How ESF / Bundesbank gold swap caps the gold price -- Part I


12:11a ET Friday, April 20, 2001

Dear Friend of GATA and Gold:

Minutes of the Federal Reserve's Open Market Committee
meeting of January 31, 1995, reveal that the U.S.
Treasury Department's Exchange Stabilization Fund has
been, as GATA long has alleged and as the Treasury
Department has denied, surreptitiously intervening in
the gold market by lending gold.

The minutes were discovered by GATA consultant Reginald
H. Howe in pursuit of his lawsuit against the Fed, the
Treasury Department, the Bank for International
Settlements, and various investment houses, charging
that they have illegally manipulated the gold price.

The Treasury Department's denials of involvement in
the gold market have been made in the last two years
not only to GATA but also to members of Congress
and in response to inquiries from the public.

Howe makes reference to the Federal Open Market
Committee minutes in a brief filed in U.S. District
Court in Boston this week in opposition to motions by
the Fed and Treasury Department to dismiss his lawsuit.

Howe's brief can be read here:

Revealing the Fed minutes about the ESF's clandestine
activity in the gold market, Howe writes:

* * *

The plaintiff has recently discovered a highly relevant
statement in the transcript of the Federal Open Market
Committee's meeting on January 31, 1995.


Responding to a question by then Fed Governor Lawrence
Lindsey about the ESF's legal authority to engage in a
financial rescue package for Mexico, J. Virgil
Mattingly, the Fed's general counsel, stated (P.A. 31;
Ex. W, p. 69):

"It's pretty clear that these ESF operations are
authorized. I don't think there is a legal problem in
terms of the authority. The statute [31 U.S.C. s. 5302]
is very broadly worded in terms of words like 'credit'
-- it has covered things like the gold swaps -- and it
confers broad authority. Counsel at the White House
called the Treasury's general counsel today and asked,
'Are you sure?' And the Treasury's general counsel
said, 'I am sure.' Everyone is satisfied that a legal
issue is not involved, if that helps."

Ordinarily the term "gold swap" refers to the spot
exchange of gold for cash or securities together with
a promise that the transaction will be unwound at an
agreed future date and price (P.A. 32). Gold swaps are
sometimes used by central banks in the developing world
to acquire needed foreign exchange, effectively offering
gold as security for repayment.

In recent years, however, gold swaps have also been used
as an alternative to gold loans by certain central banks,
which then earn interest on the cash or securities
deposited with them while a bullion bank or other party
has use of the gold.

Another kind of gold swap is a "location swap" in which
gold in one depositary or storage facility is temporarily
swapped for that in another.

It is not clear whether Mr. Mattingly was speaking of
ordinary gold swaps, location swaps, or some combination
of the two.

Nor is it clear whether he was referring to a program of
gold swaps known to some or all participants in the
meeting, or to one or more special transactions with
respect to which he had issued an opinion, or to some
other set of transactions.

What is clear is that he was referring to gold swaps
that, so far as the plaintiff is aware, have never been
identified or disclosed in any other publicly available
materials relating to the ESF or the Federal Reserve.

This reference to gold swaps was made only a few months
after the Federal Reserve's decision to assume the two
American seats on the Bank for International Settlements
board. This decision, which was effectively hidden from
the American people and all but a few members of Congress,
coincided with the first incident of preemptive gold
selling on the COMEX in excess of three standard
deviations as set forth in Michael Bolser's statistical
study (C. 48-50; P.A. Ex. Q). Mr. Speck's study dates the
beginning of detectable anomalous selling pressures in
COMEX gold just a few months earlier (P.A. Ex. T).

Far from limiting its role to providing financial
guarantees or backing for gold derivatives as the
plaintiff has alleged, Mr. Mattingly's statement suggests
that the ESF has engaged -- almost certainly through the
New York Fed (P.A. Ex. V) -- in swapping out U.S. gold
reserves to one or more bullion banks to facilitate the
price manipulation scheme.

Indeed, if the recent reclassification of the "Gold
Bullion Reserve" held in the U.S. Mint at West Point
to "Custodial Gold Bullion" reflects the combined total
outstanding volume of these swaps (P.A. 29, Exs. U1 & U2),
the ESF has covertly encumbered more than 20 percent of
the total claimed official gold reserves of the United

* * *

GATA will press members of Congress who received the
Treasury Department's denials to ask the department for
clarification in light of the revelation in the Federal
Open Market Committee minutes.

GATA appeals to its supporters in the United States to
ask their members of Congress to seek explanations
and details about the ESF's gold swaps.

We appeal to our supporters in gold-producing countries
around the world to urge their governments to protest
the ESF's conduct in diplomatic contacts with the United

We appeal to journalists to press the issue with the
Treasury Department and to report the ESF's
surreptitious gold lending.

And once again we appeal to gold mining company
shareholders to bring this information to the
attention of company executives and urge them to act
on it before the mining industry is destroyed.

This is it, people. It's on the record now. The U.S.
government is surreptitiously manipulating the gold
price. U.S. economic policy is being made privately
for the benefit of a chosen few.

We have to stop this. Help us.

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