There''s a big difference between ''managing'' markets and ''manipulating'' them


1:52a ET Saturday, July 31, 2004

Dear Friend of GATA and Gold:

Not a lot of news this week so maybe the exchange
appended here will be of some interest.

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

* * *

Dear Chris:

In a recent GATA dispatch you wrote:

"The gold price is almost entirely a matter of how
much gold the central banks want to dishoard, how
quickly they want to dishoard it, and whether they
will want to keep any for use in the economic order
that will follow the exhaustion of their supplies and
their inability to use gold to manipulate financial

I agree with your point and I'm wondering: Do we
really know how much gold is in those Federal
Reserve banks?Is that public information?

And if the Fed needed more gold to sell to prop
up the dollar, couldn't it simply have an
arrangement to borrow from Fort Knox and sell that
too?Of course, that's if there really is any gold left
there. But if all the gold is on paper and the Fed's
inventory is not open to public inspection, their
scam is almost guaranteed, no?

Also, don't most contracts not take physical delivery
of gold?So what's to stop the Fed from winning the
game if you can't call their bluff?

-- Jim

* * *

Dear Jim:

Thanks for your note and your questions. Let's see if this

Do we know how much gold is in those Federal Reserve

Well, the U.S. government says the Treasury Department,
not the Fed,is the custodian of U.S. gold reserves,
though the Fed acts as the Treasury's agent in regard
to gold and a lot of gold is kept deep under the New
York Federal Reserve Bank. But exactly how muchgold
is in U.S. government vaults and exactly who owns it
at any one moment are always huge questions.

The Treasury will sometimes report gold reserves, but
the encumbrances on those reserves are NOT reported.
The evidence GATA has compiled argues strongly that
a great partof the U.S. government's gold reserves has
been swapped for the reserves of other countries, which
in turn have leased or sold their gold into the market to
suppress the price, providing cover for the U.S.
government, which would have a hard time explaining
its scheme while affecting tobelieve in free markets.

That is, much Western European gold is now probably
held at U.S. government vaults -- not only the New York
Fed but also West Point and maybe even Fort Knox ...
if, indeed, Fort Knox contains anything besides records
of outgoing shipments. Public inspections and serious
audits of gold reserves seem not to be allowed
ANYWHERE among the major countries claiming to have
gold reserves.

For far from being a quaintantique, Keynes' "barbarous
relic," gold seems to be the secret knowledge of the

We're playing with something far hotter than fire here --
the key to all the money and power in the world and
the measure of all labor and physical possessions.

No, the scam probably can NOT go on forever, since,
inthe end, real metal will win out --at least as long
asgold's private ownership remains legal in any
significant jurisdiction, as seems likely, thanks to
China and India. (Funny, isn't it? Liberty now relies to
a great extent on the right policy of the communist
regime in China, just as, back in 1778, it relied largely
on the right policy of the Bourbon monarchy in France,
without which the American Revolution would have

Eventually the U.S. government and its allied
governments will run out of gold, or, more likely,those
allied governments will refuse to continue to function
as the U.S. government's secret agents in gold leasing
and gold selling, realizing that they have littleinterest
in going bankrupt just to buy a little more time for the
Americans to stave off acknowledgement of their own

Indeed, those allied governments are probably already
withdrawing from the gold price suppression scheme.
That seems to be what the Washington Agreement was
about: putting a gradual end to the European central
banks' dishoarding of gold and allocating their remaining
spare gold tothe favored financial institutions that, at the
central banks' encouragement, went into thegold carry
trade --had shortedgold and used the proceeds to buy
financial paper. Thusthe central banks seem to be
helpingthose financial institutions to cover their gold
shorts without forcing them into the market to buy
gold in massive amounts and thereby exploding not just
the gold market but also the currency and bond markets.

Yes, few of the gold contracts on the commodity
exchanges are settled in metal. But some are, and
even if none were, the price of real gold would manifest
itself elsewhere, wherever real gold was bought and sold,
even if in secret. The evidence long has been that the
price of real gold in any quantity -- in London, Bombay,
Dubai, and Shanghai -- is substantially higher than the
paper price reported on the commodity exchange in New
York, where the price suppression scheme is

For years now a lot more gold has been consumed by the
market than has been produced by miners. The difference
has been covered by central bankdishoarding -- and that,
as written here before, is, for the time being,the ball

For how much longer? Well, the gold price has been in
a steady uptrend since May 2001, as this chart at
Kitco shows:

Indeed, the chart suggests that no one buying gold
and holding it longer than six months since May 2001
could have lost on the transaction, at least in U.S.
dollar terms. Gold is up about 50 percent in U.S.
dollars in those four years, an average of 12.5
percent per year -- pretty good for a risk-free

That is,the gold gamealready seems to be coming to
an end. So why aren't we all happier? Probably
because so many of us are buying too many mining
shares on margin and not enough metal!

-- cp


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