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Martin Armstrong disputes gold manipulation

Section: Daily Dispatches

10p EDT Monday, June 28, 1999

Dear Friend of GATA and Gold:

Here's a great essay posted today at by a great supporter of GATA
who writes as Professor Von Braun of the Rocket School
of Economics. It is in part a reply to the recent essay
by Martin Armstrong of Princeton Economics

Please post as seems useful.

Gold Anti-Trust Action Committee Inc.

* * *

The Gold Market Mystery: Fact or Fiction?

By Professor von Braun

The Rocket School of Economics

June 26, 1999

Much has been written in recent times about the gold
market and why the price keeps falling and falling and
falling. Some of the comments have been quite accurate
while others (especially those coming from sources who
should really know better) have been bizarre to say the

quot;What's going on with the gold price?quot; is the most
often asked question amongst gold bugs, gold mining
companies, shareholders of these companies, elected
representatives and officials of governments where
gold plays an important role in their respective
communities, gold coin dealers and their customers.
In fact many industry players have been scratching
their heads for some time now and quite rightly,
continue to do so. The only segment that remains smug
and enjoys being bearish is the bullion dealers
themselves, almost to the point that they know
something the rest of us dont, but they are not about
to tell.

The history of gold as a currency and as a component of
Central Bank reserves is well documented and does
not need to be revisited as far as this article is
concerned. However, certain historic occurrences are
perhaps relevant to what is going on at present and we
will make mention of them as we progress through some
facts, keeping in mind that there really are very few
facts when it comes to this market that are actually
verifiable and transparent. Although the transparency,
as in give me the gold is obvious.

Let's look at some of these facts. It is true that gold
peaked in February 1996 at $417 per ounce and has been
in a decline ever since. This falling price has defied
the supply and demand equation for nearly four years
if we are to believe the figures put out by both the
World Gold Council (WGC) and Gold Fields Mineral
Services (GFMS) group reports. For several years (at
least since 1994) we have had a shortfall in excess of
a 1,000-tonnes-per-annum and currently running at 1,600
tonnes, with demand at 4,000 tonnes and supply at 2,400
tonnes per annum. Some source of supply is making up
this shortfall if it actually exists.

The common belief is that unreported central bank
sales are what's behind this mysterious source of
supply that neither the WGC or GFMS can account for.
The reality may be that gold leased from the CBs,
(terminology is a bit tricky here, borrowed, leased, or
loaned seems to apply, with leased being favored) and
sold into the market probably accounts for this
shortfall. Simply put it seems that gold can be leased
(borrowed) from CBs and actually sold into the market
with a promise to pay it back being sufficient to OK
the transaction. Any entity (read member of the LBMA
and their favored clients) that has been involved in
this type of transaction since early 1996 has,
financially, done extremely well, this too is a fact.
There are estimates out there in the murky gold
universe that suggest that at least 4,000 tonnes and
perhaps 12,000 tonnes of gold may have entered the
market this way.

CB gold that is not sold but is leased or loaned
remains on their books as still being part of their
reserves. This is important to remember as it makes it
difficult for independent analysts to pinpoint where
gold is coming from. The transparency issue is in a
sense, a non event here as most CBs that have gold
reserves lend (lease) these reserves out to cover the
cost of holding the yellow metal, and yet don't report
it. Alan Greenspan's comment to Congress last year that
central banks stand ready to mobilize their gold
reserves should the gold price rise is one of the more
mysterious elements in what is a complex situation.

Another element in this same complex situation is the
reported daily turnover on the London Bullion and
Metals Association (LBMA) daily market, which is
currently, according to the figures released by them
(sorry, guys, but this is questionable), 1,000 tonnes
per day. How much of this is physical and how much is
quot;paperquot; gold we don't know. What that tells you is that
while quot;officialquot; (per WGC and GFMS numbers) demand
figures put worldwide demand for physical metal at
4,000 tonnes per annum, the LBMA trades (?) this amount
every four days. Keep in mind that these figures don't
include what is traded by LBMA members outside of the
UK. How much this is, is anybody's guess. Nor does this
include OTC trading in New York, Sydney, Hong Kong, or

Another interesting number (as there are no known
mining company records going back 10,000 years) bandied
about is the estimate of above-ground gold reserves,
which puts the total gold estimated to actually exist
at between 120,000 and 130,000 tonnes. CBs are believed
to hold about 30,000 tonnes of this total as reserves
with the United States and the new European Central
Bank accounting for 20,000 tonnes. The rest is
somewhere on the planet, residing as jewelry,
artifacts, icons, gold coins, bullion held privately,
industrial usage, and scrap being recycled. The amount
held privately and available to trade is questionable.
Obviously it seems some is traded. Once again the LBMA
figures suggest that they trade 250,000 tonnes per
annum, the entire above-ground estimate twice a year.

Now let's look at Mr. Greenspan's remarks that CBs
stand ready to mobilize their gold reserves. I have a
mental picture of a trumpet being blown and several
thousands of gold bars appearing and reporting for
duty, mobilized, ready to deal with the invasion of --
something, But obviously that's not it. What is a known
fact is that if you own a large percentage of the
reserves of any commodity, you can affect the price,
(deBeers and diamonds come quickly to mind), which is
of course a potential but not so clear case of price
manipulation, should that occur. Even more so when
these are quot;reservesquot; that are being mobilized -- and I
don't mean the National Guard here, but reserves which
are supposed to be held to support the currency. So
which CBs' gold reserves was AG referring to when he
made that statement?

And how much gold do the CBs actually have? This is a
key question -- actually one of several key questions.

Then there is the quot;problemquot; of the gold price itself
and what it means from a sentiment point of view in
terms of how currencies are perceived. Any serious
doubts an individual may have about a currency's
strength or weakness can be offset by purchasing gold
bullion; this is a fact. Keep in mind that the United
States has made gold ownership illegal before,
confiscating gold from its citizens back in the 1930s.
This too is a fact; it did happen. I believe that the
statute is still on the books to this day.

Any experienced public relations person would tell you,
upon reviewing the bad press that gold has received
since early 1996, that there is an attempt to badmouth
the precious metal markets -- no proof but many smoking
guns by way of announcements that have always been
timed to depress the price.

The numbers given out on the gold market simply do not
stack up when it comes to what's available in the
public arena in terms of gold being traded, supply and
demand, CB reserves, and the big unknown -- gold that
has been quot;leasedquot; and sold into the market, which, by
the way, has to be repurchased at some stage and
delivered back to its rightful owner. Very important
point. If this type of transaction has taken place,
somebody either has, or will have, a problem. Even more
so if the WGC and the GFMS figures are correct.

Much ado has been made of the apparent potential for A)
Swiss CB sales, and B) IMF sales, but there is a
problem with both these quot;potentialquot; transactions, since
they require approvals that are not yet in place. The
spinmeisters (and there are spinmeisters) seem to have
the idea that any holder of gold is a potential seller,
and this of course is true, just as any voter in any
U.S. election could vote for either party. At some
stage anything may or may not be for sale. Even after
we have had repeated statements that certain gold
reserves are not for sale, the spin continues that it
is. That's the spin, as opposed to the reality, which,
it appears, doesn't count.

Then we have the Bank of England deciding to sell some
of its gold and announcing it for all the world to hear
prior to the event. This sounded like verification of
Forrest Gump's great line, quot;Stupid is as stupid does.quot;
After badmouthing gold for several years, informing the
world of other potential large sales by anybody and
everybody, only to be wrong, totally wrong (these sales
simply did not materialize), they come along and for a
piddling 25-tonnes wipe 10 percent off the gold price,
and then say they are surprised by the fall in price.

Nobody else was. I don't think they where either.

So what really gives here?

Do we have a gold market that is dying, disappearing,
acting out its final scene, while becoming redundant?
Or are we watching a replay of a previously failed
attempt at suppressing the gold price?

An attempt to go off a gold standard, even though going
off a gold standard is not an option while you hold
gold as a reserve component, is something a certain
gentleman who runs a very good forecasting service
based in Princeton fails to understand.

Perhaps instead we have a market that is, as a result
of the activities of its leading participants (the
major bullion banks) becoming quot;distressed.quot; Distressed
to the point that they (the leading participants) will
go to any lengths to try to keep the price from rising
while they rush to cover their obligations --
obligations that see them delivering physical metal
back to the parties they have leased/borrowed/conned
it from and sold into the market?

Could the statement made by Greenspan in June last year
refer to this possibility? After all, who could upset
the gold market (and create volatility) other than the
bullion dealers themselves? Surely not the mining
companies! Perhaps certain CBs have something to answer
to in this regard.

One thing of interest, so far not commented on, is the
mining companies themselves, who have been painted as
the bad guys by the bullion banks and yet have failed
miserably to come to their own defense. Even as
recently as last week the bullion banks were blaming
forward selling by mining companies as the reason
behind the drop in price. But did we hear any
repudiations from this sector? quot;Well, let's not fart in
church here. After all, who might hear us?quot;

This, coupled with words of wisdom from the apparently
wise and the not so wise, those who should know better
and those who fit the quot;blowing smoke up you know wherequot;
category, has certainly aided the very successful PR
campaign designed to lower the gold price, as evidenced
by where it is at today.

The shortage of reliable facts in terms of numbers that
can be relied upon doesn't help either.

One interesting fact that can be relied upon is that
between 1965 and 1971 the Bank of England reduced its
gold holdings from 2,012 tonnes to 690 tonnes, more
than two-thirds of its gold reserves, at a market
bottom (US$35 per ounce, prior to a 10-year move to
US$850) and it certainly seems determined to achieve
this result again.

Trying to convince the gullible public that gold is
worthless is a stunt that has been pulled many times
before over many years, always by the same group of
people, always for the same reasons. They have never
succeeded yet and it is unlikely that this time will be
any different.


Professor von Braun can be contacted via email at


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