AngloGold seen bidding for Normandy; trading suspended

Section:

By James Turk
August 31, 2001
Copyright 2001 by The Freemarket Gold & Money Report

I've been waiting for it to happen, and now the war of
words has finally begun. The Bank for International
Settlements today fired the first shot.

As reported in today's Financial Times, Giacomo
Panizzutti, head of foreign exchange and gold at the
Bank for International Settlements, was quoted as
saying that he estimated total gold loans to be 5,200
tonnes. As if that weren't brash enough, he went on to
say that the 15 European central banks that signed the
1999 Washington Agreement on gold have "lent
2,119.32 tonnes, which is the amount they had lent at
the time of the agreement and a total they pledged not
to exceed."

The article then went on to present Mr. Panizzutti's
analysis of the total amount of gold loans. The
somewhat skeptical FT reporter astutely observed:
"Analysts find the timing of Mr. Panizzutti's
comments interesting in light of an impending ruling by
a Boston court." Interesting indeed!

That court ruling is of course the one that will come
from the hearing scheduled for October 9. That day
the judge will hear the arguments of the defendants to
dismiss the case brought to the federal court by Boston
attorney Reg Howe.

It is worthy of note to see that the FT is providing
this hearing with worldwide publicity. It is also worth
noting the FT rightly acknowledges that the amount of
gold loans outstanding is obtaining worldwide attention
because of the prodigious efforts by the Gold Anti-
Trust Action Committee, which "believes that at least
part of gold's price weakness can be attributed to a
conspiracy between the BIS, top officials at the U.S.
Treasury Department, the Federal Reserve Bank, and
investment houses."

The FT is generally accepted to be one of the
mouthpieces of the cozy cartel of big banks, including
those that are defendants in Reg Howe's case. So I
guess it is to be expected that the FT puts GATA in a
negative light, focusing on "conspiracy" rather than
GATA's stated aim, which is to use the U.S. federal
court system and other legitimate means to get at the
truth. But I'm sure that GATA will no doubt welcome
this new publicity nonetheless.

More to the point, however, this FT article requires
some thoughtful analysis. This analysis is needed in
order to put Mr. Panizzutti's comments in their proper
-- and unflattering -- light.

I know that Reg Howe has gone to great lengths to
decline press interviews and other publicity, relying
on the principle of fighting his battle in court
instead of in the press. Neither Mr. Panizzutti nor the
BIS apparently have the same compunction. But even
though the FT may willingly give Mr. Panizzutti's point
of view the headlines, a close analysis of this article
demonstrates that it was aimed more to put forward BIS
propaganda than it was to get at the truth. Consider
the following:

1) The article says: "And although the BIS official did
not explicitly say as much, the estimate" of gold loans
"contradicts conspiracy theories that the official
sector has undermined the gold price by pumping more
than twice that amount into the market." That comment
sounds fairly authoritative, but it really is just an
FT interpretation. It only has the appearances of
authority by referring to the "BIS official." In the
interest of open and honest disclosure, however, this
statement's significance was completely undermined by
the very next paragraph. The FT noted that Mr.
Panizzutti was "speaking in his private capacity rather
than on behalf of the bank." If he was speaking in a
"private capacity," why even bother to identify him as
a BIS official unless to propagandize the supposed
authority of his pronouncement? But more importantly,
what authority does anybody have when speaking "on the
record" just as a private individual? I think everyone
knows the answer to that question -- none. So
regardless of the outward appearances this article
conveys, by acknowledging that Mr. Panizzutti is
speaking in a private capacity, any alleged facts in
this article have to be seriously questioned, clearly
establishing that this article's sole purpose was the
propaganda effect it aimed to achieve.

2) That propaganda happens to be the objective is even
more apparent in another way, but this time the FT did
not have the honesty to provide any disclosure of the
facts. The article clearly gives one the impression
that Mr. Panizzutti is speaking for the fifteen
European central banks (ECB's) that signed the
Washington Agreement. Even aside from the point I made
above about the reliability of his information because
he is speaking in a personal capacity, Mr. Panizzutti's
remarks have no credibility whatsoever when considering
that the BIS was NOT one of the 15 signatories of the
Washington Agreement, an important fact not disclosed
by the FT. Therefore, even if he were speaking in his
official BIS capacity, the BIS itself has no authority
to speak for the fifteen ECB's nor to speak to the
Washington Agreement because it was not a signatory. So
is it not even more bizarre for the article to imply
authority about the Washington Agreement when in fact
there is none? It is clear that the article's intent is
to propagandize the BIS's own point of view, rather
than get at the truth.

3) There is still more evidence of the article's true
intent. How can an individual speaking in his private
capacity divulge confidential information about his
banking clients? It is obvious that any bank officer
who valued his job would not disclose confidential
client information unless he was told to do so by his
higher-ups. This principle is even more important
considering that the BIS is headquartered in
Switzerland, a country which respects banking privacy.
This is more evidence that the FT's intent is to
propagandize the BIS's point of view, rather than to
present the facts.

4) Mr. Panizzutti's statements also fall short on their
technical merit. He speaks about gold loans, but what
about gold deposits? Everybody knows that a deposit
into a bank is different from a loan to a bank. The
money in your checking account is a deposit, but banks
also borrow money. A bank liability for deposits is
accounted differently than bank liabilities for money
it borrows. The BIS alone has 825 tonnes of gold on
deposit according to its most recent annual report (see
the explanatory note at the end of this article). That
amount by itself is 16 percent of the total gold loans
disclosed by Mr. Panizzutti. How much gold do the
central banks have on deposit, in addition to what they
have loaned? And what about gold swaps and repos? Why
hasn't Mr. Panizzutti disclosed those totals? The FT
article tells only half the story, but lets the
uninformed reader think that it is the whole story. By
relying on half-truths like this, it is clear that the
article was aimed for propaganda, rather than the
truth.

If Mr. Panizzutti wanted to truly speak for some ECB,
he could make a valuable contribution by telling the
whole truth and presenting the whole picture. He could
also make a valuable contribution by answering some key
questions.

For example, the Bundesbank accounts on its balance
sheet for "Gold und Gold Forderungen," which it
translates in the English version of its report as
"Gold and Gold Claims." The word "claims," according to
my Black's Law Dictionary is "a broad, comprehensive
word -- to demand as one's own." Therefore, it is
apparent that "claims" could include different types of
Bundesbank assets, specifically, gold "claims" arising
from gold loaned by the Bundesbank and gold "claims"
arising from gold deposited by the Bundesbank into
other banks. And it is therefore logical that this word
"claims" also includes the Bundesbank's gold swaps, and
who knows how many other categories of gold
transactions that it may have undertaken. Thus, there
are four or more types of assets in this one category
on the Bundesbank's balance sheet.

So will Mr. Panizzutti, if he is still inclined to
speak for client banks of the BIS, please explain to
the FT how much gold the Bundesbank actually has in the
vault. Also, how much gold is owed to the Bundesbank in
each of these other categories of loans, deposits,
swaps and everything else the Bundesbank has done with
Germany's gold. There is also another question the FT
could be asking Mr. Panizzutti. Why isn't the
Bundesbank preparing its financial statements in
accordance with generally accepted accounting
principles (GAAP)? This question is not just one that
relates to full disclosure of transactions in the gold
market, but also has a direct bearing on German law.

Section 26(2) of the Bundesbank Act, which governs the
preparation of the Bundesbank's annual statements of
account, says, translated: "The accounting system of
the Deutsche Bundesbank shall comply with generally
accepted accounting principles."

This requirement for the Bundesbank is very clear, but
what is not clear is why the Bundesbank is violating
this provision of the law. GAAP states that gold in the
Bundesbank's own vault is different from gold that has
been loaned, or gold that has been transferred to
others by deposits and other schemes. In other words,
gold in the vault is different from "claims" to gold.
The European Central Bank itself acknowledges this
practice in its October 2000 report, Statistical
Treatment of the Eurosystem's International Reserves,
which states: "Reversible transactions in gold do not
have any effect on the level of monetary gold
regardless of the type of transaction (i.e. gold swaps,
repos, deposits or loans)." In other words, the
European Central Bank is acknowledging that the
different ECBs do not distinguish between gold in the
vault with gold that is out on "swaps, repos, deposits,
or loans."

Yet in obvious defiance and contravention to GAAP, the
Bundesbank reports only one asset, "Gold und Gold
Forderungen" -- that is, "Gold and Gold Claims."
Clearly its financial statement does not meet the
requirements of Section 26(2) of the Bundesbank Act.
Would Mr. Panizzutti please explain why not? Would
anyone at the Bundesbank be willing to explain why not?

Readers may recall that the last time the FT mentioned
GATA was just before the May 2001 South African Summit
sponsored, at great expense, by GATA. And needless to
say, that FT article was disparaging of GATA. Given
that it appeared just before the GATA Summit, this
curious timing to mention an organization that had been
in existence for more than two years makes it obvious
that the FT was doing the bidding of those who do not
want the truth to emerge about the gold market.

I spoke at the summit. So I know that not only was the
summit well-attended by representatives of mining
companies, labor unions, and African governments, but
it was also successful in forthrightly communicating
GATA's message.

And what is that message? That there is an urgent need
for open, honest, and full disclosure in the gold
market. The FT is apparently afraid of this message, or
perhaps the repercussions of what full disclosure in
the gold market would mean to its handlers. So rather
than seek facts and full disclosure, it appears that
the FT is more intent on doing the bidding of the big
banks that pay for the full-page advertisements that
appear so regularly and abundantly throughout its pink
pages.

So, courtesy of the FT, the BIS has come out swinging,
firing the first shot. It has begun a propaganda war.
As the FT itself says: "The case is now at a critical
stage as the Boston district court prepares its ruling
on whether the lawsuit goes to discovery or is thrown
out. BIS directors will no doubt be watching with
interest to see whether the judge takes Mr. Panizzutti's
comments to heart."

That frank and open admission makes clear the timing as
well as the intent of the article, which is for the BIS
to propagandize its position, rather than to disclose
the truth. But this statement also has an ominous and
sinister ring to it.

Are we to believe that a federal judge is supposed to
make his ruling based on what he reads in the FT,
assuming he even reads it? Or is this some coded
message of intimidation threatening the judge to take
"Mr. Panizzutti's comments to heart" or else?

Let's hope this federal judge is courageous in his
willingness to pursue and seek out the truth.

* * *

NOTE ON BIS GOLD DEPOSITS: In its 31 March 2001 annual
report, the BIS discloses on its financial statement
Gold Deposits equal to 2,842.3 Gold Swiss Francs (GF).
Then in footnote 2.(a) it says the GF is "equivalent to
$1.94149 (sic)." It also says the GF is "0.29032258 ...
grams of fine gold," and finally that "items
representing claims on gold are translated into gold
francs on the basis of their fine weight. Items
denominated in U.S. dollars are translated into gold
francs on the basis of a gold price of US$ 208 per
ounce of fine gold."

These different statements leave open the possibility
for different interpretations because the footnote
mentions only "claims on gold," which presumably is a BIS
asset, and fails to mention "claims TO gold," which
would be a BIS liability. Therefore, it is uncertain
how the BIS actually books gold deposits with it, and
what weight of gold these deposits actually represent.

I have reported in the article above the gold deposits
to be 825 tonnes. I calculated this total by taking the
GF 2.842 billion of gold on deposit, determined a
dollar valuation using $1.94/GF and divided by $208 per
ounce, to reach this 825 tonnes total. Another
interpretation would be convert the GF 2.842 billion
gold deposit at the 0.29032258 grams rate per GF. By
this calculation, the gold deposit is still 825 tonnes.
Thus, even though footnote 2(a) does not explicitly
refer to the accounting treatment for gold liabilities
of the BIS, it appears that their liability for gold
deposits is 825 tonnes.

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