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Secrecy of central bank gold lending condemned in new study

Section: Essays

9:37p ET Wednesday, December 13, 2006

Dear Friend of GATA and Gold:

Lending of gold by central banks depresses the price and the only possible reasons for the secrecy around it are manipulation of the gold market and the enrichment, through inside information, of the financial houses to which central banks lend their gold, a study by New Orleans coin and bullion dealer Blanchard & Co. has found.

The study, written by Blanchard's vice president and director of economic research, Neal R. Ryan, published today, calls on the International Monetary Fund to require central banks to make complete and frequent disclosure of their gold lending and thereby equalize information in the gold market.

In its own studies this year, the IMF already had acknowledged the inadequacy of central bank gold accounting, and Ryan says he has forwarded his study's recommendations to the IMF and has been told he will receive a response soon.

Among the Blanchard study's findings:

-- No accurate statistics about loaned central bank gold are published by individual countries or the IMF. Instead gold loans are estimated by outside sources and these estimates vary.

-- Gold loaned into the market can significantly affect the price.

-- Central banks actively manage their gold loans even as they deprive the market of information about them.

-- Bullion banks, the borrowers of central bank gold, have a huge advantage over the investing public in the gold market, inside information acquired in their dealings with the central banks.

-- The IMF could start a transparent gold market by requiring accounting changes for central bank gold.

"Why," the Blanchard study asks, "aren't gold loans made public? Good question. There is no reason (save the argument made by some that central banks are using gold loans to manipulate the gold price) Blanchard's research has been able to unearth that explains why gold lending information is not made public, except for the unconscionable advantage it gives to bullion banks."

"For the market to be transparent for all, central bank loaned gold levels need to be reported to ALL market participants on a quarterly if not monthly basis. Loan information is AVAILABLE to be published; it is simply not REQUIRED to be published. The IMF has the ability to make this requirement and change the gold market for the better for all participants.

"Blanchard and Co. believes that this simple change to our market will allow all market participants to begin to realize not only greater gains in their gold investments but the ability to make smarter decisions on when and how to invest. Gold has made incredible gains in the past few years in a market that is still not completely transparent. This change has the ability to increase those gains immeasurably. ...

"Level the playing field for all market participants, bring an end to proprietary information within the market for an exclusive few, and allow the bullion market to function in a fair and equitable manner, ridding itself of conspiracy theories that diminish its relevance and stability. By ending opaque transactions and accounting procedures, the gold market then becomes accessible to all participants and ends the 'clubhouse' attitude that governs the London [Bullion Market] Exchange.

"The gold market has made great advances in the past few years not only in terms of price increases but also in the availability of gold to purchase for all market participants and the transparency of information. It is time to continue those advances and make the last few steps to having a truly open and free marketplace."

The Blanchard study reports that the World Gold Council, which claims to be the representative of gold producers and investors, has no position on whether central bank gold loan data should be published. As for the two major gold market analysis firms, Gold Fields Mineral Services and Virtual Metals, the study says the former declined to express an opinion and the latter failed to respond to Blanchard's inquiries.

As wonderful and scholarly as the Blanchard study is and as much as it seems to have engaged the IMF, GATA and gold's other partisans may not be able to keep from laughing at any suggestion that central banks would ever cooperate in bringing transparency to the gold market and that any gold lending data made public by central banks would be truthful.

For having come to intervene in the currency, bond, precious metals, commodity, and even equity markets on an hourly basis, governments today would sooner publish the plans for the construction of nuclear weapons than disclose the actual disposition of their gold reserves. As much as it SHOULD be done, transparency for gold loans probably could NOT be done without risking the unraveling all the other surreptitious market manipulations by the central banks.

And the World Gold Council, GFMS, and Virtual Metals are some advocates for the gold industry, eh? Once again they have nothing to say about the biggest issues in their business. It took GATA and now Blanchard to raise and press the gold lending and transparency issues. Gold's official "advocates" are actually just stooges for the central banks, in business precisely to try to ensure that nothing serious is ever done on gold's behalf.

But there's no harm in pressing the gold lending and transparency issues with official agencies and news organizations, only good. Indeed, this is crucial. There is always the chance, however remote, that the IMF will try to come clean and drag the central banks along with it. After all, there are growing indications that the rest of the world is tiring of working and producing real goods for the sake of the parasitism of the United States, achieved through the rigging of the currency, bond, and metals markets to support the U.S. dollar. And if the IMF and central banks don't come clean, the world still will have been shown that there really are no financial markets anymore, just manipulations by governments. Eventually such markets will lose their participants and investors will go elsewhere.

So thanks to Blanchard and Neal Ryan for the heroic work of their report, "Gold Market Lending," which can be found in PDF format at Blanchard's Internet site here:

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