GATA


Mystery and Intrigue in the Gold Market

 

Liebovit VR Gold Trader
Monday, August 15, 2011

 

Politicians, governments, media, etc. seem to overlook the true value of precious metals and try to deter individuals from owning them. This has been going on for centuries. Most recently, the United States government prohibited American citizens from owning gold between 1933 and end of 1974.
They continue to mislead people into believing that paper currencies are the real wealth. We hear from the chairman of the Federal Reserve, Ben Bernanke, that gold is not money, just “tradition.” Despite Bernanke’s comments, gold is indeed a currency that competes with government-issued currencies and helps determine not only the value of those currencies but also the level of interest rates and the value of government bonds.
Do they inject this propaganda to take attention away from what the central banks are actually doing with gold and the price of gold? Are they really overlooking or ignoring the true value of gold, or is this smoke and mirrors in front of what they are actually doing?
The gold-exchange standard protected citizens from hyperinflation and other abuses of monetary policy. President Nixon ended the gold-exchange standard on August 15 1971, which meant the end of direct convertibility of the dollar to gold. This removed the restrictions put on governments and central banks as to what they could do with the money supply.
Central banks want to continue to expand the money supply but not face the consequences. They seek ways to force down the price of gold because the price of gold is an indicator of central bank monetary policy.
How do the central banks continue to increase money supply while trying to keep the price of gold down?
The most common policy is to lease gold to a specialized group of insiders known as bullion banks. The central banks call this leasing, but it is operationally a form of gold sales.
The central bank leases gold at well under 1 percent per year to bullion banks. Bullion banks then sell the gold into the private market, take the money, and invest it in government bonds or other investments that pay far more than 1 percent per year.
That gold is gone. To get the gold back, the central banks would have to demand payment in gold by the bullion banks. The bullion banks could not repay this gold without going into the gold market and purchasing it. This would drive up the price of gold. It would bankrupt the bullion banks.
So central banks do not require the bullion banks to repay the gold the bullion banks borrowed. The central banks simply roll the loans over, year after year, and the bullion banks invest the money they get from selling the gold. These central bank sales are not recorded as sales by the central banks. The public remains oblivious.
The central banks maintain the fiction that they still own the gold. They report their holdings of gold as not having changed. But from an economic standpoint, the gold is gone and there is no possibility of central banks will ever get it back from the bullion banks.
Another way central banks and governments battle investors in gold is to announce from time to time that they are contemplating the sale of gold. This scares some gold investors, who sell. By threatening to sell gold, central banks are attempting to push down the price of gold.
The latest example of this came at the G20 meeting on April 2. An announcement was made that the International Monetary Fund would make available special drawing rights (SDRs), which serve as money for central banks. To raise some of this money, the IMF was to sell some of its gold. That was the official announcement.
The IMF has been threatening to sell gold for years. To do this takes a majority vote of the member nations of the IMF. It is clear that the member nations are willing to allow the IMF to do this. Previously, this was not clear.
Why would a central bank or the IMF say in advance that it planned to sell a large portion of its gold holdings? When a large holder of commodities is going to sell into the open market, he does not announce this in advance. His goal is to maximize the money he gains by the sale of the asset. If he warns the world how much he plans to sell and over which time period, this will depress the price if the sale constitutes a significant quantity.
It is economically irrational for a seller of commodity to say in advance how much he plans to sell. I say “economically irrational” on the assumption that the goal is to make a profit. But if the goal is not to make a profit but rather to harm people who hold a particular commodity as an investment, the announcement makes good sense.
A rising price of gold warns the public that the government’s tax policies and the central bank’s monetary policies cannot be trusted.
How do we believe our governments when they tell us that precious metals have no real value even as foreign governments and foreign banks continue to buy billions of dollars of the metals and some are even buying mining companies and mines to ensure continued supply?
In April 2009 China announced that its gold reserves had increased by 76 percent, from 600 tonnes to 1,054 tonnes. For the previous six years China had been reporting to the IMF only 600 tonnes. Had China acquired those 454 new tonnes only in the past year? Experts believe that China acquired those 454 new tonnes over at least several years, largely by purchasing the production of China’s own fast-growing gold mining industry.
Global financial institutions continue to create paper contracts not backed by the physical metals. Is this their way to show plenty of supply in order to keep prices down so that they can continue to accumulate the bullion?
In 2000 CPM Group, a commodities market research, consulting, asset management, and investment-banking firm) released a document stating, “With the start of the London Bullion Market Association’s release of monthly trading data, the market has become aware that 100 times more gold and silver trade hands each year, just in the major markets, than is produced or used. Some market participants have wondered aloud how 10 billion ounces of gold could trade via the major markets each year, compared to 120 million ounces of total supply and demand, while roughly 100 billion ounces of silver change hands, compared to around 628 million ounces of new supply.”
Years ago GATA disclosed that the IMF, the leading compiler of official gold reserve data, allowed member nations to count gold they had leased, gold that had left their vaults, as if it was still in their vaults. The effect of this accounting fraud was to deceive the gold market into thinking that central banks had much more gold left with than they really did.
While the major gold and silver exchange-traded funded frequently report their metal holdings, studies by GoldMoney founder James Turk and former GATA board member Catherine Austin Fitts and her lawyer, Carolyn Betts, suggest that this data is unreliable too. For the major ETFs won’t disclose exactly where their metal is, and indeed their prospectuses say it’s OK for the ETFs not even to know where their metal is kept among custodians and sub-custodians.
And the custodians for the major gold and silver ETFs are, perhaps not so coincidentally, also the two major international banks that report having the biggest short positions in gold and silver, short positions that give these banks and metal custodians a powerful interest in suppressing the price of the assets they supposedly are holding for investors who want those assets to rise in value.
The biggest so-called “physical” gold market in the world is the one run by the London Bullion Market Association. The LBMA publishes statistics on how much gold and silver is traded by its members. But these statistics show spectacular volumes, more metal than could possibly exist. Of course much of this metal could be sold and resold back and forth many times every day. But an expert in that market, Jeffrey Christian of the CPM Group, acknowledged at the March 25 hearing of the U.S. Commodity Futures Trading Commission, as he had acknowledged in that explanatory report published in 2000, that the London bullion market is actually a fractional-reserve gold banking system built on the presumption that most gold buyers will never take delivery of their metal but rather leave it on deposit with the LBMA members from whom they bought it.
“Why is gold such a mystery? Why is it, along with silver, kept such a mystery? It’s because the two precious metals are not only money but, from the point of view of free individuals, the best sort of money, less susceptible to what governments see as the most desirable quality of money — the susceptibility to control by government and particularly its susceptibility to devaluation. You can print or otherwise issue gold and silver derivatives to infinity, but not the metals themselves.”
What will this do to the price of gold and silver when the holders of these paper-backed securities realize that the actual supply does not meet the demand, that they will not be able to receive the bullion they paid for? We are already seeing the results of the increased demand as the price of gold continues to move higher.
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Here’s a special case of split identity in the person of  Kitco‘s analyst Jon Nadler and a brief story of gold price manipulation as reported by GATA

“How does Kitco senior gold market analyst Jon Nadler get away with it?
Interviewed Thursday morning by TheStreet.com’s Alix Steel, Nadler dismissed complaints that central banks and their agents, bullion banks, collude to suppress the price of gold. As he did at the Vancouver resource investment conference in June (http://www.gata.org/node/8717), Nadler insisted, “There’s no vested interest on anybody’s part to suppress prices here.”
You can find Nadler’s comment to TheStreet.com here:
But just a few hours later, interviewed about gold on the “Trading Day” program of Business News Network in Canada, Nadler remarked that a gold price of $5,000 would signify “disruptions on a major scale” and a price like that is “something that the central bankers of the world have decided probably not to allow to happen.”
You can find Nadler’s interview with BNN here:
So if central banks have no interest in suppressing the gold price, why should they decide not to allow gold to reach $5,000? Indeed, why should central banks care about the price of gold at all?
Of course the answer is well documented in history. Indeed, the modern history of gold is almost entirely a matter of central bank price manipulation and suppression, because gold is a currency that competes with central bank currencies and profoundly influences interest rates and the price of government bonds.
Much of the modern history of gold has been outlined well by Bill Buckler, publisher of The Privateer financial letter, particularly in regard to the London Gold Pool of the 1960s and the gold dishoarding by the International Monetary Fund and the U.S. Treasury Department in the 1970s, two acknowledged mechanisms of price suppression. You can find The Privateer’s outline here:
And at least four chairmen of the Federal Reserve maintained or expressed interest in suppressing the gold price.
— William McChesney Martin Jr., the longest-serving Fed chairman, kept in his archive a detailed plan, dated April 1961, for surreptitious government intervention to rig the currency and gold markets to support the U.S. 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. Along with some explanatory commentary it can be located here:
— In June 1975 Fed Chairman Arthur Burns wrote a seven-page memorandum to President Ford about controlling the gold price through foreign policy and defeating a free market in gold. That memorandum can be found here:
— In November 2004 former Fed Chairman Paul Volcker published an excerpt from his memoirs in the Nikkei Weekly in Japan in which he regretted that central bank intervention was not undertaken to suppress the price of gold during a currency revaluation in 1973. Volcker wrote: “That day the U.S. announced that the dollar would be devalued by 10 percent. By switching the yen to a floating exchange rate, the Japanese currency appreciated, and a sufficient realignment in exchange rates was realized. Joint intervention in gold sales to prevent a steep rise in the price of gold, however, was not undertaken. That was a mistake.” The excerpt from Volcker’s memoirs can be found here:
— And former Fed Chairman Alan Greenspan has acknowledged or remarked favorably about central bank intervention to suppress the gold price a number of times, including during the May 1993 meeting of the Federal Open Market Committee. According to the minutes of the meeting, Greenspan said: “I have one other issue I’d like to throw on the table. I hesitate to do it, but let me tell you some of the issues that are involved here. If we are dealing with psychology, then the thermometers one uses to measure it have an effect. I was raising the question on the side with Governor Mullins of what would happen if the Treasury sold a little gold in this market. There’s an interesting question here because if the gold price broke in that context, the thermometer would not be just a measuring tool. It would basically affect the underlying psychology.” You can find the May 1993 minutes of the FOMC meeting here:
GATA has compiled so much more evidence of central bank manipulation of the gold market here:
Given the U.S. government’s fierce secrecy about gold — GATA has had to sue the Fed in U.S. District Court for the District of Columbia for access to the Fed’s gold records, including gold swap agreements the Fed acknowledges having with foreign banks — we seldom can be sure of what central banks are doing in the gold market at any particular time. But central bank interest in controlling the gold price — what Nadler keeps denying — is the gold market’s first and overwhelming fact.Any analysis that denies this is disinformation. And any analyst who denies and acknowledges it on the same day to different news organizations must be very confident that they’re not paying attention and not inclined to do any research. Unfortunately Nadler probably has that much right.”

CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
GATA board member Adrian Douglas has studied the morning and afternoon “fixing” of the gold price by the major London trading houses and concludes that it is just as much a price-suppression mechanism as the London Gold Pool of the 1960s admittedly was. Douglas’ analysis is titled “Gold Market Is Not ‘Fixed,’ It’s Rigged” and you can find it here:

The LBMA joins the gold squeeze cover-up

The London Bullion Market Association has just taken the highly unusual step of blocking access to statistics relating to the trading activities of its member bullion banks. This information has been available to the public since 1997 but as of this week it is available only to LBMA members. (Seehttp://www.lbma.org.uk.)
I have recently written a series of exposes of the LBMA (see References 1-4 below) using the association’s own data to show that the LBMA’s bullion banks are operating on a “fractional reserve” basis. My analysis indicates that the bullion banks are holding only 1 real ounce for about every 45 ounces of gold that they have sold, a reserve ratio of just 2.3 percent
At the March 25 public hearing of the U.S. Commodity Futures Trading Commission on precious metals futures markets I cited the LBMA’s own statistics to label the “unallocated gold” accounts of the bullion banks as a Ponzi scheme. (See Reference 3 below.) There were bullion bank representatives at the hearing but no one expressed an objection. That hearing was videotaped and posted at the CFTC’s Internet site but the bullion banks have not made any public statement rebutting what I said. In fact at that hearing Jeffrey Christian, CEO of the CPM Group, acknowledged that what is widely called the “physical market” is in reality a largely “paper market” trading gold and silver as if they are financial assets and not physical metals. Christian stated that 100 ounces of paper gold are traded for every 1 ounce of physical gold.

When the LBMA first made its trading statistics available in January 1997, observers and analysts were shocked. (See Reference 5 below.) No one could reconcile the statistics with other market data, nor comprehend how the bullion banks could be trading on a net basis more than 240,000 tonnes of gold annually while the global mine output was only 2,400 tonnes. Over the years the furor over these statistics had subsided until the end of 2009, when I commenced writing about my studies, showing that the statistics can be reconciled with other market data if the bullion banks are operating a fractional-reserve bullion banking operation with a recklessly low reserve ratio. I have also shown how the price of gold is suppressed because 45 ounces of demand are being diluted to result in purchase of only 1 ounce of real metal. If instead all 45 ounces were to be sourced and purchased, the gold price would be multiples of the current price.

Typically when people are exposed in a scandal their first reaction is a cover-up. The most notorious examples of this are the Nixon administration, when it doctored the Watergate tapes, and Arthur Anderson, which shredded millions of pages of documents relating to audits of Enron Corp.
The LBMA has now commenced a cover-up with respect to the gold trading activities of its member bullion banks, withdrawing statistics from the public domain.
This appears not to be the only cover-up going on in the gold market.
For years the International Monetary Fund has made great fanfare of its mere contemplation of selling some of its gold, and actual sales by the IMF have been widely publicized. Since February the IMF has been surreptitiously selling large tonnages of gold each month, but these sales now are to be found only by digging through the IMF’s financial statements, and even there the recipients of the gold are not disclosed. (See Reference 6 below.) One has to wonder why the IMF now is trying to fly under the radar with its gold sales.
Similarly it was recently discovered that the Bank for International Settlements didn’t feel it necessary to announce its involvement in the largest gold swap in history, 346 tonnes. (See Reference 7 below.) The BIS swaps instead were discovered only because a market analyst dug through the footnotes of the bank’s financial statements.
These developments have all the hallmarks of cover-ups.
In June the LBMA trading statistics showed that in May 2010 the average net daily trading in gold by LBMA member banks jumped a massive 50 percent from the month before to 24 million ounces each day from 16 million ounces each day. That translates to $7.5 trillion annually. If an operation is running on a razor-thin fractional reserve basis, such step changes are often fatal.
It appears that a run on the bullion banks has commenced.
There is a cover-up of back-door injections of liquidity of physical gold, and the LBMA now is trying to conceal trading information.
There has been much debate about how investors, politicians, and regulators didn’t see the 2008 financial crisis coming, and lack of transparency was cited as a key reason. Clearly those who have been manipulating the gold market are trying to skulk deeper into darkness. They have a lot to hide.
Investors could have been blindsided by the events of 2008, but anyone who misses the writing on the wall about what’s going on in the bullion markets is just foolish. The bullion banks have sold far more metal than they can deliver, and more and more customers are asking them to deliver. This has led to back-door bailouts and cover-ups.
Anyone who has “unallocated” bullion should be very concerned. The LBMA itself describes owners of “unallocated bullion” accounts as “unsecured creditors.” That means that the account holder has no collateral or title to any bullion.
Bullion bank unallocated account agreements require the bank only to settle in cash for non-performance. That means when the physical squeeze that is evolving takes gold and silver prices to multiples of the current price, holders of unallocated metal accounts will not get any bullion, nor will they be compensated at the prevailing market price.
I interpret the LBMA’s move to secrecy as a sign that the opportunity to get real metal is closing fast.
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References:
1. Adrian Douglas: Proof of Gold Price suppression — Gold and the U.S. Dollar:
2. Adrian Douglas: Price Suppression Follows Inevitably from Fractional-Reserve Gold Banking:
3. Adrian Douglas: It’s Admitted to the CFTC: London Gold Market Is a Ponzi Scheme:
4. Adrian Douglas: Jeff Christian’s CPM Group Explains How to Make Paper Gold:
5. The Grand LBMA Expose: A Collective-Mind Analysis:
6. Adrian Douglas: IMF Can’t Explain Gold Sales Now Without Revealing Squeeze:
7. Adrian Douglas: Mysterious BIS Gold Swaps Are Likely a Bullion Bank Bailout:
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Adrian Douglas publishes the Market Force Analysis letter (http:/www.MarketForceAnalysis.com) and is a member of GATA’s Board of Directors.

* * *

Within a half hour of each other today the leading business television networks in North America reported doubts that gold exchange-traded funds either have the gold they claim to have or can get enough real gold to meet likely demand.
The first doubt was expressed on CNBC in the United States, where market analyst Rick Santelli comments at 5:30 into this segment:
The second doubt was expressed on BNN in Canada, where reporter Niall McGee commented at length:
There seems to be growing consensus in favor of what GATA long has been urging gold and silver investors to do: to take possession of their metal or make certain that any custodian has got it in allocated and audited form, especially since the custodians of the largest gold and silver ETFs are also the biggest gold and silver shorts, a grotesque and unacknowledged conflict of interest:
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
Michael Snyder, editor of The Economic Collapse blog, writes this week:
“Anyone who follows the gold market knows that big financial institutions regularly work to suppress the price of gold. In fact, one industry insider recently decided to be a whistleblower and came forward with ‘smoking gun’ evidence of price manipulation in the precious metals markets, but the CFTC didn’t do a thing about it.
“Fortunately, the overwhelming demand for gold is now pushing the price up despite efforts to suppress it.
“In addition, once it becomes apparent that most of the “gold” that is traded in the world is not backed by the actual metal itself, the price of gold will go even higher.
“For years, almost everyone has assumed that the London Bullion Market Association (LBMA), the world’s largest gold market, had actual gold to back up the massive ‘gold deposits’ at the major LBMA banks.
“But that is just not the case.
“People are now starting to realize that there is very little actual gold in the LBMA system.
“When most people think they are buying ‘gold,’ what they are actually buying are just pieces of paper that say they own gold.
“Egon von Greyerz of Matterhorn Asset Management in Switzerland recently elaborated on this point. He says that ‘a lot of people who have studied it closely are convinced that there is a major shortage in physical gold at LBMA. LBMA trades around 700 tons net of gold daily. That is 25 percent of world annual production and around $6 trillion annually. To back that amount of trading on a 100-percent reserve ratio basis, it would need several years’ production of physical gold, which they definitively haven’t got.'”
Snyder’s commentary is headlined “Has Gold Become a New Reserve Currency?” and you can find it at the Economic Collapse Blog HERE
At the urging of GATA and Sprott Asset Management CEO Eric Sprott, Business Insider reporter Vince Veneziani recently put to the International Monetary Fund five specific questions about the IMF’s supposed gold reserves, questions similar to those put to the IMF by GATA’s Chris Powell in April 2008. (See http://www.gata.org/node/6242.)
Business Insider’s two most important questions may have been:
1) Exactly where is the IMF’s supposed gold? and
2) When the IMF sells gold, does any real gold change hands or are such sales essentially just bookkeeping transactions among central banks?
Tonight Veneziani reports that IMF spokesman Alistair Thomson replied to Business Insider’s five questions as follows: “I looked through your message; we don’t have anything more for you on this.
How’s that for accountability from an international governmental organization?
Veneziani concludes: “Certainly this unwillingness is only fodder for skeptical gold folks out there.”
Indeed, the IMF’s refusal to answer Business Insider is more evidence that the gold it has been threatening the gold market with for years is an illusion — that the IMF has no gold at all but only a tenuous claim on the gold reserves of its member nations, nations that, the ever-more-valuable CPM Group reports today, seem not at all inclined to part with it anymore:
Thus Veneziani and Business Insider have accomplished something apparently not yet accomplished by any major news organization in the world: They have put important, critical, inconvenient, and direct questions to a central banking institution. Further, Veneziani and Business Insider have been treated with contempt for doing so and have publicized the refusal to answer.
Not even The New York Times, Financial Times, and The Wall Street Journal have yet dared attempt such ordinary journalism in regard to central banking.
The Business Insider report is headlined “Five Questions About Gold the IMF Refuses to Answer” and you can find it HERE

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