Remarks by Chris Powell, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
Pi Capital Dinner
Scott's Restaurant, Mayfair, London
Monday, October 10, 2011
Thank you for your kind invitation this evening. I'm especially delighted to accept it since I've been in London several days now and this is the first time I've heard anyone speaking English. I was in Hong Kong a few weeks ago and heard much more English being spoke there. What kind of an empire are you guys running these days?
Well, actually, maybe it's a better kind of empire -- a voluntary empire, an empire of example. "God who made thee mighty, make thee mightier yet." But let it be done in the right way. ...
Most Americans will believe almost anything if it's said with a British accent. I'm not here to ask you to return the favor, but rather to consider some evidence, to be receptive to questions, and to start asking some questions of your own.
In September 2009 the geopolitical analyst James G. Rickards was interviewed about the currency markets on the cable television network CNBC. Rickards remarked: "When you own gold you're fighting every central bank in the world."
That's because gold is a currency that competes with government currencies and has a powerful influence on interest rates and the value of government bonds. This was documented in an academic study published in 1988 in the Journal of Political Economy by Lawrence Summers, then professor of economics at Harvard, future U.S. treasury secretary, and Robert Barsky, professor of economics at the University of Michigan -- a study titled "Gibson's Paradox and the Gold Standard." This study is posted at GATA’s Internet site:
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. 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 bank system, the manipulation of the gold market is the manipulation that makes possible all other market manipulation by government.
Of course what Rickards said about gold was no surprise to my organization, the Gold Anti-Trust Action Committee. To the contrary, what Rickards said has been our premise for most of our 12 years, and we have documented it extensively. But while the gold price suppression scheme is a hard fact of history, it is seldom mentioned in polite company in the financial world. The public records of the scheme are largely ignored.
That is, the gold price suppression scheme is not what it is sometimes disparaged as being, "conspiracy theory." Rather it is a matter of the most extensive public record -- at least for those who want to look at the record.
These records include:
-- Public statements by Federal Reserve officials, officials of other Western central banks, and the International Monetary Fund.
-- Declassified Central Intelligence Agency memoranda.
-- The minutes of the Federal Reserve's Federal Open Market Committee.
-- Filings and statements in three gold price suppression lawsuits in the United States; one brought by my committee's consultant, Reginald H. Howe, against central banks and bullion banks in U.S. District Court in Boston in 2001; another brought by Blanchard Coin and Bullion against Barrick Gold Corp. in U.S. District Court in New Orleans in 2003; and the third brought two years ago by my organization against the Federal Reserve in U.S. District Court for the District of Columbia.
-- These records also include declassified or leaked U.S. State Department cables.
-- The records include statistical studies done by market researchers like Adrian Douglas in the United States and Dimitri Speck in Germany.
-- And then there is testimony at the hearing about the precious metals markets that was held on March 25, 2010, by the U.S. Commodity Futures Trading Commission. The testimony there led to the filing of a massive silver price rigging lawsuit against J.P. Morgan Chase. The revised complaint against J.P. Morgan Chase, filed last month in U.S. District Court for the Southern District of New York, contains pages and pages of extraordinarily specific detail, identifying trades, traders, and dates. The revised complaint is posted at GATA's Internet site:
Exactly how have central banks suppressed the price of gold?
The gold price suppression scheme was undertaken openly by governments for a long time prior to 1971. That's what the gold standard was about -- governments fixing the price of gold to a precise value in their currencies, a price at which governments would exchange their currencies for gold, currencies backed by gold.
Though the gold standard was abandoned during World War I, restored briefly in the 1920s, and then abandoned again during the Great Depression, that was not the end of government efforts to control the gold price. Throughout the 1960s the United States, Great Britain, and some of their allies attempted to hold the price at $35 per ounce in a public arrangement of the dishoarding of U.S. gold reserves. This arrangement was known as the London Gold Pool.
As monetary inflation rose sharply, the London Gold Pool was overwhelmed by gold demand and was shut down abruptly in April 1968. Three years later, in 1971, the United States repudiated the remaining convertibility of the dollar into gold -- convertibility for government treasuries that wanted to exchange dollars for gold. At that moment currencies began to float against each other and against gold -- or so the world was told.
In fact since 1971 the gold price suppression scheme has been undertaken largely surreptitiously, seldom acknowledged officially. But sometimes it has been acknowledged officially, and with a little detective work, still more about the price suppression can be discovered.
GATA is sometimes derided as a "conspiracy theory" organization. We are not that at all. To the contrary, we examine the public record, produce documentation, question public officials, publicize their most interesting answers, or their most interesting refusals to answer, and sometimes litigate to get information. I'd like to review some of the public record with you.
The official records
The gold price suppression scheme was a matter of public record in January 1995, when the general counsel of the U.S. Federal Reserve Board, J. Virgil Mattingly, told the Federal Open Market Committee, according to the committee's minutes, that the U.S. Treasury Department's Exchange Stabilization Fund had undertaken gold swaps. Gold swaps are exchanges of gold allowing one central bank to intervene in the gold market on behalf of another central bank, potentially giving anonymity to the central bank that wants to undertake the intervention. The 1995 Federal Open Market Committee minutes in which Mattingly acknowledges gold swaps are still posted at the Fed's Internet site:
The gold price suppression scheme was again a matter of public record in July 1998, six months before GATA was formed, when Federal Reserve Chairman Alan Greenspan told Congress: "Central banks stand ready to lease gold in increasing quantities should the price rise." That is, Greenspan contradicted the usual central bank explanation for leasing gold -- supposedly to earn a little interest on a dead asset -- and admitted that gold leasing is all about suppressing the price. Greenspan's admission is still posted at the Fed's Internet site:
Incidentally, while gold advocates love to cite Greenspan's testimony from 1998 because of its reference to gold leasing, that testimony was mainly about something else, for which it is far more important. For with that testimony Greenspan persuaded Congress not to regulate the sort of financial derivatives that lately have devastated the world financial system.
The Washington Agreement on Gold, made by the European central banks in 1999, was another admission -- no, a proclamation -- that central banks were working together to control the gold price. The central banks in the Washington Agreement claimed that, by restricting their gold sales and leasing, they meant to prevent the gold price from falling too hard. But even if you believed that explanation, it was still collusive intervention in the gold market. You can find the Washington Agreement and its successor agreements at the World Gold Council's Internet site:
Barrick Gold, then the largest gold-mining company in the world, confessed to the gold price suppression scheme in U.S. District Court in New Orleans on February 28, 2003. That is when Barrick filed a motion to dismiss Blanchard & Co.'s anti-trust lawsuit against Barrick and its bullion banker, JPMorganChase, for rigging the gold market.
Barrick's motion claimed that in borrowing gold from central banks and selling it, the mining company had become the agent of the central banks in the gold market, and, as the agent of the central banks, Barrick should share their sovereign immunity and be exempt from suit. Barrick's confession to the gold price suppression scheme is posted at GATA's Internet site:
The Reserve Bank of Australia confessed to the gold price suppression scheme in its annual report for 2003. "Foreign currency reserve assets and gold," the Reserve Bank's report said, "are held primarily to support intervention in the foreign exchange market." The Reserve Bank's report is still posted at its Internet site:
Maybe the most brazen admission of the Western central bank scheme to suppress the gold price was made by the head of the monetary and economic department of the Bank for International Settlements, William S. White, in a speech to a BIS conference in Basel, Switzerland, in June 2005.
There are five main purposes of central bank cooperation, White announced, and one of them 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." White's speech is posted at GATA's Internet site:
Two years ago a remarkable 16-page memorandum was found 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." It is a detailed plan of surreptitious intervention to rig the currency and gold markets to support the dollar and to conceal, obscure, or falsify U.S. government records and reports so that the rigging might not be discovered. Amazingly, this plan for rigging the currency and gold markets remains on the Internet site of the Federal Reserve Bank of St. Louis, and is posted at GATA's Internet site too:
In August 2009 the international journalist and provocateur Max Keiser reported an interview he had with the Bundesbank, Germany's central bank, in which he was told that all of Germany's gold reserves were held in New York. That interview is posted at the YouTube Internet site:
Some people saw the Bundesbank's admission as a suggestion that Germany's gold had become the tool of the U.S. government. GATA consultant Rob Kirby of Kirby Analytics in Toronto then pressed the Bundesbank for clarification. The Bundesbank quickly replied to Kirby by e-mail with a denial of Keiser's report, but the denial was actually pretty much a confirmation:
"The Deutsche Bundesbank," the reply said, "keeps a large part of its gold holdings in its own vaults in Germany, while some of its gold is also stored with the central banks located at major gold trading centers. This," the Bundesbank continued, "has historical and market-related reasons, the gold having been transferred to the Bundesbank at these trading centers. Moreover, the Bundesbank needs to hold gold at the various trading centers in order to conduct its gold activities."
The Bundesbank did not specify those "gold activities" and those "trading centers." But those "activities" can mean only that the Bundesbank is or recently has been surreptitiously active in the gold market, perhaps at the behest of others -- like the United States, the custodian of German gold.
Last year the German journalist Lars Schall, at GATA's urging, pressed the Bundesbank for clarification about the German gold reserves, and particularly about whether the Bundesbank had undertaken gold swaps with any U.S. government agency. Schall sent the Bundesbank 13 questions. But the Bundesbank brushed him off, even as it seemed to acknowledge meddling surreptitiously in the gold market:
The Bundesbank replied:
"In managing foreign reserves, the Bundesbank fulfils one of its mandated tasks as an integral part of the European System of Central Banks. We trust you will understand that we are not able to divulge any further information regarding this activity. 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."
In 2009 a New York financial market professional and student of history, Geoffrey Batt, posted at the Zero Hedge Internet site three declassified U.S. government documents involving the gold market. The first was a long cable dated March 6, 1968, sent by someone named Deming at the U.S. Embassy in Paris to the State Department in Washington. It has been posted at the Zero Hedge Internet site:
The cable described the strains on the London Gold Pool, the gold-dishoarding mechanism established by the U.S. Treasury and the Bank of England to hold the gold price to the official price of $35 per ounce. The London Gold Pool was to last only six months longer.
The cable is a detailed speculation on what would have to be done to control the gold price and particularly to convince investors "that there is no point anymore in speculating on an increase in the price of gold" and "to establish beyond doubt" that the world financial system "is immune to gold losses" by central banks.
The cable recommended creation of a "new reserve asset" with "gold-like qualities" to replace gold and prevent gold from gaining value. To accomplish this, the cable proposed "monthly or quarterly reshuffles" of gold reserves among central banks -- what the cable called a "reshuffle club" that would apply gold where market intervention seemed most necessary.
Of course these "reshuffles" sound very much like the central bank gold swaps and leases of recent years.
The idea, the cable says, is for the central banks "to remain the masters of gold."
Also disclosed in 2009 by Zero Hedge's Geoffrey Batt was a memorandum from the Central Intelligence Agency dated December 4, 1968, several months after the collapse of the London Gold Pool. This too has been posted at the Zero Hedge Internet site:
The CIA memo said that to keep the dollar strong and prevent "a major outflow of gold," U.S. strategy would be:
"-- To isolate official from private gold markets by obtaining a pledge from central banks that they will neither buy nor sell gold except to each other."
"-- To bring South Africa to sell its current production of gold in the private market, and thus keep the private price down."
The third declassified U.S. government document published by Geoffrey Batt at Zero Hedge in 2009 may be the most interesting, because it was written on June 3, 1975, four years after the last bit of official fixed convertibility of the dollar and gold had been eliminated and the world had been told that currencies henceforth would float against each other and against gold and that gold would be free-trading.
The document is a seven-page memorandum from Federal Reserve Board Chairman Arthur Burns to President Gerald Ford. It is all about controlling the gold price through foreign policy and defeating any free market for gold. It has been posted at GATA's Internet site:
Burns tells the president: "I have a secret understanding in writing with the Bundesbank, concurred in by Mr. Schmidt" -- that's 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 adds, "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."
While the Burns memo is consistent with the long-established interest of central banks in controlling the gold price, it was written 36 years ago.
But there is a contemporaneous admission of U.S. government intervention in the gold market. It came out of GATA's long Freedom of Information Act struggle with the U.S. Treasury Department and Federal Reserve for information about the U.S. gold reserves and gold swaps, information that was denied to GATA on the grounds that it would compromise certain private "proprietary" interests. (Of course such a denial, a denial based on private proprietary interests, is in itself confirmation that the U.S. gold reserve has been placed, at least partly, in private 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.
Of course both requests were denied again. But through its Washington lawyer, William J. Olson (http://www.lawandfreedom.com), GATA brought an appeal of the Fed's denial, and this appeal was directed to a full member of the Fed's Board of Governors, Kevin M. Warsh, formerly a member of the President's Working Group on Financial Markets, nicknamed the Plunge Protection Team. Warsh denied GATA's appeal but in his letter to our lawyer he let slip some stunning information:
Warsh wrote: "In connection with your appeal, I have confirmed that the information withheld under Exemption 4" -- that's Exemption 4 of the Freedom of Information Act -- "consists of confidential commercial or financial information relating to the operations of the Federal Reserve Banks that was obtained within the meaning of Exemption 4. This includes information relating to swap arrangements with foreign banks on behalf of the Federal Reserve System and is not the type of information that is customarily disclosed to the public. This information was properly withheld from you."
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.
Eight 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:
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 couldn't 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 as compiled by an official of the New York Federal Reserve Bank. The minutes showed government and central bank officials from around the world conspiring in secret to coordinate their gold market policies. The minutes are posted at GATA's Internet site:
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. Either the the G-10 Gold and Foreign Exchange Committee has met only that once, in April 1997, or the Fed was not represented at any other such meetings, or, more likely, such minutes were conveniently misplaced to keep them away from GATA's lawsuit.
Thus GATA's lawsuit established that, despite its public denials, the Fed has many gold secrets after all. 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:
Central banks are out of control
There is a reason for the Fed's insistence that the public and the markets must not know what the Fed is doing in the gold market.
It is because, as the documents compiled and publicized by GATA suggest, suppressing or controlling the gold price is part of the general surreptitious rigging of the currency, bond, and commodity markets by the U.S. and allied governments; because this market rigging is the foremost objective of U.S. foreign and economic policy; and because this rigging cannot work if it is exposed and the markets realize that they are not really markets at all.
This should not be so surprising. For intervening in markets is what central banks do. They have no other purpose. They've just gotten out of control.
Central banks often admit intervening in the currency markets, buying and selling their own currencies and those of other governments to maintain exchange rates at what they consider politically desirable levels. Central banks admit doing the same in the government bond markets. There is even evidence that the Federal Reserve and Treasury Department, through intermediaries, have been intervening frequently in the U.S. stock markets since the crash of 1987.
You do not have to settle for rumors about the "Plunge Protection Team," the President's Working Group on Financial Markets. Again you can just look at the public record.
The Federal Reserve injects billions of dollars into the stock and bond markets every week, on the public record, through the major New York financial houses, its so-called primary dealers in federal government bonds. Fed officials have private communication with those primary dealers as to what should be done with that money.
Meanwhile the U.S. Treasury Department operates the Exchange Stabilization Fund, whose activities are exempt from review by Congress and the Freedom of Information Act.
And for years the International Monetary Fund, the central bank of the central banks, has been openly intervening in the gold market by threatening to sell gold and then finally selling some, or at least claiming to have sold some. The IMF said its intent in selling gold was to raise money to lend to poor nations. This explanation was plainly ridiculous, though the IMF has never been challenged about it in the financial press. No, the financial press has been happy to tell the world that central banks, which lately have effortlessly conjured into existence, out of nothing, fantastic amounts of money in many currencies, could find a little money to help poor countries only by selling gold.
Of course the intent of the IMF and its member central banks was not to help poor countries but to intimidate the gold market and control the gold price.
Just as Lars Schall recently tried to get some useful information out of the Bundesbank about its gold reserves, in April 2008 I wrote to the managing director of the IMF, Dominque Strauss-Kahn, with five questions about the IMF's gold. I copied the letter to the IMF's press office by e-mail, and quickly began to get some replies from one of its press officers, Conny Lotze. But they were all evasive or refusals to answer. Exactly where is the IMF's gold and who controls it? The IMF wouldn't say. My correspondence with the IMF is posted at GATA's Internet site:
Lately central bankers often have complained about what they call "imbalances" in the world financial system. That is, certain countries, particularly in Asia, run big trade surpluses, while other countries, especially the United States, run big trade deficits and consume far more than they produce, living off the rest of the world. These complaints by the central bankers about "imbalances" are terribly hypocritical, since these imbalances have been caused by the central banks themselves, caused by their constant interventions to prevent the markets from coming into balance through ordinary market action lest certain political interests be disturbed.
Yes, when markets balance themselves they sometimes do it brutally, causing great damage to many of their participants. The United States enacted a central banking system in 1913 because for the almost 150 years before 1913 the country went through a catastrophic deflation every decade or so. Central banking was created in the name of preventing those catastrophic deflations.
The problem with central banking has been mainly the old problem of power -- it corrupts.
Central bankers are supposed to be more capable of restraint than ordinary politicians, and maybe some are, but they are not always or even often capable of the necessary restraint. One market intervention encourages another and another and increases the political pressure to keep intervening to benefit special interests rather than the general interest -- to benefit especially the financial interests, the banking and investment banking industries. These interventions, subsidies to special interests, increasingly are needed to prevent the previous imbalances from imploding.
And so we have come to an era of daily market interventions by central banks -- so much so that the main purpose of central banking now is to prevent ordinary markets from happening at all.
By manipulating the value of money, central banking controls the value of all labor, services, and real goods, and yet it is conducted almost entirely in secret -- because, in choosing winners and losers in the economy, advancing infinite amounts of money to some participants in the markets but not to others, administering the ultimate patronage, central banking cannot survive scrutiny.
As U.S. Rep. Ron Paul often notes, the Federal Reserve, an unelected agency of the government, has come to appropriate and spend far more money than Congress itself does.
Yet the secrecy of central banking now is taken for granted even in nominally democratic countries.
Now that Paul, an immensely informed critic of the Fed, has become chairman of the House subcommittee on monetary affairs and is a candidate for president again, there may be some devastating public inquiries into central banking. But what a hundred years ago in the United States was called the Money Power is still so ascendant that it sometimes even boasts of its privilege. What other agency of a democratic government could get away with the principle that was articulated on national television in the United States in 1994 by the vice chairman of the Federal Reserve, Alan Blinder? Blinder declared: "The last duty of a central banker is to tell the public the truth."
Official gold data is disinformation
Government's largely surreptitious agenda in the gold market is greatly assisted by the widespread falsification of gold reserve and market data. Gold is the worst understood financial market in part because most official data about gold is actually disinformation.
Years ago 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 market into thinking that central banks had much more gold left to bomb the market with than they really did.
But that's only the start of the false data.
In April 2009 China caused 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. Most experts 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:
Last 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 sensation.
But a few weeks later the governor of the Saudi Arabia Monetary Authority, Muhammad al Jasser, insisted to news reporters that Saudi Arabia had not purchased the gold cited in the June reports but rather had possessed that extra gold all along, holding it in what he called "other accounts":
That is, the seemingly new Saudi gold had been held 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.
Some analysts 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, explode the gold market, and devalue their dollar surpluses before those surpluses are fully hedged.
In May this year it was announced that Mexico recently had purchased 93 tonnes of gold, bringing its gold reserves to 100 tonnes. But last month the Mexican journalist Guillermo Barba reported that the Bank of Mexico refuses to disclose where it is keeping those 93 tonnes and apparently doesn't even know the form of the gold it claims to have purchased:
Apparently in purchasing gold this year the Bank of Mexico became only an unsecured creditor of banks that are members of the London Bullion Market Association, home of fractional-reserve gold banking and primary mechanism of the gold price suppression scheme.
The United States claims to hold almost 8,200 tonnes of gold. But has any of that gold been swapped with other central banks through the gold swap arrangements Fed Governor Warsh disclosed in his letter denying GATA's request for access to the Fed's gold documents? The Fed refuses to release its records on the issue.
The biggest so-called "physical" gold market in the world is 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 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 hearing of the U.S. Commodity Futures Trading Commission on March 25, 2010, as he had acknowledged in an explanatory essay he published in 2000, that the London bullion market is actually a fractional-reserve gold banking system built on the assumption that most gold buyers will never take delivery of their metal but rather leave it on deposit with the LBMA member banks from which they bought it, leaving the gold available for other uses by the bullion banks:
GATA board 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? Of course the LBMA doesn't report that. Like the Fed's gold swap arrangements, the world must not be permitted to know that much of the gold the world thinks it owns is imaginary. The consequences might be catastrophic for the banks that have sold that imaginary gold and for the central banks that have lent it out.
For then the world might understand why even at its recent price above $1,600 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 completely fulfilled its function of hedging against inflation.
That is, Western central banks figured out how to increase gold's supply by vast amounts without going through the trouble of digging it out of the ground. They invented "paper gold" -- imaginary gold that many buyers accepted, never suspecting that major financial institutions might deceive or defraud them.
Conflicts of interest at ETFs
Then there 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?
While the major gold and silver ETFs frequently report their metal holdings, studies by GoldMoney founder James Turk and former GATA board member Catherine Austin Fitts and her lawyer, Carolyn Betts, suggest that this data is unreliable too. The study by Fitts and Betts is posted at GATA's Internet site:
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.
Further, the custodians for the major gold and silver ETFs are, perhaps not so coincidentally, also the two major international banks -- J.P. Morgan Chase and HSBC -- 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 price.
The big gold ETF, GLD, suffered huge embarrassment this year when its gold custodian HSBC, attempting to show that it really held GLD's gold, invited CNBC reporter Bob Pisani on a tour of its secret gold vault in the London area. HSBC gave Pisani a gold bar to display to the camera as one of GLD's bars. As it turned out, the bar Pisani displayed belonged to another fund entirely:
How much gold do the major gold and silver ETFs really have in their vaults? How much of it is encumbered in some way? Who really owns it and who really controls it? How much of it is really gold leased from central banks to suppress gold's price?
ETF investors themselves will never be permitted to know.
Negligent journalism about gold
The misunderstanding of the gold market is perpetuated by the awful journalism about it.
The falsity of the data about the gold market practically screams at financial journalists:
-- There is the omission by official gold reserve reports of leased and swapped gold.
-- There are the sudden huge changes in official gold reserve totals.
-- And there are the deception and conflicts of interest built into ETF prospectuses.
The valid documentation about the gold market also practically screams at financial journalists as well:
-- 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 government, particularly the U.S. government.
-- And there are the many 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.
Most obvious is the question that should follow the common disparagement of gold, a question that somehow is never asked. You well may have heard this disparagement: that even with its steady rise in price over the last decade, gold has not come close to keeping pace with inflation over the last 30 years. Oil has kept up, food has kept up, other metals have kept up, all the things that are used as measures of inflation have, by definition, kept up with inflation -- but not gold.
So why not? Why hasn't gold kept up with inflation?
It's because Western governments found ways of vastly increasing the supply of gold without having to go through the trouble of mining it -- to dishoard and lease it from central bank reserves and, through Western bullion banks, to issue certificates of deposit against gold that never existed in the first place.
"Why" is supposed to be a basic question of journalism. But it has fallen out of financial journalism when it comes to gold.
In recent years, and especially in recent months, I have spent much time trying to explain the gold price suppression scheme to financial journalists in the West. I have given them the documentation. Some of these journalists seemed interested. But none has ever reported anything about the issue. One writer who works for a major news agency in the United States was intrigued enough to call the Federal Reserve and ask about its gold swaps. She got a very telling "no comment." But unfortunately she could not get her editor's permission to write a gold story.
GATA has been gaining publicity, if with difficulty. Two years 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 agents, the bullion banks. But the FT reporter failed to put any questions to any central bank or government official:
How can you report complaints of gold price manipulation by central banks without questioning central banks themselves? Again, it is just taken for granted that central banks operate in secret, particularly in regard to gold, and there's no point in questioning them.
Indeed, how could anyone report the recent devaluation of the Swiss franc, the world's leading "safe haven" currency, without also reporting and putting some questions to central banks about the simultaneous plunge in the gold price? The Swiss franc's devaluation seemingly would have left the "safe haven" currency field to gold alone. The sudden sellers of massive amounts of gold, or at least paper gold, plainly did not aim to make a profit from their gold holdings; if they had intended to make a profit, they would have sold gradually into the market. No, they meant to knock the price down hard, at a strategic moment, and they did. These sellers almost surely were central banks. But as far as I could tell, no Western journalist has yet put a question to any central banker about that strange and counterintuitive action in the gold market.
Frustrating as all this is, it is not too surprising. After all, who are the major advertisers in the Western financial news media and the major sources of financial news? The market manipulators and governments themselves. And journalists seem to take for granted that central banks operate in secret, particularly in regard to gold, so there's no point in questioning them -- even though central banking now determines the value of all capital, labor, goods, and services in the world, and does so in secret.
Why gold and silver are mysteries
Why is gold such a mystery? Why is it, along with silver, kept such a mystery?
It's because the two precious metals are not only money but, from the point of view of free people, 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 susceptibility to devaluation. You can print or otherwise issue gold and silver derivatives to infinity, but not the metals themselves.
Gold particularly is kept such a mystery because it is the key to liberating the currency markets, which long have been the most efficient mechanisms of imperialism.
Many of you have heard about the looting of Europe undertaken by the Nazi German occupation during World War II. But most of that looting did not take place as it is imagined, at the point of a gun. No, it took place through the currency markets.
This looting through the currency markets was spelled out by the November 1943 edition of a military intelligence letter published by the U.S. War Department, a letter called Tactical and Technical Trends. It is posted at GATA's Internet site:
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 everyone in 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 Nazi Germany.
For a few years Nazi Germany had one hell of a trade deficit -- and couldn't have cared less about it. For being in the position to print the currencies for occupied Europe, Nazi Germany never had to cover that deficit, at least not as long as the military occupation continued.
Since the 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. Thus the one-way flow of production we see now -- out of the rest of the world and into the United States.
Free-trading and widely accessible gold always has been and always will be doom 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 those U.S. government records compiled by GATA over the years candidly discuss or advocate or describe controlling and suppressing the gold market -- and suppressing the truth itself.
Suppressed as the truth is here, it is not quite fully suppressed.
In the 1960s France's finance minister called it an "exorbitant privilege" for just one country -- the United States -- to be able to issue the world reserve currency.
In 2004 the deputy chairman of the Bank of Russia, Oleg Mozhaiskov, told the London Bullion Market Association conference held in Moscow:
"Although there are several reserve currencies, the blatant lack of discipline is demonstrated by the U.S. dollar. I am leaving aside the main aspects of this problem, such as the social and economic injustice of a world order that allows the richest country in the world to live in debt, undermining the vital interests of other countries and peoples. What is important for us today is another aspect, which is connected with the responsibility of the state issuing the reserve currency and for the international community preserving that currency's buying power."
Mozhaiskov recognized the role of gold price suppression in maintaining the dollar's place as the world reserve currency. For the only words of English spoken by Mozhaiskov in that speech were "Gold Anti-Trust Action Committee." Mozhaiskov said gold price movements were often so "enigmatic" that the laws of market supply and demand did not seem to apply.
As it turns out, the Bank of Russia long had been following GATA's work without our knowledge. With his speech in 2004 Mozhaiskov was telling the Western bullion bankers that Russia was on to them. That speech is posted at GATA's Internet site:
The gold price spike that began just after GATA's Gold Rush 21 conference in Dawson City, Yukon Territory, Canada in August 2005 was probably caused by the withdrawal of the Russian gold reserves that had been on deposit with bullion banks in London.
A few weeks ago Russia's prime minister, former president, and perhaps future president, Vladimir Putin, called the United States a "parasite" on account of its huge external debt and the international dominance of the dollar:
And last month it was disclosed that China knows all about the Western central bank gold price suppression scheme and that the United States government knows that China knows. This disclosure occurred through the release by the Wikileaks organization of 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 attributed to the Chinese newspaper Shijie Xinwenbao (World News Journal), which is published by the Chinese government's foreign radio service, China Radio International. The cable's summary reads:
“According to China's National Foreign Exchange Administration, China's gold reserves have recently increased. Currently, the majority of its gold reserves have been located in the United States and European countries. 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. 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.”
Two other U.S. Beijing embassy cables from the same period quote other semi-official Chinese commentaries to the same effect.
These cables are posted at GATA's Internet site:
The secret knowledge
The truth as GATA sees it is this:
First, 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. The actual disposition of Western central bank gold reserves is a secret more closely guarded than the blueprints for the manufacture of nuclear weapons. For gold is a deadly weapon too -- a weapon against unlimited government.
Second, all technical analysis of all markets now is faulty if it fails to account for pervasive and surreptitious government intervention.
And third, the intervention against gold is failing because of overuse, exposure, depletion of Western central bank gold reserves from gold sales and leasing, and the resentment of the developing world, which is starting to figure out how it has been expropriated by the dollar system, a system in which people do real work and create real goods and send them to the United States in exchange for nothing but colored paper and electrons.
For years now the Western central banks have been attempting a controlled retreat with gold, bleeding out their reserves with sales, leases, and especially derivatives so that gold's ascent and the dollar's inevitable decline may be less shocking. Central bankers often convey part of this strategy in code; they warn against what they call a "disorderly decline" in the dollar, as if an "orderly" decline is all right.
The rise in the gold price over the last decade is just the other side of that coin -- an "orderly" rise, 15 to 20 percent or so per year, a rise carefully modulated by surreptitious central bank intervention.
But GATA believes that the central banks may have to retreat further with gold than anyone dreams, and far more abruptly than they have retreated so far. We believe that when the central banks are overrun in the gold market, as they were overrun in 1968, and the market begins to reflect the ratio between, on one hand, the supply of real gold, actual metal, not the voluminous paper promises of metal, and, on the other hand, the explosion of the world money supply of the last few decades -- as the market begins to perceive the difference between the real and the unreal -- there may not be enough zeroes to put behind the gold price.
Market analysts talk about what they call "reversion to the mean." But maybe we should talk instead about reversion to the real.
A century ago Rudyard Kipling anticipated this when he wrote a poem that foresaw the decline of the empire of his country, Great Britain. Kipling's poem attributed this decline to the loss of the old virtues, the virtues that were listed at the top of the pages in the special notebooks, called "copybooks," that were given to British schoolchildren at that time -- virtues like basic honesty, fair dealing, Ten Commandments-type stuff. Kipling titled his poem "The Gods of the Copybook Headings," and its conclusion is a warning to the empire that succeeded the one he was living in:
Then the gods of the market tumbled, and their smooth-tongued wizards withdrew
And the hearts of the meanest were humbled and began to believe it was true
That all is not gold that glitters, and two and two make four,
And the gods of the copybook headings limped up to explain it once more.
As it will be in the future, it was at the birth of man.
There are only four things certain since social progress began:
That the dog returns to his vomit and the sow returns to her mire,
And the burnt fool's bandaged finger goes wabbling back to the fire;
And that after this is accomplished, and the brave new world begins,
When all men are paid for existing and no man must pay for his sins,
As surely as water will wet us, as surely as fire will burn,
The gods of the copybook headings with terror and slaughter return.
The problem goes far beyond gold price suppression. Indeed, since central bank intervention in the currency, bond, equities, and commodity markets has exploded over the last few years, we don't really know what the market price of anything is anymore. Thus the gold price suppression story is a story about the valuation of all capital and labor in the world -- and whether those values will be set openly in free markets, the democratic way, or secretly by governments, the totalitarian way.
The specifics of the gold price suppression operation are complicated, but you don't have to remember them all if you know what they mean.
They mean that there is a currency war going on between countries and central banks, and a war being waged by central banks against the people of their own countries. There has been such a war for many years, only the victims were not really fighting back. Now some of them are, countries and individuals alike, by buying and taking delivery of the monetary metals or repatriating their gold reserves from London, as Russia did a few years ago and as Venezuela now is doing.
London is at the center of it all
London may seem like the belly of the beast of Anglo-American imperialism, being home to both the LBMA and the Bank of England, whose surrender of the better part of Britain's gold reserves a decade ago, at the bottom of the market and at the onset of a short squeeze, makes sense only as part of the gold price suppression scheme and the rescue of influential bullion banks that were caught short at the market's turn. But London is also where the rescue of all decent civilization was arranged even as the bombs of the most horrifying evil fell upon it. The St. Paul's that was so famously surrounded by the fire and smoke of those bombs is not far from this place. Whenever I visit London I visit St. Paul's because I can't help slipping into June 1940 mode. Please forgive a rube tourist for still being in awe of it all.
When I was here in August I also went through the museum that has been made out of the old Cabinet War Rooms. There were lots of photos of Churchill, of course, but there was also a photo of General DeGaulle, who refused to accept the fall of France and flew to London to fight on. DeGaulle decided that France's war was not over and that, for the time being, in exile he would be France, and he was -- though maybe, a bit presumptuously, he continued to think himself to be France for a while even after France was once again able to do the job.
We in GATA do what we can to alert the world to the largely hidden war being waged over it and against it, even though, from our beginning, we have wondered whether we could really presume to speak for gold. And not just for gold, of course -- we are not idolaters -- but for the economic and political liberty of individuals and the national sovereignty that gold serves and stands for. With gold always under attack precisely for what it represents, and with no others coming forward to defend it for that, with even the gold mining industry's main trade association refusing to acknowledge the attack, we have hoped that any presumption on our part might be forgiven.
We remain largely amateurs. At the outset we did not half understand what was going on and what we were setting about to do. Our name -- "anti-trust action" -- preserves that imperfect understanding. We thought we had discovered just another anti-trust violation. It was a while before we realized that we were up against government policy and that most of what we were discovering had been discovered long ago, at least in principle, just not well taught, publicized, preserved, and made timely again.
So given what London represents to decent civilization, this may be as good a place as any to clamor for the most cosmic justice. After all, isn't it practically in your anthem?
And did the Countenance Divine
Shine forth upon our clouded hills?
And was Jerusalem builded here
Among these dark, Satanic ... central banking systems?
I don't think Blake would mind too much about that rewriting if he was still around and familiar with the situation. He might even make it rhyme.
We in GATA have our bow of burning gold; we have our arrows of desire. But we can always use more, and with more we will do more to restore our dear countries, Britain and America together, to their principles and ideals of democratic, transparent, limited government, and, really, the brotherhood of man, which, in the end, are what the monetary metals are about.
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