Exchange Stabilization Fund/Bundesbank Gold Swap Operation Exposed


Source: Business Wire
Publication date: 2001-04-23

DALLAS--(BUSINESS WIRE)--April 23, 2001--The Gold Anti-Trust Action Committee will reveal proof of the suppression of the gold price by the U.S. and German governments and bullion banks at the GATA African Gold Summit on May 10, 2001, in Durban, South Africa.

Attending will be government officials from South Africa and other African gold-producing countries, representatives of South Africa's National Union of Mineworkers, major gold producers, and the world press.

For more than two years GATA has claimed that the gold market has been manipulated lower by a faction of the U.S. government and a cartel of bullion banks to the detriment of mostly poor gold-producing nations.

One of the speakers at the Durban conference, GATA consultant Reginald H. Howe, has brought suit in U.S. District Court in Boston, against participants in the scheme. The defendants are: the Bank for International Settlements; Alan Greenspan, chairman of the Board of Governors of the U.S. Federal Reserve System and a director of the BIS; William J. McDonough, president of the Federal Reserve Bank of New York and a director of the BIS; five major bullion banks, J.P. Morgan & Co., Chase Manhattan Corp., Citigroup Inc., Goldman Sachs Group Inc., and Deutsche Bank; and Lawrence H. Summers, former secretary of the treasury, who by law exercised control over the U.S. Exchange Stabilization Fund (ESF), subject only to approval by the president.

On April 19, 2001, Reg Howe presented the following to the court. It is posted at

"The Department of Justice's memorandum on behalf of the Secretary of the Treasury's motion to dismiss asserts and re-emphasizes the secretary's contention 'that in fact the ESF has no holdings of gold and has not traded in gold or gold derivatives since 1978.'

"The plaintiff has recently discovered a highly relevant statement in the transcript of the Federal Open Market Committee's meeting on January 31, 1995. Responding to a question by then Fed Governor Lawrence Lindsey about the ESF's legal authority to engage in a financial rescue package for Mexico, J. Virgil Mattingly, the Fed's general counsel, stated:

"'It's pretty clear that these ESF operations are authorized. I don't think there is a legal problem in terms of the authority. The statute (31 U.S.C. s. 5302) is very broadly worded in terms of words like 'credit' -- it has covered things like the gold swaps -- and it confers broad authority.'"

James Turk, who also will speak at the Durban conference, revealed the following in a recent commentary, "Behind Closed Doors," which also can be read at

"The Treasury Department has changed the designation of nearly 1,700 tonnes of inventoried gold at the U.S. Mint's facility in West Point, N.Y., which is approximately 21 percent of the total U.S. gold reserve, from 'Gold Bullion Reserve' to 'Custodial Gold.'

"The August 2000 Status Report on U.S. Treasury-Owned gold stored at West Point has a designation of 'Gold Bullion Reserve.' But the September 2000 and subsequent status reports inexplicably designate this same gold that is stored at the U.S. Mint at West Point as 'Custodial Gold.'

"This change in the descriptive label for nearly 1,700 tonnes of gold at West Point from 'Gold Bullion Reserve' to 'Custodial Gold' was purposeful. It happened for a reason. This conclusion is all the more plausible because the Treasury did not change the classification from 'Gold Bullion Reserve' to 'Custodial Gold' to describe the gold stored in Fort Knox or at the U.S. Mint at Denver."

Turk goes on to establish "that the ESF has 'gold swaps' with the Bundesbank. According to Turk, "It therefore does not require much conjecture to add one supposition to the equation by concluding that the gold at West Point has been swapped with gold owned by the Bundesbank, thereby necessitating its reclassification from 'Gold Bullion Reserve' to 'Custodial Gold.' The Treasury Department wanted to make gold available to some bullion banks."

"We now know what has happened. The Bundesbank has loaned 1,700 tonnes, half its 3,400 tonnes reserve; the other 1,700 tonnes were swapped for gold in the U.S. reserves, requiring the change in the West Point vault from 'Gold Bullion Reserve' to 'Custodial Gold.'

"In other words, the Bundesbank's vault is empty because half its gold is stored at West Point, not Europe, and the other half has been loaned out."

Further evidence of the validity of the GATA/Turk claims come from the Bundesbank itself at:

On Page 32 on the PDF file, some numerical examples of how the accounting for gold reserves is done are given. Example 3 states:

"3. 20 Dec. 1999: 'A' undertakes a gold swap with the United States Federal Reserve in which 'A' provides the Federal Reserve with 1,000 ounces of gold in exchange for USD 300,000, in currency. The transaction will be reversed on 20 January 1999, at the spot price of the gold prevailing in the market at that moment."

GATA chairman Bill Murphy says: "The New York Federal Reserve is an agent for the Exchange Stabilization Fund, and while these numbers are small, it is clearly more evidence of a substantial ESF/Bundesbank operation that James Turk refers to.

"This is most troubling, since both Mr. Greenspan directly and Mr. Summers indirectly have asserted that neither the Federal Reserve nor the secretary of the treasury acting through the ESF has authority to manipulate dollar gold prices. In a letter to Sen. Joseph I. Lieberman dated January 19, 2000, Greenspan stated that transactions by the Federal Reserve "aimed at manipulating the price of gold or otherwise interfering in the free trade of gold, would be wholly inappropriate." Similarly, officials who worked under Secretary Summers, though not Summers himself, denied any interventions in the gold market by the ESF and have made those assertions in dozens of letters to congressmen and to inquiring individuals all over the world."

Murphy continues: "What is so disturbing is that a few bullion banks and the ESF have made a State Department decision that a privileged few in the financial world count, while the economies and hundreds of millions of citizens of the poor gold-producing countries in Africa do not. The ESF operation has suppressed the price of gold hundreds of dollars below its natural equilibrium price and deprived the natural resource-rich sub-Saharan African countries of desperately needed money to fight crime, disease, and unemployment.

"In the end this gold market collusion will make Watergate look like child's play, as it impugns the proposal by the Clinton administration to sell the gold of the International Monetary Fund in the name of helping poor countries. It also may affect the governments of Britain, Germany, and Switzerland in regard to the motives of their recent gold sales and lending."

Publication date: 2001-04-23
© 2001, YellowBrix, Inc.