Critical responses to TheMiningWeb report on Durban conference

Section:

12:13a ET Sunday, May 13, 2001

Dear Friend of GATA and Gold:

Here's a big article published last week in the
Sueddeutsche Zeitung in Germany -- the South German
News, a major German newspaper. Many thanks to the
friend who forwarded it and the friends arranged its
translation.

I think you'll get from this article and others the
sense that GATA is slowly breaking onto the world
stage, beginning to establish its point, but still a
distance from getting its point understood well in the
press. Please remember that this is progress, a sign
that we have left the stage of being ignored and
entered the stage of being dismissed and disparaged.

The next stage is persuading people, which comes before
victory.

CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.

* * *

Gold price manipulated?
Conspirator theory rattles the market.
Circumstantial evidence shall be presented
at a conference in South Africa.
Independence of central banks questionable.

By Markus Stahl
Sueddeutsche Zeitung, Germany
May 10, 2001

It is alleged that the gold price is manipulated and
artificially kept low. Circumstantial evidence shall be
presented this Thursday of a supposed conspiracy on the
gold market from the Gold Anti-Trust Action Committee
(GATA) at a conference in Durban, South Africa.

One expected speaker is the gold analyst and U.S.
lawyer Reginald Howe, who in December 2000 officially
took legal action in U.S. District Court in Boston
against the supposed participants of the conspiracy.
Accused are Alan Greenspan, chairman of the U.S.
central bank; William McDonough, president of the New
York Federal Reserve Bank; Lawrence Summers, former
U.S. secretary of the treasury; and five prominent
banks, J.P. Morgan, Chase Manhattan, Citigroup, Goldman
Sachs, and Deutsche Bank.

Because of new information of gold business between the
German Federal Bank and the U.S. Exchange Stabilization
Fund -- under the control of of the U.S. finance
ministry -- which is in the center of the alleged
conspiracy, the conference could be very interesting.
The claims are serious and controversial.

In the opinion of GATA the cartels illegally kept
the price of gold artificially low. That in turn has
the mining companies, owners, and their workers
disadvantaged. Those in the gold business, banks, and
the whole finance system might be in danger because of
the conspiracy.

If there was not a conspiracy the gold price might be
higher, even at a price of $600 US per ounce and not at
the current price of $270 US.

The GATA study shows the supposed circumstantial
evidence of a manipulation. The study shows the
supposed disorder of statistics of the amount of gold
lending of the central banks. The study shows a
significant increase of the gold business of the
international banks. Those in the gold business
operating banks are supposed to profit big through the
gold lending business.

Credible motives are missing.

The controversial gold analyst Frank Veneroso, who also
is expected to be in Durban, will give evidence that
the gold lending of the central banks has reached at
least 10,000 tons, a third of the central bank reserves
of 33,000 tons.

The GATA conspiracy theory has been dismissed as absurd
by the gold lobby, the World Gold Council. The study
"Gold Derivatives: The market view," presented in
August 2000 by the gold expert Jessica Cross, shows
that the lending is below 5,000 tons and the open
positions are only 400 tons.

The independent firm Gold Fields Mineral Services and
Professor Anthony Neuberger of the London Business
School do not believe that the conspiracy theory has
much merits. More plausible explanations for the
decline of gold are the lower inflation rates and the
increase of the US dollar value toward the currencies
of the main gold-producing countries like South Africa,
Australia, Canada, and Russia. In a dollar-currency
ratio the gold production costs are sliding down as
those countries are paying their costs with their own
currency. In a marketplace high competition leads to
low production costs and to low market prices of gold.

The conspiracy theory is mainly dismissed because of a
lack of believable motives. Why should central banks be
interested to keep the gold price low? Why should the
US central bank help business banks to get higher
profits through gold lending? Why should the US central
bank have helped a few bullion banks as in fall 1999
the gold price surprisingly jumped? And why should the
German Federal Bank have helped as well?

If the rumors are true, that would mean that the
central banks are not as independent as normally known,
but that they cater to the interests of a few bullion
banks.

Another explanation would be that the central banks
helped the bullion banks in September 1999 as they were
in such a problematic situation that a worsening of the
gold market crisis would have affected all other
finance segments of the market. In such a case the
central bank would have been a hostage of the short
positions of the bullion banks.

This however seems very unlikely to most of the finance
experts.

One completely different explanation is given by the
gold study of the Baden-Wurttembergischen Bank AG of
Stuttgart, Germany. There, the theory goes, gold is the
natural enemy of the central banks. Originally, the
first private central banks had to promise to honor
paper money with gold in order to build trust in the
currency. Only the full gold-paper money ratio would
have established a price and currency stability in the
long run. However, as central bank gold and money
production got further apart, was the gold market an
indication of the real value of the paper money?

The gold standard can be seen a reducing the value of
the paper money. And, in a system of flexible currency
rates and missing gold cover -- as it is established
now -- signaling a strong increase of the gold price,
higher inflation rates, and therefore not very good
future perspectives of paper money.

The credibility of a central bank is the measurement of
the gold price. Maybe that is a reason that the central
banks have an interest on a lower gold price. The
market participants can be signaled that the money
value and finance stability are in best health. The
strategy of the gold sales and gold lending of the
central banks is to put aside all money forms they
cannot control by themselves. Money politicians who
prefer finance crisis situations as a strong expansive
strategy would, through a complete gold cover of paper
money, become strongly disadvantaged. Because of these
motives and the gold sales and gold lending, it is no
wonder that there is a theory of a gold price
manipulation.

Whether parallel interests or conspiracy, the
participants of the gold market are given doubtful
signals by the central banks. The phrase "never fight a
central bank" strengthens the belief at the gold market
that a rise in the gold price will be impossible. Such
beliefs lead in the long term to collective
misunderstandings. Potential gold buyers are hesitant,
mine companies sell of their production too early, and
banks are involved in empty gold sales on the gold
market.

-------------------------------------------------------

The author is manager of fund properties and gold
expert of the Baden-Wurttembergischen Bank AG in
Stuttgart.