Remarks By Chris Powell
Secretary/Treasurer, Gold Anti-Trust Action Committee
18th CLSA Investors' Forum
Grand Hyatt Hotel, Hong Kong
Wednesday, September 21, 2011
Secretary/Treasurer, Gold Anti-Trust Action Committee
18th CLSA Investors' Forum
Grand Hyatt Hotel, Hong Kong
Wednesday, September 21, 2011
The speaker following me, George Clooney, will be able to tell you what it's like to be handsome, talented, rich, and famous. I could tell you what it's like not to be. But instead the conference has asked me to talk about gold, which at least might make you rich, or help you preserve some of whatever you've got.
This opportunity is full of risk, because the gold market long has been manipulated by Western central banks to restrain the gold price. The Western central banks are slowly losing control of the market but they are not giving up easily.
Why do Western central banks manipulate the gold market?
The gold market is manipulated because, despite Federal Reserve Chairman Ben Bernanke's insistence to Congress a few weeks ago that gold is not money, just "tradition," gold is indeed a currency that competes brutally with government-issued currencies and helps determine not only the value of those currencies but also interest rates and the value of government bonds.
Gold's competition with currencies was documented in an academic study published in June 1988 in the Journal of Political Economy written by Harvard economics professor Lawrence Summers and University of Michigan economics professor Robert Barsky. Summers and Barsky found that, in a free market, there is an inverse relationship between the price of gold and the real rate of interest:
The Summers and Barsky study implied that if governments could get control of the gold price, they could also get control of interest rates. Of course Summers went on to become deputy U.S. treasury secretary and then treasury secretary, positions in which skill in rigging markets is a great asset.
Exactly how is the gold price rigged, and by whom?
It has been rigged openly through outright sales of gold by central banks, as it was rigged openly in the 1960s by the group of Western central banks that operated what became known as the London gold pool, and, following the gold pool's collapse in 1968, rigged both openly and surreptitiously through central bank sales and lending of gold and by bullion bank short positions and derivatives that are supported by access to Western central bank gold.
The Gold Anti-Trust Action Committee has documented this rigging from official sources whose admissions are compiled in the "Documentation" section of our Internet site:
That is, the gold price suppression scheme is not what it is sometimes disparaged as being, "conspiracy theory." Rather it is a matter of the most extensive public record -- at least for those who want to look at the record.
These records include:
-- Public statements by Federal Reserve officials, officials of other Western central banks, and the International Monetary Fund.
-- Declassified Central Intelligence Agency memoranda.
-- The minutes of the Federal Reserve’s Federal Open Market Committee.
-- Filings and statements in three gold price suppression lawsuits in the United States; one brought by my committee’s consultant, Reginald H. Howe, against central banks and bullion banks in U.S. District Court in Boston in 2001; another brought by Blanchard Coin and Bullion against Barrick Gold Corp. in U.S. District Court in New Orleans in 2003; and the third brought two years ago by my organization against the Federal Reserve in U.S. District Court for the District of Columbia.
-- These records also include declassified or leaked U.S. State Department cables.
-- Statistical studies done by market researchers like Adrian Douglas in the United States and Dimitri Speck in Germany.
-- And testimony at the hearing about the precious metals markets that was held on March 25, 2010, by the U.S. Commodity Futures Trading Commission. That hearing produced testimony that led to the filing of a massive silver price rigging lawsuit against J.P. Morgan Chase. The revised complaint against J.P. Morgan Chase, filed last week in U.S. District Court for the Southern District of New York, contains pages and pages of extraordinarily specific detail, identifying trades, traders, and dates:
An especially incriminating document remains on the Internet site of the Federal Reserve Bank of St. Louis. It is a detailed plan from April 1961, discovered in the archive of the Fed’s longest-serving chairman, William McChesney Martin, for surreptitiously rigging the currency and gold markets worldwide, a plan that went so far as to propose the alteration, falsification, or withdrawal from publication of U.S. government financial reports that otherwise would be incriminating:
And:
My organization possesses and has posted these records on the Internet, and I would welcome an opportunity to examine and discuss them in detail, document by document, with any doubters in a public forum.
But the official record of gold price suppression is not merely historical. Thanks to my organization's work, it is very contemporary as well.
Two years ago, using the federal Freedom of Information Act, the Gold Anti-Trust Action Committee asked the Federal Reserve to provide access to its gold records, particularly its records involving gold swaps. Gold swaps are trades of gold between central banks, enabling one central bank to intervene in the gold market at the behest of another, keeping the other central bank's fingerprints off the intervention. Gold swaps are a primary mechanism of the gold price suppression scheme.
While the Fed refused to give us access to its gold records, in adjudicating our request internally the Fed did make, perhaps inadvertently, a sensational disclosure. On September 17, 2009, the member of the Fed's Board of Governors who was acting as the judge of our request, Kevin M. Warsh, wrote a letter to GATA's lawyer, William Olson of Vienna, Virginia, confirming the Fed's denial of access. Among the records being withheld from us, Warsh disclosed, were records about the Fed's gold swap arrangements with foreign banks, which, he wrote, "is not the type of information that is customarily disclosed to the public”:
This admission that the Fed has gold swap arrangements with foreign banks plainly contradicted previous statements by the Fed that it was not involved in the gold market in any way.
As GATA was not willing to let Fed Governor Warsh's letter be the last word on access to the Fed's gold records, on December 31, 2009, we sued the Fed in U.S. District Court for the District of Columbia under the Freedom of Information Act. The Fed told the court that the Fed really couldn't find many records involving gold. Implausible as this was, the judge, Ellen Segal Huvelle, denied GATA's request to interrogate Fed officials under oath about what seemed to us to be their wholly inadequate search. Whereupon the judge reviewed, privately in her chambers, the few documents the Fed had submitted, and on February 3 this year she ruled that the Fed indeed could keep secret all but one of those documents. She ordered the Fed to disclose that one document to GATA within two weeks.
On February 18 this year, heeding the court's order, the Fed released the document -- the minutes of the April 1997 meeting of the G-10 Gold and Foreign Exchange Committee as compiled by an official of the New York Federal Reserve Bank. The minutes showed government and central bank officials from around the world conspiring in secret to coordinate their gold market policies:
Perhaps of equal importance, the Fed claimed not to be able to find minutes of any other meeting of the G-10 Gold and Foreign Exchange Committee. Either the the G-10 Gold and Foreign Exchange Committee has met only that once, in April 1997, or the Fed was not represented at any other such meetings, or such minutes were conveniently misplaced to keep them away from GATA's lawsuit.
Thus GATA's lawsuit established that, despite its public denials, the Fed has many gold secrets after all. Our lawsuit also managed to pry a couple of those secrets loose and publicize them -- first, that the Fed has gold swap arrangements, and second, that at a secret meeting in 1997 the Fed was conspiring with other central banks to coordinate their gold market policies and that there was never any announcement of this undertaking.
Almost as gratifying to us was that, since the court found that the Fed illegally withheld from us the minutes of the secret G-10 Gold and Foreign Exchange Committee meeting, the Fed was ordered to pay court costs to GATA, which the Fed did in May, sending us a check for $2,870.
But the Fed is far from the only central bank that has been proven to be involved in suppressing the price of gold.
In August 2009, while GATA was pressing its freedom-of-information claim against the Fed, our consultant, Rob Kirby of Kirby Analytics in Toronto, wrote to the German central bank, the Bundesbank, to confirm a news report that most of the German national gold was being kept outside Germany, particularly in New York, presumably at the New York Fed.
The Bundesbank replied to Kirby as follows:
"The Deutsche Bundesbank 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 centres. This 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 centres in order to conduct its gold activities."
So the Bundesbank says it keeps much of its gold at "trading centers" so that it may conduct its "gold activities."
Exactly what are those activities?
In late 2010 the German journalist Lars Schall sought to follow up with the Bundesbank, posing 13 questions about those "gold activities," particularly as to whether the Bundesbank has any gold swap arrangements with the United States. The Bundesbank replied to Schall as follows:
"In managing foreign reserves, the Bundesbank fulfils one of its mandated tasks as an integral part of the European System of Central Banks. We trust you will understand that we are not able to divulge any further information regarding this activity. Particularly with respect to the confidential nature of information about where gold holdings are kept, we are unable to go into any greater detail concerning exact locations and the quantities stored at each of these. Likewise, owing to the strategic nature of the activity, we are not at liberty to provide you with more detailed information about gold transactions."
That seems like a pretty good confession that the Bundesbank has undertaken gold swaps as part of what it considers "strategic activity."
Another confession of the secret maneuvers being played with gold by central banks came at the hearing held by U.S. Rep. Ron Paul's House Subcommittee on Domestic Monetary Policy and Technology on June 23 this year, a hearing I attended. The Treasury Department's inspector general, Eric M. Thorson, testified that he had been told that no part of the U.S. gold reserve was encumbered or compromised. But he did not say exactly who told him this, so his comment was only hearsay. And when Thorson was asked just where the gold pledged by the United States to the International Monetary Fund is kept and how it is accounted for, Thorson couldn't say:
Three years ago when GATA put similar questions to the IMF -- "Exactly where is your gold, and do you possess it directly or is it just a claim on the gold reserves of your member nations?" -- the IMF was at first evasive and then abruptly cut off the correspondence without answering:
But then most official gold data is actually disinformation.
For the six years prior to 2009 China reported to the IMF that it held 600 tonnes of gold. But in April 2009 China reported that its gold reserves had increased by 76 percent, from 600 tonnes to 1,054 tonnes. Had China obtained the new 454 tonnes only in the past year? Of course not; China had been accumulating gold steadily, through its foreign exchange agency, without reporting it for six years. Only in April 2009 was the gold transferred from China's foreign exchange agency to its central bank and reported to the IMF:
There is more confirmation of the false reporting of gold reserves. In June 2010 the World Gold Council reported that Saudi Arabia had increased its gold reserves by 126 percent since 2008, from 143 tonnes to 323 tonnes. But a few weeks later the governor of the Saudi Arabia Monetary Authority said Saudi Arabia had not been purchasing gold lately and that the 143 tonnes in question had been held all along in what he called "other accounts" -- exactly what China had done, holding gold in accounts not reported officially:
Thanks to diplomatic cables from the U.S. embassy in Beijing to the State Department in Washington, cables obtained by the Wikileaks organization and published this month, we now know that the Chinese government agrees with GATA that Western central banks suppress the price of gold to support their own currencies.
One U.S. Beijing embassy cable, dated April 28, 2009, summarizes a commentary attributed to the Chinese newspaper Shijie Xinwenbao (World News Journal), which is published by the Chinese government's foreign radio service, China Radio International. The cable's summary reads:
"According to China's National Foreign Exchanges Administration, China's gold reserves have recently increased. Currently, the majority of its gold reserves have been located in the United States and European countries. The United States and Europe have always suppressed the rising price of gold. They intend to weaken gold's function as an international reserve currency. They don't want to see other countries turning to gold reserves instead of the U.S. dollar or euro. Therefore, suppressing the price of gold is very beneficial for the U.S. in maintaining the U.S. dollar's role as the international reserve currency. China's increased gold reserves will thus act as a model and lead other countries toward reserving more gold. Large gold reserves are also beneficial in promoting the internationalization of the renminbi."
Two other U.S. Beijing embassy cables from the same period quote other semi-official Chinese commentaries to the same effect.
These cables also are posted in the "Documentation" section of GATA's Internet site:
Because central banks know that gold, far from being a quaint antique, is actually the determinant of the value of all other currencies, the true disposition of national gold reserves has become a secret more sensitive than the disposition of nuclear weapons. For gold is a weapon just as powerful -- a weapon crucial to the currency wars that flare up every few years, like the currency war that is raging now.
That is, gold is the secret knowledge of the financial universe. And while nuclear weapons can be used for blackmail, currency market rigging is a far more effective mechanism for looting the world.
Many of you have heard about the looting of Europe undertaken by the Nazi German occupation during World War II. But most of that looting did not take place as it is imagined, at the point of a gun. No, it took place throughthe currency markets.
This looting through the currency markets was spelled out by the November 1943 edition of a military intelligence letter published by the Military Intelligence Division of the U.S. War Department, a letter called Tactical and Technical Trends:
Of course the Nazi occupation seized whatever central bank gold reserves had not been sent out of the occupied countries in time. But then the Nazi occupation either issued special occupation currency that could not be used in Germany itself or, in countries that had strong banking systems, took over the domestic central bank and enforced an exchange rate much more favorable to the reichsmark. Or else the Nazi occupation simply printed for itself and spent huge new amounts of the regular currency of the occupied
country.
country.
It was this control of the currency markets that very efficiently drafted everyone in the occupied countries into the service of the occupation and achieved a one-way flow of production, a flow out of the occupied countries and into Nazi Germany.
For a few years Nazi Germany had a hell of a trade deficit -- and couldn't have cared less about it. For as it controlled the currencies of occupied Europe, Nazi Germany never had to cover that deficit, at least not as long as its military occupation continued.
Since the United States now issues the reserve currency for the world, the dollar, the United States now more or less occupies most countries economically, even those countries that have their own currencies, since even those countries choose to hold most of their foreign exchange reserves in dollars. Thus what we see now, the current one-way flow of production -- out of the rest of the world and into the United States.
This exploitation is not well-publicized but it is no secret.
In the 1960s France's finance minister called it an "exorbitant privilege" for just one country -- the United States -- to be able to issue the world reserve currency.
In 2004 the deputy chairman of the Bank of Russia, Oleg Mozhaiskov, told the London Bullion Market Association conference held in Moscow:
"Although there are several reserve currencies, the blatant lack of discipline is demonstrated by the U.S. dollar. I am leaving aside the main aspects of this problem, such as the social and economic injustice of a world order that allows the richest country in the world to live in debt, undermining the vital interests of other countries and peoples. What is important for us today is another aspect, which is connected with the responsibility of the state issuing the reserve currency and for the international community preserving that currency's buying power."
Mozhaiskov recognized the role of gold price suppression in maintaining the dollar's place as the world reserve currency. For the only words of English spoken by Mozhaiskov in that speech were "Gold Anti-Trust Action Committee." Mozhaiskov said gold price movements were often so "enigmatic" that the laws of market supply and demand did not seem to apply. The Bank of Russia long had been following GATA's work without our knowledge. With his speech in 2004 Mozhaiskov was telling the Western bullion bankers that Russia was on to them:
And just a few weeks ago Russia's prime minister, former president, and perhaps future president, Vladimir Putin, called the United States a "parasite" on account of its huge external debt and the international dominance of the dollar:
The gold price suppression scheme -- a dollar-support scheme -- can be exposed by any serious questioning of central bankers. My organization has found that central bankers refuse to answer the most ordinary specific questions about gold. But who else will ask the questions? The scheme survives in large part because of negligent journalism about gold.
The scheme has lasted so long because, with the assistance of Western central banks, the major Western bullion banks, investment houses that deal in gold, have developed a fractional-reserve gold banking system. They realized that they could sell a lot more gold than they really have, because many major gold buyers -- financial institutions and large investors -- never take delivery of their metal. These investors accept depository receipts instead. The fractional-reserve nature of the bullion banking system was confirmed in detail at last year's hearing of the U.S. Commodity Futures Trading Commission:
But this is changing.
The gold price spike that began just after GATA's Gold Rush 21 conference in Dawson City, Yukon Territory, Canada in August 2005 was probably caused by the withdrawal of the Russian gold reserves that had been on deposit with bullion banks in London.
You may have heard a few weeks ago that Venezuela is demanding the return of its gold reserves from deposit at the Bank of England and various U.S. bullion banks. The Venezuelan action seems to have given much support to the gold price.
Now there is constant public discussion in the most informed circles in China about the need for that country to obtain gold to diversify its foreign exchange reserves and support its currency.
Western gold reserves are being depleted as Eastern and developing-world central banks become gold buyers.
What is necessary to bring the gold fraud to an end is publicity that reaches financial markets around the world generally.
There is a big story here. For the falsity of the data about the gold market practically screams at financial journalists:
-- There is the omission from official gold reserve reports of leased and swapped gold.
-- There are the sudden huge changes in official gold reserve totals.
-- And there are the deception and conflicts of interest built into major gold and silver exchange-traded funds, since the custodians of their metal happen also to be the world's biggest gold and silver shorters:
The valid documentation about the gold market also practically screams at financial journalists:
-- There are the huge and disproportionate gold, silver, and interest rate derivative positions built up at just a few international banks, positions that never could be undertaken without the expressed or implicit underwriting of government, particularly the U.S. government.
-- There are the many official records, collected and publicized by GATA, demonstrating the explicit plans and desire of the U.S. government and its major allies to suppress and control the price of gold.
Most obvious is the question that should follow the common disparagement of gold, a question that somehow is never asked. You well may have heard this disparagement: that even with its recent rise in price, gold has not come close to keeping pace with inflation over the last 30 years. Oil has kept up, food has kept up, other metals have kept up, all the things that are used as measures of inflation have, by definition, kept up with inflation -- but not gold.
So why not? Why hasn't gold kept up with inflation?
It's because Western governments found ways of vastly increasing the supply of gold without having to go through the trouble of mining it -- to dishoard and lease it from central bank reserves and to issue certificates of deposit against gold that never existed in the first place.
"Why" is supposed to be a basic question of journalism. But it has fallen out of financial journalism when it comes to gold.
In recent years, and especially in recent months, I have spent much time explaining the gold price suppression scheme to leading financial journalists in the West. I have given them the documentation. Some of these journalists seemed interested. But none has ever reported anything about the issue. One writer who works for a major news agency in the United States was intrigued enough to call the Federal Reserve and ask about its gold swaps. She got a very telling "no comment." But unfortunately she could not get her editor's permission to write a gold story.
Frustrating as all this is, it is not too surprising. After all, who are the major advertisers in the Western financial news media and the major sources of financial news? The market manipulators and governments themselves. And journalists seem to take for granted that central banks operate in secret, particularly in regard to gold, so there's no point in questioning them -- even though central banking now determines the value of all capital, labor, goods, and services in the world, and does so in secret.
So here I am in Asia, which is a major victim of the gold price suppression scheme. Maybe there will be more curiosity and indignation about it here.
But Asia is not the only victim of this scheme. My own country may be the biggest victim. For this scheme has helped to corrupt the United States, destroying our once-free markets and the accountability of our government.
We in GATA do what we can, even though, from our beginning, we have wondered whether we could really presume to speak for gold. And not just for gold, of course -- we are not idolaters -- but for the economic and political liberty of individuals and the national sovereignty that gold serves and stands for. With gold always under attack precisely for what it represents, and with no others coming forward to defend it for what it represents, with even the gold mining industry’s main trade association refusing to acknowledge the attack, we have hoped that any presumption on our part might be forgiven.
We remain largely amateurs. At the outset we did not half understand what was going on and what we were setting about to do. Our name preserves that imperfect understanding. We thought we had discovered just another anti-trust violation. It was a while before we perceived that we were up against government policy and that most of what we were discovering had been discovered long ago, at least in principle, just not well taught,
publicized, preserved, and made timely again.
publicized, preserved, and made timely again.
Because it can work only through surreptitiousness and deceit, this government policy will be defeated when it is more widely understood -- and every day it is being better understood, because it is getting so brazen. It was more brazen than ever the other day when Switzerland devalued its franc, the world's leading "safe haven" currency, apparently leaving the "safe haven" field exclusively to gold. But just a few minutes before the Swiss franc's devaluation was announced, unidentified sellers dumped thousands of gold futures contracts on markets around the world, causing the gold price to plunge along with the Swiss franc. These sellers plainly did not aim to make a profit from their gold holdings; if they had intended to make a profit, they would have sold gradually into the market. No, they meant to knock the price down hard, and they did.
These sellers almost surely were central banks. But as far as I could tell, no Western journalist has yet put a question to any central banker about that strange and counterintuitive action in the gold market.
I ask for your help in forcing an end to the gold price suppression scheme. I ask in the cause of giving individuals, nations, and all humanity a chance at democracy, liberty, and limited government with a neutral, fair, and impartial international currency that serves not just one government or another or one class or another but rather the whole brotherhood of man.
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