Sunday Mail examines crisis at Ashanti Goldfields

2p EST Saturday, February 12, 2000

Dear Friend of GATA and Gold:

Here is some great news.

Barry Riley, columnist for The Financial Times, today
wrote at length about the manipulation of the price of
gold and about GATA. While perhaps Riley is not as
agitated about it all as members of GATA are -- we
understand that this takes practice! -- he accepts the
probability that the U.S. government has been
intervening surreptitiously against gold, which is to
accept GATA's premise. Thus maybe we can claim here
our greatest recognition yet in the mainstream press.

Forgive my taking advantage in this preface to answer
Riley's primary question to GATA:

quot;What GATA does not really explain, however, is why the
U.S. Treasury would go to such lengths to distort the
bullion price. A strong gold price might be an
embarrassment; but in this world of rampant technological
change and overwhelming American economic power,
would it matter very much?quot;

Our answer:

The suppression of the gold price by the U.S.
government and its collaborators among the great
financial houses sustains the U.S. trade deficit, the
export of U.S. inflation, and the U.S. equities
markets, and since the financial houses leapt into the
gold carry trade and now are vulnerable to its
unwinding, ending the suppression of the gold price
might threaten the solvency of institutions considered
quot;too big to fail,quot; just as the government considered
the Long-Term Capital Management hedge fund quot;too
big to failquot; a year and a half ago.

The suppression of the gold price thus may have become
a bailout in advance, the biggest in history.

Whether such a scheme is in the interest of the United
States may be argued. GATA, whose officers consider
themselves patriotic Americans and who are certainly not
advocates of returning to a gold standard, maintains
that their government's economy should not be based on
dishonesty, secrecy, and private advantage. In any case
the gold price suppression scheme comes at the cruel
expense of one particular industry and one particular class
of investors, who are entitled to fair play, and involves
public policy that, as a matter of right in a democracy,
should be PUBLIC, so that everyone can respond to
it, not surreptitious, so that only a few connected people
can exploit it.

GATA is thrilled by the thoughtful attention to this issue
paid by Riley and The Financial Times. We'd be in
heaven if they would join us in trying to obtain from
the U.S. Treasury Department candid answers to the
questions GATA posed in its advertisement in Roll Call
on December 9, 1999 -- questions that the Treasury
Department is still avoiding despite the request for
answers, on GATA's behalf, from at least two U.S.
senators and several U.S. representatives.

Those questions may be read at:

a href=http://www.gata.org/greenspan.htmlhttp://www.gata.org/greenspan.html/a

Riley and The Financial Times have our heartfelt
thanks.

Please post this as seems useful.

CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.

* * *

THE LONG VIEW:
THE BATTLE OVER BULLION

By Barry Riley
The Financial Times
www.ft.com
Saturday, February 13, 2000

All the attempts over the years to downgrade gold to
the status of a routine commodity such as, say, zinc or
aluminium, have failed. This week the gold price has
again looked quite frisky at above $300 an ounce. The
sector was also enlivened by Barrick's refusal to
abandon its hedging programme and by the sad plight of
Ashanti Goldfields, which is teetering on the edge of
collapse after losing a court action in Ghana.

Gold naturally attracts controversy. There is a kind of
religious zeal about the gold bugs; they see the yellow
metal as nature's own store of value, which is far
superior to the corrupt paper money churned out on
high-speed printing presses controlled by the
politicians.

The weakness of the gold price, which tumbled from $400
in 1996 to $250 last summer, has encouraged elaborate
conspiracy theories. Now, though, the gold bugs are
getting excited. The bullion price, they claim, could
be on the edge of a breakout; many years of oppression
by the central banks and their collaborators might be
about to end. Gold, say the conspiracy theorists, could
be about to reclaim its leading position among precious
metals. There is, after all, plenty of action in
platinum and palladium, which have both risen in price
by about two-thirds since last summer.

Should we care about gold? It has moved from the core
of the global monetary system to the fringe. All the
same, leading central banks continue to hoard 20,000
tonnes of it in their vaults, worth around $200
billion.

You might think that they would welcome a higher price
as a reward for their investment. But that is the same
as saying they would welcome a lower price for their
own currencies. That might undermine public confidence
when times are tricky. They are forced to grapple with
an awful contradiction.

The gold bugs of GATA (it stands for Gold Anti-Trust
Action) have an entertaining web site where the
conspiracy theory is debated endlessly. GATA blames the
U.S. government; it has more or less accepted the
Federal Reserve's pleas of innocence but thinks the
Treasury Department has been operating heavily through
the Exchange Stabilisation Fund, aided by big bullion
traders such as Goldman Sachs.

Top mining companies have tagged along for several
years by selling large quantities of gold forward. The
price went down and down. Last summer the affair began
to turn into a rerun of the old post-second world war
battle over gold between the U.S. and the U.K. on the
one hand, and the continental Europeans on the other.

In May the U.K. Treasury announced -- unexpectedly -- a
high-profile bullion sale programme of 435 tonnes (in
approximately 25-tonne instalments) that looked more
calculated to drive the price down further than to
realise good value for the British taxpayer, especially
as the proceeds were to be largely switched into
shrinking euro. By late September the continentals
retaliated and announced curbs on bullion sales. The
price spiked up, to the great embarrassment of many of
the gold producers.

When mining companies behave more like hedge funds than
metal producers, they actually can be bankrupted by a
rising price. But, allegedly, the U.S. Treasury then
intervened on a bigger scale to limit the damage. The
bullion price hovered around $280 an ounce for several
months but recently has pushed higher again.

The reasons, as always, are obscure. But some of the
mines are changing or abandoning their hedging
strategies and one or two might even collapse, while
bullion banks are running some very dangerous
positions. The market could be vulnerable to a
speculative attack.

Certainly, some strange things have been going on in
the gold market. What GATA does not really explain,
however, is why the U.S. Treasury would go to such
lengths to distort the bullion price. A strong gold
price might be an embarrassment; but in this world of
rampant technological change and overwhelming American
economic power, would it matter very much?

True, gold inspires a kind of religious faith. It
provides an alternative to fiat money and, at times of
instability, it might prove a disruptive force. That is
what happened in the 1970s. But surely the U.S.
Treasury is not that scared about the dollar -- though
it is true that, as the annual current account deficit
moves from $300 billion toward $400 billion, the
potential risks of a loss of confidence are becoming
more daunting.

Gold is also an alternative to conventional financial
assets such as bonds and stocks. Historically, the
bullion price has wilted when the stock market has been
strong. Then, when the stock market has crashed, gold
has prospered, as in the early 1930s and late 1970s.

Time has passed, however. A few people might be
frightened out of stocks by a strong gold price that,
they think, signals a coming crash, but not many. The
howls of outrage from the gold bugs are not very
convincing. Most governments believe it is their right
(and duty) to intervene secretly in foreign exchange
markets, and gold is just a kind of foreign currency.
Speculators in currency have to learn to outwit the
central bankers, and they cannot expect much sympathy
when they keep crying quot;Foul!quot;

The gold manipulation might well have started as a
minor smoothing operation that got out of control. For
central banks to lend out their gold reserves has
seemed a promising way to earn modest revenues from
an otherwise unrewarding asset. But the speculative
institutions that borrowed it realised that, if they
could drive down the bullion price, they could make
useful profits from short sales.

The miners, meanwhile, decided they could protect their
profits by selling forward for future delivery at roughly
today's price -- although now they are starting to realise
that a long-term downtrend in the price cannot possibly
be in their interests, quite apart from the dangers of an
incompetently-run hedge book vulnerable to enormous
margin calls if the gold price takes an unscheduled upturn.

That the U.S. Treasury apparently has helped to mess up
the gold market is perhaps not very surprising when it
has plunged even its own domestic bond market into
near-chaos. Last week Larry Summers, the Treasury
secretary, effectively lowered long-term bond yields at
the same time that the Fed was raising short-term
rates. He did this by announcing he would focus buyback
activities on the 30-year bond.

This week he tried to repair the damage by saying that
intervention in bonds would be all along the yield
curve rather than just at the long-dated end. But bond
experts were not amused. Thursday's Treasury bond
auction was a disaster.

Fixed-interest bonds and gold bullion represent two
very different asset classes. One depends on faith in
the long-term probity of politicians, the second offers
a crude defence against their wars, taxes and
inflations. Both markets have become huge speculative
casinos, and neither seems to be under very good
control.