Brad Zigler: More on gold manipulation

3:55p ET Monday, July 27, 2009

Dear Friend of GATA and Gold (and Silver):

Brad Zigler, managing editor of the Hard Assets Investor Internet site, today replied to your secretary/treasurer's reply of July 1 (http://www.gata.org/node/7547) to his June 30 essay, "Gold Manipulation Redux" (http://www.hardassetsinvestor.com/features-and-interviews/1/1642-gold-ma...). Zigler's new essay is headlined "More on Gold Manipulation" and you can find it at the Hard Assets Investor site here:

http://www.hardassetsinvestor.com/component/content/article/3/1683-more-...

Or try this abbreviated link:

http://tinyurl.com/nx7pew

To dispute a few points in Zigler's reply:

1) Twice Zigler misconstrues as hard assertions my use of the word "seems."

2) Zigler seems to be saying that unless an unmanipulated price of gold can be specified, price manipulation cannot be alleged or proven. GATA disagrees. Indeed, we often have maintained that, because of the decades-long suppression of the price of gold undertaken by central banks, the world actually has no idea at all what a free-market price of gold would be.

3) Zigler denies GATA's assertion that Barrick Gold, in its motion filed in U.S. District Court in New Orleans to dismiss the price-fixing lawsuit filed by Blanchard Coin and Bullion, confessed to being the agent of the central banks in the gold market. But Barrick's motion argued that the mining company should share the sovereign immunity of the central banks against suit because the company was implementing their policy in the gold market. The motion can be found here:

http://www.gata.org/files/BarrickConfessionMotionToDismiss.pdf

Barrick itself has never disputed GATA's interpretation of the motion.

4) Zigler claims that financial houses generally and primary dealers of U.S. Treasury securities particularly are not government agents. Maybe he is construing the term in a narrow and technical legal sense, as it might be construed by securities law, if, say, the United States continued to enforce much securities law. But the primary dealers are selected by the Fed and this selection gives them certain exclusive rights in selling U.S. government securities. Further, there is a more general form of agency, and maybe even Zigler would agree at least that the primary dealers do things that the U.S. government very much wants them to do and that they get something out of doing it. The Federal Reserve's own policy on primary dealers acknowledges as much:

http://www.ny.frb.org/markets/pridealers_policies.html

Meanwhile the Treasury Department thinks the work of the primary dealers is important enough to merit quarterly meetings with them, for which the department maintains agendas;

http://www.treas.gov/offices/domestic-finance/debt-management/dealer-age...

This seems like plenty of agency.

In denying that the financial houses sometimes become the government's agents as well, Zigler seems to have missed how the Fed and Treasury have worked directly through certain financial houses in the last year and a half to intervene in the markets. Among the examples that come to mind are the Fed's arranging MorganChase's acquisition of Bear Stearns, which was facilitated by a $30 billion loan from the Fed. Presumably there was enough agency in that loan that the Fed would have made a fuss if MorganChase instead had used the money, say, to buy gold.

Zigler writes: "I would not presume to know the nature of the messages conveyed between the financial houses and the central banks outside of my limited experience on a primary dealer's desk. I can only tell you that the communications between the Fed and the desk in open market operations were always curt and businesslike and never afforded my desk an opportunity to front-run anything. To assume 'favoritism' is entirely speculative and conjectural."

Of course neither do the Fed and the Treasury have with GATA the sort of confidential conversations they increasingly have had with a few especially influential and potentially helpful parties in the financial markets. But GATA is eager to broaden its experience in such matters, even as Zigler seems content to be left out. That's what's so disappointing about him and about so many others involved with the gold market -- a determined and perhaps a bit nervous lack of curiosity.

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

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