Quote Magazine, The Netherlands - GOLD! How a Bank conspiracy ruins the world economy!
The time to buy gold is when blood is in the streets, Nathan Rotchild once said. With crashing equity markets, the WTC changed into Ground Zero and an army crossing the desert, those words seems to have a certain prophecy value. For the first time in 20 years, the price of gold increased by 35%. But gold investors (so called Gold bugs) aren’t satisfied yet. The WTC disaster and the Iraq war is only background noise. The price of gold should have been much higher already years ago they say, with or without war !
The so called gold bugs are convinced of a so called conspiracy of big Bullion Banks, the FED and Central Banks to suppress the price of Gold.
The recent run-up in the price of Gold may be the first signs that the suppression scheme is not much longer to maintain. The price of Gold will explode, gold bugs say, and could very well bring down a few big investment banks. The official Gold community speaks of ‘the lunatic fringe’ but more and more well respected people in the Gold industry endorse their claims. John Embry (manager of the Royal Bank of Canada)said : ‘Everyone with a IQ higher than a Grapefruit have to admit that they have a point !"
Gold Carry Trade :
Eric Hommelberg is an investor in Gold. It started as a hobby besides his profession as an IT consultant, but is trading full time now. It’s frustrating Hommelberg says. When I started studying the gold market, I noticed that the gold market didn’t behave as a free market should. Every time the price of Gold reached a technical break-out level, heavy selling crushed it. According to Hommelberg the critical level for the price of Gold today is around the $330 level. (break-out from a 20 year down-trend). The last couple of years the price of Gold fluctuated between $250 and $400 and that’s ridiculous Hommelberg says when you consider that an annual supply/demand exists of 1500 ton a year. No Exploration has been going on for years to replace existing Gold reserves because exploration is only profitable at gold prices higher than $350. The supply/demand deficit has been filled by Central Bank selling and scrap supply.
According to Gold analyst Frank Veneroso a natural equilibrium price for Gold is about $600. But many official agencies do think otherwise. Gold they say has lost it’s safe haven status because of the strong dollar, low inflation,and a higher yielding equity market. Gold is fun for wearing but forget about investment. A growing group of gold investors disagree with this statement.
The first organization which spoke about a so called ‘gold-cartel’ was the Gold Anti Trust Action Committee (GATA)which was founded early 1999 by former future trader Bill Murphy. Together with Gold analyst and Lawyer Reginald Howe GATA filed a law-suit against the FED, Bullion Banks such as Goldman Sachs, JPMorgan, Deutsche Bank, CITY Bank, and the Bank for International Settlements and the US Treasury !
GATA’s claim : "The price of Gold has been suppressed for many years in order to maintain a strong dollar, low inflation, low inflation expectations and to protect the big Bullion Banks with their big short positions in Gold.
This short position is a direct result of the so called ‘gold carry trade’. Central Banks lease their gold to the Bullion Banks for a extreme low interest of only 0.5%. The Bullion Banks sell the Gold and invest the proceeds into higher yielding bonds.
As long as the price of Gold does not rise, the gold carry trade is a money machine ! The total amount of gold derivatives on the books of the Bullion Banks was approx: $63.3 billion of which JPMorgan owes more than 60%.
According to Gold Field Mineral Services Central Banks leased only approx: 5000 ton of their Gold holdings but GATA claims that more than 15000 ton has been leased by the Central Banks. Although the Central Banks are still the legal owner of the leased Gold, to get it back is something else. Bill Murphy showed documents to Insight Magazine in which the IMF confirmed that leased/swapped Gold from the vaults may still be accounted for as being a reserve asset. Due to the fact that Central Banks have no obligation to report their total amount of leased/swapped Gold it is difficult to calculate the exact figure of leased gold. The problem is Murphy says to Insight Magazine, that most of the Gold which has been leased cannot be returned to the vaults of the Banks simply due to the fact that it is gone ! It’s hanging around the necks of Indian woman. Also due to the supply/demand deficit it will be impossible to cover the big short positions in Gold without an exploding price of Gold. JPMorgan and other Bullion Banks are a disaster waiting to happen.
The case filed by GATA was dismissed by end of 2000. Not because of the claim itself, but more from a technical point of view. The judge argued that GATA wasn’t really a direct victim from the alleged gold-suppression scheme. But anyhow, the case drew attention and many well respected people from the Gold industry endorsed GATA’s claims. People such as John Embry, manager of the best performing Mutual Gold Fund, who said that his investment decisions were based on GATA’s findings. "I bet my money on GATA" he said, "so far they’ve been right" .
Science Fiction Club
It’s just not worth it to spend a single word on those guys (GATA) Hennie Rijnbeek says. He sounds irritated. Hennie Rijnbeek works as a Gold dealer for the Rabobank in London and doesn’t believe at all in a so called conspiracy. London is the centre of the Gold Industry and this whole thing is just a non-issue for all people which I’m working with. The whole idea is complete nonsense. Leasing gold does not differ from the currency markets, just profit from the ups and downs. There is not a single Bank which doesn’t do that ! My own risk-management would chop my head if I told them there was a conspiracy in this market. According to Rijnbeek, GATA is just a science fiction club and their supporters are rebels. Most probably some GATA people lost money with speculation in Gold and this way they are trying to recover their losses. They spread only rumors but they cannot prove anything ! And besides that, central banks don’t profit from a declining price of Gold but just the opposite is true. Central Banks do profit from a increase in the price of Gold because it is a reserve asset. Every now and then, they sell some gold in order to lock in some profit !
Hommelberg rejects this thesis that Central Banks want higher prices of Gold as Rijnbeek stated. Hommelberg quotes Greenspan when he said in 1998 before the House of Banking Committee :
"Central Banks stand ready to lease Gold in increasing quantities should the price rise"
Greenspan admitted hereby that Central Banks were capping the price of Gold.
Hommelberg himself maintains a big investment position in the so called ‘Junior Exploration Gold Companies". These type of companies will give the investor the biggest return on their investment should the price of Gold rise. In case of a flat/declining price of Gold these type of companies will face tremendous trouble and possible bankruptcy.
Many big Gold companies won’t benefit at all if the price of Gold rise due to the fact that they sold already their future gold production. This strategy is called hedging and will backfire those companies which large hedge-books. In 1999 Cambior and Ashanti almost faced bankruptcy when the price of Gold went up sharply from $260 to $330.
Barrick Gold which is practicing Hedging for more than 15 years faced a decline of it’s share price this year of 11%. Although analysts say that Barrick won’t risk bankruptcy, their revenues won’t increase either with a rising price of Gold.
Gold dealer Blanchard & Co accused Barrick for suppressing the price of Gold because of their reckless hedging strategies. Therefore they filed a law-suit against Barrick and JPMorgan.
Dead End street
Nico van der Hoeven of Hollandse Bank Unie (HBU) shakes his head. Just like Rijnbeek he doesn’t believe in GATA’s conspiracy theory. HBU which is a subsidiary of ABN AMRO is the most important Gold Bank in the Netherlands and provides their customers the ability to invest in Gold. Since the equity markets came down the interest in physical Gold increased somewhat van der Hoeven says. It’s not the manipulation of the price of Gold but lack of interest from investors and financial institutions which is the real reason why Gold performed so badly the last couple of years.In a rising market equities are desirable. The decline in the price of Gold was also being accelerated by forward selling of Gold producers. Forward selling (Hedging) was done in order to protect the companies against a further decline in the price of Gold. And last but not least there was a dark cloud hanging over the Gold market because of the large Gold holdings of the Central Banks. Central Banks gave notice that they were willing to sell some of their Gold holdings in order to diversify their reserve assets. This makes sence but creates a negative sentiment in the Gold market. Van der Hoeven speaks out loud : " GATA is a bunch of nuts !"
But he doesn’t care. There are many people who believe their story and that will most probably have a positive impact on the price of Gold. The only worry is that this new interest isn’t based on solid information but on false rumors. Regarding the danger of a rising price of Gold for the Bullion Banks van der Hoeven asks : "Which price of Gold would trigger those problems ? We already witnessed an increase of nearly 40% in the price of Gold since 1999 and nothing happened yet ! If GATA is correct, why didn’t anything happen by now ?"
Willem Middelkoop sees the end of the Gold Cartel nearby due to the fact that the price of Gold is rising rapidly over the last two years. Desperate attempts to keep the price of Gold beneath the $330 level failed. It’s a dead end street Middelkoop says due to the continuous increasing demand. Middelkoop is a TV reporter for RTL-Z and invests in Gold. He says it’s really shocking that the official Gold community doesn’t take notice of what GATA has to say. So called Gold experts who refuse to deal with GATA’s claims didn’t study the market well.
There is plenty of circumstantial evidence, 100% proof can’t be found but there certainly is a smoking gun. GATA made several requests to discuss their claims with anyone in the Gold industry, anywhere, any-time, but none of the official agencies dares to debate GATA. GATA opponents aren’t able to disprove GATA’s claims. The Fact that the IMF permits Central Banks to report leased Gold as being reserve assets and lies about it is very smelly Middelkoop says. I’m convinced that GATA’s claims will come true. It won’t be the first time in History that such a conspiracy turned out to be true.
A Twenty fold
The pro and con GATA people agree about the future direction of gold. It will rise ! Van der Hoeven is modest : "We’ll see $425 this year" . Hommelberg expects a price of Gold in the $800 to $1000 range within three years. Middelkoop makes a quick calculation. "When de Gold-Dollar exchange was terminated in the early seventies, the price of Gold went up from $35 to $850. That is a twenty fold in ten years. A replay of the seventies will lauch the price of Gold from $252 to $5000 in ten years from now ! Today there are more positive drivers for the price of Gold as there were in the seventies, so predictions that the price of Gold could rise a couple of thousand dollars aren’t that weird at all.
Gold nowadays is extremely cheap Hommelberg and Middelkoop say. Unfortunately there aren’t many people who recognize this fact. Middelkoop : " My best friends laughed at me when I told them that I would invest in Gold a couple of years ago. But in a equity bear-market you’ll have to protect your wealth. The last two years I didn’t make any losses in the market and only a very few investors can say the same. Even better, I made some nice profits, but that’s of a minor concern to me because I invest in gold for protection. Gold is more powerful than fiat money Middelkoop says. Since thousands of years mankind has been able to settle payments in Gold worldwide. This is in sharp contrast with fiat money which lost more than 90% of it’s intrinsic value in the last 100 years alone. Official agencies argue that such a decline in value is pretty normal considering inflation, but Gold never lost it’s value. Fiat money is being printed continiously which is in sharp contrast with gold which is precious by nature. Gold Middelkoop says touches the heart of the monetary system. A higher price of Gold is a direct insult on the dollar and signals a higher inflation. To suppress the price of gold is therefore almost a necessity in order to keep the economy going. GATA says that this situation is no longer maintainable because of the increased appetite for Gold from investors, crashing equity markets and war threads. " The Gold cartel manipulation is in meltdown."
Middelkoop quotes Greenspan : " No Bank is too big to fail"
I think he mentioned JPMorgan. Nothing to worry about as long as you own Gold and Silver.