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New African Magazine - Arm-Twisting Africa
...Startling revelations at the GATA African Gold Summit in Durban. Story by Adam Hamilton.
Go on, ask the question: (from left) Ghana's JJ. Kufuor and South Africa's Thabo Mbeki whose economies have suffered greatly from the rigging of the gold market, are yet to publicly demand a stop to it
While the gold price appears to be calm and placid on the surface, powerful forces war behind the scenes to shape it. The stakes are stupendously high, as the state of the gold market and the price of gold do not exist in a vacuum. Virtually every important capital market in the world, from the mammoth currency foreign exchange markets to the critical international bond markets, is affected directly or indirectly by the price of gold.
After years of study, the gold-watchers who spoke at the GATA African Gold Summit in Durban (on 10 May this year) showed how the world gold market was being actively suppressed by a few governments and elite private banks for selfish reasons.
The global physical gold market is based in London, while the paper gold derivatives market revolves around New York and London.
Bill Murphy is a founder and the chairman of the Gold Anti-Trust Action Committee (DATA). He has extensive global gold contacts, and runs one of the best gold intelligence gathering networks in the world.
His eye-opening speech in Durban is printed verbatim on p34 of this issue.
Murphy led the GATA delegation that met with the Speaker of the US House of Representatives, J. Dennis Hastert, on 10 May 2000. The delegation told the Speaker that it had uncovered a "gold cancer" - that the market was being manipulated to the detriment of the American public.
After President George W. Bush won the election last November, GATA presented its findings to Bush's new administration. Since then, two letters to GATA from President Bush's senior economic advisor, Lawrence Lindsey, are testimony that the Bush team is very aware of the gold story.
Frank Veneroso also spoke in Durban. He has been studying the global financial markets for decades and his reputation for gold market analysis is unparalleled.
He has consulted for governments and mega-- financial entities around the world, and his services are always in demand. He runs a renowned global consultancy, Veneroso Associates.
As everyone knows, prices in free markets are determined by supply and demand. If supply exceeds demand, prices fall. And if demand exceeds supply, prices rise. This simple law is literally the foundation for free markets and economics.
Veneroso began his presentation in Durban by outlining consensus estimates of global gold supply and demand. This pointed to global annual gold demand exceeding global annual mined gold supply by 1,500 tonnes, or 60%, each year.
He quoted his own firm's conservative estimates, which put the annual deficit at much more dangerous levels, over 2,200 tonnes, around 90%.
Sales and loans of gold from Western central banks make up the bulk of the annual gold shortfall. If these sales are interrupted for any reason, or if the gold market finds out that the banks are running out of gold to dump, the gold price rises sharply as the artificial marginal supply from central banks dwindles.
Veneroso examined the total gold loan (gold short) position, which he and others believe is 100 to 200% greater than the 5,000-tonne conventional consensus estimate.
He gave reasons why the official gold data provided by certain London-based finance houses were incorrect. He said while there was approximately only six years of central bank gold stocks remaining, the conventional thinking has continually led the markets to believe that there were decades and decades of gold reserves left that central banks would sell into the market.
Reginald Howe, a man who needs no introduction in the gold world, also spoke in Durban. On 7 December last year, Howe launched his legal action against the Bank for International Settlements (BIS) based in Switzerland; the chairman of the US Federal Reserve Bank, Alan Greenspan and others.
The Howe v BIS et al case is tremendously important. Basically, Howe contends that the defendants have knowingly violated sections of American law, including the American Constitution, the Sherman Anti- Trust Act, and the Securities Exchange Act of 1934.
In the court papers, Howe carefully laid out his arguments and the legal foundations on which his claims rest. One of which, (obtained during the discovery stage of the case), is the revelation in the official minutes of the US Federal Reserve Bank that the secretive fund of the US Treasury, called the Exchange Stabilization Fund (ESA, had been used to intervene in the gold market to the detriment of gold producers, especially in Africa.
The ESF, created in 1934 by the Franklin Roosevelt administration and funded with the proceeds of private gold, is not accountable to the US Congress. The Secretary of the Treasury has direct control over the ESF and he reports exclusively to the President of the United States. The ESF has, for many decades, been used for covert interventions in various world markets, usually Forex currencies.
Howe discovered that in early 1995, major American banks were facing large losses on loans they had made to Mexico. The Clinton Administration decided to bail out the banks, but it ran up against a brick wall when it tried to talk the Congress into using taxpayers' money for the bail-out. Congress correctly refused, realising that the only way capitalism could work was if traders, both big and small, fully bore the risk of their positions themselves.
With Congress saying "no", Clinton's cronies came up with the idea of using the ESF to bail out their banker friends since the ESF was not accountable to Congress and operated outside of normal oversight authority.
In the minutes of the Federal Reserve meetings from 31 January 1995, there is a discussion exploring the legality of the ESF option. The Federal Reserve board governor, Lawrence Lindsey, is uncomfortable with circumventing Congressional will with the ESF. In order to allay his fears, the Federal Reserve's general counsel, Virgil Mattingly, replies and tells him about the broad authority of the ESF statute.
"The statute," Mattingly is quoted by the minutes as saying, "is very broadly worded in terms of words like 'credit' - it has covered things like the gold swaps - and it confers broad authority." Apparently everyone in the room understands Mattingly's "gold swaps" example as no one asks questions.
This is an inflammatory revelation because the US Treasury has officially denied that the ESF has been involved in gold or gold derivatives since 1978. Every communication from the US Treasury on the subject explicitly and forcefully states that the ESF is not involved in the gold market. In a 22 March 2001 letter to GATA, the acting US treasury general counsel, Stephen J. McMale, categorically stated that the ESF has not held gold since 1978, yet the minutes of 1995 shows Mattingly talking about ESF "gold swaps".
On 25 June this year, Mattingly wrote a memo to Alan Greenspan saying the 1995 minutes in question were "transcribed inaccurately or otherwise became garbled". Greenspan sent that memo on to the Kentucky senator, Jim Banning.
But GATA strongly believes that the ESF has been used to actively sell gold into the market to stamp out fledgling gold price rallies in the last six years. DATA supports its point by quoting from Greenspan's July 1998 testimony before the Congress' Banking Committee:
"Nor can private counterparties restrict supplies of gold, another commodity whose derivatives are often traded over the counter, where central banks stand ready to lease gold in increasing quantities should the price rise," Greenspan told the Committee.
This, GATA says, "amounts to a declaration that the gold price had been, and would continue, to be controlled".
GATA goes on to ask: "How did Chairman Greenspan know that this is exactly what would happen over the ensuing 39 months?"
Michael Bolser was another of the speakers in Durban. He is an outstanding gold market analyst with extensive global contacts. He is also on Reg Howe's Discovery Committee in the BIS et al case, and as a result, he has been looking through official US Treasury records on US gold inventory levels.
He has since discovered that in September last year, one of the primary US physical gold reserve storage points, the US Mint in West Point, New York, mysteriously switched the status of 1,700 tonnes of gold (over 20% of the entire US gold reserves) from "Gold Bullion Reserve" to "Custodial Gold Bullion".
"As everyone knows", Bolser said in Durban, "to be a 'custodian' over something means that you don't own it, but are maintaining it for its true owner."
Even more ominous, Bolser said, there was no change in the "Gold Bullion Reserve" status at all the other US mints. Something odd was obviously up, so he wrote to the US Treasury to seek clarification on the status change of the 1,700 tonnes of gold. He has received no reply.
James Turk also spoke in Durban. He, too, is a world-renowned financial market expert who has consulted for governments and private clients around the world.
Having lived in several countries, he has studied the gold markets in far corners of the globe firsthand. He is also a member of Reg Howe's Discovery Committee reviewing documentation obtained from \the Howe v. BIS et al case.
Turk has recently written some amazing mustread essays on gold detailing his original research and other analysts' findings.
He wrote "The Smoking Gun" on 11 December last year, an outstanding piece detailing the ESF involvement in the gold market by analysing discrepancies in official US Treasury and Federal Reserve reports on US gold holdings.
In April this year, Turk published yet another essay, "Behind Closed Doors", in which he further analysed the ESF involvement in the suppression of the gold market.
He built on Micheal Bolser's research (see above) and added his own explorations of Federal Reserve records to conclude that the ESF had covertly encumbered over 20% of America's public gold bullion.
"This is far beyond scandalous as any changes in US gold reserves require Congressional approval, which has definitely not been granted."
Turk drilled down even further and found that the "gold swap" of 1,700 tonnes (discovered by Bolser) had been executed with the German central bank, the Bundesbank.
This had enabled the ESF to stealthily dump physical gold into the crucial European physical gold market directly from Germany without transporting the gold physically from the US, which would have caused alarm bells to ring in political, economic and financial circles.
Turk said the Bundesbank now owns 1,700 tonnes of formerly US gold on US soil, and that the Bundesbank's gold vaults themselves are at least half empty and may even be completely gutted.
African governments and African gold producers who attended the Durban gold conference, learned at firsthand what the gold forces had done to destroy the industry and, by extension, the economies of the African countries that depend on gold - especially Ghana and South Africa.
It was expected that the African governments and the gold producers would publicly and forcefully question the US and British governments about their gold trading activities. But nothing of the sort has happened, at least not publicly, since the conference ended on 10 May.
Fine gold: not so fine trading
Copyright International Communications Dec 2001