Italian magazine article warns of
gold price manipulation
From Borsa & Finanza, Italy
The U.S. Treasury is accused of manipulating the free
market. Risks for the international bourses.
By Guido Bellosta
A trial that starts in Boston affects the interest of
hundreds of thousand of savers, financiers, and miners.
On the bench is the Treasury Department of the United
States, accused of having manipulated the international
price of gold with sophisticated financial operations
for many years.
The accusation is also directed straight at Alan
Greenspan, who declared on July 24, 1998, in front of
the House Banking Committee, that the central banks
"stand ready to lease gold in increasing quantities."
The same phrase was repeated six days afterward by the
same illustrious official to the Senate Agriculture
For many years observers have noticed that the price of
gold goes down with implacable regularity. The price of
the yellow metal, after hitting a maximum of $860 20
years ago began a slow, regular descent. Currently the
price sits around $265. At this level a lot of mines
have been forced to close. Hundreds of thousand of
South Africa, Canadian, and Australian miners have been
Suspicion of possible manipulation in the price has
pushed investors and miners to combine forces through
GATA, the Gold Anti-Trust Action Committee, a non-
profit organization (www.gata.org ). Donations by
Americans to GATA are deductible from income taxes.
According to GATA. the economic laws of supply and
demand for gold are being trampled on continually. The
annual demand for gold exceeds the supply by more than
1,500 tons. The continuous sale of gold possessed by
the central banks has made up for this deficit since
the beginning of the 1990s. With such sales, however,
the central banks have sunk the price even more.
For this reason, on September 26, 1999, 15 European
central banks decided to limit the transfer of the
metal possessed to a maximum of 400 tons a year. This
accord will continue for five years. The gold market
reacted to the announcement with a strong rise in
price. But it was like a fire of straw. The sales
returned to get the upper hand again.
The price of the gold, sunken with the clear use of
derivatives, continued to go down. The cause of this
continuous descent, not justified by the physical
trading of metal, is imputed to the speculation
effected with the derivatives from international banks.
The use of such tools, according to the Office of the
Controller of the Currency, could have exceeded $87
billion in 1999, more than the value of the American
American reserves are estimated to be around 8,140
Veneroso Associates estimates that the loans against
gold amounted to between 9,000 and 10,000 tonnes at the
end of 1999. All this while the gold mined is only
2,579 tons annually.
The decrease in the price has allowed the large bullion
banks to get loans at low rates, often less than 1
percent. The gold loaned by the central banks is then
sold. The equivalent value for 20 years has been
employed with profit on the financial markets. The
decrease in the price of the metal allowed the
repurchase at a lower price. This practice has been
pursued with success from noted financial institutions.
Such low rates were possible as the price of the gold
continued to decrease. The profits of these
institutions meant, however, the loss of tens of
thousand of jobs in the mining sector, where the
marginal mines were closed. Standard Equities of
Johannesburg has predicted a collapse of 35 percent of
gold mining production by 2008 if the prices remain at
these depressed levels.
The descent of the price of the gold, according to
GATA, gives the false impression of a super dollar,
shielding against inflation.
Chairman Alan Greenspan and former Treasury Secretary
Lawrence Summers have responded to inquiries by GATA by
denying intervention in the market. But they have not
clarified if such denial also pertains to the very
suspicious Exchange Stabilization Fund, controlled
directly by the secretary of the treasury.
GATA is not limited to bringing into court the highest
American authorities with the accusation of
manipulating the price of the gold; it also points to
the risk of a "crisis from the epic proportions" caused
by the enormous use of derivatives in the market. The
speculative bubble would burst, fed from the huge
quantity of derivatives in circulation. This bubble
threatens the solidity of the largest international
banks and the strength of the dollar.
Bill Murphy, chairman of GATA, has asked Alan
Greenspan, in an open letter, to identify the exact
quantity of the gold possessed by the United States.
The last audit goes back to the time of Eisenhower. The
market hovers on the rumor of a possible decrease in
the gold possessed by the United States.
Whatever the result of the trial, public opinion now
knows the inherent explosive risks in the possible
manipulation of the price of the yellow metal. A
devastating financial crisis could surprise the
markets. The possibility of a positive result of the
trial already has produced the first consequences in
the American stock market. The largest mining compaines
(Barrick, Newmont, Placer Dome, Homestake) have seen
substantial rises in their share price. The gold bugs
will smile after 20 years.