GATA Says Much of U.S. Gold Reserve is Encumbered - CBS MarketWatch

DALLAS, Aug 15, 2001 (BUSINESS WIRE) -- "Hard as it is to fathom, it appears that much of America's gold is essentially gone or in severe jeopardy," says Gold Anti-Trust Action Committee Chairman Bill Murphy.

Murphy points to an astonishing discovery by GATA consultant James Turk in his new essay, The Mystery of the Disappearing SDR Certificates, published at the GATA Internet site, www.GATA.org. An SDR, which is acronym for Special Drawing Rights a.k.a. 'paper gold,' is a monetary instrument issued by the International Monetary Fund, representing special drawing rights for one 35th of an ounce of gold.

Turk has discovered that the SDR certificates on the books of the U.S. Treasury Department's Exchange Stabilization Fund have dwindled from 9,200 millions to 2,200 millions.

                       Exchange Stabilization Fund
                         (Assets) (Liabilities
                             (in millions)

                           SDR               SDR
                         Holdings        Certificates

             Dec. 1998    10,603            9,200

             March 1999    9,682            8,200
             June 1999    9,719            8,200
             Sept. 1999    10,284            7,200

             Dec. 1999    10,336            6,200
             March 2000    10,335            6,200
             June 2000    10,444            4,200

             Sept. 2000    10,316            3,200
             Dec. 2000    10,539            2,200

Turk explains why this is important:

"The U.S. Gold Reserve does double duty. It sits in the vaults at Fort Knox and the other depositories, but the U.S. Treasury has issued Gold Certificates against it. The Federal Reserve owns these Gold Certificates, giving the Fed a claim to the 261.6 million ounces in the U.S. Gold Reserve. Simple enough, and the same transaction is used for 'paper gold' -- the SDR's -- with just one small difference. The U.S. Treasury has transferred its SDR's to the Exchange Stabilization Fund (ESF), so the ESF and not the U.S. Treasury issued the SDR Certificates now owned by the Federal Reserve."

Turk continues:

"The ESF by law cannot issue more SDR certificates than it has SDR's. The largest amount of SDR certificates outstanding was 10,168 million in December 1995, a significant date, because I have contended all along that government actions that have depressed the gold price began in 1996, which is the same year that the SDR certificates began to decline. From this peak to the present, the SDR certificates have been reduced by 7,968 million. Given that there are 35 SDR's per ounce of gold, this reduction in the SDR certificate account equates to 227.7 million ounces, or 87 percent of the U.S. Gold Reserve...."

"Everything is fitting into place," Murphy says. "It appears that the SDR certificates are being used by the ESF to hide its gold transactions from the American public."

GATA has long claimed that central bank gold loans are two to three times the commonly accepted 5,000 tonnes cited by the gold industry. "Eighty-seven percent of the U.S. gold reserves is very close to 7,000 tonnes, which would increase to 12,000 tonnes the official sector gold out on loan in some way," Murphy notes.

"No wonder former Treasury Secretaries Robert Rubin and Lawrence Summers and current Secretary Paul O'Neill have refused to directly answer members of Congress regarding their gold market queries," Murphy goes on. "The ESF reports only to the president of the United States and the treasury secretary, which means that these men are very aware of the mechanics of manipulating the gold price."

"This is most disturbing," Murphy says, "because there is a pattern of deception, first by treasury secretaries not answering pointed questions and then by others who apparently are involved in or knowledgeable about the U.S. government's intervention in the gold market and who are conveniently forgetting the facts."

Murphy cites a June 8, 2001, memo to Fed Chairman Alan Greenspan from Federal Reserve lawyer A. Virgil Mattingly, who denies any knowledge of gold swaps, even though the transcript of a 1995 meeting of the Federal Open Market Committee records him as using those words to explain the authority and apparent activity of the ESF.

Then in an August 7, 2001, letter, John P Mitchell, deputy director of the U.S. Mint, offers no explanation why 1,700 tonnes of U.S. Gold Reserves stored at West Point, N.Y., were reclassified in September 2000 from "Gold Bullion Reserve" to "Custodial Gold." In May this year all 7,700 tonnes of the U.S. gold reserves in Treasury Department depositories were reclassified as "Deep Storage Gold."

Mitchell says the U.S. Gold Reserve was "not reclassified -- it was renamed to better conform to our audited financial statements."

"But Mitchell offers no explanation why that change is being made now. Could it be that these changes to conform to accounting principles were necessary because of the dramatic reduction in SDR Certificates and encumbering of the U.S. Gold Reserve?" Murphy asked.

"This is most frightening," Murphy says. The U.S. Government defaulted on its gold obligations in 1933 and 1971. Could it be happening all over again?