught in a lie.

There has been no follow up about Mr. Maguire’s auto accident. GATA did not seem to find anything of substance from the police in England, or maybe they did not bother to call them to ask. Was he ever really a trader? He has refused to provide reporters any background or independent verification to qualify himself as an expert or an experienced trader. I have never heard of him, and have not found a single gold market trader who claims or admits to knowing him or having ever heard of him. He apparently intimated to one reporter that he had worked at Goldman Sachs, but their alumni records do not list him. Perhaps he is just a publicity seeking person?

Professional journalists following up on the Maguire story appear to be having difficulty corroborating anything he has said, so they have not written about the event. GATA apparently has no ethical compunction about printing incredible allegations without checking them out. It is not the first time GATA has come to the public with totally unreliable sources for its inside information.

The same sorts of questions remain unanswered about Mr. Harry Organ’s visit to Scotiabank in Toronto. There has been no follow up as to where he was and what he saw. Nick Barisheff provided a very compelling interview to FinancialSense refuting everything Mr. Organ said, but there has been no rebuttal or other response from GATA or Mr. Organ since.

  1. Townsend is correct that they have distracted themselves and their loyal followers from their central self-appointed role of focusing on the gold conspiracies to suppress gold prices.

They need first and foremost to focus on that.

In line with that, GATA issued a phony challenge to me to debate them in March 2009. I say “phony” because they posted an item on their website challenging me to a debate, but never directly contacted me or challenged me. That’s not a challenge. That’s a gutless, inappropriate use of my name to try to drum up more contributions.

In their “challenge”, GATA laid out six ‘pieces of evidence’ of gold suppression activity, and dared me to refute them. I have. CPM Group produced a presentation taking each of their six pieces of ‘evidence’ and showing how GATA had twisted the words of other people to distort their meaning. The link is below. These include some of the famous pieces of GATA detritus such as their distortion of what Alan Greenspan said in 1990s hearings about derivatives.

That presentation, which effectively lays bare the extent of Gata’s deceit, is posted at CPM Group’s website, along with a letter to Bill Murphy in response to his deceit-laden performance at last year’s Silver Summit in Spokane. The links are below. There are others at CPM’s website, in the Free Library, which has a subsection of documents related to disproving gold conspiracy theories and also related to silver market conspiracies.



Gata needs to respond. They challenged me to refute six lies of theirs in a factual way, as they would in a court of law. I welcome the debate, because I will insist that we focus on the fallacies GATA has foisted on its readers as proof of a non-existent conspiracy.

The only honest response for GATA would be to plead guilty to lying and misleading its readers for years, misquoting and misrepresenting what people have said. I doubt they are moral enough to do that.

  1. Why I Am Writing This?

In order to understand why GATA does not change its attitudes when it learns something new, one needs to understand what GATA is and what it does.

First, a bit of background. I first met Bill Murphy and Chris Powell on the telephone in the late 1980s or early 1990s. At the time, they had been long and wrong in the gold market. They had lost money by buying gold in a declining market. They started sending letters to executives at mining companies, telling them that there was a conspiracy among central banks trying to suppress the gold price, and that the mining companies should pay GATA to investigate this. As is part of CPM Group’s job as advisors to such mining companies, we provided information and data to the mining companies so that they could respond to GATA’s letters. Ultimately one of the companies got so frustrated trying to talk logically to GATA that it asked me to speak with them. I did. I gave them a lot of insights they clearly did not have. They modified their claims slightly for a few years, but kept on singing the same old song.

Politicians in Washington always say that in politics one must not question the motives of the other side. I think that is wrong. I am not a politician, and never will be. I am not political in my approach to the world around me. People have to understand what GATA is and what its motives are. GATA was founded by people who were long and wrong at the wrong time in the gold market. They soon discovered that they could have a better living standard by scaring investors into donating money to them to wage a campaign to reveal conspiracies all over the place, compared to the losses they were racking up trading gold. In this way, Gata is like the NRA. The last thing the NRA wants is for a government to unequivocally say people can own guns and flaunt them however they want. If that were to happen, the NRA would lose its reason for existence, and all of those lobbyists that work for it would need to find jobs for which they are qualified. So, too, with GATA. Gata’s existence depends solely on keeping investors frightened enough to support them in the lifestyles to which they have become accustomed. If GATA ever proved anything, it would be out of business.

Now, the financial market gives investors plenty of reasons to be frightened and suspicious. We all have seen all sorts of bad behavior from banks. In fact, badly behaving bankers go back to at least the time of Christ, when they would shake down people at the entrance to the Temple in Jerusalem. Believe me, I know. I have worked in the financial district since 1980. During this time I have been a steady critic of many of the excesses of both government regulators and financial institutions. My CFTC testimony made that clear. My record speaks for itself. However, the excesses I have seen are real-world issues and problems. They are not the phantasmagorical hallucinations of GATA’s creation.

Knowing this, I view the audience for this communication as four distinct groups.

  1. GATA. I know that no amount of factual data and information will stop them from continuing mislead investors about the gold market. The only thing that will stop them is when investors get tired of supporting their bad habits and stop funding them. But that’s not my problem.
  2. True believers. There are people out there who see conspiracies all over the place. They have a psychological disposition to believe in conspiracies. When bankers and government officials like Henry Paulson behave badly in public, it reinforces these beliefs. However, I know that no amount of factual data and information will stop these people from believing GATA’s lies. There’s nothing I can do to solve that problem.
  3. Investors. The true believers are investors. However, there are many more investors than there are true believers in these conspiracy theories. The average U.S. gold investor is college educated, has a professional job, has an above-average income, and is relatively intelligent. Surveys have suggested that 90% of these people are neither conspiracy believers nor ‘guns and bunker’ types. In fact, many of them decry the fact that the conspiracies circulating in the gold and silver market detract from these markets, chasing more sophisticated investors away. Buying by those more sophisticated investors would likely push prices higher, which would be good for investors already owning gold and silver. It would be good for me. (It would be bad for GATA, because it makes it harder for it to claim that some mightily powerful conspiracy is suppressing gold and silver prices when prices quadruple.)
    1. Helping this key audience is what motivated me to participate in this discussion.. These are people who, like me, were frightened by what they saw the Paulson Treasury and a handful of bankers do in 2008. They are people who want to invest and invest wisely. However, they see stuff like what happened in 2008, and it gives them great concern. Hucksters like GATA come along and tell them it’s all part of a grand conspiracy. In that environment, they lose their composure and their sense of balance. They start paying attention to the snake-oil salesmen. They take their eyes off of the ball, off of the real market. And then they lose money. If I can help some of these people refocus on what is important and help them make money in the gold and silver markets, both they and I win. That is why I am writing this.
  4. The Core Market. Most of the work I undertake is with major mining companies, refiners, industrial users, institutional investors, high net worth individual investors, central banks, governments, and other entities that have a large financial exposure to commodities, including gold and silver. My company helps them manage their commodities positions. We provide research and advice. As I mentioned above, most of these people try to ignore GATA and the other conspiracy theorists, focusing on what we call the ‘real market.’ That said, they are bothered by the existence of these people. They see them as nuisances. Like the investors I described in the third audience, they suspect that if the gold and silver markets were not populated by people ranting about conspiracies, more investors probably would buy into these markets. That said, most of these people have accepted the presence of conspiracy theorists in the market, and do not see the use of trying to convince people who clearly are impervious to logic and truth of the errors of their ways. However, they would like to see someone call the liars to task, in the hopes that the market could be a more rational place. I am also participating, in part, in service to this audience.

In summary, Mr. Townsend’s article was well-written and levies a number of challenges to GATA, such as asking why they have mis-used the term leverage and accused me of making “admissions” that they assert amount to great revelations, when in fact I have merely stated facts that are well known in the industry and which have been publicly available for years. Mr. Powell’s rebuttal doesn’t even address the numerous valid criticisms that Townsend levies. Instead he tries only to put more words in my mouth, distorting the truth and insisting that my factual statements somehow amount to an admission of “something deceptive.” Readers would do well to heed carefully Mr. Townsend’s numerous criticisms, and to stop listening to GATA until they provide satisfactory answers to the questions Townsend raised and to the rebuttals to their ‘evidence’ that I have presented. That is something they will never do, for one simple reason: They can’t.

© 2010 Jeffrey M. Christian

Contact Information

Jeffrey M. Christian | CPM Group, Founder | 30 Broad Street, 37th Floor
New York, NY 10004 United States | T: (212) 785-8320 | F: (212) 785-8325
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