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Brad Zigler: Gold manipulation redux

Section: Daily Dispatches

12:24a ET Wednesday, July 1, 2009

Dear Friend of GATA and Gold:

In commentary posted yesterday, Brad Zigler, managing editor of the Hard Assets Investor Internet site, has done GATA the service of taking us seriously enough to answer us specifically in some respects. Zigler's commentary is headlined "Gold Manipulation Redux" and can be found at Hard Assets Investor here:

Zigler seems to accept that central banks intervene in the gold market, openly and surreptitiously. He seems interested mainly in asserting the integrity of the futures markets.

He writes that since gold has been rising for quite a while now, any gold price suppression scheme could not be working. GATA argues that the scheme indeed is working by substantially slowing gold's rise.

Zigler acknowledges that a few U.S. banks have hugely disproportionate short positions in the futures markets in gold and silver but he does not consider these positions manipulative. Further, he writes, "No tenable scenario has been offered to explain how these institutions would actually profit from the supposed suppression of gold prices. The banks' relationship to the Federal Reserve is often posited as evidence of a collusion of some sort, but the mechanics remained unspecified."

Zigler is entitled to his own definition of "tenable," but GATA has suggested many times that if central banks are implementing their gold suppression policy through bullion banks and mining companies that hedge, as Barrick Gold acknowledged central banks to be doing, even claiming to be an agent of the central banks itself -- --

then huge profits could be made by hedged miners, bullion banks, and their associated firms executing and front-running the trade orders of central banks. Surely Zigler would acknowledge that there are constant private communications among the Treasury, Fed, and financial houses. Many of the latter are official U.S. government agents, primary dealers for government bond sales. Does Zigler really think that no information of trading value is ever conveyed in these communications? Maybe Zigler would not be offended by this favoritism, but others would be -- and are.

Blanchard Coin & Bullion's federal antitrust lawsuit against Barrick, which elicited Barrick's confession to the gold price suppression scheme, maintained that Barrick had access to so much central bank gold obtained through its bullion bank, J.P. Morgan Chase & Co., that the mining company could run the gold price up or down at will. There would be a lot of profit in that. And GATA Chairman Bill Murphy has written and spoken often about how bullion banks could profit enormously by suddenly shorting gold in huge amounts, causing crashes, creating panic among investors, and covering short positions as the panic grows before allowing the price to rise again. Any firm with access to enough borrowed central bank gold could profitably manipulate not just the gold market with central bank approval but nearly every other market. And there's no denying that huge amounts of central bank gold have been leased and made available for just such purposes.

GATA has been formally refused access to U.S. Treasury Department and Federal Reserve records about the U.S. gold reserve. Anyone who believes in the integrity of the futures markets should have some curiosity about this, for it is an indication that the gold reserve indeed has been put in play in ways similar to those suggested by GATA. How much does Zigler want to bet that there never have been and are no records of communications among the Treasury Department, the Fed, and Morgan Chase involving gold?

Zigler disputes silver market analyst Ted Butler's assertion that the U.S. bank short positions in silver are unprecedented. He says there are bigger bank short positions in Australian dollar futures. But Butler was talking about the U.S. commodity markets, not foreign currency markets.

Zigler attributes the disproportionate U.S. bank short positions in gold and silver to legitimate hedging by producers and marketers rather than to manipulation by those banks. Since details of those short positions are kept confidential by the U.S. Commodity Futures Trading Commission, we can't yet know. But GATA thinks that this information should be made public, perhaps with a modest delay to provide some protection to current trading positions. Since hedging by precious metals miners has fallen dramatically, we do not think that most of the bank short positions in gold and silver is legitimate hedging. And while GATA argues for more transparency, Zigler, like the big shorts in the precious metals, seems to prefer continued concealment. Presumably Zigler trusts the CFTC to be doing its job -- just as Bernie Madoff's investors trusted the Securities and Exchange Commission to be doing its job. GATA doesn't trust any of the regulatory agencies.

But again let it be noted that, unlike most of GATA's critics, Zigler has had the courage to confront some of our specifics, and we're grateful for that and commend his commentary to you.

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

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