St. Louis Business Journal notes GATA's work

Section:

Gold Says Central Banks
Suppressed Gold Prices

By Greg Edwards
St. Louis Business Journal
Friday, February 2, 2007

http://stlouis.bizjournals.com/stlouis/stories/2007/02/05/focus2.html?b=...

Wistar Holt says he believes the price of gold has been kept artificially low by what amounts to an international price-fixing conspiracy. It's not a mainstream view, but he's not alone.

Holt, the founder of Holt & Shapard Capital Management in St. Louis, is a board member of the Gold Anti-Trust Action Committee (GATA), which says it has evidence that gold, currently trading at $650 an ounce, would be higher if investors worldwide had not been misled by secret dealings and misinformation about gold's scarcity.

"What GATA has documented fairly well is that the price has been suppressed since the early 1990s," Holt said. "Without the suppression, gold would be much, much higher."

GATA doesn't know how many supporters it has -- it doesn't collect dues -- but its leaders are fervent in their belief in a gold conspiracy.

Here's what GATA contends:

"The central banks, which include our Federal Reserve and the European central banks, have used what we call bullion banks -- which are large investment houses like J.P. Morgan, Goldman Sachs, Merrill Lynch, Citicorp -- to buy, sell and swap gold in quantities in the marketplace to basically keep gold from running up," Holt said.

The mainstream investment community says that's nonsense.

"You hear all kinds of things about government conspiracies," said Dan Vaught, a futures analyst at A.G. Edwards, "but it's well-known that governments can't keep secrets. The New York Times proves that every week."

GATA contends the conspiracy began in the early 1990s. "The central banks of Europe and our Federal Reserve approached the bullion banks and offered them an opportunity called a carry trade, which is well-documented and admitted," Holt said. "They basically said: 'We will loan this gold to you, the bullion banks, and you can sell it into the marketplace. We're going to loan it to you at a very nominal fee.'"

The gold was then sold into the market to jewelers, investors who wanted gold bars and other gold consumers, Holt said, and the bullion banks invested the funds from the sales in risk-free Treasury bills.

"You're going to make the difference between the 0.5 percent you're borrowing it at and a risk-free average of maybe 6 percent," he said. "The question only becomes, How many billion can I borrow? It's a layup."

Even if the price has been manipulated, why?

"Let's pretend it was a free market and gold, within a month, was trading at $950" instead of the current $650 an ounce, Holt said. "The average investor would be concerned that something was wrong," causing disruption in other investments.

Gold is considered to be the leading indicator in the world economy and is the alternative investment to traditional assets, such as stocks and bonds. It's an anchor for the paper money that central banks print.

As a result of the gold loans to bullion banks, GATA contends, the central banks have much less gold in their vaults than the mainstream investment community believes.

"What GATA believes and has documented as best they can on a subject that is very secret is that while the banks say they have 32,000 tons of gold in their vaults collectively, over half of it has already been sold on the open market and is not reported," Holt said. "If the world wakes up one day and discovers there are 10,000 or 15,000 tons of gold in the vaults instead of 32,000 tons, we believe the price of gold will go nuts."

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