Monday, October 12, 2009

A Gold Warrior On the History of Gold Manipulations

Chris Powell, Secretary/Treasurer of the Gold Anti-Trust Action Committee Inc., last week, gave a speech at the New Orleans Investment Conference. His organization GATA has been fighting to expose decades long government and central bank anti-gold actions and attitudes. I reproduce here his speech in full as it lays out a series of documents that show that governments, including that of the United States, have at various times attempted to manipulate and control the price of gold, and prevent other countries from buying gold.
Remarks by Chris Powell
Gold Anti-Trust Action Committee Inc.
New Orleans Investment Conference
Hilton Riverside Hotel
Thursday, October 8, 2009

On Friday, September 25, Jim Rickards, director of market intelligence for the Omnis consulting firm in McLean, Va., was interviewed at length on the cable television network CNBC. Talking about the currency markets, Rickards remarked: "When you own gold you're fighting every central bank in the world."

That's because gold is a currency that competes with government currencies and influences interest rates and the prices of government bonds.

Of course such an assertion in itself was no surprise to my organization, the Gold Anti-Trust Action Committee. To the contrary, that assertion has been our premise for most of our 10 years and we have documented it extensively. It was spectacular that an analyst should have expressed it in the mainstream financial news media and have been allowed to keep talking. But since we met here in New Orleans last year there have been many spectacular disclosures of what central banks meant to be surreptitious intervention in the currency markets to suppress the price of gold -- particularly intervention by the central bank of the United States.

You may have heard GATA derided as a "conspiracy theory" organization. We're not that at all. To the contrary, we examine the public record, produce documentation, question public officials, and publicize their most interesting answers, or refusals to answer. I'd like to review the spectacular disclosures of the last year.

First, in January, was the discovery of a 16-page unsigned memorandum in the archive of the late Federal Reserve Chairman William McChesney Martin:

The memorandum is dated April 5, 1961, and is titled "U.S. Foreign Exchange Operations: Needs and Methods." It is a detailed plan of surreptitious intervention to rig the currency and gold markets to support the dollar and to conceal, obscure, or falsify U.S. government records and reports so that the rigging might not be discovered. This document remains on the Internet site of the Federal Reserve Bank of St. Louis.

Then in August the international journalist Max Keiser reported an interview with the Bundesbank, Germany's central bank, in which he was told that all of Germany's gold reserves were held in New York:

Some people saw that admission as a suggestion that Germany's gold had become the tool of the U.S. government. GATA consultant Rob Kirby of Kirby Analytics in Toronto then pressed the Bundesbank for clarification. On August 24, the Bundesbank replied to Kirby by e-mail with a denial of Keiser's report that was actually pretty much a confirmation:

"The Deutsche Bundesbank," the reply said, "keeps a large part of its gold holdings in its own vaults in Germany, while some of its gold is also stored with the central banks located at major gold trading centers. This," the Bundesbank continued, "has historical and market-related reasons, the gold having been transferred to the Bundesbank at these trading centers. Moreover, the Bundesbank needs to hold gold at the various trading centers in order to conduct its gold activities."

The Bundesbank didn't specify those "gold activities" and those "trading centers." But those "activities" can mean only that the Bundesbank is or recently has been surreptitiously active in the gold market.

Then last month an financial market professional and student of history named Geoffrey Batt posted at the Zero Hedge Internet site three declassified U.S. government documents involving the gold market.

The first was a long cable dated March 6, 1968, from someone named Deming at the U.S. Embassy in Paris to the State Department in Washington:

The cable described the strains on the London Gold Pool, the gold-dishoarding mechanism established by the U.S. Treasury and the Bank of England to hold the gold price to the official price of $35 per ounce. The London Gold Pool was to last only six months longer.

The cable is a detailed speculation on what would have to be done to control the gold price and particularly to convince speculators "that there is no point any more in speculating on an increase in the price of gold" and "to establish beyond doubt" that the world financial system "is immune to gold losses" by central banks.

The cable recommends creation of a "new reserve asset" with "gold-like qualities" to replace gold and prevent gold from gaining value. To accomplish this, the cable proposes "monthly or quarterly reshuffles" of gold reserves among central banks -- what the cable calls a "reshuffle club" that would apply gold where market intervention seemed most necessary.

These "reshuffles" sound like the central bank "gold swaps" of recent years.

The idea, the cable says, is for the central banks "to remain the masters of gold."

Then Zero Hedge's Batt disclosed a memorandum from the Central Intelligence Agency dated December 4, 1968, several months after the collapse of the London Gold Pool:

The CIA memo said that to keep the dollar strong and prevent "a major outflow of gold," U.S. strategy would be:

"-- To isolate official from private gold markets by obtaining a pledge from central banks that they will neither buy nor sell gold except to each other."

And "-- To bring South Africa to sell its current production of gold in the private market, and thus keep the private price down."

The third declassified U.S. government document published by Batt at Zero Hedge may be the most interesting, because it was written on June 3, 1975, four years after the last bit of official fixed convertibility of the dollar and gold had been eliminated and the world had been told that currencies henceforth would float against each other and gold and gold would be free trading.

The document is a seven-page memorandum from Federal Reserve Board Chairman Arthur Burns to President Ford. It is all about controlling the gold price through foreign policy and defeating any free market for gold:

Burns tells the president: "I have a secret understanding in writing with the Bundesbank, concurred in by Mr. Schmidt" -- that's Helmut Schmidt, West Germany's chancellor at the time -- "that Germany will not buy gold, either from the market or from another government, at a price above the official price of $42.22 per ounce."

Burns adds, "I am convinced that by far the best position for us to take at this time is to resist arrangements that provide wide latitude for central banks and governments to purchase gold at a market-related price."

While the Burns memo is consistent with the long-established interest of central banks in controlling the gold price, it was still 34 years ago.

But now at last there has been a contemporaneous admission of U.S. government intervention in the gold market. It has come out of GATA's long Freedom of Information Act struggle with the U.S. Treasury Department and Federal Reserve for information about the U.S. gold reserves and gold swaps, information that has been denied to GATA on the grounds that it would compromise certain private proprietary interests. (Of course such a denial, a denial based on proprietary interests, is in itself a suggestion that the U.S. gold reserve has been placed, at least partly, in private hands.)

Responding to President Obama's declaration, soon after his inauguration, that the federal government would be more open, GATA renewed its informational requests to the Fed and the Treasury. These requests concentrated on gold swaps. Of course both requests were denied again. But through its Washington lawyer, William J. Olson -- -- GATA brought an appeal of the Fed's denial, and this appeal was directed to a full member of the Fed's Board of Governors, Kevin M. Warsh, formerly a member of the President's Working Group on Financial Markets.

Warsh denied our appeal but in his letter to Olson he let slip some stunning information:

Warsh wrote: "In connection with your appeal, I have confirmed that the information withheld under Exemption 4" -- that's Exemption 4 of the Freedom of Information Act -- "consists of confidential commercial or financial information relating to the operations of the Federal Reserve Banks that was obtained within the meaning of Exemption 4. This includes information relating to swap arrangements with foreign banks on behalf of the Federal Reserve System and is not the type of information that is customarily disclosed to the public. This information was properly withheld from you."

So there it is: The Fed today -- right now -- has gold swap arrangements with "foreign banks."

Eight years ago Fed Chairman Alan Greenspan and the general counsel of the Federal Open Market Committee, Virgil Mattingly, vigorously denied to GATA, through two U.S. senators, that the Fed had gold swap arrangements, even though FOMC minutes from 1995 quote Mattingly as saying the U.S. has engaged in gold swaps:

But now the Fed admits such arrangements.

Of course Fed Governor Warsh did not say that the Fed has actually swapped any gold lately, only that it has arrangements to do so -- and, just as important, that the Fed doesn't want the public to know about those arrangements, doesn't want the public to know about the disposition of the country's gold reserves.

There is a reason for the Fed's insistence that the public must not know what it is doing in the gold market.

GATA believes it's because, as the recently disclosed documents suggest, suppressing the gold price is part of the general surreptitious rigging of the currency and bond markets by the U.S. government and that this rigging is the foremost objective of U.S. foreign and economic policy, and because this rigging can't work if it is exposed and the markets realize that they aren't really markets at all.

And the rigging increasingly is being exposed.

Jim Rickards, the analyst who remarked the other day on CNBC that "when you own gold you're fighting every central bank in the world," was not quite right. For lately a few central banks -- those in China, Russia, and even in Europe -- have hinted that they've figured the so-called gold market out and are not playing along anymore. Now there is open reporting and commentary on what is being called the Chinese put on gold, and even open reporting and commentary on international collaboration to replace the dollar as the world reserve currency.

Meanwhile, as in the last months of the London Gold Pool 40 years ago, there has been vast dishoarding of Western central bank gold, and the supplies necessary to suppressing the gold price are drying up. World gold production has fallen dramatically because the rising price is not yet close to the price necessary to make more production profitable. And investors are realizing that most paper gold is not backed by real gold but rather that each ounce of real metal is probably supporting paper claims to 20, 50, or even a hundred ounces.

In any case, there's an important international story here, and GATA plans to pursue it by suing the Federal Reserve in U.S. District Court in Washington for the information being withheld from us about the U.S. gold reserve. Given all the new documentation, we hope that financial journalists and gold market analysts will get interested and start pressing central banks for detailed answers about gold.

This story is important despite this week's dramatic rise in the gold price. For even as the price of gold has been rising, we really don't yet know what a fair price, a free-market price, for gold is, since gold has not traded in a free market for many years. Indeed, since central bank intervention in the currency, bond, and equities markets has exploded over the last year, we don't really know what the market price of anything is anymore. Thus this is a story about the valuation of all capital and labor in the world -- and whether those values will be set openly in free markets, the democratic way, or secretly by governments, the totalitarian way.

The specifics of the gold price suppression operation are complicated, but you don't have to remember them all if you know what they mean.

They mean that there's a currency war going on between central banks. There has been such a war for many years, only the victims were not really fighting back. Now some of them are. Signs of this war are now everywhere -- like the story this week by Robert Fisk in the British newspaper The Independent, which rocked the currency and gold markets:

It described an international plan to replace the dollar in oil trading.

Gold and silver are currencies and will be remonetized by markets eventually if not by central banks as well. But when you invest in currencies like gold and silver, you risk getting caught in the crossfire of the currency war. There was crossfire last night when several Asian central banks intervened in the currency markets to support the dollar:

But this intervention was not officially acknowledged. Much central bank intervention is undertaken secretly.

As in any war, truth is the first casualty in the currency war, even as secrecy is always the first principle of central banking.

Meanwhile, not asking the right questions of the right people seems to be the first principle of most financial journalists and even many gold and silver market analysts. These journalists and analysts take government secrecy for granted, even as the evidence of market intervention and manipulation explodes all around them. Their acceptance of secrecy reminds me of the bumbling police detective played by Leslie Nielsen in the "Naked Gun" movies, particularly his performance in this scene:

Well, there is something to see here.

The precious metals promise great rewards to investors, but to get the necessary information you have to do a lot more work than other investors.

And you have to remember the remarkable properties of gold and silver. It's not just that gold is the most malleable and lustrous of metals, or silver the most conductive and reflective, but also that, once they get into the hands of central banks, bullion banks, and exchange-traded funds, gold and silver become invisible.

If you would like to help GATA, we're recognized by the U.S. Internal Revenue Service as a tax-exempt educational and civil rights organization, and financial contributions to us are federally tax-deductible in the United States. Our Internet site is and the documentation we have discovered is posted there. We'll be grateful for your help and promise to try to make good use of it.

My guess is that any attempt by the Federal Reserve and the Treasury to withold information about activities in gold is because although they technically hold the gold in their vaults, they have swapped the gold out to friendly central banks and others. Those central banks, and others, have sold the gold and thus the Fed/Treasury has no intention of calling back the gold. BUT if the market ever got wind of this and realized that the U.S. government no longer owned gold, but, in effect, only controlled derivatives on gold, payable by counterparties who have huge losses on the gold they have in effect sold short, the gig would be up. Gold would climb higher for days upon days at $100 per ounce or more, as the world realized that for all practical purposes the government gold vaults aren't empty, but the gold belongs to others, and those others would want to take delivery of their gold pretty damn fast, if they realized what was going on.

This shell game with protecting documents, and the anti-audit the Fed posture, by the governmet could very well be about protecting the last shreds of a gold bankrupt Treasury.


  1. Rather than "the masters of gold" it appears these central bankers have become the slaves of gold. Assume gold at $35/oz in 1935 and $1000/oz today. Thats a growth rate of about 4.6% per year. That's slightly greater than the average rate of US dollar inflation. This suggests that over the long run price manipulation is a difficult thing to accomplish, even for central banks. Over the long run gold has done exactly what you would expect - compensate an investor for inflation.

    This assumes that gold is legally available to be owned privately. Otherwise its benefits are not available to the private investor. A true monopoly exists only when ownership is prohibited. And this is true for all products and services. Prohibition is the danger not price manipulation.

  2. A recent CNN television broadcast gave the impression that Esperanto aims to be a single global language. The comparison was with a global reserve currency, instead of the US dollar.


    May I put the record straight? Esperanto intends to be an auxiliary language, or a second language for all.

    Please see for confirmation.