Saturday, November 15, 2008
Gold Market Manipulation Exposed
Gold Anti-Trust Action Committee Inc.
New Orleans Investment Conference
New Orleans Marriott Hotel
Thursday, November 13, 2008
A year ago it was still a struggle to persuade some people that the gold and silver markets were being manipulated by Western central banks. Now, after months of financial turmoil around the world and constant central bank intervention in the markets, to believe that the gold and silver markets are not being manipulated by central banks you have to believe that those markets are the only markets not being so manipulated.
Why are the gold and silver markets manipulated by governments and the financial houses that serve as their agents? Because gold and silver are competitive currencies and because their value greatly influences interest rates, which ordinarily governments like to keep low.
Last year at this conference I reviewed in detail the official documentations and admissions of the gold price suppression scheme. Those documentations and admissions remain posted at GATA's Internet site. Today I'd like to review some evidence that has turned up more recently, as well as some related developments.
Maybe most interesting have been the studies of the U.S. Commodity Futures Trading Commission market reports done by silver market analyst Ted Butler and by Gene Arensberg, a market analyst for ResourceInvestor.com. Butler and Arensberg reported that as of August just two banks held more than 60 percent of the short positions in silver on the New York Commodities Exchange. This was an unprecedented and seemingly illegal concentrated short position, and it implied that the smashing down of silver was very much a manipulation by one or two very rich and powerful market participants, a destruction of the free market. Complaints about this concentrated short position prompted the CFTC to undertake still another investigation of the silver market, this time by a different division of the commission, its enforcement division. Further, CFTC Commissioner Bart Chilton has told GATA that the agency is investigating the gold market as well.
This week Arensberg found that the CFTC's latest report shows that just three or fewer banks now hold half the short positions in gold on the Comex and more than 80 percent of the silver short positions.
Also this week Butler obtained a copy of a letter from the CFTC to U.S. Rep. Gary G. Miller, R-California, that sought to explain the concentrated short position in silver. The CFTC's letter implied that this extreme short position resulted from JPMorganChase's acquisition of Bear Stearns in March. If we construe the CFTC's letter correctly, that would make MorganChase the big short in silver now and imply that, in financially underwriting MorganChase's acquisition of Bear Stearns, the Federal Reserve was also underwriting MorganChase's assumption of that short position in silver.
Of course MorganChase was also the bullion banker to Barrick Gold, the biggest gold shorter over the last decade. In 2003 Barrick told U.S. District Court Judge Helen Berrigan right here in New Orleans that, in shorting gold, Barrick had become the agent of the central banks in regulating the gold market and thus should share their sovereign immunity against lawsuits.
MorganChase is also the world's biggest issuer of interest-rate derivatives, instruments by which interest rates are suppressed.
All this causes GATA to believe that MorganChase is in effect an agency of the U.S. government, or rather, perhaps, that the U.S. government is an agency of MorganChase. In any case, MorganChase has had an intimate relationship with the U.S. government since the days of J. Pierpont Morgan himself.
Incidentally, Jean Strouse's 1999 biography of Morgan, which won the Bancroft Prize for American History and Diplomacy, recounts that Morgan's first big triumph in finance was to corner the gold market in New York in 1863 during the Civil War. Nearly 150 years later there really may be nothing new under the sun.
Also lately raising suspicion about surreptitious government intervention in the precious metals markets has been the refusal of the Federal Reserve and the Treasury Department to release to GATA hundreds of pages of government documents about the disposition of the U.S. gold reserve. The Fed has told GATA's lawyers that the documents are being withheld in part because their release might compromise information that is proprietary to private companies. Why anything about the U.S. gold reserve should be considered proprietary to anyone is beyond those of us at GATA -- unless, of course, the reserve is being used to manipulate markets surreptitiously.
But we at GATA do not feel picked on by the Fed and the Treasury. For the Fed and the Treasury seem to be treating everybody as if the disposition of public assets is nobody's business but Wall Street's. This week Bloomberg News Service reported that the Federal Reserve is refusing to disclose how much it has lent to particular banks and exactly what sort of collateral the Fed has accepted for those loans, which have reached hundreds of billions of dollars. For example, is the Fed valuing the same kind of collateral from different borrowers the same way, and lending against it at the same rate? Or is the Fed giving advantages to certain borrowers and not others, depending on their political influence and straitened circumstances? That is, are the Fed and the Treasury Department now being operated as the greatest patronage and market-rigging schemes in history? The government is concealing the evidence.
Since we last gathered here in New Orleans many of us been cowering under the prospect of more official-sector gold sales, particularly gold sales by the International Monetary Fund, which has approved a plan of selling gold to raise cash to replace the income it is no longer getting from interest on loans to developing countries. But despite more than a year of loud talk about it, the IMF has not sold any gold yet, and GATA suspects that the IMF really does not have the 3,200 tonnes it says it has, only a tenuous claim on the gold reserves of its member nations, particularly the United States, which has a veto on any IMF gold sales and has not approved any yet.
Back in April I tried to engage the IMF in a dialogue about its gold and I had an exchange by e-mail with an IMF publicist, Conny Lotze.
My first question was: "Your Internet site says the IMF holds 3,217 metric tons of gold 'at designated depositories.' Which depositories are these?"
Conny Lotze of the IMF replied, but not specifically. She wrote: "The fund's gold is distributed across a number of official depositories," adding that the IMF's rules designate the United States, Britain, France, and India as depositories.
My second question was: "If you'd prefer not to identify the depositories for security reasons, could you at least identify the national and private custodians of the IMF's gold and the amounts of IMF gold held by each?"
Conny Lotze replied, again incompletely: "All of the designated depositories are official."
My third question was: "Is the IMF's gold at these depositories allocated -- that is, specifically identified as belonging to the IMF -- or is it merged with other gold in storage at these depositories?"
Conny Lotze replied, still not very specifically: "The fund's gold is properly accounted for at all its depositories."
My fourth question was: "Do the IMF's member countries count the IMF's gold as part of their own national reserves, or do they count and identify the IMF's gold separately?"
Conny Lotze replied a bit ambiguously: "Members do not include IMF gold within their reserves because it is an asset of the IMF. Members include their reserve position in the fund [the IMF] in their international reserves."
This sounded to me as if the IMF members are still counting as their own the gold that supposedly belongs to the IMF -- that the IMF members are just listing the gold assets in another column on their own books.
My fifth question was: "Does the IMF have assurances from the depositories that its gold is not leased or swapped or otherwise encumbered? If so, what are these assurances?"
Conny Lotze replied: "Under the fund's Articles of Agreement it is not authorized to engage in these transactions in gold."
But I had not asked if the IMF itself was swapping or leasing gold. I had asked whether the custodians of the IMF's gold were swapping or leasing it.
This prompted me to raise one more question for Conny Lotze. I wrote her: "Is there any audit of the IMF's gold that is available to the public? I ask because, if the amount of IMF gold held by each depository nation is not public information, there doesn't seem to be much documentation for the IMF's gold, nor any documentation for the assurance that its custody is just fine. Without any details or documentation, the IMF's answer seems to be simply that it should be trusted -- that it has the gold it says it has, somewhere."
And Conny Lotze ... well, she never wrote back to me again. After all, I had uttered the dirtiest word in government service: A-U-D-I-T.
That the International Monetary Fund refuses to account for the gold it claims to have should be potential news for the financial media. It would be nice if the financial media pursued that issue before their next attempt to scare the gold market with stories about IMF gold sales.
But even if such sales by the IMF should be undertaken, they might not be much for gold investors to worry about. For a month ago I happened to attend in New York City the annual fall dinner of the Committee for Monetary Research and Education, and it had an unscheduled speaker, Columbia University Professor Robert Mundell, who, as you may recall, won the Nobel Prize in economics in 1999 and is regarded as the father of the euro. Through great luck I got to sit next to Mundell on the platform and so heard him clearly as he went out of his way to join the discussion of my topic, gold. Mundell remarked that if the IMF sold any gold, China should buy all of it to diversify its foreign exchange reserves. Since Mundell is a consultant to the Chinese government, the Chinese government surely heard this advice from him long before the CMRE meeting did.
You can do a lot of market rigging when you can print legal tender to infinity, pass out huge amounts of it to your friends, and induce them to use derivatives to siphon speculative demand for real stuff away from actual possession of that real stuff. But in the end printing legal tender and contriving promises to deliver real stuff don't produce real stuff. With infinite legal tender and derivatives you can push the futures price of a commodity below its production costs and below its free-market price for a while, but you risk causing shortages. And of course that's what we have in gold and silver right now -- falling prices for the paper promises of metal even as little real metal is to be had and the spread between the futures price and the real price grows. Last night a GATA supporter in Bangkok, Thailand, who long has been in the silver business e-mailed me that real silver there is prices at $18 per ounce for orders of 1 kilo or more and $23 per ounce for smaller orders. Our friend in Bangkok added that when he shows silver dealers there the New York silver futures price on the Internet, they laugh at him. Shortages can have various causes but generally they are their own cure. When shortages persist, they well may result from government intervention in markets.
Of course prices always have been determined to a great extent by the volume and velocity of money and credit, and so the creation of money and credit is, all by itself, inevitably an intervention into markets. But lately money and credit have been disappearing and reappearing in a flash in the billions and trillions. How can so much come and go so quickly? Maybe because what passes for money and credit today is a bit too ephemeral, having little connection to reality and a lot of connection to politics.
That is why market advice today is more doubtful than ever: Markets have become more politicized than ever. Supply and demand and profitability are no longer the primary determinants of markets. No, the primary determinant of markets is now politics: Which countries will cut interest rates the most? Which countries will subsidize their banks and corporations the most? Which countries will get IMF and World Bank loans? Which countries will be given unlimited currency swap lines and which won't? Which companies will get bailed out and which won't? How much more dishoarding of gold will central banks do to keep the price down, and which central banks? When will central banks run out of gold or decide to stop spending it this way? Most importantly, when will the world decide to stop financing the wild irresponsibility of the United States by lending the U.S. money that can never be repaid?
These are all political questions, and only political decisions will answer them. Some of these questions may be answered as soon as this weekend at the international conference in Washington. Answers to some of the other questions probably will be conveyed in advance to certain insiders -- like the financial houses that serve as the market agents of the central banks -- and those insiders will get richer. As good as this conference is, you will not be hearing from any of those insiders here.
But we may gain some confidence from politics too, since we know that governments are no longer shy about intervening in the markets and since central banking was invented precisely to inflate, to avert debt deflation, to devalue the currency when that is deemed necessary or convenient by those in power -- which is most of the time. We know that the world is now drowning in debt, and in a research paper published in May 2006 a British economist, Peter W. Millar -- founder of Valu-Trac Research in London, formerly an executive with the Abu Dhabi Investment Authority -- forecast that to avert debt deflation and to increase the value of their monetary reserves, central banks would need to increase the value of gold by at least 700 percent and maybe by as much as 2,000 percent. This could be done easily, for to increase the value of their monetary reserves central banks need only to stop selling and leasing gold and to stop subsidizing the sale of gold derivatives by their agents, the financial houses. Revalued high enough, gold could cover all government debts and let the world start over again.
VIDEO POSTSCRIPT: Gold is money. Watch the video. Click below.
EDITOR'S NOTE: Why is gold money? Jason Hommel, who is more of a silver believer than a gold bug--he publishes the Silver Stock Report--offers the following explanation:Gold is money, because of its fundamental nature.
Gold is the perfect commodity for exchange for the following reasons:
Gold is liquid and easily traded, with a narrow spread between the prices to buy and sell (about 1%).
Gold is easily transportable, because it has a high value for its weight.
Gold is money because it is divisible, you can divide it into coins, or re-melt it into bars, without destroying it.
Also, gold is interchangeable. It can be substituted for another piece of gold with no hassle.
Gold is also nearly impossible to counterfeit, as genuine gold is easily recognizable.
When measured by weight, gold is easily countable, and verifiable.
Gold is money because it is a great store of value. It is not subject to decay, rot, or rust.
Gold has an intrinsic value, because it is rare, highly desired by the world over, and is a luxury item.
There is not a single other commodity with those attributes, except, perhaps, for silver. Since gold is too valuable to be used for small transactions, there is potentially more monetary demand for silver. When gold becomes money again, silver will be desperately needed to make change. Platinum and palladium may come close to gold, but they are not so easily recognized by the masses, and are used mostly by industry.
Friday, November 14, 2008
Open Letter on Gold Demand and Supply
Foreign Confidential....
Gold staged an impressive rally Friday. But why has the price of the precious metal been going down when it should have been going up?
A group called the Gold Anti-Trust Action Committee believes it has the answer: market manipulation. Its full-page advertisement in Roll Call appears below. We are publishing it as a public service.
An Open Letter to Senate and House Banking Committee Members
Gold Derivative Banking Crisis
Extensive research has led the Gold Anti-Trust Action Committee (GATA) to the conclusion that the gold market is being recklessly manipulated and now poses a serious risk to the international financial system.
Annual gold demand, currently at record levels, exceeds mine and scrap gold supply by more than 1,500 tonnes. In the Washington Agreement of Sept. 26, 1999, 15 European central banks announced that they were capping their lending of gold and would limit their official sales of gold to 400 tonnes per year for the next five years. Some major gold producers have reduced their forward sales, and speculators have reduced their borrowed gold selling. Commodity prices and wages are rising. Yet the price of gold has declined steadily. With demand so much greater than supply, the price of gold should be rising sharply.
According to the Office of the Controller of the Currency, the notional value of the off-balance-sheet gold derivatives on the books of U.S commercial banks exceeds $87 billion, which is greater than total U.S. official gold reserves of approximately 8,140 metric tonnes.
Gold derivatives surged from $63.4 billion in the third quarter of 1999 to $87.6 billion in the fourth quarter, after the Washington Agreement was announced. The notional amount of off-balance-sheet gold derivative contracts on the books of Morgan Guaranty Trust Co. went from $18.36 billion to $38.1 billion in the last six months of 1999.
Veneroso Associates estimates that the private and official-sector gold loans stood at 9,000 to 10,000 tonnes at the end of 1999. Most of these loans represent gold that has been sold in the form of jewelry and cannot be retrieved. Mine supply of gold for all of 1999, according to trade sources, was only 2,579 tonnes. Thus the gold loans are far too big too be repaid back in a short time. The swift $84 rise in the gold price following the Washington Agreement caused a panic among bullion bankers. But that was only a warning of what is to come.
Federal Reserve Chairman Alan Greenspan and Treasury Secretary Lawrence Summers, responding to GATA's inquiries through members of Congress, have denied any direct involvement in the gold market by the Fed and the Treasury Department. But they have declined to address whether the Exchange Stabilization Fund, which is under the control of the treasury secretary, is being used to manipulate the price of gold.
Several prominent New York bullion banks, particularly Goldman Sachs, from which the immediate past treasury secretary, Robert Rubin, came to the Treasury Department, have moved to suppress the price of gold every time it has rallied over the last year.
The Gold Anti-Trust Action Committee believes that U.S. government officials and these bullion banks have induced other governments to add gold supply to the physical market in recent years to suppress the price. Britain's National Accounting Office is now investigating the Bank of England's decision to sell off more than half its gold. Contrary to proper accounting practice, reductions in gold in the earmarked accounts of foreign governments at the New York Federal Reserve Bank are being listed by the Commerce Department as the export of non-monetary gold. These "exports" from the Fed occur upon rallies in the gold price.
Why would anyone want to suppress the price of gold?
1) Suppressing the price of gold has made it a cheap source of capital for New York bullion banks, which borrow it for as little as 1 percent of its value per year. Gold is borrowed from central banks and sold, and the proceeds are invested in the financial markets in securities that have much greater rates of return. As long as the price of gold remains low, this "gold carry trade" is a financial bonanza to a privileged few at the expense of the many, including the gold-producing countries, most of which are poor. If the price of gold was allowed to rise, the effective interest rate on gold loans would become prohibitive.
2) Suppressing the price of gold gives a false impression of the U.S. dollar's strength as an international reserve asset and a false reading of inflation in the United States.
Too much gold is being consumed at too cheap a price. Massive amounts of derivatives are being used to suppress the gold price. If this situation is not corrected soon, there will be a gold derivative credit and default crisis of epic proportions that will threaten the solvency of the largest international banks and the world standing of the dollar.
As you are aware, a 90 page document of our extraordinary findings was personally delivered to your offices last Thursday.
The Gold Anti-Trust Action Committee requests that a full and complete investigation be launched into this matter as soon as possible.
The longer the gold price is artificially held down, the bigger the eventual banking crisis.
Gold Anti-Trust Action Committee, Inc.
Bill Murphy, Chairman, LePatron@LeMetropoleCafe.com
Chris Powell, Secretary / Treasurer, GATAComm@aol.com
Ethan B. Stroud, Attorney at law, formerly Justice Department, Treasury Department
John R. Feather, Attorney at law, formerly legal staff, Federal Reserve Bank
Suite 1203, 4718 Cole Avenue, Dallas, Texas 75205
(214) 522-3411 phone
(214) 522-4432 fax
www.gata.orgChina Open to Further Talks with Dalai Lama
AP reports that a senior Chinese official said in comments broadcast Friday that Beijing is open to further discussions with Tibetan spiritual leader the Dalai Lama following talks earlier this month. AP:Zhu Weiqun claimed in remarks to the BBC that "China has done everything it can to talk to the Dalai Lama." He added that "the door is still open."
Weiqun made the comments just days before a special meeting called by the Dalai Lama to discuss how the Tibetan exile communities and political organizations in Dharmsala, India, will deal with China in the future. The five day meeting begins Monday.
China insists Tibet is part of its territory. Since 2002, Tibetan representatives and Chinese officials have held several rounds of talks on the disputed territory with little apparent progress.
Earlier this week Zhu, a vice minister of the United Front Work Department, blamed the Dalai Lama and his envoys for the failure of talks held Oct. 31 to Nov. 5. In an apparent hardening of Beijing's stance, he said the Tibetan spiritual leader's calls for greater autonomy masked his desire for the Himalayan region's independence.
The Dalai Lama has said he is not seeking independence, but meaningful automony that would protect the region's unique Buddhist culture.US Editorial: Economic Pressure on Iran
Sixty economists in Iran recently signed an open letter to Iranian President Mahmoud Ahmadinejad critical of his economic policies. The letter said that Mr. Ahmadinejad's "tension-making interaction with the outside world" was causing the country to pay "heavy economic, political and social prices."
The economists complained of the loss of investment and trade opportunities, and blamed the government's policies for Iran's skyrocketing inflation.
The letter was published just days after the United States Department of Treasury announced a new measure designed to block Iran from accessing the U.S. financial system. The U.S. will now no longer permit so-called "U-turn" trade transactions that permitted U.S. banks to process payments involving Iran, as long as the transactions began and ended up with a non-Iranian, non-U.S. bank.
The new measure is the latest in a series of steps taken by the U.S. to block Iran from using the U.S. financial system to fund its terrorist activities and nuclear and missile programs.
U.S. Treasury Undersecretary for Terrorism and Financial Intelligence Stuart Levey said the new measure is "not aimed at the innocent people of Iran":
"The Iranian people are already struggling under the regime's gross economic mismanagement, which has led to spiraling inflation which is now at 30 percent and an unemployment rate that many experts believe to be well over 20 percent."
To ensure that the U.S. can continue to help the Iranian people, said Mr. Levey, the U-turn transaction prohibition does not affect payments for humanitarian shipments of food and medicine, family remittances, and the export of informational materials to Iran.
Treasury Undersecretary Levey says that the Iranian regime's policies have led Iran to political, economic and financial isolation. But such isolation, he says, is not inevitable:
"Iran is still faced with 2 clear paths: to continue as a financial pariah, isolated from the world, or to seize the benefit and opportunity that reintegration into the global community would bring."
"The choice," said Mr. Levey, "is Iran's to make."Cradle of Civilization Found in Turkey
It's more than twice as old as the Pyramids, or even the written word. When it was built, saber-toothed tigers and woolly mammoths still roamed, and the Ice Age had just ended.
The elaborate temple at Gobelki Tepe in southeastern Turkey, near the Syrian border, is staggeringly ancient: 11,500 years old, from a time just before humans learned to farm grains and domesticate animals.
According to the German archaeologist in charge of excavations at the site, it might be the birthplace of agriculture, of organized religion — of civilization itself.
Click here to continue reading.Intelligence Chiefs: Al Qaeda Plotting Attack on US
Early warning: Al Qaeda may be planning a spectacular terrorist attack on the United States.
The Times reports:Barack Obama is being given ominous advice from leaders on both sides of the Atlantic to brace himself for an early assault from terrorists.
General Michael Hayden, director of the CIA, this week acknowledged that there were dangers during a presidential transition when new officials were coming in and getting accustomed to the challenges. But he added that no “real or artificial spike” in intercepted transmissions from terror suspects had been detected.
President Bush has repeatedly described the acute vulnerability of the US during a transition. The Bush Administration has been defined largely by the 9/11 attacks, which came within a year of his taking office.
His aides have pointed to al-Qaeda’s first assault on the World Trade Centre, which occurred little more than a month after Bill Clinton became President in 1993. There was an alleged attempt to bomb Glasgow airport in Gordon Brown’s first days in Downing Street and a London nightclub attack was narrowly thwarted.
Lord West of Spithead, the Home Office Security Minister, spoke recently of a “huge threat”, saying: “There is another great plot building up again and we are monitoring this.”
Click here to continue reading. Keep in mind that Al Qaeda believes that the U.S. financial crisis has weakened the country to a previously unimaginable extent. The Islamist terrorist group believes a new mega-attack could cripple the U.S. and force its exit from the Middle East.Iraqi Soldier Opens Fire on U.S. Troops, Killing 2
Foreign Confidential....
Bad news: An Iraqi soldier on patrol with U.S. forces in the northern province of Ninawa opened fire on his American counterparts Wednesday, killing two Americans, following an altercation in Mosul. U.S. troops returned fire, killing the Iraqi.
Worse news: the influential Association of Muslim Scholars in Iraq (AMSI) praised the actions of the Iraqi murderer.
The Sunni AMSI issued a statement on its websitesThursday praising the "heroic" deed by the Iraqi soldier, which the group identified as Barzan Muhammad Abdullah.
AMSI said the American soldiers had violated the" personal privacy" of an Iraqi girl in public, prompting Abdullah to fire all of his ammunition at the U.S. troops.Will China's Stimulus Save the World?
China's huge currency reserves are about to be put to use, and while there will be some real and perhaps severe bumps along the way, the China that comes out on the other side will be a heck of a lot stronger, more independent, and more decoupled than the one we've seen up to now.
Chinese premier Wen Jiabao called his country's stimulus the "biggest contribution to the world." We don't know whether that's true, but we do know that China's ability to reach deep into its huge coffers to finance further growth gives it a significant advantage over the rest of the world's struggling economies. This is why we continue to believe in the Chinese miracle, and why we think more American investors should be taking advantage of this current temporary downturn to diversify their portfolios into previously expensive Chinese stocks.
Click here to read their entire essay in Motley Fool.China Gold Group: China Should Buy More Gold
China should buy more gold bullion instead of US dollars.
So says an official of the country's gold association.
Hou Huimin told Bloomberg that the Chinese government--the second largest overseas holder of U.S. Treasuries and the second largest gold consumer--should increase its bullion holdings to diversify its reserves because the dollar may decline.
"China should have at least several thousand tons of gold in its reserves, five to six times the officially announced 600 tons,'' Hou said.
The China Gold Association represents producers, traders and retailers. Hou is the group's vice chairman.With Oil Down, Iran No Longer Gloating
Foreign Confidential....
The Iranian regime is no longer gloating over the U.S. financial crisis. Instead, the monstrous mullahocracy is plainly worried about its own financial meltdown.
Oil revenues, which make up 80 percent of Iran's foreign earnings, are falling sharply. The price of oil has collapsed to less than $60 a barrel, with some experts predicting it could fall as low as $50.
The Iranian budget is expected to ecord a sizeable deficit; and the downturn is certain to aggravate already volatile social tensions. Up to 20 percent of the Iranian population do not have regular work, while price increases have averaged 29 percent this year.
The Islamist regime has forced banks to lend at interest rates far below inflation. As a result, just when businesses and farmers need emergency lines of credit, the banking system is short of available capital. The credit crunch will have a particularly severe impact in rural areas, where crops have been devastated due to drought.
Saturday, 15 November 2008
Remarks by Chris Powell, Secretary/Treasurer
The following editorial reflects the views of the U.S. Government.
Foreign Confidential....
As Bill Mann and Tim Hanson see it, China's stimulus package may not save the world. But it will certainly change the world. They write:
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