Secretary/Treasurer, Gold Anti-Trust Action Committee Inc.
New Orleans Investment Conference
Wednesday, October 27, 2010
metals markets have tremendous potential for investors. But they are also
wrapped up in great mystery -- deliberately so.
Gold is the
worst understood financial market. Most official data about gold is actually
GATA disclosed that the International Monetary Fund, the leading compiler of official
gold reserve data, allowed its member nations to count gold they had leased,
gold that had left their vaults, as if it was still in their vaults. The
effect of this accounting fraud was to deceive the gold market into thinking
that central banks had much more gold left to bomb the market with than they
only the start of the false data.
In April 2009
China caused a bit of a sensation by announcing that its gold reserves had
increased by 76 percent, from 600 tonnes to 1,054 tonnes. For the previous six years China had been
reporting to the IMF only 600 tonnes. Had China
acquired those 454 new tonnes only in the last
year? Very unlikely. Experts now believe that China acquired those 454 new tonnes over at least several years, largely by purchasing
the production of China's own fast-growing gold mining industry. So for as
many as six years the official gold reserve data about China was way off.
This June the World Gold Council
reported that Saudi Arabia's gold reserves had increased by 126 percent, from
143 to 323 tonnes, just since 2008. That the
world's oil-exporting superpower had made such a new commitment to gold in
its foreign exchange reserves also caused a brief sensation.
But a few
weeks later the governor of the Saudi Arabia Monetary Authority, Muhammad al Jasser, insisted to news reporters in Kuwait that Saudi
Arabia had not purchased the gold cited in the June reports but rather
had that extra gold all along in what he called "other accounts" --
that is, in accounts not reported officially, just as the true status of
China's gold accounts was not reported officially for six years, if the true
status is being reported even now.
think that China and Saudi Arabia have accumulated far more gold than they're
reporting and are accumulating still more gold surreptitiously -- China to
hedge its dollar foreign exchange surplus, Saudi Arabia to hedge both its
dollar surplus and the depletion of its oil reserves -- but that China and
Saudi Arabia can't acknowledge this accumulation lest they spook the currency
markets and devalue their dollar surpluses before those surpluses are fully
2009 GATA consultant Rob Kirby of Kirby Analytics in Toronto obtained from
Germany's central bank, the Bundesbank, a written
admission that much of Germany's national gold is held outside the country at
"trading centers" at which the Bundesbank
may "conduct its gold activities." Without explicitly confirming
that the Federal Reserve Bank of New York was one of those "trading
centers," the Bundesbank noted to Kirby that
the New York Fed holds gold for 60 nations and international organizations.
how much German gold is where and for what purpose, particularly trading
purposes? How much German gold been leased or otherwise encumbered? The Bundesbank wouldn't say.
2009, in the course of seeking access to gold records from the Federal
Reserve and then suing the Fed in U.S. District Court for the District of
Columbia, GATA obtained a sensational written admission from the Fed, signed
by Fed Board of Governors member Kevin M. Warsh, a
former member of the President's Working Group on Financial Markets -- the
so-called "Plunge Protection Team." Warsh
wrote that the Fed has secret gold swap arrangements with foreign banks and
that these arrangements must be kept secret.
So has gold
from the U.S. reserve been swapped? Does the United States really have 8,200 tonnes of gold in its reserve, as it long has claimed to
Fed Governor Warsh didn't quite say that U.S. gold had been swapped,
only that the Fed has gold swap arrangements. But the U.S. gold reserve
hasn't been audited in more than half a century, and the last audit wasn't
really complete. So in the next session of Congress U.S. Rep. Ron Paul hopes
to introduce legislation requiring an audit of the gold reserve, including
specifically any encumbrances like swaps and leases.
are the major gold and silver exchange-traded funds, which were established
in the last few years supposedly to help ordinary investors invest
conveniently in gold and silver. How much metal do the ETFs have?
major gold and silver ETFs frequently report their metal holdings, studies by
GoldMoney founder James Turk and GATA board member
Catherine Austin Fitts and her lawyer, Carolyn
Betts, suggest that this data is unreliable too. For the major ETFs won't
disclose exactly where their metal is, and indeed their prospectuses say it's
OK for the ETFs not even to know where their metal is kept among custodians
and sub-custodians. And the custodians for the major gold and silver ETFs
are, perhaps not so coincidentally, also the two major international banks
that report having the biggest short positions in gold and silver, short
positions that give these banks and metal custodians a powerful interest in suppressing
the price of the assets they supposedly are holding for investors who want
those assets to rise in value.
How much gold
do the major gold and silver ETFs really have in their vaults? How much of it
is encumbered in some way? ETF investors themselves will never be permitted
so-called "physical" gold market in the world is the one run by the
London Bullion Market Association. The LBMA publishes statistics on how much
gold and silver are traded by its members. But these statistics show
spectacular volumes, more metal than could possibly exist. Of course much of
this metal could be sold and resold back and forth many times every day. But
an expert in that market, Jeffrey Christian of the CPM Group, acknowledged at
the March 25 hearing of the U.S. Commodity Futures Trading Commission, as he
had acknowledged in an explanatory report published in 2000, that the London
bullion market is actually a fractional-reserve gold banking system built on
the presumption that most gold buyers will never take delivery of their metal
but rather leave it on deposit with the LBMA members from whom they bought
member Adrian Douglas has studied the LBMA statistics and Christian's work
and estimates that the great majority of gold sold by LBMA members doesn't
exist -- that most gold sales by LBMA members are highly leveraged. How
leveraged? How much gold is due from LBMA members that
doesn't really exist? The LBMA doesn't report that. Like the Fed's
gold swap arrangements, the world mustn't be permitted to know. The
consequences might be catastrophic for the banking interests that run the
For then the
world might understand why even at its recent price above $1,300 per ounce
gold has not come close to keeping up with the inflation, the currency
debasement, of the last few decades, why gold has not fulfilled its function
of hedging against inflation. That is, gold's enemies figured out how to
increase its supply by vast amounts without going through the trouble of
digging it out of the ground. They invented "paper gold" -- gold
that doesn't exist but that many buyers accepted, never suspecting that major
financial institutions might deceive or defraud them.
* * *
misunderstanding of the gold market continues with the awful journalism about
of the data about the gold market practically screams at financial
the omission by official gold reserve reports of leased and swapped gold.
-- There are
the sudden huge changes in official gold reserve totals.
-- There are
the deception and conflicts of interest built into ETF prospectuses.
documentation about the gold market also practically screams at financial
-- There are
the huge and disproportionate gold, silver, and interest rate derivative
positions built up at just two or three international banks, positions that
never could be undertaken without the express or implicit underwriting of the
-- And there
are the dozens of official records, records collected and publicized by GATA
over the years, demonstrating the plans and desire of the U.S. government to
suppress and control the price of gold.
journalists just don't ask about these things. After all, who are the major advertisers
in the financial news media? The market manipulators and governments
Here are a
couple of examples of this grotesque failure of journalism just from this
In June the
Bank for International Settlements, the central bank of the central banks,
disclosed, via a footnote in its annual report, that it had undertaken a gold
swap of unprecedented size, 346 tonnes. But the BIS
provided no explanation. A newsletter writer was the first to come upon the
information; only then did it leach into the major financial news media. What
was going on here?
for the major financial news media didn't bother going to the source, didn't
bother asking the BIS itself. It was simply assumed that central banks never
give serious answers about what they do. Instead the reporters called various
gold market analysts for what they hoped would be informed speculation.
A few days
after GATA ridiculed the Reuters news agency for not demanding answers from
the source, the BIS, Reuters did try putting some questions to the
bank, and on July 16 Reuters reported: "The BIS said the gold in
question was used for 'pure swap operations with commercial banks' but
declined to respond to further questions from Reuters on the
For a year I
have been urging financial journalists to call the Federal Reserve to ask for
an explanation of the secret gold swap arrangements admitted by Fed Governor Warsh. As far as I know, no news organization has put
such questions to the Fed officially. But, a bit intrigued, a reporter for
another major news agency, having failed to get her editor's authorization to
pursue a story about gold, called the Fed on her own and did ask about the
gold swap arrangements. She told me that a Fed spokesman had told her:
"Oh, we never talk about those things."
been gaining publicity over the last year, if with great difficulty. A few
months ago the Financial Times did a big story about gold that was half about
GATA's complaints about gold price manipulation by central banks and their
associated bullion banks. But the FT reporter failed to put any of our
complaints and questions to any central bank or government official.
How can you
report complaints of central bank gold price manipulation without questioning
central banks themselves? Again, it's just taken for granted that central
banks operate in secret and there's no point in questioning them.
* * *
journalistic negligence will change a little because of the remarkable event
yesterday in Washington.
A member of the
U.S. Commodity Futures Trading Commission, Bart Chilton, to whom GATA
Chairman Bill Murphy, in a meeting at CFTC headquarters in Washington in
December 2008, delivered evidence of the manipulation of the gold and silver
markets, made a statement that had a noticeable effect on those markets. At a
CFTC hearing yesterday Chilton issued a formal statement urging his
commission to answer to the public for the commission's seemingly
interminable investigation of the silver market.
added: "I believe that there have been repeated attempts to influence
prices in the silver markets. There have been fraudulent efforts to persuade
and deviously control that price. Based on what I have been told by members
of the public and reviewed in publicly available documents, I believe
violations to the Commodity Exchange Act have taken place in silver markets
and that any such violation of the law in this regard should be
Chilton's statement had become international news. Of course that doesn't
mean that financial news organizations will press the precious metals market
manipulation story vigorously now. But the story just became a lot harder to
ignore. Indeed, just a few hours ago a lawsuit complaining of silver price
manipulation by J.P. Morgan Chase & Co. and HSBC was filed in U.S.
District Court for the Southern District of New York.
* * *
gold such a mystery? Why is it, along with silver, kept such a
the two precious metals are not only money but, from the point of view of
free individuals, the best sort of money, less susceptible to what
governments see as the most desirable quality of money -- the susceptibility
to control by government and particularly its susceptibility to devaluation.
You can print or otherwise issue gold and silver derivatives to infinity, but
not the metals themselves.
particularly is kept such a mystery because it is the key to unlocking the
currency markets, which long have been the most efficient mechanisms of
Many of you
have heard about the looting of Europe that was undertaken by the Nazi German
occupation during World War II. But most of that looting did not take place
at the point of a gun. No, it took place through the currency markets.
through the currency markets was spelled out by the November 1943 issue of a
military intelligence letter published by the U.S. War Department, a letter
called Tactical and Technical Trends. Of course the Nazi occupation seized
whatever central bank gold reserves had not been sent out of the occupied
countries in time. But then the Nazi occupation either issued special
occupation currency that could not be used in Germany itself or, in countries
that had fairly sophisticated banking systems, took over the domestic central
bank and enforced an exchange rate much more favorable to the reichsmark. Or else the Nazi occupation simply printed
for itself and spent huge new amounts of the regular currency of the occupied
country. This control of the currency markets drafted every resident of the
occupied countries into the service of the occupation and achieved a one-way
flow of production -- a flow out of the occupied countries and into Germany.
For a few
years Nazi Germany had one hell of a trade deficit. But being in the position
to print the currencies for occupied Europe, Nazi Germany never had to cover
United States now issues the reserve currency for the world, the dollar, the
United States now more or less occupies most countries economically, even
those countries that have their own currencies, since even those countries
hold most of their foreign exchange reserves in dollars.
and widely accessible gold always has been and always will be a threat to the
rigging of the currency markets, always will be the escape from overbearing
government generally and from any overbearing government in particular. That
is why so many U.S. government records compiled by GATA over the years
candidly discuss or advocate or describe controlling and suppressing the gold
market. A declassified cable from the U.S. Embassy in Paris to the State
Department in Washington, written in March 1968, even talks about the
necessity for U.S. monetary officials to remain what the cable calls
"the masters of gold." This is also why U.S. government agencies
like the Federal Reserve are trying desperately to prevent other such
documents from being disclosed.
That is, gold
is the secret knowledge of the financial universe and its true value relative
to currencies is vastly greater than its nominal price today, since much of
the gold that investors think they own doesn't exist.
is to bust this secret open. Russia, China, and other Asian countries have
figured out that the dollar reserve system is the mechanism of their economic
enslavement and have started to prepare their liberation by accumulating gold
in a big way before gold is formally reinstated as the world reserve currency
or as a big part of that new reserve currency. Now you're in on the secret
too. This wonderful conference will give you many good ideas for preparing
yourselves profitably. But just make sure that whenever you buy precious
metal, you're getting metal, not paper. Otherwise you'll just be
Secretary / Treasurer
* * *
Join GATA here:
New Orleans Investment Conference
Wednesday-Saturday, October 27-30, 2010
Hilton New Orleans Riverside Hotel
* * *
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