Dirk Baur, formerly a finance professor at the University of Technology in
Sydney, now professor of accounting and finance at the University of Western
Australia in Perth, this month updated his 2013 study about gold market
manipulation --
http://www.gata.org/node/13045
-- and has incorporated much of GATA's documentation. With that
documentation in hand, Baur cites GATA and vindicates GATA's work, concluding
that secret gold lending by central banks has become their primary mechanism
of controlling the gold market.
Baur's study is titled "Central Banks and Gold" and he concludes it
this way:
"The theoretical arguments for central bank gold price management are
based on the connection of gold with fiat currency. Gold reserves are
designed to build confidence in fiat currency. This confidence would be
jeopardized if the price of gold increased by too much, which is the
theoretical basis for control and management of the price.
"There is also an incentive for central banks to control the downside
of gold prices and thus preserve the value of their gold reserves.
"The Central Bank Gold Agreement is clear acknowledgement of central
banks' potential price impact and evidence of coordinated and mostly hidden
price and reserves management. In addition, the European Central Bank's gold
reserves and recent increases of emerging market central banks' gold reserves
are further evidence of the role of gold in central bank monetary policy
beyond the 'legacy' gold holdings of the United States and many, mostly
European central banks.
"Furthermore, the gold lending activities of central banks implicit
in the gold leasing rate establish a link between central banks, bullion
banks, and gold mining companies and imply an indirect and transferred gold
price management. Gold lending is the basis for the gold carry trade, which
is profitable in stable gold price regimes and provides market-based
incentives to stabilize or control the gold price.
"In other words, the gold carry trade represents a market-driven
suppression of the gold price based on the gold lending of central banks.
"Whilst there are strong economic arguments for central bank gold
price management following the high inflation episode and the rising price of
gold in the late 1970s, it is less clear why central banks would have ended
such strategies rather abruptly in the 2000s.
"In contrast, the unwinding of the gold carry trade in the early
2000s offers an explanation for the significant price change between 2003 and
2011. Remarkably, whilst central bank gold lending can stabilize gold prices
and the gold carry trade is creating a self-sustaining environment, gold
lending is not effective in rising gold price regimes as in such regimes
there is no market-based borrowing demand and the creation of such a demand
would be too costly.
"This asymmetry in the ability to influence the price of gold does
not only apply to gold lending but also to actual gold reserve sales and
purchases. The empirical analysis of global central bank gold reserves
changes illustrates that central banks can enforce a price floor but not
enforce a price ceiling.
"There is also an explanation for the apparent lack of transparency
regarding central bank gold reserve management including gold lending. If
central banks disclosed planned gold reserve changes or gold lending
activities, they would provide signals to the market that would make the
changes more costly or increase the volatility and uncertainty in the gold
market. The disclosure of the Bank for International Settlements about a gold
swap in 2010 and a subsequent fall in the price of gold is a good example for
the effects of such announcements.
"This study demonstrated that central banks have an economic interest
in gold prices and directly and indirectly influence the price of gold. It
also illustrated that central banks can only stabilize a falling gold price
but not a rising gold price and that the stabilization can work only if it is
hidden from the public and coordinated among central banks."
Baur's study is posted at the Social Science Research Network's Internet
site here --
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2326606
-- and has been copied onto GATA's Internet site here:
http://www.gata.org/files/Baur-CentralBanksAn...-07-20-2016.pdf
Your secretary/treasurer will send Baur's study to major financial news
organizations so it can be added to the long list of market-rigging
documentation they suppress in order to ingratiate themselves with
governments and financial institutions, thereby disgracing journalism and
subverting democracy.
