I am writing this in a 5-part series. The first three parts will document in as much detail as space allows the methods and actors involved in the historic and current price suppression of the gold market.
The fourth piece will tell you how to profit from gold, and the fifth from silver. These last two parts are really how to survive it first, and then profit from it. I say this because the gold market is an economic signal that cannot be ignored, no matter how much the powers that be want you to. If the powers that be are trying this hard to suppress this invaluable economic signal, then this is one ominous sign that we are in for a large economic ‘adjustment’ period.
Each piece will be released on consecutive days. Please be patient as the story is gradually told. I endeavored to put as much information here as to make this a solid basis for gold (and silver) market investment analysis, and not a typical ‘one-off’ chart and recommendation piece.
Part I: Banks Collude the Market
Gold market analysts have exposed to attempts to collude in suppressing the gold market. The first involves price fixing. The gold market is the only commodity market I know of where the major players get together to overtly fix the price of the commodity. Gold is fixed twice daily by the five members of The London Gold Market Fixing Ltd. Previously the members would meet in private to fix the price of gold. Now they do it over conference call. How 90’s of them! You know, we have this thing called email.
Adrian Douglas, from GATA.org, has provided a mathematical correlation showing that the twice daily gold price fix action could not possibly be random actions of markets, and therefore manipulation must exist. From his report entitled The Gold Market is Not Fixed, it is Rigged.
Table 2: UP & DOWN Days for Intraday & Overnight
Table 2 shows the total number of up days and down days for both the intraday and the overnight trading from 2001 to 2010. There is a striking contrast. In fact there is almost a mirror image where the number of up days overnight is very similar to the number of down days intraday. The probability of getting this contrasting result at two different times in the same 24 hour period, in the same commodity market, and over a 9 year period is approximately one in 2.6 x 1031. In other words it is practically impossible for such a divergence of data to occur by chance, let alone for the divergence to have a nearly perfect correlation.
The inescapable conclusion is that some entity or entities are deliberately suppressing the gold price between the AM Fix and the PM Fix and that this suppression is calculated to proportionately counter the cumulative gains in price achieved in the Asian markets that trade at some time in the period after the prior day PM Fix until the following AM Fix. Such a consistent manipulative effort would necessarily involve entities with access to large amounts of gold; this implicates central banks as they are the only entities with large hoards of gold and furthermore they have a motive for suppressing the price of gold which is to hide their mismanagement and debasement of their national currencies.
Much more analysis on the article linked above. I encourage you to read it.
London Gold Pool
The London Gold Pool was a secret agreement by governments to keep the price down at a time when currencies were still on the gold exchange standard.
Fearing a relapse, the international bankers of the BIS and the Fed-US Treasury secretly formed the London Gold Pool. Each member of the Pool would pledge some of their gold to keep the London market suppressed. The Bank of England would dump their gold on the London market whenever necessary, and at the end of each month the other members would reimburse the BoE in accordance with the percentage of the pool they owned. The members were:
- 50% - United States of America with $135 million, or 120 metric tons
- 11% - Germany with $30 million, or 27 metric tons
- 9% - England with $25 million, or 22 metric tons
- 9% - Italy with $25 million, or 22 metric tons
- 9% - France with $25 million, or 22 metric tons
- 4% - Switzerland with $10 million, or 9 metric tons
- 4% - Netherlands with $10 million, or 9 metric tons
- 4% - Belgium with $10 million, or 9 metric tons
By acting in secret, the governments hoped to stagnate the [gold] market and keep potential buyers away.
The article notes that excerpts from page 3-4 of the Fed Meeting Minutes (1967) explain the scheme:
The announcement on Thursday, December 7, of a $475 million drop [422 metric tons - auth] in the Treasury's gold stock seemed to have been accepted by the markets as about in line with prior expectations of the costs of the gold rush following sterling's devaluation. What the market did not know, of course, was that only a $250 million purchase of gold from the United Kingdom saved the United States from a still larger loss in the face of some foreign central bank buying... The logistical acrobatics of providing sufficient gold in London were performed with a minimum of mishaps, although the accounting niceties were still being ironed out.
Of greater concern, however, was the fact that the drain on the pool was accelerating again... the measures taken by the Swiss commercial banks and by some other continental banks to impede private demand for gold worked quite well, although it was clear from the start that such measures could serve only as a stop-gap until some fundamental change was agreed upon. Persistent newspaper leaks--mainly from Paris--about current discussions on this subject and their reflection in gold market activity Monday and today pointed up the need for speed in reaching a decision.
Further reference to gold market manipulation and the London Gold Pool on page 12 of the Fed Meeting minutes linked above:
Although the German case was the most striking example of central bank operations following the meeting in Frankfurt, the availability of forward cover into guilders and Belgian francs at reasonable rates had also helped to reassure the [gold] market.
Under Secretary [of Treasury] Deming, who had led the U.S. delegation to Frankfurt, made the necessary arrangements, and the group met with him in Basle yesterday. Meanwhile, representatives of the countries in the gold pool met in Washington last week to make a preliminary review of possible additional measures to keep the gold market situation under control. Not unexpectedly, the gold pool also was the main topic of conversation at the regular Basle [Switzerland, the home of the BIS - auth.] meeting on Saturday and Sunday, and it was discussed in detail by the governors on Sunday evening.
Page 15 of the Fed meeting minutes goes on to note that Italy and Belgium may have to leave the pool due to substantial losses, and that the pool would need to divert demand away from London which could not keep up the suppression forever.
Nolan Charts goes on to note:
Following these minutes, on Sunday, March 17, 1968, the London Gold Pool collapsed and the global gold markets were closed for several weeks. The central bankers then decreed a "two-tier" gold price for "monetary" gold at $35/oz. and "non-monetary" gold. This system remains in place to this day, although it is clearly just an accounting sham.
After the failure of the LGP, that a Smithsonian Agreement was signed but it did not survive the gold price of $90. The markets had overwhelmed and beaten the early collusion attempts of the central banks. This is an important fact we will come back to later.
The Washington Agreement was signed into place by 11 member central banks. The agreement stipulated that no more than 400 tons of gold per year would be sold for 5 years starting in 1999 through 2004.
Given the sheer amount of gold that is (1/6 of yearly peak production), that’s sort of like Tiger Woods graciously ‘limiting’ his affairs to 15 women at a time from the pool of a hundred.
GATA’s analysis of the Washington Agreement(s) state that the Washington agreement is a fraud because central banks are agreeing to sell gold they have already leased out (and never expected back anyway).
Item 3 in the agreement is the red herring. It is a smokescreen behind which the banks are, as Chris Powell said,
writing off as sold their leased gold, gold that is long out of the vault and already sold into the market and a dangerous liability for the bullion banks that borrowed it. Such 'sales' don't add to the gold supply in the market; they help avert a short squeeze by expropriating national assets in favor of influential private interests.
Since the Washington Agreement was signed over four years ago, more than 4,000 tonnes of gold have left central bank vaults to fill the gap between mine supply (plus scrap) and physical demand. Another thousand plus tonnes will leave central bank vaults during 2004 as well. The central banks are being bled white.
Note in the above paragraph that demand outpaces supply, and the Washington Agreement is used to cover up the leasing that has taken place to supply that 1400 yearly tons of gold shortage and keep the market price from succumbing to even higher price increases.
How do we know the Central Banks rig the gold market? We know because they tell us so.
On July 24, 1998, Greenspan told the House Banking Committee: “Central banks stand ready to lease gold in increasing quantities should the price rise.”
The Central Bank of Australia commented in their 2003 Annual Report:
Foreign currency reserve assets and gold are held primarily to support intervention in the foreign exchange market. In investing these assets, priority is therefore given to liquidity and security, in order to ensure that the assets are always available for their intended policy purposes.
And finally, GATA has documented that the head of BIS monetary and economic department, William White, stated in a speech titled Past and Future of Central Bank Cooperation:
The intermediate objectives of central bank cooperation are more varied. First, better joint decisions, in the relatively rare circumstances where such coordinated action is called for.
Second, a clear understanding of the policy issues as they affect central banks. Hopefully this would reflect common beliefs, but even a clear understanding of differences of views can sometimes be useful.
Third, the development of robust and effective networks of contacts.
Fourth, the efficient international dissemination of both ideas and information that can improve national policy making.
And last, 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.
GATA’s ‘Gold Rush 21’ conference is available on DVD and can be previewed at the link provided. I highly recommend this DVD for information on gold market analysis.
The next installment of the series will delve into gold sales, leases, and swaps.
Disclosure: Long physical bullion