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As some of you may know, the premise of my
organization, the Gold Anti-Trust Action Committee, is that Western central
banks, and particularly the U.S. Treasury Department and Federal Reserve,
have been manipulating the gold market for many years through several
mechanisms -- outright sales of gold, leasing of gold, and underwriting the
issuance of gold derivatives, essentially backstopping the short positions in
gold that have been taken by their agents, the big investment houses that
also work as bullion banks.
GATA has documented this extensively at our
Internet site, GATA.org. We are not a "conspiracy theory"
organization. Rather, we compile and publicize public records confirming or
tending to confirm the manipulation of the gold market.
Why is the gold market manipulated by Western
central banks?
It's because gold is a weapon more powerful
than nuclear weapons -- an alternative currency that is not necessarily under
any government's power, a determinant of the value of other currencies,
interest rates, government bonds, and equities.
Having been raising questions about the gold
market for 12 years now, I've realized that the disposition of government
gold reserves is a secret more sensitive than the disposition of nuclear
weapons. Indeed, under nuclear weapons control treaties, governments with
nuclear weapons have sometimes shared that sort of information, even with
hostile powers. But gold reserve information is far more tightly held, and
most gold information provided officially is actually disinformation.
For the purposes of investors it is enough to
know that we will never be permitted to know exactly where official-sector
gold is and who really controls it. It may be all we can do to know where our
own gold is and to make sure that we control it ourselves.
It's not just me saying
that gold is supremely powerful in the world financial system. Lawrence
Summers, former U.S. treasury secretary and off-and-on economics professor at
Harvard, said pretty much the same thing in the study he wrote with
University of Michigan economics professor Robert Barsky
in the Journal of Political Economy in 1988, a study titled "Gibson's
Paradox and the Gold Standard." This study is posted at GATA's Internet
site:
http://www.gata.org/files/gibson.pdf
A few weeks ago, maintaining that his
"Gibson's Paradox" study remains dispositive of the gold price
issue, Summers provided the study to New York Times columnist Paul Krugman -- and did so by giving Krugman
the link to it at GATA's Internet site. That's what Krugman
wrote on his blog. So we know that former Secretary Summers is watching
little GATA even today:
http://www.gata.org/node/10402
This close correlation among gold, interest
rates, and government bond values is why central banks long have tried to
control -- usually suppress -- the price of gold. For gold is the ticket out
of the central banking system, the escape from coercive central bank and
government power. As an independent currency, a currency to which investors
can resort when they are dissatisfied with government currencies, gold
carries the enormous power to discipline governments, to call them to account
for their inflation of the money supply and to warn the world against it.
Because gold is the vehicle of escape from the central banking system, the
manipulation of the gold market is the manipulation that makes possible all
other market manipulation by government.
The gold market manipulation operates through
the largely surreptitious mobilization of Western central bank gold reserves
and the gold nominally held by the major exchange-traded funds. If the manipulation
was done completely in the open, as governments used to manipulate the gold
market, through the gold standard and then through what was called the London
Gold Pool, the Western central bank gold dishoarding scheme of the 1960s, the
manipulation would fail, because then the world would understand that there
is not a free market in gold -- or in any currency, any more than there is a
free market in government bonds.
Much has happened in GATA's campaign to expose
the gold price manipulation scheme since we met here in New Orleans a year
ago. I'd like to review nine important developments for you.
1) GATA beat the Federal Reserve in federal
court.
First and most important, GATA won its federal
freedom-of-information lawsuit against the Federal Reserve in U.S. District
Court for the District of Columbia.
For several years GATA had been trying to get
the U.S. Treasury Department and Federal Reserve to release gold information.
The Fed first denied this information to us on the grounds that it would
compromise certain private "proprietary" interests. Of course such
a denial, a denial based on "proprietary" interests, was in itself
a confirmation that the U.S. gold reserve had been placed, at least partly,
in other hands.
Responding to President Obama's declaration,
soon after his inauguration, that the federal government would be more open,
GATA renewed its informational requests to the Fed and the Treasury. These
requests concentrated on gold swaps, a primary mechanism of gold price
suppression. Gold swaps are trades of gold that allow one central bank to
intervene in the gold market on behalf of another central bank without
getting the latter central bank's fingerprints directly on the transaction.
Of course both of GATA's informational
requests were denied again. But through our Washington lawyer, William J.
Olson (http://www.lawandfreedom.com), GATA brought an appeal of the Fed's denial, and this appeal was
routed to a full member of the Fed's Board of Governors, Kevin M. Warsh. Warsh denied GATA's
appeal but in his letter to our lawyer he let slip some stunning information:
http://www.gata.org/files/GATAFedResponse-09-17-2009.pdf
Warsh wrote that among the gold information being kept
secret by the Fed was "information relating to swap arrangements with
foreign banks on behalf of the Federal Reserve System."
So there it is: The Federal Reserve today --
right now -- has gold swap arrangements with "foreign banks," and
the public and the markets must not be permitted to know about them.
Ten years ago Fed Chairman Alan Greenspan and
the general counsel of the Federal Open Market Committee, Virgil Mattingly,
vigorously denied to GATA, through two U.S. senators who had inquired of the
Fed on our behalf, that the Fed had gold swap arrangements, even though FOMC
minutes from 1995 quote Mattingly as saying the U.S. indeed has engaged in
gold swaps:
http://www.gata.org/node/1181
But now the Fed has admitted such
arrangements, if only inadvertently.
As GATA was not willing to let Fed Governor Warsh's letter be the last word on access to the Fed's
gold records, on December 31, 2009, we sued the Fed in U.S. District Court
for the District of Columbia under the Freedom of Information Act. The Fed
told the court that the Fed really could not find many records involving
gold. Implausible as this was, the judge, Ellen Segal Huvelle,
denied GATA's request to interrogate Fed officials under oath about what
seemed to us to be their grossly inadequate search.
Whereupon the judge reviewed, privately in her
chambers, the few documents the Fed had submitted, and on February 3 this
year she ruled that the Fed indeed could keep secret all but one of those
documents. She ordered the Fed to disclose that one document to GATA within
two weeks.
On February 18 this year, heeding the court's
order, the Fed released the document -- the minutes of the April 1997 meeting
of the G-10 Gold and Foreign Exchange Committee. The minutes showed
government and central bank officials from around the world conspiring in
secret to coordinate their gold market policies. The minutes of that meeting
are posted at GATA's Internet site:
http://www.gata.org/node/9623
Perhaps of equal importance, the Fed claimed
not to be able to find minutes of any other meeting of the G-10 Gold and
Foreign Exchange Committee. The Fed is probably hiding such minutes because
they are even more incriminating.
Thus GATA's lawsuit established that, despite
its denials, the Fed has many gold secrets after all, many gold documents the
Fed won't let the public see. Our lawsuit also managed to pry a couple of
those secrets loose and publicize them -- first, that the Fed has gold swap
arrangements with foreign banks, and second, that at a secret meeting in 1997
the Fed was conspiring with other central banks to coordinate their gold
market policies and that there was never any announcement of this
undertaking.
Almost as gratifying to us was that, since the
court found that the Fed illegally withheld from us the minutes of the secret
G-10 Gold and Foreign Exchange Committee meeting, the Fed was ordered to pay
court costs to GATA, which the Fed did in May, sending us a check for $2,870.
An image of that check also is posted at GATA's Internet site:
http://www.gata.org/node/9917
2) The cables from the U.S. embassy in
Beijing.
Two months ago it was disclosed that the
government of China knows all about the gold price manipulation scheme and
that the United States government knows that China knows.
This disclosure occurred through the release
by the Wikileaks organization of three diplomatic
cables sent from the U.S. embassy in Beijing to the State Department in
Washington.
One U.S. Beijing embassy cable, dated April
28, 2009, summarizes a commentary in the Chinese newspaper Shijie Xinwenbao (World News
Journal), a newspaper published by the Chinese government's foreign radio
service, China Radio International. The cable has been posted at GATA's
Internet site:
http://www.gata.org/node/10380
The cable translates the Chinese government
newspaper's commentary as follows:
"The United States and Europe have always
suppressed the rising price of gold. They intend to weaken gold's function as
an international reserve currency. They don't want to see other countries
turning to gold reserves instead of the U.S. dollar or euro. Therefore,
suppressing the price of gold is very beneficial for the U.S. in maintaining
the U.S. dollar's role as the international reserve currency."
Another gold-related cable sent from the U.S.
embassy in Beijing, dated December 4, 2008, quotes commentary published the
previous day in the official Chinese Communist Party newspaper, People's
Daily, as saying the United States and Europe are likely to restore a gold
standard while they have most of the world's official gold reserves, before
Eastern nations can get enough gold to back their own currencies with.
The third cable from the U.S. embassy in
Beijing, dated February 8, 2010, quotes commentary published that day in the
China Business News newspaper in Shanghai saying China suspects that there
will be a devaluation of old U.S. dollars, the kind of dollars it holds in
its foreign exchange reserves, when it comes time to convert them to new U.S.
dollars backed by gold.
The second and third cables have been posted
at GATA's Internet site here:
http://www.gata.org/node/10416
China is probably acting on its knowledge of
the Western gold price suppression scheme.
3) The class-action lawsuit against silver
price manipulation.
Late last year several class-action lawsuits
were brought against JPMorganChase charging
manipulation of the silver market. The lawsuits were based largely on the
testimony of London silver trader Andrew Maguire, whose complaint of market
manipulation was presented by GATA to the U.S. Commodity Futures Trading
Commission at a hearing on March 25, 2010.
Last month the complaints in the lawsuits were
consolidated in a single statement filed with U.S. District Court for the Southern
District of New York, and this consolidated complaint detailed the mechanics
of the manipulation and even identified traders who carried it out and their
specific trades.
According to the consolidated complaint:
-- MorganChase
already had a large short position in silver when it acquired another large
short position upon the investment house's acquisition of the failed New York
brokerage Bear Stearns in 2008. This, the complaint says, gave MorganChase hugely disproportionate influence in the
silver market.
-- The lawsuit says MorganChase
used "fake" and "spoof" trades to manipulate prices
downward, particularly in advance of contract expiration dates, when MorganChase held put options, which became more valuable
as the price of silver was driven down.
-- The lawsuit says MorganChase
reduced its short position following the May 25, 2010, hearing of the CFTC,
in which GATA's complaints of gold and silver market manipulation figured
heavily.
-- And the lawsuit says MorganChase
regularly engaged in uneconomic trading activity in silver whose only purpose
was price manipulation.
The consolidated complaint in the silver
manipulation lawsuit against MorganChase is posted
at GATA's Internet site:
http://www.gata.org/node/10448
If the silver lawsuit against MorganChase survives a summary judgment motion, it may be
worth hundreds of millions of dollars to the plaintiffs and their lawyers. It
may also liberate the silver market from the domination of one big player
that is an agent of the U.S. government.
4) Confirmation that central bank gold sales
equaled leased gold.
In his German-language book "Secret Gold
Policy," published in the last year, market analyst Dimitri
Speck reported that gold sold by Western central banks since 2001 was equaled
by the leased gold returned to them:
http://www.gata.org/node/9349
This strongly supports suspicions long
expressed by GATA that the supposed central bank gold sales of the last
decade were not sales at all, just cash settlements for leased gold that
could not be recovered by the central banks without exploding the gold price
upward and bankrupting the investment banks that had leased the gold. That
is, the supposed "sales" did not really put any real metal into the
market, a suspicion supported by the steady rise of the gold price even as
all that central bank gold supposedly was being sold.
5) The German central bank admitted secret
gold activities.
Late last year the German journalist Lars Schall pressed the German central bank, the Bundesbank, for clarification about the German gold
reserves, and particularly about whether the Bundesbank
had undertaken gold swaps with the United States. Schall
sent the Bundesbank 13 questions. But the Bundesbank brushed him off, even as the Bundesbank seemed to acknowledge meddling surreptitiously
in the gold market:
http://www.gata.org/node/9363
The Bundesbank
replied to Schall as follows:
"... Particularly with respect to the
confidential nature of information about where gold holdings are kept, we are
unable to go into any greater detail concerning exact locations and the
quantities stored at each of these. Likewise, owing to the strategic nature
of the activity, we are not at liberty to provide you with more detailed
information about gold transactions."
That is, Germany's gold is a crucial part of
gold market manipulation, the subject of secret "strategic"
transactions, most likely with the United States.
6) A gold price manipulation scheme public
relations blunder.
Exchange-traded gold funds are very popular.
Yet the bullion bank HSBC is not just custodian for the gold of investors in
the main gold ETF, whose trading symbol is GLD, investors who want their
asset to appreciate in value; HSBC is also the biggest known short in the
gold market. This is a grotesque conflict of interest.
Two months ago HSBC responded to concerns
about its custodianship of GLD's gold, but in doing so the bank committed a
revealing public relations blunder.
HSBC invited CNBC reporter Bob Pisani for a tour of HSBC's gold vault in the London
area. Pisani and his camera operator were placed in
a van whose windows had been covered up and then they were driven around for
a while and blindfolded and led into the vault. The blindfolds were removed
and they saw a lot of gold bars, and Pisani was
given one to hold up for the camera and represent as a bar belonging to GLD.
But some sharp-eyed gold bugs recorded Pisani's report, transcribed the hallmark and serial
number of the bar Pisani held up, and determined
that it actually belonged not to GLD at all but to another gold ETF:
http://www.gata.org/node/10368
http://www.gata.org/node/10372
http://www.gata.org/node/10427
Of course that didn't prove any impropriety on
HSBC's part -- only that it's very easy for the world's biggest gold short to
merge the gold it is vaulting for customers of its fractional-reserve gold
banking system and to apply the gold to the most pressing gold demand of the
day -- which, on that particular day, was to fool a television reporter and
his audience.
7) Mexico bought gold paper instead of gold
itself.
In May this year Mexico's central bank
announced that it recently had purchased 93 tonnes
of gold, bringing its gold reserves to 100 tonnes.
But last month the Mexican journalist Guillermo Barba
interrogated the Bank of Mexico about that gold purchase and found that the
bank refuses to disclose where it is keeping those 93 tonnes
and indeed does not even know the form of the gold it purchased. Barba's report can be found on GATA's Internet site:
http://www.gata.org/node/10481
As it turned out, in purchasing gold this year
the Bank of Mexico didn't really buy gold at all. Rather, the Bank of Mexico
became only an unsecured creditor of banks that are members of the London
Bullion Market Association, home of the fractional-reserve gold banking
system.
8) This month GATA gained much mainstream
media recognition.
First, a popular program on the History
Channel, "Brad Meltzer's 'Decoded,'" interviewed me in an episode
about concerns that the U.S. gold reserve at Fort Knox, Kentucky, is impaired
or even empty:
http://www.gata.org/node/10535
And last Saturday the Financial Times, the
most establishment of the world 's financial newspapers, published a column
by its U.S. managing editor, Gillian Tett, dealing
largely with GATA's claims of gold market manipulation:
http://www.gata.org/node/10591
Tett wrote:
"It would be foolish simply to deride or
ignore GATA. … Some of its points have at least a grain of truth. Even
if you find it hard to believe that central bankers would be dastardly enough
to create a plot -- or competent enough to do what GATA claims -- the fact is
that global commodity markets are pretty murky, central banks are often
opaque, and Western rhetoric about 'free' markets is often hypocritical.
Those issues merit far more debate, not just among journalists but central
bankers too."
The foremost commodity market newsletter
writer in the world, Dennis Gartman, pronounced
himself "stunned" by the legitimacy the Financial Times had just
conferred on GATA:
http://www.gata.org/node/10610
That made two of us.
9) The common disparagement about gold soon
may be self-defeating.
Gold is being disparaged in a particular way.
You may have heard it. It is said that even with its steady rise in price
over the last decade, gold has not come close to keeping pace with inflation
-- that gold is a terrible hedge against inflation.
Eventually it is going to occur to people: Why
not? Why hasn't gold kept up with inflation? GATA is ready with the
answer.
Gold has not kept up with inflation because
Western governments found ways of vastly increasing what the world thinks is
the supply of gold without having to go through the trouble of mining it
– found ways of dishoarding and leasing it from central bank reserves
and, through bullion banks, to issue certificates of deposit against gold
that doesn't exist, gold its buyers never claimed for delivery, gold that is
only an obligation of a bullion bank that never actually bought the metal for
its customers. Perhaps half to three-quarters of the world's gold is this
imaginary kind.
As Eastern central banks and gold investors
throughout the world begin to realize that they don't really own and control
gold unless it's in their own hands or in the hands of very close friends, it
may not be a good time to be short.
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