Sean Corrigan essay on gold market stresses GATA

By Reginald H. Howe
www.GoldenSextant.com
February 20, 2001

Shades of Cecil Rhodes and Alfred Beit. At the Indaba
2001 African Mining Conference in Cape Town the other
day, Kelvin Williams of AngloGold, South Africa's
largest gold producer, used his turn at the podium to
take a gratuitous swipe at the Gold Anti-Trust Action
Committee: quot;Forget for the moment about the notion of a
conspiracy against gold, and worldwide plots between
central bankers here, there, and everywhere. We face a
physical overhang of the metal....quot;

Huh? Annual new mine production has peaked at around
2,500 tonnes. Annual demand for gold now exceeds 4,500
metric tonnes. Last week the World Gold Council
reported that demand in the markets it surveys reached
almost 900 tonnes in the last quarter of 2000, the
highest level of quarterly demand ever recorded by the
WGC. For years now the growing gap between new mine
supply and demand has been filled by a combination of
scrap recovery, official sales, and, most importantly,
gold borrowed from central banks and sold into the
market, much of it pursuant to hedging programs of
producers like AngloGold. AngloGold's continuing
policy, restated by Williams at Indaba, is to hedge
mostly through forward sales up to half its production
for the next five years.

With financial and editorial support from South
Africans for a Free Gold Market, GATA responded to
AngloGold's jibe through a full-page advertisement in
the principal financial newspaper in South Africa,
Business Day.
(a href=http://groups.yahoo.com/group/gata/message/644http://groups.yahoo.com/gr...)quot;

The ad pointedly questioned whether AngloGold's role in
driving down gold prices through heavy forward selling
should be rewarded by allowing it to purchase Gold
Fields, the country's second largest gold producer,
which last week announced that it had used recent
weakness in gold prices to close out its remaining
forward sales.

AngloGold is 53 percent owned by Anglo American PLC,
the international mining and natural resources
conglomerate that also controls Anglo American
Platinum, the largest producer of platinum group metals
outside Russia, and De Beers group, the world diamond
cartel built by Sir Ernest Oppenheimer and his son
Harry after the elder Oppenheimer in 1929 seized
control of the corporate empire left by Cecil Rhodes.
(See Susan Emerling, quot;Not forever,quot;
a href=http://www.salon.com/business/feature/2000/09/27/diamonds/print.htmlhttp...)

Anglo American has recently announced a reorganization
of the De Beers companies amid reports that De Beers
wants to shed the image of a cartel in order to improve
its access to the American market. Once, when asked
whether he preferred diamonds or gold, Sir Harry
replied: quot;Diamonds, every time. People buy diamonds out
of vanity. They buy gold because they are too stupid to
think of any other monetary system which will work.quot;
Today gold is a loss leader for Anglo American -- cheap
settings for its more profitable diamonds.

Barrick Gold is also believed to have designs on Gold
Fields, possibly in conjunction with AngloGold. Barrick
is controlled by Canadian financier Peter Munk through
TrizecHahn Corp., his flagship international real
estate development company. Like AngloGold, Barrick
operates an aggressive forward sales program, including
the writing of call options to sweeten the returns from
hedging. This tactic is particularly dangerous absent a
high level of confidence in continued low gold prices.
Since 1997 TrizecHahn has reduced its stake in Barrick
from about 16 percent to under 8 percent, following
earlier large dispositions of Barrick shares by
Horsham, TrizecHahn's predecessor. On a split-adjusted
basis, Barrick's share price peaked at more than twice
its current level in early 1994 and again in early
1996, making all these sales by Munk's holding
companies appear prescient indeed.

As parts of larger corporate empires with their major
interests outside gold, AngloGold and Barrick differ
from other gold mining companies in a way that helps to
explain their aggressive hedging policies. The overall
profits of their parent companies, Anglo American and
TrizecHahn, are far more dependent on continued
strength in the G-10 economies than on higher gold
prices. One analyst
(a href=http://groups.yahoo.com/group/gata/message/648http://groups.yahoo.com/gr...)
estimates that gold at $600 per ounce would add one
full percentage point to the economic growth rate of
South Africa, where currently each gold miner supports
an average of 11 to 12 others. But however warranted by
fundamentals, a price increase of this magnitude would
unmask the short gold position of the bullion banks,
threatening the very consequences that so frightened
Eddie George, governor of the Bank of England, in the
wake of the Washington Agreement. (See
www.goldensextant.com/Complaint.html#anchor3130,
Complaint, Paragraph 55.)

Accordingly, viewed in the larger context of Anglo
American's interests rather than just AngloGold's, it
is not surprising that Kelvin Williams at Indaba
described a shortage of physical gold as a glut, or
that he tried to deflect the blame for low gold prices
away from their true source: the G-10 central banks
operating a price-fixing scheme through the Bank for
International Settlements in an increasingly desperate
war against gold. Leaders of struggling new democratic
regimes in the gold-producing nations of Africa should
not fall for the G-10's shills. Rather, as African
leaders evaluate the evidence of gold price-fixing
adduced by the GATA impi, they should be guided by
Thomas Jefferson's remark to James Madison: quot;Resort is
had to ridicule only when reason is against us.quot; After
all, the author of the Declaration of Independence and
the principal draftsman of the Constitution have a
record for democratic nation building that is hard to
beat.

For many gold bugs, the transition of the BIS from a
European ally to an important tool of official Anglo-
American gold bashing is perhaps the most surprising
and disheartening development of the past few years. As
reflected in the trascript of the Federal Open Market
Committee's conference call of July 20, 1994,

(a href=http://www.federalreserve.gov/fomc/Transcripts/1994/940720ConfCall.pdhtt...
f)

this transformation stems from the Treaty of
Maastricht, which put the European Monetary Institute
followed by the European Central Bank on track to
replace the BIS as the primary vehicle for joint action
and cooperation among European central banks. To avoid
being sidelined as irrelevant, the BIS undertook to
reinvent itself as a global financial institution, an
effort that the ever-opportunistic U.S. Federal Reserve
Chairman Alan Greenspan was only too pleased to
support. As the Fed chairman explained to the FOMC:

quot;Up until the Maastrich Treaty, our relationships with
the BIS seemed to be appropriately constrained to our
periodic visits over there to deal with the G-10 on a
consultative basis and to be involved with a number of
their committees, but to have no involvement at all
with the actual management of the BIS. With the advent
of the Maastrich Treaty and the development of the
European Monetary Institute, the potential of the BIS
being effectively neutered because of the overlap in
jurisdictions of the EMI and the BIS has led the BIS to
move toward a much more global role, one that
anticipates inviting a significant number of non-
European members, 10 to 25 as I recall the range, to
become members of the BIS. That would significantly
alter its character from a largely though not
exclusively European managed operation to one which is
far more global in nature. It is possible, perhaps
probable, that the BIS as a consequence will become a
much larger player on the world scene.

quot;It was our judgment that it would be advisable for us
to be involved in the managerial changes that are about
to be initiated rather than to stay on the sidelines,
as we chose to do through all those decades when we did
not want to get involved with a European-type
international organization. In contradistinction to
that, we think it is important to be an active player
in the development of this institution to make certain
that we as the principal international financial player
have a significant amount to say in the evolution of
the institution. That's the basis upon which this
decision has been made here at the Board, and it was
one which we probably would not have addressed in any
meaningful way had not the altered nature of the BIS
itself become imminent.quot;

A few days after this FOMC briefing, the BIS announced
that Messrs. Greenspan and McDonough would assume the
two seats on its board reserved for the American issue
of BIS shares, and that the governors of the Bank of
Canada and Bank of Japan had also been elected to the
board. Thus, with inclusion of the United States, the
board would henceforth consist of the G-10 countries.

As the International Monetary Fund has already
demonstrated, nothing is more dangerous to economic
growth and democratic progress in developing nations
than an obsolete international financial institution
cut adrift from the developed world and left to save
itself by trying to help the less-developed. No one
ever seems to ask how the developed world developed
without these institutions.

Like the International Monetary Fund, the BIS sails
today on a monetary course for which it was neither
designed nor intended. Article 20 of its Statutes still
commands: quot;The operations of the Bank for its own
account shall only be carried out in currencies which
in the opinion of the Board satisfy the practical
requirements of the gold or gold exchange standard.quot;
Among the standing committees of the BIS is the
Committee on Gold and Foreign Exchange, sometimes
referred to as the Committee of Experts on Gold and
Foreign Exchange or the G-10 Committee on Gold and
Foreign Exchange. Exactly what this committee does in
the area of gold, including why it has not suggested
amendment or deletion of Article 20, is an obvious
subject for discovery in my lawsuit, as well as for
direct inquiry by several gold-producing nations of
Africa which are members of the BIS, especially South
Africa.

One clue is (or was) available online. Until about two
weeks ago, the last sentence of the first paragraph of
the biographical summary for Peter R. Fisher, head of
the New York Fed's markets group, read: quot;He also is a
member of the bank's Management Committee and serves on
the Gold and Foreign Exchange Committee of the G-10
central banks.quot;

(a href=http://www.ny.frb.org/pihome/orgchart/fisher.htmlhttp://www.ny.frb.org/p...)

On Feb. 6, 2001, this sentence was deleted while the
rest of the biography remained unchanged. (A quot;Googlequot;
search for quot;Peter Fisher committee goldquot; will still
turn up a reference to the missing sentence.) Fisher is
widely reported to have played a major role in the Fed-
orchestrated rescue of Long-Term Capital Management,
which according to reliable sources was short 300 to
400 tonnes of gold. Hard to believe that the presumed
captain of the Plunge Protection Team has lost these
prestigious committee appointments, and only a few days
after a GATA supporter found his online biography too.

Speaking of the New York Fed, after dropping to low or
negligible levels from April through August,
withdrawals of gold from earmarked foreign and
international accounts have run at a heavy pace in the
months since: 40 tonnes in September, 41 in October,
and 44 in November. Added to the heavy outflows in the
first quarter, total withdrawals in the first 11 months
of 2000 equal 315 tonnes, or more than the full year
totals of 302 tonnes for 1999 and 309 tonnes for 1998.
My hunch is that much of this official outflow is IMF
gold deposited with -- and loaned out by -- the BIS. I
also suspect that part of the reason for the compulsory
freeze-out of the BIS's private shareholders is to
avoid publication of annual financial reports that
might disclose some of this activity. See, e.g.,
commentary dated June 11, 2000

(a href=http://www.goldensextant.com/commentary12.html#anchor134137http://www.go...)

quot;Central Banks vs. Gold: Winning Battles but Losing the
War?quot; (This commentary also contains a chart showing
monthly outflows of foreign-earmarked gold from January
1997 through March 2000.)

As shown graphically in a prior commentary

(a href=http://www.goldensextant.com/commentary16.html#anchor10789http://www.gol...)

quot;Cycles of Manipulation: COMEX Option Expiration Days
and BOE Auctions,quot; the Bank of England's gold auctions
are on the same bimonthly cycle as COMEX gold options
and futures. Don Lindley reports that immediately
following the last auction on Jan. 23, his quot;option
cubequot; turned from a bullish bias toward $280/ounce to
sharply bearish, suggesting a decline to $260 or lower.
The basic pattern seems to be that the auctions provide
the delta for the bullion banks to write calls, which
traders then use to support bear raids on the futures.
In any event, the timing of the British auctions
betrays their true purpose.

In a recent article

(a href=http://www.gold-eagle.com/editorials_01/clawar020201.htmlhttp://www.gold...)

quot;New York Strangulation of World Gold Market -- 1
Year,quot; Harry Clawar updates his data on gold price
increases overseas and their cancellation by selling on
the COMEX. For the year beginning Jan. 25, 2000, when
his study started, net overseas price increases
amounted to $160/ounce, while net decreases in New York
equaled $173/ounce. Meanwhile, as shown in
a href=http://www.goldensextant.com/Charts.html#anchor161737,http://www.goldens...
Gold Market Regression Charts that Mike Bolser
continues to update as new data becomes available, the
intuitively contradictory trends of strong physical
demand and shrinking markets for paper gold continue to
manifest themselves. The latter trend is also quite
apparent in reduced turnover and open interest in gold
contracts on the TOCOM, which Mike does not chart.

Richard Russell has been watching markets and writing
about them almost since the day he returned from World
War II service in bombers over Europe. His Dow Theory
Letters is among the oldest and most successful
investment publications. On Jan. 24, 2001, he wrote: quot;I
don't, as a rule, believe in manipulation in the
markets, but if there are two areas of manipulation
they are 1) gold -- every time gold sticks its little
yellow head up, someone, somewhere brings a hammer down
on that poor head. Ouch.quot; Turning to Area 2, he
continued: quot;The Dow and the Samp;P -- watch the last 15
minutes of every session. Someone, probably a fund or a
brokerage house, moves in and buys just enough to move
the Dow up 15 to 25 points and in the same percentages
with the Samp;P.quot;

Linked, coordinated manipulation of gold and stocks
poses the danger that disclosure of rigging in one
market will expose it in the other. In that event,
spiking gold with a sinking dollar and a collapsing Dow
in an already-slowing economy will be two sides of the
same coin. Given egregious misvaluations of both gold
and stocks plus a gargantuan trade deficit with no
historical precedent, the ingredients are at hand for
an economic crisis on a scale not seen since the Great
Depression. The scenario from quot;Gold or Dross? Political
Derivatives in Campaign 2000,quot; is looming ever larger.

(a href=http://www.goldensextant.com/campaign2000.html#anchor48727http://www.gol...)

As the Germans advanced into Poland, W.H. Auden penned
quot;September 1, 1939,quot; quot;As the clever hopes expire / Of a
low dishonest decade.quot;) One stanza's final line (quot;We
must love one another or diequot;) was so misinterpreted
and misused that the poet removed the entire stanza
from the 1945 collection of his works.

Lyndon Johnson's 1964 presidential campaign against
Barry Goldwater ran a television spot based on the
deleted stanza. Starting with a young girl pulling
petals from a daisy while a voice intoned the
countdown, the ad ended with a nuclear mushroom cloud
and the voice misquoting the final line. After
President Johnson put an army of more than half a
million men into Vietnam, Auden struck the whole poem
from subsequent editions of his works.

In today's world, where the imperatives of power and
prosperity in the developed nations regularly trump
concern for the less developed, quot;September 1, 1939quot; --
in lines never changed or repudiated -- speaks
hauntingly to the G-10 governments and their satellite
international financial institutions:

But who can live for long
In an euphoric dream;
Out of the mirror they stare,
Imperialism's face
And the international wrong.