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Proof of Fed's gold-market intervention?

Section: GATA in the Press

Analyst claims central bank's meeting minutes belie denials

By Jon Dougherty
© 2001

A gold market analyst who has long suggested the federal government was involved in manipulating the price of gold says he discovered proof of his allegations in six-year-old Federal Reserve Board meeting minutes.

The charges, first made by the Gold Anti-Trust Action Committee in 1999, are allegedly borne out in Federal Reserve Board meeting minutes dated Jan. 31, 1995, which were discovered by GATA analyst Reginald Howe, who has filed a lawsuit against the Fed, the U.S. Department of the Treasury, the Bank for International Settlements and "various investment houses."

The suit alleges that the Treasury Department's Exchange Stabilization Fund (ESF) has been, as GATA long has alleged and as the Treasury Department has denied, surreptitiously intervening in the gold market by lending gold, Howe wrote in a statement.

"The Treasury Department's denials of involvement in the gold market have been made in the last two years not only to GATA but also to members of Congress and in response to inquiries from the public," Howe said.

The minutes feature a question by then-Federal Reserve Board Governor Lawrence Lindsey, who asked J. Virgil Mattingly, the Fed's general counsel, about the ESF's legal authority to engage in a financial rescue package for Mexico. (Editor's Note: Document is in Adobe Acrobat®, or .pdf, format. You must have Adobe Acrobat Reader® to open this file.)

"It's pretty clear that these ESF operations are authorized. I don't think there is a legal problem in terms of the authority. The statute [31 U.S.C. s. 5302] is very broadly worded in terms of words like 'credit' -- it has covered things like the gold swaps -- and it confers broad authority. Counsel at the White House called the Treasury's general counsel today and asked, 'Are you sure?' And the Treasury's general counsel said, 'I am sure.' Everyone is satisfied that a legal issue is not involved, if that helps," the minutes say.

Ordinarily the term "gold swap" refers to the spot exchange of gold for cash or securities together with a promise that the transaction will be unwound at an agreed future date and price, Howe said. Gold swaps are sometimes used by central banks in the developing world to acquire needed foreign exchange, effectively offering gold as security for repayment.

"In recent years, however, gold swaps have also been used as an alternative to gold loans by certain central banks, which then earn interest on the cash or securities deposited with them while a bullion bank or other party has use of the gold," he noted.

"It is not clear whether Mr. Mattingly was speaking of ordinary gold swaps, location swaps, or some combination of the two," said Howe. "Nor is it clear whether he was referring to a program of gold swaps known to some or all participants in the meeting, or to one or more special transactions with respect to which he had issued an opinion, or to some other set of transactions.

"What is clear is that he was referring to gold swaps that, so far as the plaintiff is aware, have never been identified or disclosed in any other publicly available materials relating to the ESF or the Federal Reserve," he wrote.

The Treasury Department did not respond to questions posed by WND.

"This reference to gold swaps was made only a few months after the Federal Reserve's decision to assume the two American seats on the Bank for International Settlements board," said Howe. "This decision, which was effectively hidden from the American people and all but a few members of Congress, coincided with the first incident of preemptive gold selling on the COMEX in excess of three standard deviations as set forth" in previous statistical studies cited by Howe in his suit.

Howe wrote that "far from limiting its role to providing financial guarantees or backing for gold derivatives as the plaintiff has alleged, Mr. Mattingly's statement suggests that the ESF has engaged -- almost certainly through the New York Fed (P.A. Ex. V) -- in swapping out U.S. gold reserves to one or more bullion banks to facilitate the price manipulation scheme."

"Indeed, if the recent reclassification of the 'Gold Bullion Reserve' held in the U.S. Mint at West Point to 'Custodial Gold Bullion' reflects the combined total outstanding volume of these swaps … the ESF has covertly encumbered more than 20 percent of the total claimed official gold reserves of the United States," the analyst said.

"The U.S. government is surreptitiously manipulating the gold price. U.S. economic policy is being made privately for the benefit of a chosen few," said a summary of Howe's accusations by GATA Secretary/Treasurer Chris Powell. "It's on record now."

Last Friday, the Zimbabwean government said it was reintroducing a subsidy to support the price of gold mined in the country.

Officials said the policy was reinstated due to an expected decline in gold production over the next year. Government analysts say gold production is expected to decline by more than 20 percent in 2001.

The Zimbabwe central bank will pay producers about 30 percent above market price for gold, officials said. A number of the nation's mines have closed in the past few years due to depressed gold prices worldwide.

Earlier this month, gold prices were down again to around $257 an ounce. Silver, meanwhile, was "flat," analysts said, trading at around $4.30 an ounce.