Remarks by Chris
Powell, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
Most financial journalism
and most academic teaching maintain that gold is at best a quaint antique.
I'm here to argue that gold not only remains money but may again be the best
and most important money -- to argue that, even more than this, gold is in
fact the secret knowledge of the financial universe.
Gold already is so
important that Western central banks -- particularly the U.S. Treasury and
its Exchange Stabilization Fund, the Federal Reserve, and allied central
banks -- rig the gold market every day, even hour by hour, to control and
usually suppress gold's price.
Why do Western central
banks rig the gold market?
It's because gold is a
powerful competitive international currency that, if allowed to function in a
free market, will determine the value of other currencies, the level of
interest rates, and the value of government bonds. Gold's performance is
usually the opposite of the performance of government currencies and bonds.
Hence central banks fight gold to defend their currencies and bonds.
The problem is that
central bank tactics in this fight affect more than gold; they affect markets
generally and eventually destroy markets generally. This destruction of
markets now has a name, a name used even by former members of the Federal
Reserve Board. That name is
"financial repression."
There is much academic literature confirming gold's
influence on currencies, interest rates, and government bonds throughout
history. Prominent in this literature is the study written by Harvard
economics professor Lawrence Summers and University of Michigan economics
professor Robert Barsky and published in August
1985 by the National Bureau of Economic Research, a study titled
"Gibson's Paradox and the Gold Standard." As with all the documents
I'll cite today, the Summers and Barsky study is
posted at my organization's Internet site, GATA.org:
http://www.gata.org/node/1373
Summers went on to become
deputy treasury secretary and then treasury secretary of the United States
and president of Harvard University and recently almost became chairman of
the Federal Reserve Board, so his study of gold's influence on currencies,
interest rates, and bond prices may be good authority. The Summers and Barsky study implied that governments could achieve their
ideal of low interest rates and strong government bond prices by getting
control of the price of gold.
As it turns out,
controlling the currency markets generally long has been the most efficient
mechanism of imperialism. There is much history of this as well.
Rigging the currency
markets was the primary mechanism by which Nazi Germany expropriated occupied
Europe during World War II. Expropriation by force of arms was actually only
a small part of the Nazi conquest. The rigging of the currency markets --
that is, the gross distortion of exchange rates in Nazi Germany's favor --
turned every citizen of an occupied country into an agent of the occupation
every time he used money. This currency market rigging directed all
production in the occupied countries into Nazi Germany and blocked any return
flow of production. It enabled Nazi Germany to run without consequence the
same sort of fantastic trade deficit run in recent years by the United
States.
The United States learned
all about the Nazi expropriation of Europe through currency market rigging
because it was documented by the November 1943 edition of the U.S. War
Department's monthly intelligence letter, Tactical and Technical Trends:
http://www.gata.org/node/10457
Nazi Germany's
manipulation of currency markets is also described in detail in the 2005
history "Hitler's Beneficiaries" by Gotz Aly:
http://llco.org/hitlers-beneficiaries-2005-by-gotz-aly/
How do Western central
banks and particularly the U.S. government rig the gold market?
They used to do it
conventionally and in the open by dishoarding their gold reserves at
strategic moments, and then by dishoarding their gold reserves regularly,
more often, even every day, as the United States, United Kingdom, and seven
of their Western European allies did during the 1960s through a public
operation called the London Gold Pool. The London Gold Pool held the gold
price at $35 per ounce until it collapsed in March 1968 under rising demand
that drained the U.S. gold reserve from 25,000 tonnes
down closer to the 8,100 tonnes officially reported
today:
http://en.wikipedia.org/wiki/London_Gold_Pool
After the collapse of the
London Gold Pool the United States and its allies regrouped to figure out how
to rig the gold market surreptitiously -- not just with dishoarding but also
with the so-called leasing of gold; with the issuance of gold derivatives,
including futures and options; and, more recently, with high-frequency
trading undertaken through investment houses that are happy to serve as
government's intermediaries in the gold market, since they can front-run
government trades. When the rigging is done surreptitiously like this, much
less central bank gold has to be dishoarded and the dishoarding that is
done has far more suppressive influence on the price.
But Western central bank
market rigging goes far beyond gold.
In an essay published in
2001 and titled "The Debasement of World Currency -- It Is Inflation,
But Not as We Know It" --
http://www.gata.org/node/8303
-- the British economist
Peter Warburton discerned that central banks were using investment banks to
issue derivatives throughout the commodity futures markets to siphon
away money that was seeking a hedge against inflation. That is, derivatives
siphon money away from the hoarding of real goods, hoarding that would drive
up consumer price indexes and make inflation even more obvious to the markets
and the public. Most of these derivatives are essentially naked short
positions that cannot be covered.
Warburton concluded that
the prerequisite of a hedge against monetary debasement would have to be some
asset that was not associated with a futures market. He suggested good
farmland and clean water supplies. For as the saying goes: "The futures
markets are not manipulated; the futures markets are the manipulation."
This market rigging by
central banks and their intermediaries explains the great disparagement of
gold today: that, despite its tremendous price increase over the last decade,
gold has not kept up with inflation since the metal's last great rise around
1980. Somehow no one who disparages gold asks why it has not kept up
with inflation. The answer is that gold derivatives have created a vast
imaginary supply of gold for which delivery has not been demanded, since most
gold investors choose to leave their gold purchases on deposit with the
bullion banks that sold them the imaginary gold.
As a result the world now
has a fractional-reserve gold banking system that is leveraged in the
extreme.
Yes, all commodity
futures markets have created paper promises of supply that could not be
covered by real product and have always been settled in cash. But most
commodity markets are for goods that eventually are delivered and consumed
to a great extent.
Gold is different, for
gold is not consumed but rather hoarded, as a means of exchange, as money,
even as most gold purchased in the futures markets is never delivered at all
but rather left on deposit with those financial institutions that purport to
sell it. This system has produced a very disproportionate amount of
imaginary, elastic, but undeliverable supply, even as people buy gold
precisely because they assume that its supply is not elastic, that its
supply is limited to total past production plus annual mine production.
That assumption is a
terrible mistake.
While the principle of
most gold investment analysis is "You can't print gold,"
"paper gold" can be printed to infinity just like regular
government currency -- and indeed has been printed practically to
infinity.
You can get an idea of
the vast imaginary supply of gold by reviewing the incomprehensibly huge gold
and interest rate derivative positions attributed to the U.S. investment bank
JPMorganChase in the reports of the U.S.
Comptroller of the Currency. These derivative positions are almost certainly
not JPMorganChase's own positions at all but, as
GATA consultant Rob Kirby of Kirby Analytics in Toronto has written, rather
U.S. government positions effected through MorganChase:
http://news.goldseek.com/GoldSeek/1249407911.php
After all, the U.S.
Treasury Department's Exchange Stabilization Fund is expressly authorized by
law, the Gold Reserve Act of 1934, as amended, to trade secretly in all
markets, including the gold market, on the U.S. government's behalf. And the
law expressly exempts the ESF from answering to anyone but the treasury
secretary and the president:
http://www.treasury.gov/resource-center/international/ESF/Pages/esf-inde...
Gold market expert
Jeffrey Christian of CPM Group testified to a hearing of the U.S. Commodity
Futures Trading Commission on March 25, 2010, that the ratio of "paper gold"
to real metal in the so-called London physical market may be as high as 100
to 1:
http://www.gata.org/node/8478
Last January a report by
the Reserve Bank of India estimated the ratio of paper gold to real gold at
92 to 1:
http://www.gata.org/node/12088
Christian provided a
similar account of the manufacture of "paper gold" in his essay
"Bullion Banking Explained," published in 2000:
http://www.gata.org/node/8627
Some international
investment houses are on the short end of this enormous leverage and are
existentially vulnerable to a short squeeze. It is highly unlikely that they
would put themselves in such a position without assurances of emergency
support from central banks -- and indeed the investment houses have
received such assurances many times in public statements by central bankers.
For there are many
official admissions of gold market rigging.
These include statements
by four former chairmen of the U.S. Federal Reserve Board (Alan Greenspan,
Paul Volcker, Arthur Burns, and William McChesney
Martin); the minutes of the Federal Open Market Committee; declassified U.S.
Central Intelligence Agency and State Department memoranda, including one
that cites the necessity for the U.S. government to remain "the masters
of gold" --
http://www.zerohedge.com/article/declassified-state-dept-data-highlights...
-- statements
by central bankers from other countries, including three officials of the
Bank for International Settlements; and documents from the BIS and
International Monetary Fund.
For example:
-- In testimony to
Congress in July 1998, Federal Reserve Chairman Alan Greenspan declared that
"central banks stand ready to lease gold in increasing quantities should
the price rise." Thus Greenspan confirmed that the purpose of gold
leasing was not what was usually claimed -- to earn central banks a little
money on their supposedly dead asset in their vaults -- but rather to
suppress the monetary metal's price:
http://www.federalreserve.gov/boarddocs/testimony/1998/19980724.htm
-- At GATA's prodding in
January 2012 former Federal Reserve Chairman Paul Volcker admitted to a
financial journalist that central banks need to suppress the gold price to
stabilize exchange rates at what he called a "critical point":
http://www.gata.org/node/10923
Volcker already had
written in his memoirs that in 1973 as a U.S. Treasury Department official he
advocated gold price suppression:
http://www.gata.org/node/8209
http://www.gata.org/files/VolckerMemoirs.pdf
-- In 2009 a remarkable
16-page memorandum was discovered in the archive of the late Federal Reserve
Chairman William McChesney Martin. The memorandum
is dated April 5, 1961, and is titled "U.S. Foreign Exchange Operations:
Needs and Methods." The memo is a detailed plan of surreptitious
intervention by the U.S. government to rig the currency and gold markets to
support the U.S. dollar and to conceal, obscure, or even falsify U.S.
government records and reports so that the rigging might not be discovered.
This document remains on the Internet site of the Federal Reserve Bank of St.
Louis:
http://fraser.stlouisfed.org/docs/historical/martin/23_06_19610405.pdf
It is also posted at
GATA's Internet site:
http://www.gata.org/files/Martin-WilliamMcChesny-MarketManipulationPlan....
-- In a letter to
President Gerald Ford in June 1975, Federal Reserve Chairman Arthur Burns
reported a secret agreement with the German Bundesbank to obstruct market
pricing for gold. Burns wrote to the president: "I have a secret
understanding in writing with the Bundesbank, concurred in by Mr.
Schmidt" -- Helmut Schmidt, West Germany's chancellor at the time --
"that Germany will not buy gold, either from the market or from another
government, at a price above the official price of $42.22 per ounce."
Burns added, "I am
convinced that by far the best position for us to take at this time is to
resist arrangements that provide wide latitude for central banks and
governments to purchase gold at a market-related price."
The Burns letter is
posted at GATA's Internet site here:
http://www.gata.org/files/ArthurBurnsLetterToPresidentFord-June1975.pdf
-- In June 2004 the
deputy chairman of the Bank of Russia, Oleg Mozhaiskov,
told a conference of the London Bullion Market Association in Moscow that he
suspected that the United States was suppressing the gold price. Mozhaiskov mentioned the Gold Anti-Trust Action
Committee, the only words he spoke in English, though at that time GATA had
never had any contact with anyone in Russia:
http://www.gata.org/node/11723
-- A president of the
Netherlands Central Bank who was also president of the Bank for International
Settlements, Jelle Zijlstra,
wrote in his memoirs that the gold price was suppressed at the behest of the
United States:
http://www.gata.org/node/11304
-- William R. White, the
director of the monetary and economic department of the Bank for
International Settlements, the central bank of the central banks, told a BIS
conference in Basel, Switzerland, in June 2005 that a primary purpose of
international central bank cooperation is "the provision of
international credits and joint efforts to influence asset prices (especially
gold and foreign exchange) in circumstances where this might be thought
useful":
http://www.gata.org/node/4279
-- The Bank for
International Settlements actually advertises to potential central bank
members that its services include secret interventions in the gold market:
http://www.gata.org/node/11012
http://www.gata.org/files/BISAdvertisesGoldInterventions.pdf
-- Indeed, according to
its annual report this year, the BIS functions largely as a gold banking and
gold market intervention service for its member central banks. On Page 110 of
the report the BIS says: "The bank transacts foreign exchange and gold
on behalf of its customers, thereby providing access to a large liquidity
base in the context of, for example, regular rebalancing of reserve
portfolios or major changes in reserve currency allocations. The foreign
exchange services of the bank encompass spot transactions in major currencies
and Special Drawing Rights (SDR) as well as swaps, outright forwards,
options, and dual currency deposits (DCDs). In addition, the bank provides
gold services such as buying and selling, sight accounts, fixed-term
deposits, earmarked accounts, upgrading and refining, and location
exchanges." The only point of central banks trading in gold derivatives
is to affect the price. See:
http://www.gata.org/node/12717
-- Secret gold market
interventions by the BIS have been going on for a long time. A long article
in Harper's magazine in 1983, based on a seemingly unprecedented interview
with BIS officials, disclosed that the BIS was constantly intervening in the
gold market in secret:
http://www.gata.org/node/8773
-- Perhaps most
incriminating is the secret March 1999 staff report of the International
Monetary Fund that GATA obtained in December 2012. The secret report says
Western central banks conceal their gold swaps and loans to facilitate their
secret manipulation of the gold and currency markets:
http://www.gata.org/node/12016
http://www.gata.org/files/IMFGoldDataMemo--3-10-1999.pdf
-- The participation of the
United States in this market manipulation was confirmed by a member of the
Board of Governors of the Federal Reserve System, Kevin M. Warsh, in a letter written in September 2009 denying
GATA's request for access to the Fed's gold records. Warsh
wrote that among the records denied to GATA were records of gold swap
arrangements between the Fed and foreign banks:
http://www.gata.org/node/7819
http://www.gata.org/files/GATAFedResponse-09-17-2009.pdf
In commentary published
in The Wall Street Journal in December 2011 Warsh
wrote about what he called "financial repression" by governments.
"Policy makers," Warsh wrote, "are
finding it tempting to pursue 'financial repression' -- suppressing market
prices that they don't like." Warsh added,
"Efforts to manage and manipulate asset prices are not new."
http://www.gata.org/node/10839
I later reached Warsh by e-mail and asked him if he had learned about
"financial repression" through his service on the Federal Reserve
Board and if he would identify those asset prices under manipulation by
policy makers. He cordially wished me a nice day.
And the government of
China knows all about the gold price suppression scheme. The U.S. State
Department diplomatic cables obtained by the Wikileaks
organization and published in 2011 included cables from the U.S. embassy in
Beijing to the State Department in Washington that were translations of
reports from the Chinese government-controlled news media. These translations
included stories and commentaries about gold price suppression by the United
States.
For example, the Chinese
newspaper World News Journal wrote: "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 United
States in maintaining the U.S. dollar's role as the international reserve
currency. China's increased gold reserves will thus act as a model and lead
other countries toward reserving more gold. Large gold reserves are also
beneficial in promoting the internationalization of the renminbi."
So not only does the Chinese
government know all about the gold price suppression scheme -- the U.S.
government knows that China knows:
http://www.gata.org/node/10380
http://www.gata.org/node/10416
There are many more
records about the official policy of gold price suppression, including
minutes of government agency meetings, interviews with government officials,
and declassified intelligence agency memoranda. They are posted in the
"Documentation" section of GATA's Internet site:
http://www.gata.org/taxonomy/term/21
These documents are not
mere speculation and "conspiracy theory." They are the records of
decades-long government policy conducted almost entirely in secret.
Then there is the
evidence of the market itself.
GATA also has exposed
gold market manipulation by examining trading data, most notably in a study
by our late board member and market analyst Adrian Douglas showing that the
gold price during trading in the London market went down steadily for 10
years even as the world gold price went up steadily in that time.
Anyone buying gold on the opening of the London market and selling it on the
close every day over the last decade would have lost a huge amount of money
even as the gold price rose steadily:
http://www.gata.org/node/8918
That is, the London Gold
Pool of the 1960s suppressing the price continues to operate today, only with
different mechanisms.
In the last year attacks
on the gold price have become frequent and obvious, like the strange dumping
of paper gold in the futures markets on April 12 and 15, where the nominal
equivalent of maybe a quarter of annual gold mine production was sold in two
days even though there was no special gold-related news. Many similar dumps
are undertaken at particularly illiquid times as someone tries to pound the
gold price down for psychological effect.
On October 1, as the U.S.
dollar index broke below 80 and the government of the world's only
superpower, the issuer of the world reserve currency, was incapacitated and
half shut down by political turmoil, the gold price suddenly fell by 5
percent under an avalanche of futures selling, sometimes at a rate of many
thousands of contracts per second. Only an entity with access to infinite
money can accomplish something like that.
There was another such
brazen bombing of the gold futures market on October 11.
It was a good thing for
gold investors that the United States had not just been destroyed in a
nuclear war, for then the gold price might have been driven down by 20
percent.
These attacks on the gold
market out of the blue are almost certainly incidents of government
intervention. Nothing else can plausibly explain them.
Indeed, central banks
refuse to explain their involvement in the gold market.
In 2009 GATA sued the
Federal Reserve in U.S. District Court for the District of Columbia seeking
access to the Fed's gold records. Technically we won the case in 2011, as the
court ordered the Fed to disclose one record, the minutes of the G-10 Gold
and Foreign Exchange Committee meeting in April 1997. Those minutes showed
Western central bank and treasury officials conspiring to control the gold
price. The Fed was ordered to pay GATA court costs, which it did. But the
court allowed the Fed to conceal all its other gold records:
http://www.gata.org/node/9917
Since that time GATA has
peppered Western central banks with specific questions about their gold
activities, which is something financial journalism, mining companies, or any
ordinary investor could do. The central banks largely maintain a guilty
silence.
For example, in July the
Bank of England reported on its Internet site that it was vaulting about
1,200 tonnes of gold less than it had listed in the
bank's annual report in February. This raised suspicion that the departed
gold had been used in the smashing of the gold price in April. So GATA asked
the Bank of England to explain the discrepancy.
The Bank of England
replied only that the data posted on its Internet site for the public was
"deliberately non-specific." But it had been fairly
specific, and had given a number quite different from the number in the
annual report. Sensing its vulnerability, the Bank of England concluded its
brief statement arrogantly and defensively: "The bank will not be
offering any further comment on this matter."
http://www.gata.org/node/12859
The specific questions
that GATA has raised and that have been deflected by central banks are posted
at our Internet site and remain available to any serious financial journalist
or gold investor:
http://www.gata.org/node/11661
As long as central banks
refuse to answer some basic questions about their involvement in the gold
market, it must be concluded that they have much to hide.
Why does all this
matter? How and when will it end?
It matters because the
rigging of the gold market is the rigging that facilitates the rigging of all
markets -- part of a much broader scheme by which a secretive and unelected
elite in the United States controls the value of all capital, labor, goods,
and services in the world -- controls the value of everything and
impairs or destroys all markets everywhere and thus hinders humanity's
progress.
This is an utterly
totalitarian and parasitic system. It is also just the latest manifestation
of the everlasting war of the financial class against the producing class,
only it is hidden well enough that the producing class hasn't yet figured it
out.
This system may end in
various ways.
First it's a question of
world politics at the highest levels.
The system may end at the
insistence of the developing world with an official worldwide revaluation of
gold and gold's formal restoration to the international monetary system.
Or the system may end
when one country pulls the plug on it, exchanging U.S. government bonds for
more gold than is available.
Or the system may end as
part of a plan by central banks to avert the catastrophic debt deflation that
now threatens the world.
For example, a 2006 study
by the Scottish economist Peter Millar concluded that to avert such a
catastrophic debt deflation, central banks would need to raise the gold price
by a factor of seven to 20 times in order to reliquefy
themselves and devalue their currencies and society's debts generally:
http://www.gata.org/node/4843
In May 2012 the U.S.
economists and investment fund managers Lee Quaintance
and Paul Brodsky published a report speculating that central banks likely are
already redistributing gold reserves among themselves in preparation for just
such an upward revaluation of gold and gold's return as formal backing for
currencies:
http://www.gata.org/node/11373
Or the system may end
chaotically as the London Gold Pool ended in 1968 when the gold the Western
central banks were prepared to lose simply ran out even as those central
banks were not yet ready with an alternative gold price control system.
That's why the system's
end is also an arithmetical question, a question of how much real gold is
left among the central banks in the price suppression scheme. Some metal is
always draining away to support the gold derivatives system, and it seems
lately that more is draining away every year than is being mined. How much do
the gold-suppressing central banks really still have left? How much is gone
through swaps and leases? They're not telling.
The system's end is a
question of education and publicity, a question of whether central banks that
are not part of the gold price suppression scheme and investors alike will
ever realize that as much as 90 percent of the world's investment gold,
supposedly being held in trust for its owners, may not exist. If there is
ever such a realization and delivery is demanded, gold will rise to multiples
of its current price.
While that prospect
excites gold investors, will governments let them keep the resulting
extraordinary gains, or will governments impose windfall profits taxes or even
try to confiscate gold?
If the gold price soars,
will governments let mining companies keep taking metal out of the ground at
current royalty rates? Will governments even let private companies keep
mining gold at all?
On the other hand, if
there is no general realization of the fraud of "paper gold," gold
price suppression and the destruction of markets generally may go on forever.
Central banks are
formidable enemies because of their power to create infinite money and debt.
But that power is not their biggest advantage in the gold suppression scheme
and the scheme to defeat markets generally.
For the scheme cannot
work without deception, surreptitiousness, and misunderstanding.
And therefore to be
overthrown the scheme needs only to be exposed, since when people realize
that a market is rigged, they will not take the losing side of the trade.
That's why the biggest
advantage of central banks here is not their power of money and debt creation
but rather the complicity of the financial news media and the gold mining
industry itself.
Financial journalists --
so far at least -- won't press the vital questions, will never put a critical
question to a central bank and report the inadequate answers.
And the gold mining industry,
seemingly unaware of the monetary nature of its product and the way the price
of its product is suppressed, will not yet do anything to defend itself.
Will that ever change?
Well, GATA is working on it.
Until that changes, and
as long as a piece of paper is considered as good as a piece of metal, the
gold mining industry has no future. And until free markets are restored,
humanity itself won't have much of a future either.
* * *
If you'd like more
information about this issue or can't locate one of the documents I've
mentioned, please e-mail me at CPowell@GATA.org. I'll be glad to try to help.
Thanks for your kind
attention today.
* * *
Louis Boulanger Now
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Sunday, October 13, 2013
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Thursday, October 17, 2013
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Melbourne Conference and Exhibition Centre
Melbourne, Australia
Wednesday, October 30, 2013
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Hilton New Orleans Riverside Hotel
New Orleans, Louisiana
Sunday, November 10, 2013
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Anton de Kom University of Suriname
Paramaribo, Suriname
Wednesday, February 5, 2014
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Conference
Sunday-Wednesday, November 10-13, 2013
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New Orleans, Louisiana
https://jeffersoncompanies.com/landing/speakers?IDPromotion=613011610080...
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