Wow! What a post! This article puts out a lot of framework for GATA’s argument that the Fed and Central Banks of the world are serial gold and silver manipulators. It is definitely for those new to this scheme and who are taking steps to understand what is happening in the gold and currency markets. GATA started as a fringe outfit and is now almost universally accepted as the agency of truth trying to pull the Fed into the light of day.
Gold Anti-Trust Action Committee Inc.
The Cheviot Asset Management Sound Money Conference
The Guildhall, London
Thursday, January 27, 2011
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 Jim Rickards, director of market intelligence for the Omnis consulting firm in Virginia, 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 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 Jim 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. So it is a thrill for me that everyone here today is being so polite.How have central banks tried to suppress 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.
You may have heard GATA 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:
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.
A few weeks ago 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 has come 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 has been 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 a suggestion 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. has engaged in gold swaps:
But now the Fed has admitted such arrangements, if only inadvertently.
GATA subsequently sued the Fed in U.S. District Court for the District of Columbia to gain access to the documents involved. That suit is pending.
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, using what are called repurchase agreements and the Fed’s Primary Dealer Credit Facility. The financial houses thus have become the Fed’s agents in directing that money into the markets. As GoldMoney’s James Turk notes, the recent rise in the U.S. stock market matches almost exactly the money funneled by the Fed to the New York financial houses through repurchase agreements and the Primary Dealer Credit Facility — devices of “quantitative easing.”
Meanwhile, 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 ridiculous on its face, 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 that 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:
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 brazenly hypocritical, since these imbalances have been caused by the central banks themselves, caused by their constant interventions in the markets 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 has been noted by U.S. Rep. Ron Paul, 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, 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.
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 won’t be answering that question voluntarily. It will be answered only at the order of the federal court in which GATA is suing the Fed, or at the direction of Representative Paul’s subcommittee.
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:
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.
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 may never be permitted to know.
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 a hearing of the U.S. Commodity Futures Trading Commission last March, 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 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.
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.
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 completely fulfilled its function of hedging against inflation.
That is, gold’s enemies 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.
Negligent journalism about gold
The misunderstanding of the gold market is worsened with 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.
But somehow financial 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 themselves.
Here are a couple of examples of this gross failure of journalism in the last year.
Last 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 for this. 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?
The reporters 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, particularly in regard to gold. 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 of the swaps, the BIS, Reuters did try putting some questions to the bank, and on July 16 last year 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 transaction”:
Ever since Federal Reserve Governor Warsh admitted to GATA that the Fed has secret gold swap arrangements with foreign banks, I have been urging financial journalists to call the Fed to ask about those arrangements. As far as I know, no news organization has put such questions to the Fed officially. But, a bit intrigued, a reporter for a 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.”
GATA has been gaining publicity, if with difficulty. Last year 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 amazingly the FT reporter failed to put any 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 is just taken for granted that central banks operate in secret, particularly in regard to gold, and there’s no point in questioning them.
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 unlocking 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. 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.
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.
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 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, exhaustion 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, 15-20 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 farther 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 about reversion to the real.
A century ago Rudyard Kipling anticipated this when 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 their 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. (Now all we need to do is find a safe planet to keep them on.)
The focus on London
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 let us instead see this scheme as an aberration and London as the city where the rescue of all decent civilization was arranged even as the bombs of the most horrifying evil fell on it. The St. Paul’s that was so famously surrounded by the fire and smoke of those bombs is just around the corner from this grand old building; please forgive a rube tourist for being a bit in awe of it all. GATA actually has a few friends in this city and hereabouts. So 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 knew the facts of 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 your help 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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