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The Bank of Italy Confirms Gold Cartel, IMF Gold Deception - Bill Murphy

Section: Essays

The following documentation and statements were presented in Reg Howe's lawsuit filed in the District Court of Massachusetts against Defendants: Bank for International Settlements, Alan Greenspan, William J. McDonough, J.P. Morgan & Co. Inc., Chase Manhattan Corp., Citigroup, Inc., Goldman Sachs Group, Inc., Deutsche Bank AG and Lawrence H. Summers, Secretary of the Treasury.

*In July 1998, Fed Chairman Alan Greenspan, testifying before the House Banking Committee, stated: "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." This statement amounted to a declaration that the gold price had been and would continue to be controlled.

*According to reliable reports received by the plaintiff, this effort was later described by Edward A. J. George, Governor of the Bank of England and a director of the BIS, to Nicholas J. Morrell, Chief Executive of Lonmin Plc:

    We looked into the abyss if the gold price rose further. A further rise would have taken down one or several trading houses, which might have taken down all the rest in their wake. Therefore at any price, at any cost, the central banks had to quell the gold price, manage it. It was very difficult to get the gold price under control but we have now succeeded. The U.S. Fed was very active in getting the gold price down. So was the U.K.

The "abyss" comment made by George and related by Morrell is no rumor monger talk. Morrell quoted George in front of three people that I know personally pursuant to the dramatic rise in the price of gold following the surprise Washington Agreement announced on September 26, 1999.

The evidence that the GATA Army has collected over the past year since Reg Howe filed his Complaint fully supports Morrell's comment that the central banks would do anything to "manage" the price of gold. Tragically, "anything" came to mean lying, deceiving and breaking various laws.

The essence of the Washington Agreement was that 15 European banks agreed to limit the sales of central bank gold to 400 tonnes per year for 5 years and not to increase their lending of gold over that time. The British and the Americans were not clued in prior to the announcement.

The reaction of the gold price to the Washington Agreement was the most dramatic rise in the price of gold ever. That is not what any of the central bankers had in mind. They were just perturbed at the tactics of The Gold Cartel to suppress the gold price and wanted to do something about it. They had no intention of creating financial chaos.

How could they have been so surprised at what occurred? Easy. They were working off the inept gold industry gold loan numbers of less than 5,000 tonnes. The real number was more than double that at the time, which means the central banks had FAR less gold in their vaults than they realized.

The announcement set off a panic because the yearly supply/demand was running over 1600 tonnes (again, more than they realized) and there would be no way to hold the gold price down under the new agreement. The scheming Gold Cartel was in deep trouble. Something had to be done FAST. A solution had to be found that would allow the central banks and The Gold Cartel to calm down the market by feeding central bank gold into that market to satisfy the strong gold demand.

The problem for The Gold Cartel and the central banks was they needed to come up with a way to get the job done and not let the investment world realize the seriousness of the situation. Some sort of plan of deception had to be devised and one was - in Santiago, Chile in October 1999 by the IMF. The plan centered around IMF central bank members "swapping out" their gold, yet still accounting for that gold as a central bank gold asset.

To put it bluntly, they would perpetuate a lie about what the true status of central bank gold really was. We know that to be the case as a result of the super-sleuthing of GATA Army's Andrew Hepburn of Canada.

Andrew asked the IMF the following:

Why does the IMF insist that members record swapped gold as an asset when a legal change in ownership has occurred?

The IMF answered:

    "This is not correct: the IMF in fact recommends that swapped gold be excluded from reserve assets. (see Data Template on International Reserves and Foreign Currency Liquidity, Operational Guidelines, para. 72,)"

Yet, the following can be found on the central bank of The Philippines website:

    "Beginning January 2000, in compliance with the requirements of the IMF's reserves and foreign currency liquidity template under the Special Data Dissemination Standard (SDDS), gold swaps undertaken by the BSP with non-central banks shall be treated as collateralized loan. Thus, gold under the swap arrangement remains to be part of reserves and a liability is deemed incurred corresponding to the proceeds of the swap."

The central banks of Portugal, Finland, and the ECB itself, then all confirmed (in writing) the Philippine's treatment of gold swaps to Hepburn.

Hepburn's latest investigative work reveals the Bank of Italy changing their accounting procedures in October of 1999 to accommodate the IMF's devious scheming. Andrew Hepburn just reported in with the following:

I had been under the impression that Italy was very pro-gold and that none of their reserve had been lent/swapped out. I can now state with a fair degree of certainty that they are indeed "managing" their reserve. A few days ago I emailed the Bank of Italy and inquired as to whether or not they had swapped, lent or otherwise transferred any of their gold to investment banks or other central banks. Today I received I response which did not answer my question but instead pointed me to a publication on their website entitled "Monetary and Credit Aggregates of the Euro Area: the Italian Components".

Unfortunately, the way the site works is that there are no separate URL's so I can only give the directions for getting to the report that I'm about to focus on. To quote the email I received " can find the data you requested on
under the item Publications\Statistics\Supplements to the Statistical Bulletin\ Money and credit aggregates of the euro area: the Italian components in table 1 in the column "Gold and gold receivables".

The name of the column, "Gold and Gold receivables" indicates that at least part of the reserve represents only a paper claim on gold-i.e. not all the gold is in the vaults of the Bank of Italy.

The next interesting piece of information is found in the notes/definitions section of the report. On page 45, S034162M, which apparently is the code for an account, reads in the following manner:

Comprises the gold owned by the Bank of Italy and receivables in respect of deposits denominated in gold and swaps."

The above essentially confirms that the Bank of Italy is active in the swaps/deposit market. The next excerpt of note is found on page 48 of the report. They state that:

"In October 1999, as part of the harmonization of the Eurosystem statistics, the accounting treatment of the Bank of Italy's official swaps (in gold and dollars) with the EMI between September 1997 and June 1998 and with the ECB from July to December 1998 was modified. The main change was the switch from stating gold assets net of official swaps to stating them gross of such transactions."

A few things are of interest here. First, they admit to doing gold swaps. Second and much more importantly in October, 1999 the ECB adopted the collateralized loan approach to accounting for gold swaps. This is the same treatment that the IMF denied it ever recommended but we know to be the case. Under this treatment swapped gold remains as a reserve asset even though the ownership has changed and the gold has left the vault. Furthermore, this accounting change went into effect around the time of the Washington Agreement. If I remember correctly, the WA only curtailed sales and lending; it said nothing about swaps. Because of the new treatment it is very possible that gold swaps have increased significantly since late 1999.

The term "official swaps" is in reference to swaps with the EMI and ECB. I'm unsure as to the level of swaps with the EMI but I believe around 15% of the ECB's reserves are in gold which means that Italy transferred at least 450 tonnes in that swap arrangement.
On page 51 in the "Methodological Index", the following is said when explaining an account code:

Net gold and foreign currency claims on non-euro-area residents.

Unfortunately, they do not specify how much of the claims are on gold and how much on foreign currency. What is interesting, however, is that the Bank of Italy apparently has a gold claim on a non-euro-area country. It would be very interesting to see if Italy has a gold swap with the BIS, the IMF or even the U.S.


What Andrew has uncovered ought to be one of the most important findings ever for the gold industry. The BIS and GFMS (generally accepted gold industry statistician) state that central bank gold loans are around 5,000 tonnes. Neither mentions anything about what the total amount of gold "swapped out" of the central banks might be.

GATA suggests that amount is significant. So significant that we believe the total amount of central bank gold that has been lent/swapped is closer to 15,000 tonnes, not 5,000 tonnes.

The difference between the two numbers has staggering ramifications for all gold market participants and investors. GATA believes that if the "truth" were known, the price of gold would have to more than double to ration the "true" supply of gold left to satisfy demand.

This is just what The Gold Cartel does not want the investment world or general public to know. That is why they have stifled GATA's discoveries and refuse to allow our startling findings to be presented in the mainstream U.S. press.

GATA has caught The Gold Cartel and the IMF doing something that is very wrong. To allow them to continue to get away with this sham is even more wrong!

The Gold Anti-Trust Action Committee and our Army of supporters ask the gold industry to examine the facts and help us fight to expose the "truth."

Who could be against that?

Bill Murphy
Gold Anti-Trust Action Committee