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Gold market manipulation update: The battle may be going gold's way
Illustrations for this presentation are posted here:
https://gata.org/sites/default/files/Powell_NOLA%20OctNov%202023%20v5%20%282%29.pdf
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ILLUSTRATION 1
Gold Market Manipulation Update
Remarks by Chris Powell, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
New Orleans Investment Conference
Hilton Riverside Hotel, New Orleans
Wednesday, November 1, 2023
Twenty-two years ago the Swiss banker and economist Ferdinand Lips published what may have been the first great truth-telling book about the modern financial system's relationship with gold. He titled it "Gold Wars – The Battle Against Sound Money as Seen from a Swiss Perspective":
ILLUSTRATION 2
Fourteen years ago Jim Rickards, who will be speaking here Friday afternoon, perfectly summarized Lips' premise as he slipped a profoundly subversive comment past the censors on CNBC. "When you own gold," Rickards said, "you're fighting every central bank in the world":
https://www.gata.org/node/7835
Though you would hardly know it from following mainstream financial news organizations, that battle has continued furiously since we met here a year ago. But it seems that it's starting to go in gold's favor.
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Central bank intervention against gold and intervention against gold by the agents of central banks, the big investment banks that trade heavily in the monetary metals -- "bullion banks" -- long has been documented and publicized by the Gold Anti-Trust Action Committee. Especially telling lately has been GATA's deciphering of the monthly reports of the financial position of the Bank for International Settlements, the central bank of all the major central banks and their gold broker. The BIS provides crucial camouflage for central bank interventions that hold gold down.
As far as we can determine, only one person in the world outside central banking -- GATA's consultant Robert Lambourne -- reviews the BIS monthly reports and does the calculations necessary to discover what is happening. The interventions, accomplished in large part through gold swaps and leases, are not stated plainly in the BIS monthly reports, though they easily could be. The interventions are stated plainly, if obscurely, only in the bank's annual report. But recent BIS annual reports have confirmed the stunning accuracy of Lambourne's monthly calculations.
Gold swaps conducted via the BIS involve exchanges of gold among central banks and bullion banks. These swaps move custody of gold around without necessarily moving any gold itself. In effect gold swaps, along with gold leases, often allow central banks and bullion banks to apply gold to markets where, in the view of the central bank members of the BIS, the gold price most urgently needs to be discouraged or controlled.
Over the years GATA has collected many admissions from central bankers that they act surreptitiously to control the gold price. These admissions are compiled at GATA's internet site:
For example, at a BIS conference in June 2005 the director of the bank's monetary and economic department, William R. White, was candid about it, apparently because he thought no one outside central banking would be paying attention. White said that a major purpose of cooperation among central banks is "the provision of international credits and joint efforts to influence asset prices (especially gold and foreign exchange) in circumstances where this might be thought useful":
https://www.gata.org/node/4279
ILLUSTRATION 3
Two years later at a conference at BIS headquarters to recruit more central bank members, the BIS actually advertised, via a PowerPoint presentation, that its services include surreptitious interventions in the gold market:
https://www.gata.org/node/11012
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So let's look closely at the BIS gold swaps over the last three years as calculated by Bob Lambourne.
ILLUSTRATION 4
The chart shows the swaps starting at a high level, 519 tonnes, in October 2020, and then declining fairly gradually and then quickly all the way to zero in December 2022, whereupon they began rising again -- to 129 tonnes as of this August, falling to 96 tonnes in September according to the report published this week.
The BIS operates in markets only for itself and its central bank members, so all these swaps on the books of the BIS involve central bank trading. What is the purpose of these swaps? For whom are they executed? The BIS has been asked by GATA and has refused to say:
https://www.gata.org/node/17793
This refusal shows that whatever the purpose of the swaps is, it includes deception.
Perhaps more distressing about the BIS' refusal to explain what it is doing in the gold market every month and for whom is the refusal of mainstream financial news organizations and especially gold market analysts to report the BIS' trading, ask about it, and report the refusal to answer, though this trading almost surely determines the price of gold more than things that are reported, like jewelry demand in India.
But we may fairly suspect that the reduction in BIS gold swaps over the last several years has been connected with the need of bullion banks to comply with the new gold banking regulations that the BIS has been pressing on the world, the so-called Basel III regulations. Under these regulations gold derivatives that are issued by a bank but not fully backed by physical gold are to be charged against the bank's balance sheet. The new regulations powerfully discourage bullion banks from selling claims to gold that they don't actually hold -- that is, the new regulations discourage bullion banks from selling "paper gold," gold credits, essentially imaginary gold that has greatly facilitated gold price suppression.
By pushing bullion banks out of the "paper gold" business, the BIS' "Basel III" regulations may force central banks that still are intervening against gold to put more of their own physical gold reserves at risk for gold price suppression, something they might prefer not to do.
Returning to the BIS gold swap chart: Why did swaps start rising again in January, jumping from zero in December to 103 tonnes a month later?
We can guess that some central bank was getting more alarmed about rising gold prices, even as other central banks were announcing acquisition of more gold for their reserves.
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Last October another central banker who seems to have thought that only other central bankers and bullion bankers were listening confirmed that central banks are deeply involved in the gold market for purposes quite separate from increasing their gold reserves.
ILLUSTRATION 5
This confirmation came from Peter Zollner, head of the BIS' Banking Department, in a presentation he made to the Global Precious Metals Conference of the London Bullion Market Association held in Lisbon, Portugal:
Zollner said: "Gold should not be seen just as a dormant asset in a vault for the rainy days. Gold is an asset that offers opportunities in the financial markets. It can be used to create liquidity via gold/currency swaps or as collateral, often more cheaply than using other assets. Sometimes using options or placing deposits to enhance the return can be an appropriate strategy."
That is, for central banks intervention in the gold market is indeed sometimes a matter of "strategy."
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Of course the last year has brought more documentation of subsidiary manipulation of the gold and silver markets by traders for bullion banks that act as gold and silver brokers for central banks.
ILLUSTRATION 6
In March two former Wall Street traders, one of them formerly employed by Deutsche Bank and Bank of America, the other formerly employed by Bank of America and Morgan Stanley, were sentenced in federal court in Chicago to a year and a day in prison for a multi-year fraud scheme to manipulate the price of gold and silver futures contracts. They did this with the rapid placing and withdrawal of orders that were not meant to be filled, the infamous practice called "spoofing":
ILLUSTRATION 7
In August the former head of JPMorgan Chase & Co.'s monetary metals desk and his leading trader were also given prison terms in federal court for manipulating the monetary metals futures markets with "spoofing."
Remarkably, one of the convicted Morgan traders, Michael Nowak, the head of the bank's monetary metals desk, was simultaneously a member of the Board of Directors of the London Bullion Market Association. Nowak long was at the very center of the central bank and bullion bank business. Maybe that's where he learned how easy it was to manipulate the gold and silver markets, especially when central banks consider such manipulation to be God's work:
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But over the last year some governments and central banks have been expressing resentment of the U.S. dollar's domination of the world financial system, and they have been openly contemplating ways of getting around the dollar in international trade. Much of the world has taken note of the financial sanctions imposed by the United States on countries that don't cooperate with U.S. foreign policy. The U.S. seizure of Russian assets was a loud wake-up call.
ILLUSTRATION 8
In July the Financial Times reported:
"A growing number of countries are bringing their physical gold reserves back home to avoid Russian-style sanctions on their foreign assets, while increasing their purchases of the precious metal as a hedge against high levels of inflation."
The Financial Times continued: "Central banks globally made record purchases of gold in 2022 and into the first quarter of this year, as they hunted for safe havens from high inflation and volatile bond prices, according to a survey of sovereign investors by asset manager Invesco":
https://www.gata.org/node/22710
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Two weeks ago Reuters reported that many researchers advising the government of China have concluded that to avoid the U.S. sanctions that would follow an attack by China on Taiwan, China's financial system must rely more on gold and start issuing gold-denominated bonds:
https://www.gata.org/node/22870
ILLUSTRATION 10
The New York-based research group The China Project reported in June that China's currency reserves are far larger than officially reported – that China has the equivalent of trillions of dollars that don't show up on the financial ledgers, instead being hidden in government-controlled banks:
https://www.gata.org/node/22697
That is a lot of wealth to protect against sanctions, and of course China is now the largest producer of gold and its experts in finance long have considered gold as the primary escape from domination by the dollar.
It would be foolish to think that China fully reports its gold reserves.
ILLUSTRATION 11
This year the BRICS group of nations, which includes China, sparked much speculation that they might eventually create a gold-based currency for international trade. Nothing seems to have come from that idea yet, but it has emphasized what the Chinese researchers have concluded: that the only credible alternative to the dollar as a world reserve and trading currency is gold, the former world reserve currency:
https://foreignpolicy.com/2023/04/24/brics-currency-end-dollar-dominance-united-states-russia-china/
ILLUSTRATION 12
But this year gold did return as a trading currency, notably in Ghana, which is now Africa's foremost gold producer and in January began paying in gold for some of its oil imports:
https://www.gata.org/node/22392
While this growing worldwide interest in gold as a trading and reserve currency is intriguing, and while gold is almost certainly the only escape from the dollar, it should be remembered that gold's great virtue as a form of money remains the restraint it imposes on government's money creation. Eventually countries looking to escape the dominance of the dollar and subservience to U.S. foreign policy will have to consider whether they want to trade one master for another:
https://www.gata.org/node/22724
Do those countries have the civic virtue to accept restraint in their money supply now that people living under big government increasingly believe that everything desirable should be free? That will be the day.
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ILLUSTRATION 13
I'd like to conclude by reflecting on GATA's 25 years of documenting, exposing, and complaining about gold price suppression by Western central banks.
As shown by the Ferdinand Lips book I cited a few minutes ago, GATA's perceptions at the outset were not unique. The gold war had been waged for years before GATA came upon it, but it was not widely recognized -- certainly not recognized at all in financial journalism or in polite company generally -- nor were many of its manifestations and actors yet identified.
We surely have not discovered and exposed all of them, but we have exposed far more than enough of them to establish that gold price suppression is no mere "conspiracy theory" but is longstanding government policy. The people who years ago scorned us as "conspiracy theorists" leave us alone now. The last thing they want to do is discuss the documentation, piece by piece -- documentation that establishes conspiracy fact. They consider the documentation to be unhelpful to their business promoting the shares of monetary metals mining companies. Investors may be discouraged if they understand that governments are often very much opposed to any fair valuation of what monetary metals mining companies produce.
In contrast, GATA has long figured that our work reveals the enormous opportunity in monetary metals mining, opportunity inherent in the massive and unfulfillable naked short position that has been run in the metals by central banks and their bullion bank agents. We have figured that exposing the naked short position would hasten its destruction.
We figured that once monetary metals price suppression was better documented and exposed, mining companies and financial news organizations would raise hell about it. As someone who had been in the news business for 30 years before GATA was founded in 1998, I especially believed that exposing dishonesty and unfairness in government and markets was a basic objective of journalism.
Boy, were we wrong! How naive we were!
With a very few heroic exceptions, mining companies have been too scared of and dependent on their governments and bankers to criticize them.
With even fewer exceptions, financial news organizations and analysts have been just as determined not to make any trouble for their governments and the biggest banks, which are often their advertisers.
So now gold price suppression is pretty much an open secret. But while nearly everyone connected with the industry knows about it, no one can talk about it, not even to dispute it, since disputing it would just bring more attention to it.
Until mining companies, news organizations, and market analysts can deal with the issue honestly, retail investors can't be expected to do much to bust the naked short position.
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Ironically, the salvation for gold and free markets generally almost certainly rests with governments and central banks that have become aware of how far gold price suppression has gone and are discontinuing their cooperation with it or even working against it because they now consider it against their national interest. All major central banks are members of the Bank for International Settlements, and they all now surely know something about the gold price suppression that has been masterminded and executed there.
Indeed, the major central banks, even the U.S. Federal Reserve, may be working together through the BIS to ease a transition from the dollar back to gold. They may be planning to raise the gold price dramatically to reliquefy governments that have huge unpayable indebtedness but also substantial gold reserves.
Over the years GATA has managed to achieve serious consultations with five major central banks or governments. I am confident that almost 20 years ago GATA sparked much of the interest that has been taken in gold by Russia and China. In 2004 the deputy chairman of the Russia central bank cited GATA by name in a speech to the London Bullion Market Association meeting in Moscow. "Gold Anti-Trust Action Committee" were the only words he spoke in English:
https://www.gata.org/node/4235
Since then the government-controlled press in China has been full of material about Western gold price suppression policy and the opportunity for China to use gold to escape the dollar system:
http://www.gata.org/node/10380
http://www.gata.org/node/10416
https://www.gata.org/node/13446
Of course Americans, like people everywhere, also can use gold to avoid oppression by their own government. In our view gold is less valuable as a medium of exchange than as a protector of individual liberty.
That observation isn't unique to GATA either. It is almost as old as gold itself.
But it will be ironic all the same if some central banks are used to bust the oppression committed by other central banks. If that happens, we amateurs will have done what we could do to help.
Thanks much for your kind attention.
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Toast to a free gold market
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