Erik Townsend responds to Chris Powell
by Erik Townsend
April 23, 2010

To be certain, I agree with GATA that investors are better off holding physical bullion than paper promises. I also agree that there is good reason to question whether precious metals markets are being illegally manipulated. Furthermore, I agree with both GATA and Jeff Christian that it is confusing and counter-productive for the industry to use the phrase “physical market” to refer to the LBMA, a marketplace where the vast majority of transactions do not involve the purchase or sale of physical bullion. On these things we agree, and for that reason I described GATA’s charter as an important and noble cause in my article.

In an e-mail I received from GATA’s Chris Powell, he asserts that I have not addressed GATA’s “primary issue, which is gold price suppression”. Quite to the contrary, the whole point of my article was to confront the unfortunate fact that GATA itself is not doing a credible job of staying focused on its own charter (as a watchdog for market manipulation), but has instead engaged in a completely unproductive fear mongering campaign based on utterly false allegations. The purpose of my article was not to question the validity of GATA’s charter. It was to question why they’re not faithfully fulfilling that charter.

As I wrote in the article, GATA is allegedly in possession of damning evidence with respect to the J.P. Morgan concentrated silver short. Instead of staying focused on that critical issue, GATA has focused most of its public relations efforts since the CFTC hearing making baseless claims of “fraud” and “default” on the LBMA, a market outside CFTC’s regulatory jurisdiction. I stand by my original argument that GATA would better serve the investor community by staying focused on the matter at hand.

Immediately after the CFTC hearing, GATA and King World News “broke” the “news” that Jeffrey Christian had made an “extraordinary admission of 100:1 leverage on the LBMA”. This nonsensical allegation is typical of GATA’s conduct. They twisted Mr. Christian’s words completely out of context, and claim he has “admitted” to the existence of “100:1 leverage”. There was no admission and there is no 100:1 leverage. It was GATA, not Christian, who incorrectly used the word leverage. GATA and Eric King act as if shocking new information had been discovered and that Christian had “slipped” by revealing this revelation, which they imply had been previously kept secret from the public. Had GATA instead done some basic research, they would have known this information long before the CFTC hearing. They needed only to purchase Christian’s Gold Yearbook or visit his website, and they would have found this chart, which clearly reveals that the majority of transactions on LBMA are “paper” derivatives:

This is not a revelation. It’s publicly available information! Yet GATA would like you to believe that Christian was a party to some sort of evil conspiracy to keep this information from the public. If that were really his goal, I find it odd that he would publish such a telling chart in his book or on his web site.

In Mr. Powell’s rebuttal to my article, he wrongfully asserts that I have somehow contradicted myself, then goes on to re-emphasize the things we do agree on. Why hasn’t he addressed the substantive objections set forth in my article about GATA’s conduct? Specifically, I don’t think Mr. Powell has addressed these criticisms:

1. GATA and Andrew Maguire have repeatedly insisted that Jeff Christian’s testimony was a revelation, and that it admitted previously unknown information about the ratio of paper to physical transactions on LBMA. Why make these basless allegations when the data is available for free to the public, from the LBMA website, where anyone can sign up to receive clearing reports that disclose the pertinent transaction volumes. It’s been available at www.lbma.org.uk since 1997.
2. Why have GATA and Andrew Maguire repeatedly insisted that Christian “admitted” to the existence of “100:1 leverage”, when in reality the ratio of paper to physical transactions has nothing to do with leverage?
3. Mr. Christian’s testimony confirmed something GATA has expressed concern about: the high ratio of paper to physical gold transactions. Why didn’t GATA use this information responsibly, saying something like “Jeffrey Christian’s testimony confirms GATA’s contention that the ratio of paper to physical transactions has extreme proportions.”? Why does GATA instead insist on using fear-mongering language and assertions of fraud and conspiracy when there is absolutely no evidence whatsoever of any such thing?
4. Why has GATA focused their rhetoric campaign through King World News on LBMA-related issues at all, when the issue that is central to their charter is price manipulation? GATA is allegedly in posession of damning evidence against J.P. Morgan with regard to exactly that issue. So why hasn’t GATA followed Ted Butler’s example and focused their energy on lobbying CFTC to investigate the J.P. Morgan allegations? If GATA believes issues on the LBMA are relevant, they should save them for another day and focus their energies on matters within the jurisdictional purview of the still-open CFTC proceeding.
5. GATA has not addressed Nick Barisheff’s rebuttal of the Organ Interviews. From the Barisheff interview, I conclude that Mr. Organ really had no idea what he was seeing, and probably was an unallocated rather than allocated account holder. If there is any legitimacy to Organ’s contentions, then why has GATA been silent and not refuted Barisheff’s interview?
6. Why hasn’t GATA followed up on the car accident and their insinuations of an assassination attempt? Surely after making such a fuss over this hit and run accident, one would expect GATA to have taken the obvious step of obtaining the police report. Why haven’t we heard anything further from GATA about this?

With regard to LBMA, GATA’s allegations lack basis in fact. I certainly agree that industry jargon can be confusing. In the LBMA market, “selling metal forwards” actually means entering a contract that affords the “seller” the option of either selling real metal or closing the contract with cash settlement before a prescribed deadline. The very notion that a “sale” contract doesn’t include any binding legal obligation for the seller to deliver any physical product is confusing to be sure. GATA would do well to educate investors about how all this works, and to lobby for terminology reform. But instead GATA engages in sensationalism, using words like fraud and default. Those terms have specific legal meanings, which simply don’t apply here. GATA goes on to use financial terms with very specific meaning, such as leverage, in a completely incorrect and misleading way. GATA only adds to the widespread confusion about these markets by making these baseless allegations of wrongdoing when the real issue is simply that the market is complex and poorly understood by many investors. Further complicating matters with sensational insinuations of assassination attempts is outright irresponsible and undermines GATA’s own credibility. We need level-headed Jim Puplava-style education here, not GATA-style sensationalism and false allegations of fraud, conspiracy and assassination.

Mr powell alleges that Christian’s statement “and we don’t help it” referring to the common use of “physical market” to refer to LBMA was a euphemism for deception. Christian never said or remotely implied, through euphamism or otherwise, anything about deception. What Christian said – and I agree – is that the common use of these words isn’t helping anyone. To jump from there to an allegation of intentional deception is unjustified but typical of GATA’s fear-mongering style.

Just as GATA has put words in Jeffrey Christian’s mouth that ne never actually said, they now appear to be putting words in my mouth. Mr. Powell goes on to say:

“after insisting that everybody already really knew what Christian told the CFTC -- that the "physical" market is mostly paper…”

I never insisted any such thing. What I said was that GATA (not everyone) clearly should have known this information, because it is a matter of public record and readily available from LBMA or even from Chrisian’s own book for that matter! Mr. Powell, when you accuse someone of contradicting themselves, you have to cite two contradictory things that person actually said. Proving a contradiction between two different sets of words you put in that person’s mouth even though they never said them doesn’t count!

More to the point, Mr. Powell still hasn’t addressed the fundamental question of how in the world GATA, self-described experts in this field, could possibly have been surprised by information that is a matter of public record and that is, in fact, well-known by experts in the industry.

It would appear to me that GATA’s principals are far less expert than they claim, and that each time they learn something new – even something that is clearly and obviously a matter of public record and easily discoverable – they respond by announcing yet another “scandal” or “fraud” in yet another overly sensational King World News interview. When someone like Christian teaches them something they didn’t know but clearly should have known, they attack that person’s character publicly! How does this serve the investor community? A better approach to dealing with Mr. Christian might have been to approach him after the CFTC hearing and say something nice, like “Hey, we didn’t even realize that 99% of LBMA clearing volume is paper rather than physical. You seem like a smart guy – can you teach us more interesting stuff like that? It would help us with our cause…” But instead GATA insists on making enemies out of people who have done nothing to harm them, and focuses their attention on fear-mongering interviews instead of constructive efforts to reform legitimate problems that exist in the precious metals marketplace.

Mr. Powell ends his missive by implying that I think everything is “just fine” and that concerns over central bank price manipulation are baseless. Nothing could be further from the truth! These issues concern me greatly. To be clear, I do agree that there is evidence of a strong possibility of illegal market manipulation in precious metals, and I agree that a watchdog organization is desperately needed to lobby for market reform and diligent enforcement of existing regulations. But fear-mongering by making baseless allegations of fraud in another market in another country isn’t what GATA should be focusing their efforts on. The CFTC’s public comment period is still open. This is a time to stay focused on the business at hand, encouraging all concerned investors to write CFTC and to keep their communications focused on the relevant facts pertaining to the J.P. Morgan silver short. GATA isn’t helping matters by distracting everyone’s attention from the business at hand with baseless allegations of fraud and scandal thousands of miles outside CFTC’s jurisdiction.

I provided this response to Mr. Powell’s rebuttal of my article at the request of Financial Sense, but my opinion is that there is little to be gained from continuing in this vein. I humbly suggest to all parties that Financial Sense should host a polite, respectful debate between Mr. Christian and Mr. Powell or another representative from GATA. That might allow these issues to be resolved for once and for all.

© 2010 Erik Townsend
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Erik Townsend is a private investor based in Hong Kong.