September 2009


The Zero Hedge Internet site has unearthed another U.S. government memorandum from the not-so-distant past expressing the intent of the government to rig the gold price in a nominally free market and detailing the need for and methods of doing so. It’s a memo written in 1975 by the chairman of the Federal Reserve Board, Arthur Burns. It’s headlined “Exclusive Smoking Gun: The Fed on Gold Manipulation,” and you can read about it HERE
You can read the real Macoy below in glorious scribd ipaper format:
View this document on Scribd
  • The graph shows a long term monthly gold triangle formation that gold is breaking out of:

  • There has never been a monthly close above US $1,000.00 but we are on the way toward that goal.
  • Moreover, you can see a huge upside down head-and-shoulders formation within the triangle.

All very bullish!

Dear Friend of GATA and Gold:

The Federal Reserve System has disclosed to GATA that it has gold swap arrangements with foreign banks that it does not want the public to know about.

The disclosure contradicts denials provided by the Fed to GATA in 2001 and suggests that the Fed is indeed very much involved in the surreptitious international central bank manipulation of the gold price particularly and the currency markets generally.

The Fed’s disclosure came this week in a letter to GATA’s Washington-area lawyer, William J Olson of Vienna, Virginia (http://www.lawandfreedom.com/), denying GATA’s administrative appeal of a freedom-of-information request to the Fed for information about gold swaps, transactions in which monetary gold is temporarily exchanged between central banks or between central banks and bullion banks. (See the International Monetary Fund’s treatise on gold swaps here: http://www.imf.org/external/bopage/pdf/99-10.pdf.)

The letter, dated September 17 and written by Federal Reserve Board member Kevin M. Warsh (see http://www.federalreserve.gov/aboutthefed/bios/board/warsh.htm), formerly a member of the President’s Working Group on Financial Markets, detailed the Fed’s position that the gold swap records sought by GATA are exempt from disclosure under the U.S. Freedom of Information Act.

Warsh wrote in part: “In connection with your appeal, I have confirmed that the information withheld under Exemption 4 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.”

When, in 2001, GATA discovered a reference to gold swaps in the minutes of the January 31-February 1, 1995, meeting of the Federal Reserve’s Federal Open Market Committee and pressed the Fed, through two U.S. senators, for an explanation, Fed Chairman Alan Greenspan denied that the Fed was involved in gold swaps in any way. Greenspan also produced a memorandum written by the Fed official who had been quoted about gold swaps in the FOMC minutes, FOMC General Counsel J. Virgil Mattingly, in which Mattingly denied making any such comments. (See http://www.gata.org/node/1181.)

The Fed’s September 17 letter to GATA confirming that the Fed has gold swap arrangements can be found here:

http://www.gata.org/files/GATAFedResponse-09-17-2009.pdf

While the letter is far from the first official admission of central bank scheming to suppress the price of gold (for documentation of some of these admissions, see http://www.gata.org/node/6242 and http://www.gata.org/node/7096), it comes at a sensitive time in the currency and gold markets. The U.S. dollar is showing unprecedented weakness, the gold price is showing unprecedented strength, Western European central banks appear to be withdrawing from gold sales and leasing, and the International Monetary Fund is being pressed to take the lead in the gold price suppression scheme by selling gold from its own supposed reserves in the guise of providing financial support for poor nations.

GATA will seek to bring a lawsuit in federal court to appeal the Fed’s denial of our freedom-of-information request. While this will require many thousands of dollars, the Fed’s admission that it aims to conceal documentation of its gold swap arrangements establishes that such a lawsuit would have a distinct target and not be just a fishing expedition.

In pursuit of such a lawsuit and its general objective of liberating the precious metals markets and making them fair and transparent, GATA again asks for your financial support and that of all gold and silver mining companies that are not at the mercy of market-manipulating governments and banks. GATA is recognized by the U.S. Internal Revenue Service as a non-profit educational and civil rights organization and contributions to it are federally tax-exempt in the United States. For information on donating to GATA, please visit here:

http://www.gata.org/node/16

You can also help GATA by bringing this dispatch to the attention of financial news organizations and urging them to investigate the Fed’s involvement in gold swaps particularly and the gold (and silver) price suppression schemes generally.

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

“The US dollar (USD) is the world’s “reserve currency”. This status is arguably the greatest privilege enjoyed by the US as an economic entity. Most people don’t appreciate its significance. As the world’s reserve currency, the USD is used by other countries across the globe to back up their own respective paper currencies. In some cases, it’s as basic as a country stockpiling US dollars in their central bank vaults. When asked what supports their Pesos, Rubles, or Yen, the powers that be simply point to their pile of US dollars as proof of value. Upon reflection, it’s quite obvious how tenuous it is to back up one’s currency with a pile of paper issued by another country, but this is exactly how the world of international currency has worked for decades. And it has worked quite well…until now.”

“…We keep coming back to the numbers for the US debt, and they don’t add up. Even Alan Greenspan, former Chairman of the Federal Reserve, believes that the rising budget deficits in the United States are “unsustainable”. Because the US Government is printing dollars to fund their liabilities, it is highly unlikely that we will ever see a failed bond auction similar to that of Poland. The far more likely outcome, therefore, will be a US dollar crisis. It is for this reason that we have positioned our hedge funds and mutual funds so heavily in precious metals.
At the end of the day, when the world finally realizes what the US has done to the world reserve currency, international investors will shift into an asset that no government can print. In our opinion the US dollar’s status as a ‘port’ in the financial storm has officially come to an end.
Click HERE to access Sprott Asset Management‘s assessment of the US$ position today.

September 18, 2009 – Certain segments of the media rarely give gold a fair shake, particularly when it approaches important price levels. These publications time and again take bald pokes at gold. So when I see articles doing that, I like to poke fun at the article, but more importantly, set straight its misrepresentations and errors about gold.

One publication that is consistently on the wrong side of the gold market is The Economist. Using its pathetic record of anti-gold articles, I have already documented its curiously timed invectives with what I call “Gold’s Infallible Indicator“. See also “Gold’s Infallible Indicator – Six Months Later“.

The Lex column from the September 9th Financial Times is another case in point. This disparaging – and highly misleading – account of gold can have no other purpose but to keep people from buying gold. It does not offer analysis, but propaganda, which is not surprising given the FT’s longstanding role as an apologist of central banking and fiat currencies.

Had Lex offered an unbiased analysis, it would have mentioned gold’s attributes, including the fact that it has appreciated at doubt-digit rates for nine years in-a-row on average against all of the world’s major currencies, making it one of the best performing asset classes this decade. And gold has done this without any counterparty risk, which is perhaps its greatest attribute and is not even mentioned by Lex.

Given my penchant for dissecting anti-gold propaganda pieces, this Lex column needs to be skewered. So here is my analysis of it, to help people read between the lines and put its propagandistic anti-gold fervor into a proper perspective. What follows is the Lex column in italics, with my comments inserted in the text.

Like a cure-all tonic prescribed by a travelling rural huckster, gold [My goodness, Lex not being one to waste words, sets the disparaging tone of this article right from the start by comparing gold to a “huckster”.] somehow seems to be good for nearly everything that ails us. [Is it that gold just “seems” to be good, or could it be that gold really is that good?] Just consider the diverse economic backdrops that have caused its price to spike over the years: stagflation, financial panic, speculative mania and currency debasement. [Yes, and left unmentioned is the common denominator of all these problems, which is the mismanagement of national currencies by governments and central banks.]

Back in 1980, when the yellow metal hit $850 an ounce – still the record in real terms [Adjusting for inflation, it takes more than $2,300 to purchase today what $850 purchased in January 1980, using the US government’s current CPI calculator. However, the US government has since amended its CPI calculator numerous times. Fortunately, www.shadowstats.com makes available the same CPI calculator used when the Carter administration haplessly watched the gold price soar nearly three decades ago. Using this Carter-era calculator, it takes over $6,300 today to match $850 of January 1980 purchasing power.] – western economies were being squeezed simultaneously by the second oil crisis and record post-war inflation.

Fast-forward to March 2008, when it broke through $1,000 for the first time on safe-haven buying [Yes, gold is a safe haven, and people buy it because it does not have counterparty risk, among other reasons.] as Bear Stearns teetered. It approached the same level a few months later when bank worries had eased temporarily but commodity-fever was peaking, and again in mid-September when Lehman’s collapse created so much demand that smelters worked overtime to churn out bullion. [Yes, but not as fast as central banks were working overtime to print currency to bailout the banks and other failed institutions that had political clout.]

The thread connecting these episodes was fear. [Fear was the result, not the cause. The cause was the failure of bank regulation by central banks as well as their gross mismanagement that allowed the credit bubble to appear in the first place.] But for those who rushed to buy near the top, peace of mind was costly. [It has only been costly if you held stocks. Gold is above $1000, but the Dow Jones Industrial Average, for example, is still -15.7% below its level the day before Lehman collapsed and -47.5% below its all-time high.]

It would be tempting to dismiss the latest surge above $1,000 an ounce as more of the same were it not for concerns about the currency in which its price is denominated. [Here is a palpable attempt to marginalize gold, saying that it is solely US dollar denominated and that it is rising only because of problems with the US dollar, which of course is completely wrongheaded. Gold’s price, or more accurately because it is money, gold’s rate of exchange, can be measured against any currency. Importantly, because gold is rising against all of the world’s currencies, it is obviously not just the US dollar that has people worried.]The trade-weighted average of the US dollar against six world currencies has neared a multi-year low of about 77, down from 121 eight years ago, as foreign creditors fear an endless stream of red ink from Washington. [At last, some meaningful and useful analysis. But again, this tidbit disinforms as much as it provides useful information because it focuses only on the dollar. It thereby diverts attention away from other currencies, all of which are being mismanaged by central banks to some degree as evidenced by gold’s ongoing appreciation in those currencies.]

Stories of those who preserved their wealth or escaped hunger in decades past by hoarding precious metals when their governments set the printing-presses loose provide gold bugs with a compelling historical narrative. [Yes, and one that is very relevant today given what governments and central banks around the world are doing to national currencies by again setting the printing presses loose. But the US is not Weimar Germany [Not yet, but wait a few months.] and, in spite of interest rates that make gold ownership cheap, [Which is only one of gold’s many advantages at the moment] the opportunity cost of owning it is still unattractive in the long-run. [Complete rubbish. Gold has appreciated at double-digit rates on average this decade against all of the world’s currencies, and achieved that without counterparty risk. Gold is doing what money is supposed to do – preserve purchasing power.] Smarter ways to anticipate inflation include bricks and mortar, [The FT is obviously grasping for straws. Think about it. It is bricks and mortar – not gold – that have the burdensome carrying costs with maintenance, various property related taxes, etc., not to even mention that real estate prices have been falling] mineral rights [Owning gold has completely different risk/return criteria than owning any right to mine it.] or even equities, [Only if you choose the right ones, and this decade at least, it would have been very difficult to choose equities that have appreciated at rates better than gold.] all with vastly superior historical returns. [Stocks are investments, and gold is money. They are different things, with different uses, so they cannot logically be compared. Stocks do generate returns over time, whereas sound money does not. Gold’s appreciation during periods of monetary turmoil, like the present one, is simply the loss of purchasing power of the national currency in which gold’s price is measured.] Financial panaceas, such as medical ones, should always come with a health warning [And so should articles about gold in the FT].

DENVER GOLD FORUM
$5,000/oz gold? Rob McEwen says it’s coming in 2014 or 2015
Über gold promoter Rob McEwen has also developed a taste for silver mining.
Author: Dorothy Kosich
RENO, NV -
When über mining investor Rob McEwen makes predictions on gold prices or appears to have developed an interest in silver mines, retail investors heed his clarion call and place their bets that the gold price is about to soar.
In a presentation to the Denver Gold Group on U.S. Gold Monday, McEwen was somewhat subdued as he only briefly mentioned he thought gold could hit $5,000 an ounce before the end of the gold cycle As this reporter scrambled for a clarification of his remarks in a brief interview, McEwen stuck by his prognostication, forecasting the end of the gold cycle would occur either in 2014 or 2015.
McEwen is so dedicated to the power of gold, he told his audience of fund managers, analysts, investment bankers and miners that he personally owns 21% of U.S. Gold. In comparison most major mining CEOs own a mere pittance.
He is steadfast in his belief that the Cortez Trend-which hosts Barrick’s massive Cortez Hills gold project-will yield millions of gold ounces for his U.S. Gold company.
But, McEwen also has developed a fondness for silver, albeit he lacks the same passion for the precious metal as he feels for gold.
He declared to his audience Monday that “El Gallo, Mexico is becoming one of the world’s great silver discoveries. ” With a 540,000-acre position in what he called “highly mineralized lands,” McEwen’s U.S. Gold is spending $10 million in exploration over 12 months. He anticipates an initial resource and heap leach test during the first quarter of 2010.
Though he told Mineweb his interest in silver has been stimulated more by individual mining properties rather than a newfound passion for silver, McEwen has also become active in Minera Andes, which he says owns 49% of the world’s ninth largest silver mine, San Jose in Argentina. By 2010, McEwen forecasts that San Jose will have 7.5 million ounces of silver and 95,000 ounces of gold. He also predicts the operating cash costs will go lower than the 29% drop to $4.99/oz achieved in the first quarter of this year,
He also believes that Minera Andes’ Los Azules project is “one of the largest undeveloped copper discoveries in the world. And in keeping with his philosophy as Minera’s Chairman and CEO, McEwen owns 33% of the company’s shares.
As the years roll by, McEwen’s legendary penchant for marketing to the max remains intact as he offered audience members trillion dollar notes as an impromptu raffle prize at the conclusion of his talk.
By Richard Russell
Dow Theory Letters
http://ww2.dowtheoryletters.com/
Wednesday, September 9, 2009
As the great Bob Dylan song goes, “There’s a battle outside, and it’s raging, it will soon shake your windows and rattle your walls, for the times are a’changin’.”
The battle is obvious — it’s the primary forces of overproduction and deflation vs. the Fed’s obsession (“whatever it takes”) to fight deflation and to produce asset inflation.
The one signal for rising inflation that the world understands is rising gold. The central banks do not want to see the gold signal, which tells the world that inflation is in command.
What the Fed really wants is asset inflation in housing. Housing is collateral for almost everything in the nation, and the Fed and Treasury are frantic to get housing prices heading higher.
Yesterday most assets got the message. Oil was higher, the base metals were higher, the stock market was higher, but gold (pressured by forces we know not from where) failed to close at the highly significant number of $1,000 an ounce or better. Incredibly, after being as high as $1,009 during yesterday’s session, gold closed at $999.80 — just 20 cents below $1,000.
Coincidence? Mistake? Random chance?
Hardly. To me it was obvious that the Fed did not want to see the following headline in the newspapers: “Gold closes above $1,000.”
Whatever it takes, it seems, will be utilized to hold the only constitutional money down.
When a can is placed on a stove burner, the pressure builds up inside the can. At some point, we know not exactly when, the can will explode and the pressure will be released. That, I believe, is where gold is.
You can threaten gold with forthcoming central bank sales. You can sell gold in quantity. You can smother gold with short sales. But the primary trend of gold will win out. It will be expressed today, in a month, or in 2010. The trick for us is to hold onto our position — don’t trade it, don’t move in and out with it, don’t hold so much of it that you get the heebie jeebies every time it dips $10.
The primary trend of gold is up. We’re riding the bull. The bull will try to shake us off his back. We’ll hang on.
The word is that China wants to load up on gold while diversifying out of its huge position in dollar-denominated securities (T-bonds). China’s problem is how to accumulate gold secretly without driving the price up. This has led to what is now called “the China gold put.” Every time gold backs off, China is in there to scoop up what is offered.
On top of that, China is urging its over-1 billion population to buy gold and silver.
Finally, China is now the world’s biggest miner of gold. China, in its patient way, is preparing for the future. The future that China sees is a world without fiat currency or a world in which its own renminbi is the world’s reserve currency.
* * *
Chrys N.B. … got Gold..?

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