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Chris Powell: Markets, or just interventions?
Remarks by Chris Powell
Secretary/Treasurer, Gold Anti-Trust Action Committee Inc.
New Orleans Investment Conference
Sunday, October 21, 2007
Ever since the Gold Anti-Trust Action Committee was founded in 1999 to expose manipulation of the gold market, we have been called "conspiracy nuts." We don't mind the "nuts" part, but we're actually public record nuts. For the scheme to suppress the price of gold is increasingly a matter of ordinary public record.
It was a matter of public record in July 1998, six months before GATA was formed, when Federal Reserve Chairman Alan Greenspan told Congress: "Central banks stand ready to lease gold in increasing quantities should the price rise." That is, Greenspan himself contradicted the usual central bank explanation for leasing gold -- supposedly to earn a little interest on a dead asset -- and admitted that gold leasing was all about suppressing the price. His admission is still posted at the Fed's Internet site.
The Washington Agreement on Gold, made by the European central banks in 1999, was another admission -- no, a proclamation that central banks were working together to control the gold price. The central banks in the Washington Agreement claimed that, by restricting their gold sales and leasing, they meant to prevent the gold price from falling too hard. But even if you believed that rubbish, it was still collusive intervention in the gold market:
Barrick Gold, then the largest gold-mining company in the world, confessed to the gold price suppression scheme in U.S. District Court in New Orleans on February 28, 2003. On that date Barrick filed a motion to dismiss Blanchard & Co.'s anti-trust lawsuit against Barrick and its bullion banker, JPMorganChase. The Blanchard suit charged that Barrick was doing exactly what Barrick's motion went on to admit. But Barrick's motion said that in borrowing gold from central banks and selling it, the company had become the agent of the central banks in the gold market, and, as the agent of the central banks, Barrick should share their sovereign immunity and be exempt from suit. Barrick's confession to the gold price suppression scheme is posted on the Internet here:
The Reserve Bank of Australia confessed to the gold price suppression scheme in its annual report for 2003. "Foreign currency reserve assets and gold," the RBA's report said, "are held primarily to support intervention in the foreign exchange market." The RBA's report is still posted on the Internet at the central bank's own site:
Maybe the most brazen admission of the Western central bank scheme to suppress the gold price was made by the head of the monetary and economic department of the Bank for International Settlements, William S. White, in a speech to a BIS conference in Basel, Switzerland, in June 2005. There are five main purposes of central bank cooperation, White announced, and one of them is "the provision of international credits and joint efforts to influence asset prices (especially gold and foreign exchange) in circumstances where this might be thought useful."
White's speech is posted at GATA's Internet site here:
Last week the editor of the Freemarket Gold & Money Report and the founder of GoldMoney, James Turk, a longtime consultant to GATA and a speaker at this conference, revealed some U.S. Treasury Department reports showing that since May this year the U.S. gold reserve has been or is being mobilized for leasing to suppress the gold price. Those records are available on GATA's Internet site:
In complaining about the manipulation of the gold market, GATA has not been called "conspiracy nuts" by everyone. We have gained a good deal of institutional support over the years.
First came Sprott Asset Management in Toronto, whose chief investment strategist, John Embry, has spoken at this conference. In 2004 Sprott issued a comprehensive report supporting GATA. The report was titled "Not Free, Not Fair -- the Long-Term Manipulation of the Gold Price," and it remains available at the Sprott Internet site:
Then last year the Cheuvreux brokerage house of Credit Agricole, the major French bank, issued its own report confirming GATA's findings of manipulation in the gold market. The Cheuvreux report was titled "Remonetization of Gold: Start Hoarding," and you can find it at the GATA Internet site:
And last month Citigroup -- yes, Citigroup, a pillar of the American financial establishment -- joined the conspiracy nuts. On September 21 Citigroup published a report titled "Gold: Riding the Reflationary Rescue," written by its analysts John H. Hill and Graham Wark, declaring: "Gold undoubtedly faced headwinds this year from resurgent central bank selling, which was clearly timed to cap the gold price."
You can find the Citigroup report at the GATA Internet site:
So a bigger question today is not whether central banks and their agents manipulate the gold market -- even Citigroup sees it now -- but why this should ever have been a mystery or a controversy.
For the manipulation of the gold market by central banks is only the most basic economic history. That's what the gold standard was about -- governments fixing the price of gold to a precise value in their currencies, a price at which governments would exchange their currencies for gold, currencies that were backed by gold. Though the gold standard was abandoned amid the Great Depression, that was not the end of government efforts to control the gold price. The United States and Great Britain attempted to hold the price at $35 per ounce throughout the 1960s in a public arrangement of dishoarding that came to be known as the London Gold Pool. The London Gold Pool was overwhelmed by demand and was shut down abruptly in April 1968. Since then there has been sporadic selling of gold by central banks and, increasingly, leasing of gold by central banks, even as the gold price has continued to rise.
That the London Gold Pool was a scheme to manipulate the gold price is not denied even as the more recent selling and leasing by central banks may be disputed.
But it is all much bigger than that. Gold is only part of it.
For market intervention is why central banking was invented. Intervening in markets is what central banks do. They have no other purpose.
Central banks admit intervening daily, even hourly, in the currency markets, buying and selling their own currencies and those of other governments to maintain exchange rates at what they consider politically desirable levels.
Central banks admit doing the same in the government bond markets.
Now there is even evidence that the Federal Reserve and Treasury Department have been intervening frequently in the U.S. stock markets since the crash of 1987. You don't have to settle for rumors about the "Plunge Protection Team," also known as the President's Working Group on Financial Markets. Again you can just look at the public record.
The Federal Reserve injects money into the stock and bond markets every day, on the public record, through what are called repurchase agreements the Fed has with the major New York financial houses. The financial houses become the Fed's agents in directing that money into the markets. This week the money deployed into the stock and bond markets by the Fed through the repo pool stood at about $160 billion -- which is plenty for pushing all sorts of markets around or propping them up. Indeed, market manipulation is the only purpose of the repo pool.
As even Citigroup acknowledges now, the price of gold has been manipulated through the strategic dishoarding of gold by central banks and their sale of gold futures and options.
So the biggest question of all may be why central banks manipulate the gold price and what this means for investors.
Gold has been manipulated by central banks because it is a currency that competes with their currencies, a currency whose price helps set the price of government currencies and helps determine interest rates.
More than that, gold is the ticket out of the central bank system, the escape from coercive central bank and government power. As an independent currency, a currency to which investors can resort when they are dissatisfied with government currencies, gold carries the enormous power to discipline governments, to call them to account for their inflation of the money supply.
In recent months central bankers often have complained about what they call "imbalances" in the international financial system. That is, certain countries, particularly in Asia, run big trade surpluses, while other countries, especially the United States, run big trade deficits and consume far more than they produce, living off the rest of the world. These complaints by the central bankers are ironic, since these imbalances have been caused by the central bankers themselves, their constant interventions in the currency, bond, and commodity markets to prevent those markets from coming into balance lest certain political interests be disturbed.
Yes, when markets balance themselves they often do it brutally, causing great damage to many of their participants. The United States enacted a central banking system in 1913 because for almost 150 years before that the country went through a catastrophic deflation every decade or so. Central banking was enacted to prevent those catastrophic deflations. The problem with central banking has been only the old problem of power -- it corrupts. One market intervention encourages another and another and increases the political pressure to keep intervening to benefit special interests rather than the general interest. These interventions, effectively subsidies to one economic interest or another, increasingly are needed to prevent the previous imbalances from imploding. And so we have come to an era of daily market interventions by central banks, so much so that the main purpose of central banking now is to prevent markets from breaking out.
Central banking controls the value of all labor, services, and real goods, and yet it is conducted almost entirely in secret -- because, in choosing winners and losers in the economy, administering the ultimate patronage, modern central banking cannot stand scrutiny. Yet the secrecy of central banking now is taken for granted even in nominally democratic countries. What a hundred years ago in the United States was called the Money Power is so ascendant today that it boasts of its privilege. What other agency of a democratic government could get away with the principle that was articulated on national television in 1994 by the vice chairman of the Federal Reserve, Alan Blinder? Blinder declared: "The last duty of a central banker is to tell the public the truth."
The truth as GATA sees it is this:
First, gold is the secret knowledge of the financial universe, but it is coming to be an open secret. Indeed, GATA announces here today that it has retained a prominent Washington-area law firm, William J. Olson PC of McLean, Virginia, to work with our consultant, the monetary historian Edwin Vieira, to demand from the U.S. government, under the federal Freedom of Information Act, a full accounting of U.S. gold reserves. That demand will be filed in a few days.
Second, while you will hear at this conference much technical analysis of the markets, all of it will be compromised if it fails to account for government intervention.
And third, that intervention is failing because of overuse, exposure, exhaustion of Western central bank gold reserves, and the resentment of the developing world, which is starting to figure out how it has been exploited by the dollar system. The Western central banks are attempting a controlled retreat with gold. But GATA believes that they may have to retreat farther than anyone dreams -- that when the central banks are overrun in the gold market, as they were overrun in 1968, and the market begins to reflect the ratio between gold supply and the explosion of the world money supply of the last few decades, there may not be enough zeroes to put behind the gold price.
One more thing: You're all invited to GATA's fund-raising reception, cocktail party, and buffet during this conference. It will be held from 7 to 10 p.m. Tuesday at Latrobe's on Royal, 403 Royal St., here in New Orleans. Admission will be $50, you'll get to meet GATA's officers and directors, and for a few hours it will be one place in the world financial system with absolutely no liquidity problem.
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