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Published on Gold Anti-Trust Action Committee (http://gata.org)

World Gold Council double-Crosses its own industry

By cpowell
Created 2000-09-09 07:00

10:15p EDT Thursday, September 7, 2000

Dear Friend of GATA and Gold:

The World Gold Council and Gold Fields Mineral Service
got their say today in the Frankfurter Allgemeine,
Germany's leading newspaper, as it published its third
article about GATA in two weeks.

Translations were quickly and most generously supplied by
Reinhard Deutsch and Joerg Schroeder, members of
www.LeMetropoleCafe.com [1], and a hybrid of them is below.

A few observations on the story....

* The World Gold Council is distinctly unenthusiastic
about its product. Indeed, the best explanation I can
think of for the council's hostility to GATA is that
the council is representing companies that are SHORT
gold, not companies that are producing it and believe
in its crucial monetary function. So mining company
shareholders may want to review the stance of the
gold council and ask company management what it hopes
to get from membership in the council, to which members
pay tribute with each ounce of gold mined. If the
council indeed has lost faith in gold, GATA hasn't,
and we pledge to use any contributions WE get
to FIGHT for the gold cause, not to disparage it and
give comfort to those who are selling gold short.

* While this story in the Frankfurter Allgemeine,
unlike the previous two, contained criticism of
GATA, it still spelled our name right and told
part of our story, so we're grateful. Any news
organization is welcome to hit us again this way
any time -- often would be best. For our friends
will know us and people increasingly will take a
look at what we have to say.

* GATA Chairman Bill Murphy has invited the gold
council and its market analyst to a debate about
the gold loans. Let's see if they have the courage
of their convictions -- that is, the courage to
accept.

* All this comes at a time when energy prices are
soaring and the prices of ordinary things -- real
estate, rents, medicine, food -- are rising
noticeably. The more this happens amid the
suppression of the gold price, the more people
will realize that something is terribly wrong in
the gold market, and GATA's explanation will have
been set before them. Indeed, this is just what
has been happening since GATA was founded in
January 1999. Many people who follow the gold
market didn't agree with us then but agree with us
now. Time is on our side.

Anyway, it's clear now not only that the financial
world is finding it impossible to ignore GATA and
the strange situation in the gold market, but also
that GATA is the only organization representing
gold mining company shareholders and the gold cause
generally.

The latest Frankfurter Allgemeine story follows.

Please post this as seems useful.

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

* * *

From the Frankfurter Allgemeine
Thursday, September 7, 2000

The Theory of a Conspiracy in the Gold Market
is Misleading and Wrong

World Gold Council and GFMS:
Arguments are not valid;
misleading information of GATA criticized.

LONDON, Sept. 6 -- The Gold Anti-Trust Action
Committee's conspiracy theory of the gold market is
rebutted by the World Gold Council and Gold Fields
Mineral Services (GFMS). Market analysis by gold expert
Jessica Cross for the council shows no hints of a
conspiracy by market participants or market
machinations, says the WGC. The WGC is an association
of interests of gold-producing companies.

GATA was founded in January 1999 as a Delaware
corporation. Its objective is to fight presumed illegal
manipulations of the financial markets, especially the
gold market. GATA says it came into existence when Bill
Murphy, an American financial commentator wrote reports
on the gold market along these lines and they were
distributed in cooperation with Chris Powell, a
newspaper editor from Connecticut. GATA tries to raise
money for its objectives and to recruit lawyers for
legal action.

GFMS is an independent consulting company for the
precious metals market.

If anybody feels he has proof of a conspiracy in the
gold market, he should start legal action immediately,
Cross says about GATA's accusations. But it is known in
the market that GATA, up to now, could not find a well-
known lawyer in America who takes its accusations
seriously. GFMS also thinks that GATA is stirring up
trouble in the gold market with misleading information
and that the assertion of a gold market conspiracy is
untenable and simply wrong.

The World Gold Council and GFMS each reported numbers
about the volume of gold leasing and short selling in
the market, which are in clear contrast to of GATA's
estimates. GATA believes that gold leasing by the
official sector -- central banks and other official
parties -- was 9,000 to 10,000 tonnes by the end of
1999. But data of WGC and GFMS show that official
sector gold leasing was 4,750 tonnes.

GATA insists that the huge volume of gold leasing,
based on its assumptions, poses a systemic risk for the
gold market, because in the long run there will be
supply problems and shocks in the market. GATA also
believes that some market participants are keeping the
gold price below $290 to $300 per ounce, and that the
banks are supported in this effort by central banks and
even the Federal Reserve.

If there was no conspiracy, the gold price would be
much higher, GATA says. GATA tries to support its
theory by pointing to the large gold leasing of central
banks and the massive rise in derivative contracts of
the bullion banks, warning that these actions are a
risk to the market. With its conspiracy theory, GATA
accuses several large German and American banks and
central banks and institutions like the International
Monetary Fund.

"If we wanted to organize a conspiracy, we would do it
with fewer institutions" was the reaction of a banker
who rejected GATA's theory.

One suspicion of the industry is that behind GATA and
its chairman Bill Murphy there is a group of investors
hoping for rising gold prices with long positions in
gold and contracts for future delivery, which now are
on the wrong side because of the low price of gold. The
market could take the whole thing as ridiculous if GATA
was not accusing important participants in the gold
market. "We appreciate a serious discussion of the gold
market but not polemics," they say to Murphy, who says
there has been a good reception by members of the
American Congress to GATA's conspiracy report, "Gold
Derivative Banking Crisis." These representatives later
insisted, however, on having only been polite to
Murphy.

GATA is reproached for several misleading
interpretations and inconsequential assertions. For
instance, GATA says the gold leasing of banks is used
by the conspirators for massive short selling. Even so,
gold leasing stood at 4,750 tonnes by the end of 1999,
with speculative short selling of the market standing
at less than 400 tonnes, according to the World Gold
Council -- which is peanuts for the market. GFMS gives
similar numbers.

As proof for its theory, GATA points to, among other
things, the statistics of the U.S. Comptroller of the
Currency and the Bank for International Settlements --
the off-balance-sheet gold derivative positions of
large banks. According to experts, however, GATA's
mistake is to conclude that the strong rise in off-
balance-sheet positions means that banks are more
engaged in the market and have higher open positions.
This is wrong, they say. Although a higher volatility
leads to a higher activity of banks in the derivative
market, it shows up in higher off-balance-sheet
transactions of banks. But this does not mean banks
increased their open positions in the market. If, for
instance, a bank buys a tonne of gold from a mining
company for later delivery and hedges this acquisition
by selling a tonne of leased gold for later delivery,
this statistically represents a transaction of two
tonnes (sale and acquisition), even as the open risk of
the bank is zero.

To strengthen its conspiracy theory, GATA cites the
audit of the British National Audit Office of the gold
sales by the British Treasury. However, this is a
routine audit that the NAO has to undertake with all
large financial transactions of the government. Also
GATA is accused of very often not giving the motives of
the supposed conspirators. For instance, market
participants ask, why should the American central bank
be part of a conspiracy to lower the gold price? That
banks profit from cheap financing possibilities via
central bank leasing, and therefore the gold price has
to be kept low, is also considered as misleading.

It seems that to support the conspiracy theory of GATA,
statistical data are intentionally misinterpreted.
There are many good reasons that give sufficient
explanation of the low gold price, with the strong
dollar being first. The greater the value of the
dollar, the lower the price of gold. In addition,
financial markets are in a period of extremely low
inflation and strong climbing share prices. So there is
no need for investors to invest in gold to fight
inflation, as in former times. Demand for gold as an
investment has, therefore, strongly decreased. At the
same time, many central banks are getting rid of their
big unprofitable gold reserves. In the long run, nobody
is counting on a dramatic recovery of the gold price.


Source URL:
http://gata.org/node/878