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Chris Powell: A new summary of GATA's work
By Chris Powell
Gold Anti-Trust Action Committee Inc.
Sunday, August 24, 2008
While the gold price long has been at least "managed" by Western central banks -- as with the gold standard itself, and then the London Gold Pool of the 1960s -- the current arrangement, largely surreptitious, may have originated with an academic paper co-written in 1988 by Lawrence Summers, then a professor at Harvard, later deputy to Treasury Secretary Robert Rubin and then his successor. The paper was titled "Gibson's Paradox and the Gold Standard" and was published in the Journal of Political Economy. You can find it here:
It's very dense but GATA consultant Reginald H. Howe, a lawyer and gold mining company investor in Massachusetts, the first litigator against the gold price suppression scheme and a Harvard grad himself, put it in context in 2001 with his essay "Gibson's Paradox Revisited: Professor Summers Analyzes Gold Prices," which you can find in the "Essays" section on the home page at Howe's Internet site here:
Essentially, the scheme as implied by Summers' paper is to keep interest rates down and government bond prices up by rigging the gold market, gold and interest rates ordinarily being inversely correlated.
I've long had a hunch that the scheme became U.S. government policy because of President Clinton's resentment upon being told, soon after taking office, that the foremost objective of his administration should be to placate the bond market. There is a famous quotation about this in Bob Woodward's book about the Clinton administration's early days, "The Agenda." The full book isn't available on the Internet but the quotation appears in several reviews of the book that have been posted. Clinton says:
"We're Eisenhower Republicans here. We stand for lower deficits, free trade, and the bond market. Isn't that great? ... We help the bond market and we hurt the people who voted us in."
Here's a link to one such review:
My hunch is that not long after Clinton expressed this resentment of the bond market, Rubin told Clinton how the bond market could be deceived by rigging the gold market, and Clinton gave his approval.
While this scenario is admittedly speculation, the gold-carry trade, on which the gold price suppression scheme was based -- the lending of Western central bank gold reserves to investment houses at an only nominal interest rate, the investment houses' sale of those reserves, and their use of the proceeds to purchase government bonds for a risk-free income of 5 percent or so -- is a matter of public record. Even if it wasn't the intent, this had the effect of suppressing the gold price, supporting government bond prices, and lowering interest rates.
Further, a gold mining company executive, a longtime GATA supporter, who worked with Rubin at Goldman Sachs prior to Rubin's appointment as treasury secretary, witnessed Rubin's involvement in the gold carry trade at Goldman.
While the people who formed GATA sensed as early as 1998 that something was wrong technically in the gold market, it took us a couple of years to figure out that the culprits were not the visible players in the futures markets -- the New York investment banking houses -- but rather the Western central banks, and that the investment houses were just their agents, their cover. A British economist, Peter Warburton, may have been the first to put it together comprehensively, with his 2001 essay, "The Debasement of World Currency: It Is Inflation, But Not as We Know It," which you can find here:
Warburton argued that the Western central banks meant to deprive the world of any standard by which their enormously inflationary policies could be quantified.
While the gold price suppression scheme is seldom raised in polite company and even less often acknowledged in the mainstream financial press, enough public documentation of it has been discovered to allow me to make a stump speech out of it. Here is the stump speech's most recent version, as presented at GATA's conference in Washington in April:
The speech contains Internet links to most of the documentation it cites.
An indication that maybe GATA is not just another conspiracy group came out of the blue in June 2004, when Oleg Mozhaiskov, the deputy chairman of the Bank of Russia, that country's central bank, gave a speech to the London Bullion Market Association's Bullion Market Forum in Moscow. Up to that point GATA had not knowingly had contact with anyone in Russia, and yet the only words in Mozhaiskov's speech that were in English were "Gold Anti-Trust Action Committee."
We heard something about the Mozhaiskov speech soon afterward but the LBMA refused to provide us a copy of its English translation. So I got in touch with Mozhaiskov by fax in Moscow and he agreed to provide a translation through an intermediary, Moscow Narodny Bank in London. (I told Mozhaiskov that I'd be glad just to get the Russian text, since at that time my newspaper employed a reporter who was fluent in Russia and had studied at length there, but Mozhaiskov was insistent on controlling the translation.) It took a couple of months but Mozhaiskov came through.
His remarks about GATA were less than a complete endorsement of our work but his meaning seemed plain enough: that the gold market was not free-trading and that it was subject to surreptitious influences.
Of course there was no need for Mozhaiskov to mention GATA if he didn't want to call attention to our work. And of course he thereby signified that the Russian central bank had been watching GATA for a long time, quite without our knowledge. You can find Mozhaiskov's speech here:
A year later, in August 2005, Andrey Bykov, an economics adviser to the Russian president, Vladimir Putin, attended GATA's international conference in Dawson City, Yukon Territory, at which the gold carry trade was a primary subject. We can't prove it but we suspect that it was at this point that the Russians understood that most of their central bank's gold had been deposited in London and leased out as part of the gold price suppression scheme, which served to suppress commodity prices generally and cheat commodity countries like Russia:
In any case immediately after GATA's conference in Dawson City, President Putin announced that the Bank of Russia would be adding to its gold reserves and buying gold on all markets, and gold's ascent quickened dramatically. We doubt that this was a coincidence.
Frank Veneroso, whose credentials in international finance are as good as anyone's, gave his analysis of the gold carry trade at a conference in Lima, Peru, in 2002. You can find Veneroso's presentation here:
And Antal Fekete, an economist dedicated to the gold standard, wrote a year ago what struck me as an excellent essay on the underlying purpose of derivatives, which are heavily involved in the gold price suppression scheme as well as the interest rate suppression scheme: to siphon away from real goods the vast increase in the world money supply. To a great extent Fekete's thoughts seem to echo Warburton's:
I would summarize all this with the title of my stump speech: "There are no markets anymore, just interventions." Because government interventions in markets are now so pervasive, I don't think we have much of an idea of how anything would be fairly priced. The only thing I think we know is that Western central bank gold reserves, the crucial mechanism for market rigging, will be exhausted, likely within our lifetimes, at which point we may begin to discover market prices again -- as if commodity prices recently haven't been shocking enough.