South African mineworkers union endorses GATA

Section:

1:52p ET Saturday, February 3, 2001

Dear Friend of GATA and Gold:

Thanks to GATA member A.W. for translating from
German this great article just published in the
Swiss financial magazine Cash.

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

* * *

WHO HAS THEIR GOLDFINGERS IN THE PIE?

The gold price has fallen for years. A conspiracy
theory accuses world central and fat-cat banks of
massive manipulation.

More and more gold market experts scent nothing less
than a worldwide conspiracy behind a gold price that
has been sinking for years. Various central and gold
banks are accused of massive manipulation and are
now being dragged before U.S. courts. Among others,
Alan Greenspan is supposed to testify as well.

Author: Ernst Soler

*

Not all that glitters is gold. This proverb is more
fitting today than ever. While 20 years ago an ounce
was still worth $800, and five years ago more than
$400, today it costs only a pathetic $266.

U.S. gold market specialist Reginald Howe believes
that this is too low for things to be quite on the
up-and-up. In his estimation, the price of gold
should be close to $600. He believes in a worldwide
conspiracy, and he has recently filed a lawsuit at
U.S. District Court in Boston. The action is
supported by the Gold Anti-Trust Action (GATA)
Committee.

The 16-page complaint, which CASH has a copy of,
contains heavy artillery. It accuses the Bank of
International Settlement (BIS), the U.S. Treasury,
the U.S. Federal Reserve, as well as banking giants
J.P. Morgan, Chase Manhattan, Citigroup, and
Deutsche Bank of gold price manipulation.

Howe lists a plethora of evidence in his complaint
that actually might permit one to conclude that the
gold price is being manipulated knowingly.
Uncontested is the fact that several central banks
have repeatedly loaned gold to the banking giants at
about 1 percent interest, which they continue to do.
The big banks sell the loaned gold bars and use the
profits to buy various paper securities, which yield
them solid profits. This lucrative business on
margin is also risky, though, because the borrowed
gold must be returned to the central banks someday.

Independent experts estimate that the named big
banks owe the central banks up to 7,000 tons of
gold. If the fold price were to rally, the
repurchases at market would be virtually impossible,
and this is where the complaint finds its point of
attack. In the opinion of Howe and GATA, Goldman
Sachs, Deutsche Bank, and the BIS have in recent
years choked off every perceivable rally through
mass sales at the COMEX, the New York commodities
exchange. They claim that the whole scheme was
orchestrated by the U.S. Treasury Department.

The following quote from testimony given by Fed
Chairman Alan Greenspan before the U.S. Senate
Banking Committee in July of 1998 is used as one of
the pieces of evidence in support of his theory:
"Central banks stand ready to loan gold in
increasing quantities, should the price rise."
Aside from the Fed, Howe points to the BIS as a
willing instrument of this manipulation.

The BIS, founded in 1930, today functions as a
central bank of central banks. Forty-nine central
banks own about 80 percent of the stock. The balance
is currently being reacquired in a controversial
stock repurchase program.

For example, the gold sales of the Swiss National
Bank and the Dutch central bank were transacted
through the BIS. BIS spokeswoman Margaret Critchlow
categorically refuses any commentary regarding
either the accusations of manipulation or the
lawsuit filed against the BIS.

If the complaint is admitted, all hell is guaranteed
to break loose.

Nobody expects that Howe will succeed with his
complaint.

To Martin Siegel, editor of the financial newsletter
"Gold Market," there is absolutely no doubt that the
price of gold is being manipulated. Yet he does not
think the complaint stands any chance at all. "Who
is going to testify against whom, here?" he asks
rhetorically.

But if the complaint is admitted by the presiding
judge, which is still far from certain, it will
undoubtedly create a huge hullabaloo. For then the
individually named defendants, Alan Greenspan and
Larry Summers, Clinton's secretary of the treasury,
will be compelled to testify under oath.

In 1999 a total of 3,080 tons of mined (2,576 tons)
and recycled (484 tons) gold had to satisfy
industrial demand of 3,722 tons. There is no
question that the gold price would explode if the
central banks were to end their gold sales.

Yet not all experts believe in the conspiracy
theory. The London consulting firm, Gold Fields
Mineral Services Inc., described the theory to Der
Spiegel Online as "off the wall" and accused Howe of
statistical misinterpretation. Gold experts who wish
to remain anonymous described the complaint as
nothing more than a figment of Howe's imagination,
and allude to allegations that GATA is a front for
South African gold producers.

Klemenz Huser, the head of the Department for
International Securities Research, ZKB, understands
the frustration of the producers and their
investors, but does not believe that the gold price
is being manipulated. "Gold is simply out. The rate
of inflation has been retreating since 1990, and if
anyone hedges against inflation today, then they do
it with derivatives, and not with gold." To Huser,
the introduction of the euro was bad for gold as
well, because it allowed the central banks to dump
gold, which used to serve as support for their
currencies, by the truckload.

On top of that, South American countries, which used
to try and stabilize their currencies with gold
reserves, nowadays simply seek refuge in the dollar.
According to gold market specialist Bruno Bandulet,
even some gold producers are responsible for the
deterioration in the gold price, since they have
massively worked against their own product by
selling gold forward. According to Bandulet, the
Canadian producer Barrick Gold has already sold its
entire production for the next six years.

The situation of investors is unclear.

The fact that central banks take advantage of every
small rally to dump gold is undisputed, but also
understandable. After all this time there are still
an estimated 30,000 tons of gold in their vaults,
which produce zero income unless they are loaned
out. The focal issue is whether these gold sales and
loans constitute premeditated, concerted actions.
This supposedly violates antitrust laws and the
Sherman Act, which expressly prohibits price-fixing
in international trade.

For investors, there remains the question whether to
invest in gold or not. Martin Siegel believes that
the central banks' gold sales will one day stop. On
the one hand, of the 30,000 tons, 10,000 are said to
have been loaned out already. On the other hand,
central banks of a number of countries are expected
to keep their gold reserves. While some predict a
gold explosion already this spring, Siegel thinks it
could happen in two or three years. He suggests
speculators and gamblers should look at long-term
options on gold mines. There are gold options that
run to the year 2003 that are currently priced quite
low.