Don't pretend that the gold market is anything but central banking's most desperate project

8:09p SRT Monday, February 3, 2014

Dear Friend of GATA and Gold:

The Perth Mint's Bron Suchecki today evaluates the prospects for gold bank runs in a fractional-reserve gold banking system. His commentary is headlined "Fractional Reserve Bullion Banking and Gold Bank Runs -- the Setup" and it's posted at his Internet site, Gold Chat, here:

http://goldchat.blogspot.com/2014/02/fractional-reserve-bullion-banking-...

Suchecki writes:

So a bullion bank's risk toward a run on its unallocated accounts depends on its:

-- Collateral and gold price exposure for secured counterparties.

He adds that bullion banks know that "you can't print gold" and suggests that, as a result of this knowledge, they proceed more responsibly than banks operating on a fractional-reserve basis in other respects.

But presumably bullion banks also know whether central banks or international organizations like the International Monetary Fund or Bank for International Settlements, to quote former Federal Reserve Chairman Alan Greenspan's testimony to Congress in July 1998, "stand ready to lend gold in increasing quantities should the price rise" --

http://www.federalreserve.gov/boarddocs/testimony/1998/19980724.htm

-- and whether central banks are prepared, to use the sanitizing phrase of CPM Group's Jeff Christian, to provide "liquidity" to the gold market, a service that for some reason central banks don't yet seem ready to provide to the markets in soybeans, cotton, and pork bellies.

Suchecki's distinctions within bullion banking are all valid but they also are all completely subsidiary to the one great fact about the gold market: that central banks are its biggest participants and that, while they are nominally public institutions, they operate in the gold market largely in secret every day, directly or through their broker, the Bank for International Settlements, for policy purposes that are never explicitly explained. (Of course a little research can discern what those purposes are -- gold price suppression and support of government currencies and bonds.)

Bullion banks and gold-mining companies that hedge their production are merely the agents and playthings of central banks, as the great hedger Barrick Gold confessed in U.S. District Court in New Orleans as it tried to escape from Blanchard & Co.'s market-rigging lawsuit in 2003:

http://www.gata.org/node/1858

Suckechi is more or less off the hook here because a few days ago he called for transparency in the gold operations of central banks --

http://goldchat.blogspot.com.au/2014/01/central-bank-gold-reserves-trans...

-- something that will never happen because, as the staff of the International Monetary Fund explained in a secret memorandum in March 1999, transparency would explode the gold price suppression scheme:

http://www.gata.org/node/12016

Even so, one shouldn't get or give the impression that the gold "market" is, for the time being, anything except central banking's most desperate project.

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