Central banks are steadily losing their cover in the gold market

Central banks are steadily losing their cover in the gold market

10:55p ET Thursday, December 15, 2011

Dear Friend of GATA and Gold:

Thanks to the latest commentaries by Brady Willett of Fall Street, Tom Szabo of Metal Augmentor, and Jim Willie of the Golden Jackass, more people are realizing the potential for market manipulation through central bank gold leasing, of which there lately have been strong indications.

In “Did Ron Paul Slay the Gold Bull?” Willett remarks that favorable lease rates “allow powerful interests to more readily manipulate gold”:


In “Charlatan Exposed: Negative Gold Lease Rates,” Szabo writes: “The gold forward rate has increased during both the late September and current selloffs in gold, which probably means that gold is being leased by central banks in order to provide liquidity for the banking system. … The gold bugs are essentially right that the gold price is falling this time because paper gold is flooding the market.”

Szabo seems to concur with GATA’s interpretation of the London Bullion Market Association as a fractional-reserve gold banking system generating a lot of imaginary gold for price-suppression purposes. He writes: “Other than the use of unallocated gold for swap, collateral, or trading purposes, the only other reason why an owner of gold would seek to ‘deposit’ physical gold with an LBMA member in an unallocated bullion account would be to avoid storage fees associated with allocated gold. It is not known to what extent the LBMA unallocated account is used by customers to avoid storage fees, but a significant amount of gold, perhaps several thousand tonnes, has been converted to paper form as a consequence of the bullion banks’ business. The theoretical result is that the paper gold will have to be converted back to physical metal in the future when the customer requests a withdrawal. We say ‘theoretical’ because the gold market may not be able to handle mass withdrawal requests from unallocated account holders should a future monetary crisis make all counterparty risk untenable. In fact, mass withdrawal requests would probably lead to a default in those LBMA unallocated accounts that are not backed by physical metal. At the present time, that would be most if not all of them.”

Szabo’s commentary is posted at Metal Augmentor here:


And in “Pathogenesis of Central Bank Ruin,” Willie writes: “The gold market has gone into the Twilight Zone. The ruin of the European banking system, dragged down by toxic sovereign debt, has made the big European banks desperate. They are tapping into the virtually unlimited dollar swap facility, using borrowed money to lease gold. The Powerz have made the lease rate negative in order to attract borrowers.”

Willie’s commentary is posted at GoldSeek here:


And at 24hGold here:


All this points to constant surreptitious intervention by central banks and their agents in the gold market, and as the Bank of England said this week, while the public and the markets may be given some access to records of that intervention on a historical basis, they must not be allowed any knowledge of that intervention contemporaneously

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