Anybody Seen Our Gold?

At WSJ yesterday (1/31), there was a full page color ad (page C5) from a very interesting non-profit organization called GATA (Gold Anti-Trust Action Committee, website gata.org). This group is well known among gold investors, but is rarely heard of by the public. For almost 10 years, this organization has spent all their resources and made great efforts to find, reveal evidences and engage in public education on the alleged manipulation of the gold market by western central banks including US Fed. this ad reflects a major change of their strategy to promote public awareness.

I am not quite into the old conspiracy story and have no association with GATA. But I see the value of such organization existing to keep our government honest. There have always been speculations among gold investors on gold manipulation by central banks, especially in the 1990s, due to many strange price behaviors. Some of them are strong evidences, some are merely speculations. The strongest evidence is probably Bank of England selling gold in 1999 which will be discussed later. GATA lists some evidences on their website, and an interesting one is the lawsuit against Barrick Gold and J. P. Morgan at New Orleans. In order to dismiss this lawsuit, Barrick admitted that they were borrowing gold from bullion banks (in this case J.P. Morgan) which acted as agents of government(s) and received their gold by lease contracts from government reserves. This lawsuit eventually got dismissed due to technicalities since the plaintiffs seek injunctions among all bullion banks including all major investment banks in Wall St and all western central banks which have sovereign rights of immunity shielded them from such lawsuit. 

However, this unsuccessful lawsuit has a profound impact on the major mining companies. After this lawsuit, large miners such as Barrick and Newmont became very careful not to engage in long term 10 year hedging, instead gradually starting to de-hedge and eventually unwind majority of their existing hedge contracts with bullion banks.

This lawsuit has substantially enhanced the shareholders of major miners, otherwise if miners hedge gold at $350oz, and with fast rising production and energy costs these days, they would not be profitable and enjoy the much higher gold price and revenues. Whether manipulation or not, financially I see incentives and benefits from central banks to lease gold to bullion banks during gold's bear market. It is a win-win situation for both CBs and big Wall St bullion banks.

CBs can lease gold and get 1% return otherwise gold would be just sitting at their vault doing nothing. For bullion banks, they can sell gold at the open market, use the proceeds to invest in other vehicles such as treasury, equity and bonds to earn a spread around 5%, much better return than the 1% which they need to pay CBs. And it is free money, no cost of capital and almost riskless.

However, the success of this gold cross trade is under one condition, gold has to be in a bear market. Otherwise if gold is on a explosive move like right now, bullion banks will suffer heavy loss when they buy back gold in the open market. Whether this can be called manipulation and conspiracy?

Maybe, but it is probably more financial driven, except one strange gold sale by Bank of England. Usually CBs will announce the sale and will take a couple of years to accomplish so that it wouldn't depress the physical gold market and sell into a downward spiral fire sale price which does not benefit them. However in May 1999, the then Chancellor Gordon Brown (now Prime Minister) of the Great Britain sold 415 tonnes of gold, almost 60% of its total reserves, leaving Britain with only 300 tonnes, at an average price of $275.

11 days earlier, Brown had requested the IMF sell $10 billion of its gold on the open market. When recently Prime Minister Brown was asked again the reason of such strange act, his answer is simply a decision of money management. Sure. When Tony Blair was asked about this some years ago, he simply said gold is a bad investment.

Even Tony was not responsible for this action, but he gave the most irresponsible answer. It is very ironic that now he accepted a job becoming the senior advisor of J. P. Morgan, one of the major bullion banks acted as an agent for central banks. Hopefully he will give some good investment advise this time. This sale by England is totally against any common sense of money management and the normal CB behavior of selling gold.

The only seemed logic reason is to knock gold price down in a very short time by dumping so much gold at once. According to "Time of the Vulture" by Mr. Darryl Robert Schoon, it is rumored that the real reason is: British was acting on behalf of US Fed and probably collaborating with US Fed in a joined effort to save a large Wall St bullion bank which had a 1,000 tonne short gold position loaned from the US government.

And it was at the brink of disaster when gold took a unexpected rise at that time in 1999. If true, this bailout is no different than LTCM and the current subprime bailouts, except the US government had absolutely no choice then since it had to get its gold back. Both Bank of England governor Eddie George and Sir Peter Tapsall had questioned loudly about the price her Majesty had to pay in order to save a major US bank by fire selling its gold reserves at rock bottom price.

Imagine with the gold price today, Great Britain would have been much more solid and secure in its reserves for the Queen and their citizens. At the US side, when Greenspan was asked by Congressman Ron Paul how stupid Bank of England was to sell most of its gold at the absolute bottom, worst timing ever possible, Greenspan ducked the question by saying "The British knew what they were doing." Perhaps he meant "The British were told what they should be doing"?

GATA has pointed out many interesting things. For example, there has been no audit on Fort Knox since 1953, 55 years ago, so no one know whether and how much gold is still left there. More importantly, western central banks for a long time, have engaged so many leases and swaps of gold cross trades with bullion banks, becoming a worrisome collusion between the two parties, and no one knows whether there is still enough physical gold to cover these derivative contracts? Would this turn into another credit default swap mess?

An organization such as GATA is healthy for the whole society and helps to make government more transparent, since as citizens and taxpayers we have the rights to know if our gold reserves are not there anymore, especially during a time when US dollar as a world reserves currency is under serious questioning. At the same time, GATA indicates that they are not seeking any legal damage, monetary payback or benefits, not even an apology from governments and central banks, but simply just the truth.

Some years ago, Gordon Brown was asked at a dinner party why he had sold 60% of the country's gold reserves, his answer was rumored as this: "We stared into the abyss and were concerned that a sharply rising gold price would alert the world to the crisis that the world was facing. That is why we sold our gold". What abyss he was looking at could be so scary?

Perhaps the collapse of the international monetary system with US dollar as the world reserves currency, which Fed, IMF, World Bank, governments and western central banks have worked so long and so hard together to establish and become so powerful. It is very scary for them that suddenly one day all the power is gone and gold is totally out of control.

Comments

[jt]

Good article, Mr Tan. But I do have to say that I find it incredibly naive...and a bit politically correct...to state "I am not quite into the old conspiracy story." To call something a "conspiracy story" or a "conspiracy theory" has the same affect in these politically correct days of throwing dirt on what is being put forward as fact. If it looks like a duck, flies like a duck, quacks like a duck, lays eggs like a duck, has a bill like a duck, would you then say that I would be proposing a "theory" or "story" that the thing itself is a duck?? And if the Fed, the Treasury, bullion banks such as GoldmanSachs and JPMorgan, along with the other Western CBs have been working together thru leasing and selling of gold and paper shorting on the COMEX and TOCOM, etc, for years to suppress the prices of gold and silver and thus artificially maintain to the public the low rate of inflation and hide the relentless devaluation of the dollar, would you not call that a conspiracy?? It is criminal collusion at its worst among govt and private industry. YES...its purpose is to maintain dollar hegemony...WHICH BENEFITS THE WESTERN CENTRAL BANKERS...WHO ARE RUN BY PRIVATE FAMILIES WHO HAVE GOTTEN RICH OFF AMERICAN AND BRITISH WORKERS thru their ability to control the money supplies of those countries, and maintain its value thru manipulation of markets.

You want a little vignette of what this collusion looks like? Go to kitco.com/market. Go to the "World Spot Price--Asia/Europe/New... Markets." Click on GOLD...and then on SILVER. Look at what happened at 10AM...out of nowhere. Now try to find some news that was gold- and silver-negative. Now look at what happened to the HUI and XAU at the same time. That kind of massive takedown, as I'm sure you know, is NOT normal market activity. It requires collusion at the highest levels. And this isn't isolated...it has been documented day after week after month after year. And yet the mainstream media...and even the mainstream precious metals media...have said almost nothing about it, just spouting the normal pabulum for the day thrown out by the MSM, regardless of whether or not it absolutely contradicts what was said the day before or what they'll say the next day. GATA itself has been blacklisted/balled from the MSM for nearly 10 years.

I'm glad you posted your article, but this is a VERY big deal...not a little haha...b/c this group...the Gold Cartel and those they represent have systematically robbed the American (and other) people of their wealth over many years, and then hid the signposts that told them what was happening to it...by suppressing the prices of gold and silver.

$850 gold from 1980 would be at least $2200 gold now using the fraudulent CPI started in the Clinton era. Using the CPI previously used (eg, in the Carter era), gold would need to hit closer to $4000+ to match that level. Instead we're at about $900. And there is so much more that could be said. But it takes someone who will decide to look at the facts and not be put off by the phrase "conspiracy story" or "conspiracy theory." It IS a conspiracy...and it is NOT a theory.

jt

[ussmls7]

I hope we, as Americans can, get a fast, timely anwser??? But I would not bet the farm on it. It is right, that all should be done to get real info, instead of Fed spin !! That is the peoples money, yes gold is money!

[User 142738]

The same thing could be said about the reserves in the Gold and Silver ETFs, as well as the cash reserves of China. If I haven't seen those, do they exist?

[jt]

User 142738....I can't tell you about China's cash reserves, though it is a fairly well known fact that they have TONS of silver. But I CAN tell you that a number of very creditable and knowledgeable sources have made it VERY clear that the gold and silver ETFs may well indeed NOT have the gold and silver, esp if crunch time came and those invested there actually wanted the gold and silver as opposed to paper money / fiat currency...and that if you read the fine print in many of these ETFs, such as SLV, it is actually MORE likely that these are being used by the Cartel as vehicles for leasing the supposed stashes of gold and silver out the back door to the bullion bankers who then once again sell them and short them into the market to suppress the prices of gold and silver.

The ETFs have been a mechanism for steering monies away from the real physical metals and into more paper products that can be manipulated. Americans (and all world citizens for that matter, but esp we Americans) should be trading in what is (and what will be seen too late by most Americans to already be by now) a worthless piece of paper for REAL money--gold and silver. jt

[leroy]

OK, I get it....but what do I (we ) do about it. As a small fry investor-speculator, trying to make a living, buy options and /or RTFs and try to out run the big boys? Buy coins from any number of exvaccum cleaner salesmen? Or just buy and hold miner stocks, and hope to get out before they crash!
How about some info from some of you who know whats comming down the pike so some of us can win a few.

[pseydocyst]

I wonder why GATA has gone so far to
expose the gov't manipulation of the
gold price. If you think gold is priced
too cheap in US dollars just go out and
buy more! Why do you have to talk it
up (even putting a goddamn ad in the WSJ? ). I too believe that gov't have always
tried to keep the fiction that federal reserve
notes are *real* money instead of gold itself.
But now that gold has run up to $900 it is
becoming more difficult to accumulate this stuff.

However there is no doubt in my mind that US dollar is gonna get much weaker in the future. It is becoming a huge debtor nation, an overstretched military empire, huge obligations medicare, and social security. China and Russia will become more formidable competitors on the world stage.

The US is also becoming much less attractive place to live. There is more of a police state mentality developing. Too much regulation and taxes. It used to be 10-20 years ago everybody wanted to come to this country for the freedom and opportunities economically it offered but is that still true today?

Those of you who love your freedoms should hold
physical gold. It represented real money back when this country was first developing and it will be once again recognized by the masses in the future. To hold your money in the form of electronic deposits in bank account is just one more way for the gov't and authorities to keep tabs on you. Gov't have been getting more intrusive in people's lives, they want to know everything about you, and how much you're worth. Gold is basically a huge obstacle for them.
Alan Greenspan talked about this in his essay on why the statists (i.e. gov't) hates gold.

[User 143380]

In general, a very good story. I do agree with earlier comments it is somewhat naive to dismiss and label as conspiracy theorists those who believe central banks, governments, others for their own benefit attempt to restrain the price of bullion. That term is long since lived past its usefulness and no longer represents the typical gold investor who believes there are those whom actively manage the price downwards for motives other than profit. The evidence compiled through the years by GATA and others are overwhelmingly compelling. Sufficient enough to conclude there is an active effort to manipulate the price downwards. Your details about Gordon Brown alone are sufficient to draw this conclusion. So to lead off by saying you're not a conspiracy theorist is simply and an unnecessary "caving in" to illogical the fears of negative perception from openly acknowledging belief in such efforts. This for me is a distraction and discredits what is in fact overall a very good report.

[thomast2]

Thank you all for your comments.

Pseydocyst, GATA mission is very different than us gold investors. They are not in for money, but to discover and reveal the truth and increase public awareness.

JT, your points are very thoughtful and I agree it is a big deal. But at the same time, with gold in bull market for 8 years, I see gold cartel's power deteriating, unlike in the 1990s when they could do whatever they want to do. Also European CBs have made no secret about selling gold, and it is public that CBs don't like gold and selling gold in the market to depress gold price. So it is not a totally conspiracy no one knows. What GATA is doing is to try to discover whether investment banks at Wall St are used by US Fed and other CBs to manipulate gold market at daily basis. This is a different matter. Unfortunately so far there is not much strong evidence on this matter since no one is talking. All we see are some strange price movement as you pointed out.

Another thing is to make Fed transparent on our gold postions, their gold cross trades and reserves, which could be the single most important thing for the future monetary strength of this country. This is why I said the existence of GATA is very healthy and timely and hopefully they can promote public awareness so power will return to the people, not the few elites behind the scene for too long.

[namius]

"We stared into the abyss and were concerned that a sharply rising gold price would alert the world to the crisis that the world was facing. That is why we sold our gold". (Most of the gold was sold to rich banking families)

What abyss he was looking at could be so scary?

The abyss Gordon was refering to is called PEAK OIL!