Richard Russell agrees with GATA: Central banks rig gold

11:23p ET Sunday, February 18, 2007

Dear Friend of GATA and Gold:

Nine years after LeMetropoleCafe.com proprietor Bill Murphy, soon to start the Gold Anti-Trust Action Committee, started screaming that the price of gold was being suppressed by collusion on the commodities exchanges, the king of technical analysis of the markets and the most venerable of U.S. financial letter writers, Richard Russell, has fully concurred.

In an unusual weekend letter distributed yesterday, Russell told subscribers to his Dow Theory Letters:

"Let's start with this vital and rather shocking piece of information, courtesy of Stephan Roach, chief economist at Morgan Stanley: 'Net foreign inflows into longer-term U.S. securities fell to just $15.6 billion in December 2006. This is the weakest reading in nearly five years. This stands in sharp contrast to America's enormous external financing needs -- about $3.5 billion of foreign capital inflow each and every business day is required to fund a current account deficit that was running at close to an $875 billion rate in the first three quarters of 2006.'

"What does this mean? It means that the squeeze is beginning.

"Normally, the U.S. reaction to the 'shortfall' would be a recession in order to cut way back on U.S. spending. Or it could be raising rates in order to make it more attractive to accumulate and hold U.S. securities. But raising rates would impact on the fragile U.S. housing situation. If the negative current account deficit trend continues, I don't know how it will be resolved.

"One result should be a weaker dollar and rising gold. If the shortfall continues, we can be sure of one thing -- something has got to give.

"Meanwhile, the central banks of the world are on a tear. I guess you could call it 'deflation-phobia.' At any rate, check out these statistics:

"In Australia, the M-3 money supply is running 13 percent over last year. In the Euro-zone, M-3 is up 9.3 percent. In Britain, M-4 is up 13 percent. In Korea, M-3 up 10.3 percent. In China, M-2 is up a whopping 16 percent. Russia shows M-2 up 45 percent. In the United States M-3 has been reconstructed to show that it's up 10.7 percent. As one wag put it, the central banks have instituted a campaign of 'whip deflation now!'

"I've described the situation previously as 'money gone wild.' It's a blizzard of fiat paper and credit beyond anything ever seen before in world history.

"The mystery is that gold isn't higher, much higher.

"My thinking is that central banks and others have, so far, held gold back with derivatives and massive short sales. I doubt that this can continue."

Yes, Mr. Russell, if gold had held its traditional ratio to money supplies and the prices of commodities, its price would be in the thousands of dollars by now. So much for the last decade of technical analysis of the gold market, which hasn't been able to figure out what has been going on.

No analysis of the gold market is worth anything if it fails to account for both open and surreptitious intervention by the central banks and their agents, the bullion banks, and by the mining company that, in U.S. District Court in New Orleans, claimed immunity to suit by declaring itself the agent of the central banks in the gold market, Barrick Gold.

This intervention has been too much lately even for technical analyst Dennis Gartman of The Gartman Letter, who now acknowledges that a government just might be behind the recent and most blatant efforts to suppress the gold price. Other technical analysts, like Clive Maund, still don't want to hear anything about it and get indigant and unresponsive when challenged. But give them a little more time. They probably will not want to be the last to acknowledge what has become obvious to everyone else, and what, in fact, is already on the public record in a half-dozen places technical analysts never look, since reality would get in the way of their beloved formulas and charts.

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

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