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A voice from inside the gold swap and price-rigging business

Section: Daily Dispatches

11:17a ET Sunday, February 3, 2019

Dear Friend of GATA and Gold:

GATA consultant Robert Lambourne's report yesterday about the gold trading signified by the December financial statement of the Bank for International Settlements speculated that the bank's use of gold swaps might mean to recover gold for central banks that are inconveniently short in their official reserves:

In response to Lambourne's analysis, a prominent figure in the gold business in London and elsewhere who has followed GATA's work for many years wrote to your secretary/treasurer with his own account of the swap business and invited GATA to distribute it.

It confirms that central banks trade gold in large part to facilitate gold production by providing cheap financing for mines, to regulate and contain the price of the monetary metal, and thus to discourage increases in the price of all commodities.

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This echoes and elaborates on the candid admission by Barrick Gold in U.S. District Court in New Orleans in 2003 that in borrowing and selling central bank gold in pursuit of its mining operations, the company had become the agent of the central banks in regulating the gold market:

What follows from our friend formerly in the gold business in London cannot be attached to him by name, as it predictably enough might get our friend in trouble with some powerful people. That makes our friend an anonymous source, something that, for credibility reasons, GATA seldom bothers with. What our friend says is just hearsay to you.

But there is nothing outlandish about our friend's account and its elaboration fits neatly with everything else GATA has documented, so perhaps it can be offered simply as a plausible possibility about how the world financial system is being operated surreptitiously. Our friend's account also would be an excellent outline for journalistic pursuit of the world financial system's operations if the world ever enjoys any serious financial journalism.

Our friend writes as follows.

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"My firm regularly traded unallocated gold swaps with central banks and the Bank for International Settlements in the 1970s and 1980s. This was a major source of gold finance for the mining industry, enabling the BIS and other official gold holders to get a U.S. dollar return on part of their large gold holdings and allowing bullion dealers to provide cheap project finance for miners and jewellers. It also enabled less-creditworthy central banks to manage short-term liquidity issues.

"Effectively this process created a supply of 'paper gold' -- sometimes but not always marked to market -- that had a depressing effect on the gold price.

"Following the near-disasters of the gold short positions of Long-Term Capital Management (1998) and Ashanti (1999), such official activity was greatly reduced. But the more recent sudden major downward moves in the gold price could well have been effected by swap trading.

"After the LTCM and Ashanti incidents, the BIS' Financial Stability Unit, which was formed in response to those near-disasters, was replicated by central banks around the world. Volatility in the gold price and gold's status as a proxy for all commodities made it a target for official 'shock absorber' actions -- something welcomed by both the BIS and the International Monetary Fund."

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What is so outlandish about GATA's conclusions about gold and commodity market manipulation?

GATA might be demolished by a public statement from the bank or a group of central banks, accompanied by the disclosure of official documents, asserting that they have nothing to do with the gold market and couldn't care less about the valuation of the once and possibly future world reserve currency.

Instead all that can be extracted from the BIS is its comprehensive refusal to answer for itself:

Monetary metals mining companies and the World Gold Council refuse to pursue the truth here, though it is crucial to monetary metals investors.

So GATA is grateful to our friend from the gold business for being so candid with us -- and with you.

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

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