James Turk: Trouble for the dollar

Section:

2:21p ET Sunday, May 30, 2004

Dear Friend of GATA and Gold:

How does the Gold Anti-Trust Action Committee know
that central banks are working with bullion banks and
other financial houses to suppress the price of gold?

We know because of the painstaking research of our
consultants -- Reg Howe, James Turk, Andrew Hepburn,
Mike Bolser, and Bob Landis. They have gone through
the official reports and the footnotes of the Bank for
International Settlements, the International Monetary
Fund, the Federal Reserve, the U.S. Treasury
Department, central banks and government agencies,
mining companies, and financial houses, and have
amassed enormous evidence.

But that's the complicated stuff, and we also know for
a very simple reason.

We know that the central banks and their intermediaries
are working together to suppress the price of gold
because time and again they have TOLD us so.

After all, what was the Washington Agreement of
September 1999 if not a proclamation that the 15
participating central banks were colluding to regulate
the gold price?

Of course in the Washington Agreement the central
banks affected to be SUPPORTING the gold price; they
pledged to limit their gold sales to 400 tonnes per year
for five years -- lest, they said, the gold market be
flooded with metal and the gold price collapse, taking
with it the economies of gold-producing countries.

Of course GATA has put a different construction on the
Washington Agreement. We consider it the device by
which central bank gold LOANS are written off as
SALES at discounted prices, rather than be called back
and cause a short squeeze in gold.

That is, far from supporting the gold price, the
Washington Agreement was how the central banks
kept gold from rising and prevented the bankruptcy of
the financial houses that, at the invitation of the central
banks, eagerly joined the gold carry trade of the 1990s.
In that carry trade gold was, in effect, loaned by the
central banks for next to nothing and sold by the financial
houses to depress its price, strengthen the U.S. dollar,
reduce interest rates, and inflate the price of paper
assets, which were purchased with the proceeds of the gold
sales.

But no matter how you want to construe it, the
Washington Agreement was admittedly a co-ordinated
action by the central banks to regulate the gold price.
That central banks get together to discuss and unify
their policy toward gold is a matter of ordinary public
record. Anyone who really believes that this collusion
is always benign, in the public interest, and without
ulterior motives shouldn't go even grocery shopping
alone.

The Washington Agreement wasn't the first coordinated
intervention of the central banks in regard to gold. It was
at least the second and probably much more belated
than that. How do we know?

Because Federal Reserve Chairman Alan Greenspan told
us. In fact, he told Congress too. As usual, no one in the
financial press seems to have been paying attention.

But on July 24, 1998, Greenspan told the House Banking
Committee: "Central banks stand ready to lease gold in
increasing quantities should the price rise." He repeated
that statement a few days later to the Senate Agriculture
Committee:

http://www.federalreserve.gov/boarddocs/testimony/1998/19980724.htm

Of course, like the central banks that participated in the
Washington Agreement, Greenspan was disguising the
true purposes of the policy he described. He was
explaining why he didn't think that the derivatives market
needed federal regulation, and suggested that central bank
gold leasing was a safeguard against a private corner on
the gold market, a safeguard that made derivatives
regulation unnecessary.

GATA maintains that, as with the Washington Agreement,
the purposes of the central banks were the opposite of
what Greenspan was suggesting. Far from working
together to prevent a private corner on the gold market,
the central banks were using gold leasing to maintain
a corner on the gold market themselves.

Construe Greenspan's testimony as you will, but there it
is again -- central banks admitting that they work together
to regulate the price of gold. And, more than that,
Greenspan told Congress, if inadvertently, that the purpose
of gold leasing was not really the purpose long maintained
by the central banks involved in it -- to extract a little
income from a supposedly dead asset -- but rather to keep
the gold price down.

Central bankers aren't the only ones in the gold business
who acknowledge collusion to control the gold price. The
biggest hedger among the gold-mining companies, Barrick
Gold, has gone so far as to confess, in federal court in
New Orleans, to participation in this scheme. Sued along
with its bullion bank, J.P. Morgan Chase, by Blanchard &
Co., the New Orleans coin and bullion dealer, Barrick filed
a surprisingly candid motion in court on February 28, 2003.

Barrick moved for dismissal of Blanchard's lawsuit on
grounds of sovereign immunity. That is, Barrick claimed
that, in borrowing gold from central banks through Morgan
Chase, Barrick became the agent for central bank gold
policy; that, as the agent of central banks, the company
could not properly be sued without also suing the real
parties in interest, the central banks, as well; and that,
since the central banks, as the agencies of sovereign
governments, have immunity and could not be made party
to the Blanchard suit, the suit should be dismissed:

http://www.lemetropolecafe.com/img2003/memoformotiontodis.pdf

Fortunately Judge Helen Berrigan dismissed Barrick's
motion, and so Blanchard's lawsuit has gone to the
evidence-collecting phase. The suit is similar to Reg
Howe's federal lawsuit, which was brought in U.S. District
Court in Boston, underwritten financially by GATA, included
government defendants, and failed on the very issue of
sovereign immunity -- the issue that is now out of the way
so that, in the Blanchard case, the world yet might get a
close look at how the gold market really works.

Just as the true purpose of gold leasing is to suppress
the gold price rather than earn a little interest on a "dead
asset," some central banks even acknowledge that the
only purpose of holding gold reserves at all now, in the
absence of any currency's formal convertibility, is to rig
markets.

GATA is grateful to its researcher in Amsterdam, Milhaly
Schroth, for locating the following admission from the
Reserve Bank of Australia, which, on Page 31 of its
annual report for 2003, says this about its reserves:

"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."

The Reserve Bank of Australia's admission can be
found here:

http://www.rba.gov.au/PublicationsAndResearch/AnnualReports/AnnualRepo
rt2003/2003_annual_report.pdf

All this shows that while the formal convertibility of
currencies into gold has been ended by the articles of
the International Monetary Fund, gold continues in its
nature and function as money and as the independent
international currency, the competitor of the dollar and
the euro -- and that central banks recognize as much,
however grudgingly.

Central banks often acknowledge intervention in currency
markets -- direct intervention, as with the Bank of Japan's
printing yen to buy dollars and the People's Bank of China's
enforcing a fixed exchange rate with the dollar; and
indirect intervention, as by the heavy purchases by many
central banks of U.S. government bonds. Meanwhile the
Federal Reserve intervenes in and supports the U.S. bond
and equity markets every week through the strategic
purchase and sale of U.S. government bonds.

Maybe you've heard the joke about the lawyer who,
asked by a potential client, "How much is 2 and 2?,"
replied, "How much do you WANT it to be?" These
days that is even more the premise of central banking
than of the practice of law. What do the markets
say? What do you WANT them to say?

Far from being the mechanisms of steady development
and democracy we tout to the developing world, markets
now are, in the eyes of central banking, considered to be
usually INEFFICIENT and WRONG. And so bailouts and
interventions and the issuance of price-capping derivatives
have followed constantly on each other's heels so that no
big financial interest might ever suffer the consequences
of its mistakes or venality. National and even world
economic objectives are now set by unelected overlords,
gods of the market whose power is almost completely
undemocratic.

Amid all this intervention, why should it be so hard to
accept that central banks might be more involved in the
gold market than they make plain? Indeed, to believe that
central banks are NOT deeply involved in the gold market,
one almost has to believe that it is the ONLY market they
are not deeply involved in.

GATA is in the free-market advocacy business, not the
investment advice business. But we can draw a few
conclusions.

First, because of gold leasing and the deceptive accounting
for it, central bank gold reserves are far less than what is
claimed.

Second, amid worldwide currency debasement, the gold
price will be largely a matter of how much more gold the
central banks are ready to lease and then sell, a matter of
how far down the central banks are willing to run their gold
reserves and whether they think they may need gold again
to restore confidence someday when currency debasement
gets out of hand. The evidence of the gold price of the last
few years -- rising steadily despite constant selling or talk
of selling by the central banks -- suggests that the central
banks are attempting a controlled retreat with gold. The
increase in official anti-gold propaganda supports
suspicion that the central banks are running out of
golden ammunition.

And third, and most important, far from being Keynes'
"barbarous relic" or a quaint antique, gold remains not just
basic to the world economic system but, in fact, the secret
knowledge of the universe -- the substance and mechanism
by which everything else financial can be revealed and
measured. If gold ever escapes the distortions that so
laboriously have been imposed on it, we may see how
everything we have considered normal has actually been
distorted grotesquely -- may see, to our shock, that, as
Kipling wrote in "The Gods of the Copybook Headings":

"... all is not gold that glitters, and two and two make
four."

When that day comes and the real world reasserts itself
with a vengeance, people will need the real thing -- or the
real things, ANYTHING that is real. Kipling foresaw it this
way:

... Then the Gods of the Market tumbled,
...... and their smooth-tongued wizards withdrew,
... And the hearts of the meanest were humbled
...... and began to believe it was true
... That All is not Gold that Glitters,
...... and Two and Two make Four --
... And the Gods of the Copybook Headings
...... limped up to explain it once more.

... As it will be in the future,
...... it was at the birth of Man --
... There are only four things certain
...... since Social Progress began: --
... That the Dog returns to his Vomit
...... and the Sow returns to her Mire,
... And the burnt Fool's bandaged finger
...... goes wabbling back to the Fire;
... And that after this is accomplished,
...... and the brave new world begins
... When all men are paid for existing
...... and no man must pay for his sins,
... As surely as Water will wet us,
...... as surely as Fire will burn,
... The Gods of the Copybook Headings
...... with terror and slaughter return!

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

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COIN AND PRECIOUS METALS DEALERS
WHO HAVE SUPPORTED GATA
AND BEEN RECOMMENDED
BY OUR MEMBERS

Blanchard & Co. Inc.
909 Poydras St., Suite 1900
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3033 East 1st Ave., Suite 403
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www.USAGold.com
Michael Kosares, Proprietor
US (800) 869-5115
Canada 1-800-294-9462
European Union 00-800-2760-2760
Australia 0011-800-2760-2760
cpm@usagold.com

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222 South 5th St.
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www.ColoradoGold.com
Don Stott, Proprietor
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Gold@gwe.net

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Box 11296
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Harvey Gordin, President
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Greg Westgaard, Sales Manager
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178 West Service Road
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Toll Free:1-877-775-4826
Fax: 518-298-3457
and
620 Cathcart, Suite 900
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Canada
Toll-free:1-800-363-7053
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Ed Lee, Proprietor
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fax: 952-925-0143
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11742 Manchester Road
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info@mocoin.com
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Dr. Fred I. Goldstein, Senior Broker
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----------------------------------------------------

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