Gold has ''powerful enemies,'' Financial Post observes in passing


7:53p ET Sunday, October 5, 2003

Dear Friend of GATA and Gold:

GATA consultant James Turk, proprietor of GoldMoney
and editor of The Freemarket Gold & Money Report, has
written a detailed description of how the U.S. government
ran the stops in the gold market on Friday and how it
intervenes in the gold market generally. Turk also has
discovered new discrepancies in the gold accounting by
the U.S. Federal Reserve and Treasury Department that
constitute evidence of that manipulation.

Turk has put this information in the issue of his
newsletter that will be distributed tomorrow and but
has generously allowed GATA to distribute it tonight.
We do so in the hope that it will prevent gold investors
and investors generally from being scammed again,
and we share Turk's confidence that the government
interventions against gold are becoming so brazen
and frequent that even mainstream financial observers
will start to notice.

Remember the remark of Allianz Dresdner's Frank
Veneroso to CBSMarketWatch Editor Thom Calandra
last week: The manipulation of the gold market is now
acknowledged in many European financial circles and
understood as another form of currency intervention.
GATA aims to make it acknowledged and understood
around the world -- even in the United States itself.

Note most of all Turk's admonition that the manipulation
of the gold price by the U.S. government is cause to buy
gold, not to sell it. It signifies that gold always has
been and remains the supreme money and store of wealth
and value and that it is far scarcer than those who are
frantically debasing government currencies want the world
to know. Otherwise there wouldn't be such efforts to
suppress gold's price.

Get it while you can and cling to it.

GATA urges its friends to post links to this article at
gold and financial bulletin boards around the Internet
and to send it to news organizations.

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

* * *

How Governments Manipulate the Gold Market A Primer

By James Turk
Copyright 2003 by The Freemarket Gold & Money Report
Letter No. 332, October 6, 2003
Reprinted by permission

After gold trading closed in New York on Friday $13.70 lower
from the previous day, a Reuters article gave the following
reason for gold's rout:

"Gold tumbled 3.5 percent in New York on Friday as the first
rise in U.S. payrolls in eight months lifted anxiety about
economic growth and undermined the safe-haven case for
bullion days after it had hit seven-year highs."

Their point of view sounds plausible, I suppose, though I
think the recent "seven-year highs" in gold are far more telling
about gold's prospects than any one month's economic data.
But regardless of whether Reuters' conclusion makes
economic sense, the payrolls data was released at 8.30 a.m.
and gold's selloff didn't start until 12.10 p.m, almost fours
hours later.

So did we see a delayed knee-jerk reaction to the data?

Or was some other factor at work?

In my view, it was clearly the latter. It is becoming a well-known
"secret" that governments are trying to manage the gold price
by intervening in the gold market, and Friday's trading was a
good example of their fiddling with the free-market process.

Here are some pointers for everyone interested in learning how
governments intervene in the gold market.

1) Work with a proxy. The U.S. Exchange Stabilization Fund is
the ringleader of the government manipulation efforts, but it
never enters the market directly itself, regardless whether it is
intervening in the currency or the gold market. It works with
proxies in order to cover its tracks. The secretive ESF places
its orders to intervene with the Federal Reserve Bank of New
York, which carries out all intervention for the U.S. government
as well as all orders from foreign central banks placed for
execution during U.S. market hours.

When asked about its activity, the New York Fed never
discloses for whom it is acting, claiming that its account
agreements bind it to respect the confidentiality of its
customers. But this approach is still not enough to hide the
tracks of the ESF and the various governments who intervene
to distort normal market forces.

They want more cover, so the New York Fed places these
government-instigated trading orders with the big New York
banks. Because these banks have such huge trading volume,
the logic is that government-instigated trading will be hidden
amid the huge order flow handled by these banks.

This line of attack to hide the government's trades works,
except when the government's orders are so huge and
one-sided that they overwhelm normal market forces. So it
stands to reason that the repetitive and continuing entry by
banks like Morgan Chase and Morgan Stanley on the sell
side of the gold market at particularly critical market
junctures and at unusual times smacks of government

This unholy alliance, also known to some as the
Washington/Wall Street axis, demonstrates that these two
forces are in bed with each other to serve their mutual
benefit. The banks that act as government agents aim to
make money any way they can, even if it means taking
despicable steps that are unfair and harmful to those
unaware when the government intervenes.

For its part, the government aims to distort markets from
operating normally.

Why does the government do this?

Because market prices communicate information, and
sometimes that information runs counter to what governments
would like us to hear and believe.

So governments intervene in a market by preventing it from
alerting us of the market message governments don't want us
to hear.

For example, we all know that the message of a rising gold price
means that the dollar is headed for rough times, which is useful
and important knowledge. But the government is more concerned
about protecting its own interests and those of the banks that
help it manipulate markets, rather than letting us receive a useful
market message to help protect our wealth.

2) Wait until after the London market closes, which, because of
the time change, is noon in New York. The London market is
basically a market for physical gold, while New York trades paper,
which represents only promises to pay gold. There's a big
difference between these two markets.

It is easy to manipulate paper because all a government has to
do is to create these paper promises out of thin air, as
government does all the time when it intervenes in the foreign
exchange markets. But governments cannot create physical
gold out of thin air.

So they tend to stay away from the London market, and put
physical gold into their market interventions only sparingly
because once they are out of physical (or unwilling to use
what they have left, which was the case with President Nixon
in 1971), their intervention game is over.

On Friday gold closed in London at $382.75, $13.35 above the
New York close only 90 minutes later. So, clearly, the
government through its compliant bank agents bombed only
the paper market.

3) Intervene on a Friday afternoon in order to have the maximum
impact from your intervention. After noon New York time, not
only is London closed but the rest of the world is closed as well.
This afternoon period in New York represents the moment when
the least amount of liquidity is in the market. So if government
interveners want "more bang for their buck," they can get it when
the rest of the world is asleep or already enjoying the weekend.

The limited liquidity that is the dominant characteristic of the
New York market on Friday afternoon makes it easier for the
interveners to get bigger price moves, which then gives them
a corollary benefit. A big price move can scare people,
particularly when they have the whole weekend to think and
worry about what the next week will bring. That result gives
governments even more "bang for their buck."

4) Just keep selling and selling. When you intervene in the
market on a Friday afternoon with the intention of forcing the
market lower, you begin selling short. Because you are the
government and you are creating promises only to pay gold
"out of thin air," you just keep selling and selling until you
hit key sell-stops resting in the market. After all, who is
going to give the government a margin call? Consequently,
there is no practical limit as to how many paper promises
the government can sell.

So how much do they sell? Simple -- they sell enough until
they complete their task, which is to drive the market lower.

But they also use the market itself to help them accomplish
their objective of lowering the gold price. Here is how they do

It was no secret that $378 had become an important support
point, and consequently it was obvious that a large number of
longs had placed sell-stops under that level or intended to sell
if that level was broken.

So let's assume that the government starts selling and selling
and that it takes the government 20,000 contracts in thin
Friday afternoon trading to force the market down to the point
where the $378 level is broken. The government's selling is now
complete. Its mission is accomplished because of the new
selling that is generated when support at $378 is broken.

The market is now being driven lower by the longs who begin
selling to cut losses or protect profits.

As the market heads further below $378 support, more and
more sell-stops are generated because the snowball started
by the government is now rolling downhill on its own
momentum. Then the government interveners step back in
and slowly begin buying back their 20,000 contract short
"paper gold" position as the gold price heads down. They
buy what the longs themselves are now selling, enabling the
government to cover its short position.

The result is that the government ends the day with no
position, and assuming the government made $8 per ounce
on average (which is not an unreasonable assumption given
Friday's $13 drubbing), the government walks away with
$160 million picked from the pocket of the longs -- loot
that the government splits with the banks that acted as
their agents.

More importantly to the government, it achieved its primary
objective, which is to distort the free-market process by
forcing a lower gold price, thus hindering yet again the
market message that the dollar is in trouble and that people
should be stocking up with gold for the tough times ahead.

And the government did it without using one ounce of physical

So that's how they do it. Further proof will emerge Monday when
Comex reports Friday's drop in open interest. It may not be
20,000 contracts, but I would be surprised if it is less than
12,000. But if the drop turns out to be less than 8,000 contracts,
given Friday's estimated volume of 165,000 contracts (of which
125,000 apparently occurred after 12:10 p.m., when the
government started intervening), then the shorts are in real

A small drop in open interest would mean that too few longs
were scared out of the market in Friday's price plunge, and
that, as a consequence, the longs are tenacious in looking
for higher prices.

In that case, the shorts with their huge position have become
even more vulnerable.

Further, if open interest drops by less than 8,000 contracts,
look for gold to rally back quickly into the $375-$385 range
seen the past four weeks.

Do I have documents proving the government intervention I
discuss above?

No, but the body of evidence developed over the past few
years by me (see,, Reg
Howe (see, Frank Veneroso
as well as many others is not only huge and compelling but
also growing.

What's more, I've just made a new discovery, but let me start
with a little background information.

Back in December 2000 I wrote "The Smoking Gun"
( and noted the
discrepancy between the size of the U.S. gold stock
as published by the Federal Reserve in its monthly Bulletin,
which included "gold held by the ESF" in its report, and the
size of the gold stock published by the U.S. Treasury in its
monthly Bulletin.

The two reports were different, establishing that the ESF held
gold or owed gold (because in some months the discrepancy
was a negative balance) at the month-end record dates in
which there was a discrepancy, which was virtually every
month from the end of 1996 to my December 2000 publication

Then, less than two months after the publication of my
discovery, the Federal Reserve in February 2001 inexplicably
changed its reporting of the gold stock to delete any reference
to the ESF, thus making its record of the size of the U.S. gold
stock equal to the Treasury's report.

This hasty change by the Fed is reported here:

This after-the-fact "adjustment" to U.S. government reports was
revealing, given that the government felt sufficiently compelled
to hide further the tracks of the ESF to make this embarrassing
change to its reports. That appeared to be the end of this little
window into the operation of the shadowy ESF, because the
Fed was no longer reporting the U.S. gold reserve plus the ESF's
gold balance.

Or so I thought.

Recently I was analyzing the Fed's audited balance sheet
released in its 2002 annual report and I noticed that the
discrepancy has reappeared.

As of December 31, 2002, the Federal Reserve reports
$11,039 million in its Gold Certificate Account, but as of the
same day the U.S. Treasury Bulletin reported the U.S. gold
reserve to be $11,043 million. At the $42.22 book value used
to record these entries, there is a discrepancy of 94,741
ounces of gold on that one day.

What is the reason for this divergence in these two reports?

It seems obvious that this difference is the weight of gold held
by the ESF, which used to be reported by the Federal Reserve
in its monthly Bulletin.

The divergence between the two reports has reappeared because
the Fed can report in its monthly Bulletin whatever it wants to
include, or in this case, exclude. But it cannot exclude the impact
of the ESF on its year-end financial statement because if it did, its
auditors, KPMG, would not give an unqualified opinion in the audit.

So even though the Fed, presumably under the direction of the
ESF, tried to rewrite history by changing its monthly unaudited
reports, in the end the Fed failed because its manipulation of the
gold market has now been exposed in the Fed's audited financial
statements, which raises an interesting question.

Does this blatant management of the gold market by the U.S.
government mean that we should not buy gold?

Definitely not, unless you would rather rely upon the hollow
promises of politicians instead of the proven and reliable
trustworthiness of gold.

And regardless of any short-term considerations such as
Friday's trading action in the paper market for gold, consider
instead the important long-term case for gold.

The case recently was summarized wonderfully by fund
manager John Embry. His essay -- "15 Fundamental Reasons
to Own Gold" -- has been posted to the GoldMoney Internet
site, so there is no need to get into it here, except to say that
the long-term potential for gold is truly outstanding. See:

Each of John's 15 reasons offers sufficient incentive in itself
to continue buying and accumulating gold each month as your
cash flow allows.

In summary, government manipulators and their bank agents
won another battle on Friday to keep the gold price under
control. But they are losing the war.

Since touching $252 four years ago, gold has been in a primary
bull market. There is a steady and resilient worldwide
movement out of national currencies into gold, and given all the
fundamental reasons to own gold in preference to any national
currency, I expect that gold's primary bull market will continue.

Consequently, Friday's setback will soon be forgotten, and while
it hurts to see any market trashed in this way by the government,
there is a bright side to it.

Friday's late-day selloff has no doubt converted many more who
had been skeptical about government manipulation of the gold

Yes, even though the government seemingly intervenes in every
market, there still are some who believe that the government
doesn't intervene in the gold market. But that group is rapidly
declining in number, and not only because of blatant
manipulations like the one that occurred on Friday.

Another factor is at work.

All one has to do is look at the dollar and its bleak prospects.

Given that sorry future, it is no wonder that people are moving
into gold, which explains the recent "seven-year highs" in gold
noted in the Reuters article. When one sees what is happening
to the dollar, they opt for gold regardless of the government
manipulation. The ongoing destruction of the purchasing power
of the dollar and the relative undervaluation of gold increasingly
makes gold the prudent choice.


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