Izabella Kaminska: How central banks use ETFs to keep gold down

12:07a ET Tuesday, September 27, 2011

Dear Friend of GATA and Gold:

Market analyst Izabella Kaminska this month examined the collapse in gold lease rates and concluded that central banks likely have been trying to stuff gold into the market by various back doors, resulting in the placement of borrowed gold at exchange-traded funds like GLD and thus in gold price suppression as well.

Drawing on research by gold price suppression litigator Reginald H. Howe, Kaminska writes:

"While the likes of GLD insist that every share outstanding is matched by a gold bar -- and this is almost definitely true -- what they can't claim is that there's a way to differentiate gold with previous claims on it from gold without previous claims on it within its reserves (i.e., borrowed gold). It is consequently entirely possible that gold ETFs are sitting on mountains of borrowed central bank gold.

"GLD's defence, of course, is that prior claims on its reserves are not their concern. They are the liablity of the party that delivered the gold to GLD (almost certainly a bullion bank). Thus it is the bullion bank that risks being squeezed on delivery in the physical market, not GLD.

"Of course, with a negative interest rate for borrowing gold, the bullion banks are being more than compensated for the risk of a squeeze. On top of everything they can always create new GLD shares ad infinitum, if needs be. (At least until all central bank gold stock has been lent into gold ETFs, arguably forcing central banks to replenish the gold lending pool via market purchases.)

"In the above scenario -- in which bullion banks are possibly recycling borrowed gold into GLD shares to sell into the market -- these short sales will put pressure on GLD units themselves."

Kaminska's commentary is a bit too obscurely headlined "Why Gold Forward Rate Inversion Is Important" and you can find it at FT Alphaville here:

http://ftalphaville.ft.com/blog/2011/09/14/677021/why-gold-forward-rate-...

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