Germany Blows Whistle on Gold Cabal

FRANKFURT am 25 August 2000 -- At first glance it is indeed difficult to understand how a market, such as the gold market, which shows a chronic production deficit, is decaying over decades and how this results in prices that force an ever-increasing number of gold producers to abandon their business.

In the free market, which in the case of gold is being "made" by the leading business and investment banks, they have to take a good look at the solvency of their own clients as well their counterparties, when trading with derivatives.

It is GATA's opinion that there are indications pointing to a conspiracy among financial institutions to control the price of gold. The committee is intent to show that such institutions and bullion banks have accumulated enormous short positions in the precious metals markets. For reasons of speculation they are apparently short at least 10,000 tonnes of gold, compared to an annual gold production of only 2,529 tonnes in 1998.

Based on the assumed manipulation of the gold market, GATA concludes that this can pose a threat to the international financial system. For this reason GATA has distributed to the U.S. Congress a 118-page document entitled "Gold Derivative Banking Crisis" and requested a public investigation of the situation. The document can be retrieved from GATA's website under option "GDBC Report."

At the center of the committee's suspicions is the assumption that, under adverse circumstances, the short positions in gold derivatives of at least 10,000 tonnes could lead to panic-driven coverings -- that is, purchases that lead to more purchases. The committee sees the explosive increase of $84 per ounce in the gold price in the autumn last year as a prelude of what the market would have to face, should panic-driven short coverings occur. That price explosion got under way after 15 European central banks declared on Sept. 26 1999, that they would limit their gold sales and other precious metals operations for initially five years.

* * *

FRANKFURTER ALLGEMEINE ZEITUNG

FRANKFURT am 30 August 2000

Is the gold price manipulated by large banks and the American government?

Low gold price is helping large banks and hurts the poor gold-producing countries / The conspiracy theory of GATA (Part II)

The gold price is being manipulated, and that may lead to a crisis in gold derivatives, and subsequently to a crisis of the entire world financial system.

This is, in essence, the theory of the American GATA group. It has presented facts and assumptions to the U.S. Congress and requested an investigation of the matter.

The basis for GATA's argument is the fact that the world demand for gold is significantly higher than world production. But, according to GATA, prices are kept down artificially by interested parties.

To emphasize the dimensions of the suspected manipulations, GATA points out that according to the U.S. Office of the Controller of the Currency the total value of derivatives, which are not officially carried on the balance sheets of the American money-center banks, amount to about US$87 billion at the end of 1999. This would exceed the value of the entire gold reserves of the United States of about 8,140 tonnes.

The assumed value of the non-balance sheet captured derivatives of Morgan Guaranty Trust Co. alone has ballooned from US$18.36 billion to US$31.8 billion. An estimate by Venerosa Associates, a consulting firm whose president, Frank Veneroso, is a member of GATA, assumes that the gold lending of the private and public sector amounted to 9,000-10,000 tonnes by the end of last year. The world mining production of gold is estimated at 2,579 tonnes for the year 1999. Hence the assumption is that the shorting and lending of gold is far in excess of world production, which will make it difficult to unwind within a short period.

The US$84 rise of the gold price, which happened as a reaction to the limits on gold sales agreed upon at the Sept. 26, 1999 Washington meeting, was a result of a panic. But that was only a precursor of the things to come, in the opinion of GATA.

Alan Greenspan, chairman of the U.S. Federal Reserve, and Larry Summers, U.S. secretary of the treasury, have denied any involvement in the bullion markets, according to the GATA document. But they declined to comment whether the U.S. Exchange Stabilization Fund was used to manipulate the gold price. Moreover, GATA insists that several big-name gold trading houses talked down the gold price whenever it started to rise.

GATA insists that official sources in Washington and the gold-trading Banks have prodded governments of other countries as well to sell their official reserves into the physical market to depress the price. The British National Accounting Office is reviewing the decision of the Bank of England to dispose of more then half its gold reserves.

In addition, GATA maintains Washington's balance sheet is incorrectly reflecting the withdrawal of gold from foreign sovereign institutions. These "exports" of the New York Fed always show up when the gold price is rising.

GATA raises the question as to why one could be interested in depressing the gold price, and comes up with two possible answers.

First, a low gold price provides a cheap capital resource for New York bullion banks. They can borrow gold at 1 percent interest per year. The gold is being borrowed from the central banks and then sold in the open market to raise cash. The proceeds are invested in instruments with a significantly higher return than the borrowing cost. As long as the gold price is at a low level, the "gold carry trade" is lucrative business for a selective few at the expense of the mainly poor gold-producing nations. If, however, a rise in the gold price would be allowed, the borrowing rate for gold would increase prohibitively.

Second, a depressed gold price gives the impression of a strong dollar as the international reserve currency and distracts from inflation in the USA.

"We do know that there were extremely large gold sales from official reserves, but we don't know the source," GATA says. The gold reserves of the official holders in the world that have been reported to the International Monetary Fund were less than 33,000 tons. Of this amount the United States, IMF, and the 15 European central banks that are signatories to the September agreement are holding 26,000 tons. By deduction, only the United States remain as the possible seller.

The leading role of Goldman Sachs in the bullion markets and the close ties of the investment bank to the U.S. government have increased rumors of official U.S. sales. Since the Fed and the Treasury Department have declared that there were no physical sales of American gold reserves, it is the assumption of the sources that identify the United States as the official seller that the sales have taken place in the form of derivatives.

(Translation credits go to the following collaborators: Gus Broger, Reinhard Deutsch, and Joerg Schroeder)

Special recognition goes to the prestigious FRANKFURTER ALLGEMEINE ZEITUNG, which is published in German and English. The English version may be read at: Click Here