Trade deficit is parked in the stock market


9:15p EST Sunday, March 26, 2000

Dear Friend of GATA and Gold:

We have received indirectly a couple of responses from
lower levels of the U.S. Treasury Department to the
questions posed in GATA's December 9, 1999, open letter
to Federal Reserve Chairman Alan Greenspan and Treasury
Secretary Lawrence Summers. The wording of the response
that cites the Treasury Department's Exchange
Stabilization Fund is a bit awkward, perhaps to the point of
being tricky, and we're going to press for clarification.
Maybe more important, we are still hopeful that our friends
in Congress are going to get for us a clearer response from
Secretary Summers himself.

The dispatch below was prepared by GATA Chairman Bill
Murphy. Please post it as seems useful. We need to
continue the clamor.

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

* * *


The following letters and excerpts from letters were
received by the Gold Anti-Trust Committee on Friday,
March 24, 2000.


Washington, D.C.

March 20, 2000

To: Dale Schnitzler, Grafton, Ohio

Dear Mr. Schntizler:

Recently you wrote a letter to Congressman Sherrod
Brown in which you raised a number of questions
concerning the Treasury Department, the Federal
Reserve, and the gold market. Congressman Brown asked
in a January 19 letter to the Treasury Department that
we respond directly to you. I hope that the following
information, which addresses the questions as they
pertain to the Treasury Department, will be helpful.

Regarding Question 1, the Treasury Department does not,
either on its own behalf or on behalf of others,
including other government agencies such as the
Exchange Stabilization Fund, lend gold or silver,
facilitate the lending of gold and silver, or trade in
any securities, such as futures contracts and call and
put options, involving gold and silver.

Questions 2 through 8 are not applicable as they
presuppose an affirmative answer to Question 1.

Regarding Question 9, the Treasury Department does not
own or deal in derivatives that are connected with
precious metals, nor do other government agencies write
call options against the Treasury's gold holdings.

Question 10 is not applicable because it presupposes an
affirmative answer to Question 9.

Question 11 asks whether the Treasury, either directly
or through its management of foreign custody accounts,
collaborated with the Bank for International
Settlements, the Bank of England, or any other central
bank with a view to managing, smoothing, or otherwise
affecting the market price of gold. The answer to
Question 11 is no.

More generally, I would like to underline that the
Treasury Department does not seek to manipulate the
price of gold, silver, or other precious metals by
intervening in or otherwise interfering with the


Marti Thomas
Acting Assistant Secretary
Legislative Affairs and Public Liaison

c: Representative Sherrod Brown

* * *

Washington, D.C.

Inspector General

February 23, 2000

The Honorable Mitch McConnell
United States Senate
Washington, D.C. 20510

Dear Senator McConnell:

This is in response to your letter dated December 16,
1999. You asked us to respond to your constituent's
questions regarding gold prices and gold industry

These questions pertain to U.S. Department of Treasury
(Treasury) as well as Federal Reserve operations.

We perform annual audits of the United States Mint's
Custodial Gold and Silver Reserves and the Exchange
Stabilization Fund, which are part of Treasury's
operations. However, we have no oversight
responsibility for the Federal Reserve and cannot
address questions regarding their operations.

I have enclosed a copy of Mr. and Mrs. Rupert L.
Raymond's letter to you and provide the following
answers to their questions....

I apologize for the delay in responding to your letter.
I hope this has not caused any inconvenience for you or
your constituents.


Jeffrey Rush Jr.
Inspector General


The inspector general answers no to all the questions
asked in the open letter to Federal Reserve Chairman
Alan Greenspan and Treasury Secretary Lawrence Summers
that was published by GATA in Roll Call on December 9,

But the first answer may be of special interest because
it does not mention the Exchange Stabilization Fund:

"Question 1. Do the Federal Reserve or the Treasury
Department, either on their own behalf or on behalf of
others, including other Government agencies, such as
the Exchange Stabilization Fund, lend gold or silver,
facilitate the lending of gold and silver, or trade in
any securities, such as futures contracts and call and
put options, involving gold and silver?

"Answer: The Treasury Department does not lend gold or
silver, facilitate the lending of gold and silver, or
trade in any securities, such as futures contracts and
call and put options, involving gold and silver."

* * *

Mitch McConnell, Kentucky

Committee: Rules and Administration, Chairman;
Agriculture; Appropriations.

Mr. and Mrs. Rupert Raymond
Lexington, Kentucky

Dear Mr. and Mrs. Raymond:

Enclosed please find a copy of the response which I
recently received from the U.S. Department of Treasury
regarding gold prices and gold industry stocks. I hop
you find this information helpful....


Mitch McConnell
United States Senator

* * *

Here are some thoughts on these letters from the
studious James Turk of the Freemarket Gold and Money


Hi, Bill:

Thanks for sending to me the two letters from the
Treasury Department stating their denial about any
involvement in the gold market.

At first blush the letter from Acting Assistant
Secretary Marti Thomas looks pretty clear. But as we
all know that is what the letter is meant to do. In
reality her letter comes up short and is misleading.

You will recall that Federal Reserve Chairman Alan
Greenspan's letter regarding these same issues also
looked crystal clear, but on closer examination there
were numerous word games in it. Thus, just as
Greenspan's letter was in reality misleading, so is the
Thomas letter. I offer the following observations to
make my point.

The most important statement by Thomas is: "The
Treasury Department does not, either on its own behalf
or on behalf of others, including other government
agencies such as the Exchange Stabilization Fund, lend
gold or silver, facilitate the lending of gold and
silver, or trade in any securities, such as futures
contracts and call and put options, involving gold and

First, note the word "including," which was also used
in Mr. Greenspan's letter, instead of the more precise
and correct term, "including but not limited to." Thus
Thomas is responding only for the Treasury and its
action on behalf of the Exchange Stabilization Fund
(ESF), despite the appearance that the denial is meant
to be all-inclusive. So the possibility remains that
the Treasury may act on behalf of others, because only
the ESF has actually been excluded by the choice of
words. Who could those "others" be?

The most obvious answer is the American people
collectively because we own the gold reserve. The 262
million ounces of gold at Fort Knox and the other U.S.
depositories are not an asset of the federal
government, which explains why Treasury Department
Inspector General Jeffrey Rush in his letter calls the
gold reserve a "custodial" asset. The federal
government is acting as custodian on behalf of the
American people. Thus, because there is nothing in
Thomas's letter to the contrary, one could still assume
that the Treasury may be lending out this gold owned by
the American people.

Second, note that Thomas' letter mentions the lending
of gold and silver only in a non-specific way. It does
not specifically mention the U.S. gold reserves. Thus
her letter may be technically correct because the
Treasury Department presumably does not lend any gold
or silver that it may own, such as the working
inventory at the U.S. Mint. But this working inventory
of the U.S. Mint is inconsequential compared to the
gold reserves, which, as explained above, are not
addressed in Thomas' letter.

Third, note that the ESF is labeled as a government
agency. That to me is news and somewhat surprising. Can
a "fund" actually be an "agency"? The implication from
the use of the word "agency" is that the ESF is
something that exists outside the Treasury Department.

The ESF is actually under the control of the treasury
secretary, but from the above statement it would appear
that when the treasury secretary directs the ESF, he is
doing so in a capacity different from the authority
given to him as treasury secretary. Thus, he is wearing
two hats -- as treasury secretary and head of the ESF.

Fourth, why didn't Secretary Summers write this letter?
Was it because that he knew something as head of the
ESF that Thomas in her capacity in the Treasury
Department does not know?

Fifth, note that Thomas states that the treasury
doesn't intervene on behalf of the ESF. However, she
says nothing about whether the ESF intervenes on behalf
of the treasury, which is the more realistic
alternative. This point is important.

The treasury does not have the manpower and other
resources needed to intervene in the markets.
Consequently, when some action is taken (for example,
the Treasury decides to intervene to manipulate the
dollar's exchange rate), the treasury instructs the
Federal Reserve to carry out the intervention on the
treasury's behalf. Thus, it would appear that Peter
Fisher of the Federal Reserve Bank of New York has
three roles in his responsibilities as the federal
government's chief market intervener. When he
intervenes in the markets, he can act for the Federal
Reserve, the Treasury Department, or the ESF.

Finally, Thomas states: "I would like to underline that
the Treasury Department does not seek to manipulate the
price of gold, silver, or other precious metals by
intervening in or otherwise interfering with the
market." Perhaps, but would Treasury Secretary Summers
be willing to make this statement about the ESF?

In conclusion, despite the appearances, there is no
blanket denial in Acting Assistant Secretary Thomas'
letter. Consequently, I remain open-minded about
whether the federal government in some capacity, but
probably through the ESF, is intervening in the gold
market using U.S. gold reserves.

To me the best way to answer the question about whether
the federal government is intervening in the gold
market is to engage an independent accounting firm to
undertake a proper audit of the gold reserve at Fort
Knox and the other depositories. This audit needs to
include, among other safeguards, a full count of all
the bars in storage to ensure that this result tallies
with the books and records. It also should include the
assaying of a prudent number of bars selected at random
to ensure that they contain the weight of fine gold
they are said to contain.

A proper audit of the gold reserve will tell us what we
will never learn from these disingenuous letters from
the Treasury Department, which apparently are designed
more to deceive than clear the air.

James Turk

* * *

Anna J. Schwartz is a research associates at the
National Bureau of Economic Research and on August 26,
1998, published a paper titled, "Time to Terminate the
ESF and the IMF." The following are excerpts from that

"The ESF was conceived to operate in secrecy 'under the
exclusive control of the secretary of the treasury,
with the approval of the president, whose decisions
shall be final and not subject to review by another
officer of the United States.' The 1934 act authorized
the ESF to deal in gold and foreign exchange in order
to stabilize the exchange value of the dollar. The
secrecy arrangement was intended to cloak foreign
exchange market intervention.

"The law promoted two objectives. The first objective
was to conceal from the public and Congress the
exchange rates at which foreign currencies were bought
and sold, particularly if they involved losses. A
second objective was to permit the treasury, if it so
desired, to conceal information about any other
operations the ESF might undertake....

"Despite its record, the ESF's secrecy has enabled it
to survive and expand. The act creating the ESF
excluded it from the congressional appropriations
process once its initial capitalization was in place.
The ESF was intended to be self-financing and was not
required to seek annual congressional funding for its
operations. The self-financing arrangement contributed
to the secrecy of ESF actions, because the fund did not
have to justify its expenditures during annual appeals
to Congress for appropriations. Modifications have been
made regarding the secrecy in which the ESF was
designed to operate, but no change has occurred in the
status of the secretary of the treasury's decisions as
final and not subject to review....

"No challenge to the constitutionality of the ESF seems
possible, since ordinary citizens have no standing. The
ESF, designed originally as a creature of the executive
branch and immune from legislative oversight, breaches
the separation of powers...."

* * *

My Take on All This

By Bill Murphy
Chairman, Gold Anti-Trust Action Committee

Staff members of Sen. Joseph I. Lieberman of
Connecticut told Chris Powell, GATA
treasurer/secretary, that the Treasury Department had
been deluged requests by U.S. representatives and
senators for answers to the questions directed to
Federal Reserve Chairman Alan Greenspan and Treasury
Secretary Lawrence Summers in GATA's open letter in
Roll Call on December 9, 1999.

These two letters cited above prove this report to have
been correct and give us some idea of how widespread
the GATA campaign is, thanks to the effort so many of
you are making and how many members of Congress are
really being alerted that something is very wrong in
the gold market.

GATA is out to find out the truth about why and how the
gold price is not allowed to rise. That is all we are
after. I agree with James Turk that the answers to our
questions to Greenspan and and Summers are inconclusive
so far and so will require more probing.

There is a great deal at stake here. Last year the U.S.
Treasury Department was urging that the International
Monetary Fund sell gold to provide debt relief for poor
nations. But 36 of 41 poor nations requested that the
IMF NOT sell gold because the low gold price was
devastating their mineral-producing economies. The
Black Caucus of Congress was against the IMF gold
sales, supporting the black populations in gold-
producing countries.

So how does the Treasury Department deny that it has
been active in holding down the price of gold? The
hypocrisy that would be revealed would result in cries
of outrage around the world and could hurt Vice
President Albert Gore's chance for election as

Perhaps the Fed and the Treasury are not involved in
the gold market in any way. Should we accept the
Treasury responses and Alan Greenspan's response along
with the "no" answers to all our questions? Maybe.

But where we would be today if 1) People had just said
"OK" when President Nixon said, "I am not a crook"; 2)
if people just had accepted Hillary Clinton's claim
that accusations against her husband were just
contrived by a vast right-wing conspiracy; and 3) if
everyone had gone away when President Clinton wagged
his finger at the cameras and denied having sex with
Monica Lewinsky?

There are so many factors to consider. The Clinton
administration has no credibility. Alan Greenspan is
famous for his "Greenspeak," speaking so vaguely that
many different interpretations can be drawn. Why should
his comments on the gold market be any different?
Former Fed Governor Alan Binder was quoted in The Wall
Street Journal as saying that the last role of a
central bank is to tell the truth to the public.

Did we not get into the Vietnam War over an incident
reported by the U.S. government that never happened?
What if that had been questioned immediately? How may
lives might have been saved?

Yes, maybe the Treasury is not acting with certain
bullion banks to hold down the price of gold. But they
are not going to get off the hook this easily.

Why did it take so long for the Treasury to begin to
respond? Greenspan responded to Senator Lieberman
fairly quickly.

I had a long conversation with Frank Veneroso of
Veneroso Associates today. Frank knows the gold market
better than anyone in the world, especially the supply
and demand numbers.

He told me the following:

"It makes no sense whatsover that the gold price rally
of early February has been completely rolled back."

These are his reasons:

1. Incomes in the Far and Middle East, where gold use
is very high, are soaring. Gold demand in those regions
must also be strongly on the rise.

2. Incomes and consumption are generally strong around
the world.

3. Exchange rates in Asia, where gold use is high, have
appreciated. Because gold demand is price-elastic, this
should be helping demand.

4. Since there is little financial distress in the
world, there is no distress dumping of scrap gold, such
as what plagued the gold market in 1998 when Korea
alone dumped 250 tonnes and gold traded at the same
price it is now.

5. Some major producers, such as Anglogold and Placer
Dome, are not rolling over their forward sales; they
are delivering into them, reducing supply hitting the

6. Mine supply is flat.

7. The hedge funds are more likely to go long now
because of themes of global growth while even the black
box traders are not going short as they always used to,
when they would pile up numbers like 70,000 short
positions. That means all the selling that hit the gold
market in past years is not showing up as it did, yet
the gold price cannot rally.

8. Bullion banks are cutting back staff, suggesting a
cutback in prior large outright positions.

All this is in addition to the very important fact that
the European central banks have limited their leasing
and selling of gold to 400 tonnes per year. That
includes the Dutch, the Swiss, and the British.
Veneroso's supply/demand numbers tell us that the
deficit of supply over demand may be as high as 2,000
tonnes this year.

It does not take an Einstein to understand the
something is very wrong here. The Gold Anti-Trust
Action Committee will not stop until we find out what
it is.