Antitrust suit threatens US dollar, which is being sustained by conspiracy to devalue gold.
To: The Collective Human Conscience;
From: "David D. Piney" <firstname.lastname@example.org>
Peace and love, Art Rosenblum,
Working for a positive future for our planet since 1969.
Justice for Gold! Central banks have supported illegal gold
price fixing and now face gold losses, a
By Boudewijn Wegerif
14 March 2001
Monetary Studies Programme Folkhögskola Vårdinge 150 21
Central banks may be forced to make public that they have
loaned out a good deal of their gold holdings and that they may not get all of
it back. Evidence in an anti-trust lawsuit, which opened in a Boston Court on
15 March, points that way.
The banking establishment could be shaken to its foundations by the revelation. There have been two years of build-up to the lawsuit, centered on the efforts of the small Gold Anti-Trust Action Committee, GATA, to expose and put a stop to the way in
which central bank gold holdings have been loaned to gold
bullion banks and then sold by the bullion banks in a massive price fixing
The plaintiff in the lawsuit is a private individual,
Reginald Howe. Howe is a member of GATA and the owner of the internationally
renowned financial website,
He is bringing the case as one of the private shareholders in the Bank for International Settlements in Basle, and he is handling the lawsuit himself as an experienced attorney and long time member of one of the foremost legal firms in Boston. Through the lawsuit, Reginald Howe is seeking damages arising out of manipulative activities in the gold market from 1994 to the present time.
He bases his complaint on the U.S. Sherman Act, which forbids the fixing of prices in international trade. The complaint alleges a manipulative scheme directed at three objectives:
(1) to prevent rising gold prices from sounding a warning on U.S. inflation;
(2) to prevent rising gold prices from signaling weakness
in the international value of
(3) to prevent banks and others who have funded themselves
by borrowing gold at low interest rates and are thus short physical gold from
suffering huge losses as a consequence of rising gold prices.
The defendants in the case are the Bank for International
Settlements, the U.S. Federal Reserve Chairman Alan Greenspan, the President of
the Federal Reserve Bank of New York, the former secretary of the U.S. Treasury
Lawrence Summers, and the world's top bullion banks Goldman Sachs, Deutsche
Bank, J.P. Morgan, Chase Manhattan and
Reginald Howe has been likened to David taking on Goliath.
You can read
Price fixing by the gold cartel has crippled the gold industry and bolstered the over-rated dollar at the expense of almost all other currencies, and commodities. Even if Howe's lawsuit does not succeed on technical grounds, the exposure could well remove the gold price fixing mainstay to the contemptible $2 trillion dollar a day currency speculations by which the economies of the world are being destroyed.
I had a small part to play in the formation of the Gold
I also share the story of GATA. I was drawn to learning
about the gold price fixing out of a gut feeling that it underpins the dollar
speculations by which the wealth of nations is being siphoned off into just a
The Central banks are like political parties. They tend to
pay more heed to the interests of big money and power than to the people they
are meant to serve. Thus whereas most people may imagine that the central banks value and take good care of their gold
holdings, the banks, by and large, have shown more interest in devaluing gold
relative to the dollar.
Even though no longer officially linked to the dollar, gold
remains the most sensitive, and when not manipulated the most accurate
inflation barometer. Thus when the price of gold reached a realistic $385 an
ounce in the early 1990s central bankers were not too pleased about the
implications for the dollar.
The market was saying that gold was now worth almost ten times more dollars than before August 1971, when President Nixon null and voided the dollar to gold link that the US, Britain and several other countries agreed upon in 1944. After the delinking, the US banks were free to create vast amounts of dollar credits, with no backing other than promises of an on-going US market for world goods and continued dollar dominance over other currencies. Neither promise could be kept except through the impossible formula of a continuously expanding supply of highly valued dollars.
Debunking gold and
trashing it in the gold market would come to play a more and more important
part in maintaining the over-supplied, over-valued dollar. In the process a
gold derivatives pyramid has been created, which is now right out of control
and a major embarrassment for bankers.
FROM THE "YEN CARRY TRADE" TO THE "GOLD
For several years the yen carry trade had been the prized
way of asserting the dollar's dubious worth. It was a winner for currency
speculators. This is how it worked: The Japanese banks lent yen to the
speculators at one to two percent
ridiculously low interest rates by international standards.
In 'When Transnationals Rule the World', David Korten writes: "When they are employed wisely, derivatives make the world simpler, because they give their buyers the ability to manage and transfer risk. But in the hands of speculators, bumblers and unscrupulous peddlers they are a powerful, leveraged mechanism for creating RISK."
The yen loans for the yen carry trade had the effect of
reducing the value of the yen, and the demand for US treasury notes had the
effect of boosting the dollar. Thus, by the time it became necessary to repay
the yen loan there was the real
possibility of further profit to be made from the improved exchange rate.
However, in the summer of 1998 the yen started to improve in value against the dollar. This was because the underlying economic realities of a growing US trade deficit and national debt stayed the yen surge for dollars. As the dollar weakened relative to the yen, repaying the yen loans became prohibitively expensive. Many currency speculators were badly hurt.
In the meantime, a gold carry trade had been established,
with the central banks open too open, as
we shall see to providing gold loans to
the bullion banks at a lease
In the gold carry trade, gold is borrowed from the central banks by the bullion banks on their own behalf, or on behalf of customers, with derivative contracts. The gold is then sold for treasury notes and other higher yield, dollar-based securities. These in their turn become the underlying security for still more derivatives, with which to speculate on the currency market, or even borrow more gold with!
Large sums of derivative credit, relative to gold
production, are now tied up in the
As of June 30, 2000, the BIS reported that the total national amount of gold derivatives had grown to $262 billion, or by 8%, notwithstanding falling gold prices during the period." (Paragraph 31, Reginald Howe's lawsuit complaint)
Almost half the gold derivatives are to the accounts of
just four bullion banks, Deutsche Bank, $51 billion, J.P. Morgan, $38 billion,
Chase Manhattan, $22 billion, and Citibank, $12 billion.
In the J.P. Morgan's case, the derivatives indicate
"gold shorts" of from 3,600 to 4,000 tonnes. The bank's risk capital
at end 1999 was some $12 billion. Gold shorts is the euphemism for gold that
has been borrowed and is owing to the central banks. Howe has calculated that a
swift upward move in gold prices to $600 an ounce could result in Morgan suffering a loss of 10 percent on the
derivatives that is, $3.8 billion, which
is nearly a third of the bank's capital.
A swift upward surge to $600 an ounce is by no means
unlikely once the grip of the gold cartel is broken. Gold surged to a high of
$850 an ounce in 1980 in the volatile trade that followed the delinking of the
dollar to gold in 1971. It took over twenty years for the realistic price of
around $400 an ounce to establish itself.
An essential part of preventing upsurges in the price of gold has been to encourage, and sometimes coerce, gold producers to become customers for borrowed gold from the central banks. The gold is borrowed against the delivery of future gold production at an agreed price. The practice is called selling forward and is an aspect of what is called hedging. By it the producer is protected against falling prices.
But the hedge also represents a bet against rising prices.
By selling forward the producer is, in fact, registering a lack of faith in the
future of gold and thus contributing to a fall in price.
In fairness, even though it is against their long-term
interests, many producers have adopted hedging strategies for the short-term
financial benefits, and to remain in the good books of the bullion banks, on
whom they depend for credit and other financial
As the price of gold has been driven down and down, from an
average $387 an ounce in 1995 to as low as $253, producers have been
increasingly tempted to become players in the gold carry trade. This has been
disastrous for the gold industry as a whole.
There is a strong suspicion that Anglo Gold, Barrick have
been for the gold carry trade because the falling gold price has given them the
opportunity to buy up the mines and gold stocks of smaller producers, which
have not been able to hold their own in the worsening financial climate.
For the bullion banks the gold carry trade has been an easy money-maker. They have dismissed the impact on the mining industry as being good for needed rationalization. And in the first years of the trade, they seem to have been blind to the fact that the same could happen to this money-spinner as happened to the yen carry trade.
In the financial
euphoria of the eighties and nineties, bullion dealers and central
It was even said that the central banks would sooner or
later sell all their gold holdings for
dollars. Like Augustus Caesar, who had the word aeternitas inscribed on the
silver denarii of his Roman Empire, the dollar imperialists have acted as if
their money currency will last forever. They have been and remain in denial
about just how
THE GOLD ANTI-TRUST ACTION (GATA) BACKGROUND TO THE HOWE LAWSUIT
I was so interested in what I read there, I was soon in
correspondence with the owner/editor of the Cafe, Bill Murphy.
On 20 January 1999, Bill posted a now famous essay,
Scandal Gold at the Cafe's James Joyce
Table, under the pseudonym Midas. Could Goldman Sachs Secretary of the Treasury, Rubin's, former
firm really be part of a cabal that has
been holding down the price of gold? Midas asked.
Midas, alias Bill, then went on to reveal that Goldman Sachs was running around offering credit terms to gold producers, with forward sales in mind, at previously unheard of credit terms. Practically no restrictions at times, at all. Just do it.
He also described how Alan Greenspan, the chairman of the
Federal Reserve, had told the House Banking Committee of Congress in June 1998
that central banks stand
Clearly the House Banking Committee was expressing some
concern about the "gold carry trade". And when the huge Long Term
Capital Management hedge fund collapsed a few months later, in the autumn of
1998, with a rumored 300 tonnes of gold shorts on its books it will have become
obvious, alarmingly obvious, that there was good cause for concern.
The FED chairman and fellow financial institution elders
now organized for a number of big banks to take over the failed LTCM debts,
including the 300 tonnes, $3 billion gold obligation. This was to prevent a
'systemic' financial crisis; in clearer
words, to prevent a Wall Street crash.
As usually happens when trouble strikes in the family,
daddy wants to know, in detail, what has been going on. What daddy Greenspan
learnt about the wider ramifications of the LTCM collapse will have alarmed him.
I guess he will have known then
The bullion banks had by then already sold enormous quantities of borrowed gold into the market in their determination to keep the gold price under $300 an ounce.
Eight thousand tonnes of gold represents about 25 percent of reported central bank gold holdings and over three years of world gold production. How could such a large quantity of gold ever possibly be repurchased at the price at which it was borrowed?
Any attempt to do so would immediately undo the gold
carry trade and unleash market forces
that could easily drive the price of gold up to $600 an ounce, and break the
banks, so to speak. Naturally it would have been decided to keep the lid on the
gold price, even though this would mean borrowing and buying still more gold
To make good the decision, the twelve leading bullion banks
came together to form a
Is this not a 'cabal planner' of sorts? asked Bill Murphy,
writing as Midas, in 'Scandale Gold'. It looks like a duck to me. His commentary drew an immediate response
from Cafe members, and an Invitation to a Lawsuit, from Chris Powell, the
We of the Gold Party should be suing to stop them. Whenever
two or more parties cooperate in limiting practices or supplies of a product or
service, the free market is defeated and antitrust law is broken. (There is an
exception for labor unions). My guess is that the announcement of the "Counterparty
Risk Management Group" would of itself be more than sufficient for a price fixing
Chris' Invitation to a Lawsuit ended on the punch-line: I'm a nobody, but I pledge $500 to underwrite such a lawsuit. Within two days $10,000 was pledged for an anti-trust legal action by Le Metropole Cafe members free market activists all.
I came in with the suggestion that the organization for
this be called GATA, for Gold Anti-Trust Action. Go GATA, go Gold! I wrote.
And this has proved to be right. Bill and Chris have made a
wonderful team through over two years of lobbying and painstaking research,
through a growing network of supporters and expert advisers.
THE GOLD CARTEL DECLARES WAR ON FREE TRADE
There has been a good deal of opposition along with support
for GATA. Many financial commentators have accepted the trashing of gold by
bankers at face value, as a market reality to live with. This is the line taken
by John Hathaway, for
Conspiracy, he writes is too strong a word for what is
going on in the gold market. However, it should surprise no one that some form
of manipulation is taking place. Governments routinely intervene in the
currency markets. Gold is a form of currency. As stated by Professor Robert
Mundell, Nobel Price Winner, 'gold is subject to a
" Hathaway cites the activity of the London Gold Pool
from the 1950s to 1968. Tis was a joint effort by the US and several European
governments to depress the
In India, for example, over a thousand tonnes of gold are
gifted as "monetary jewelry" to some 8 million newly-wed couples
every year. The gap between new mine supply and demand has had to be met out of
recovered gold scrap, some sales of
All told, there is an enormous squeeze on gold, with little
chance of substantial increases in production, even given a more economically
viable price. According to the respected precious metals commentator Adam
Hamilton, in an article at the Kiki Table, Le Metropole Cafe
http://www.lemetropolecafe.com total known
underground gold reserves could be of the order of 12,500 tonnes. He comments, "At
today's gold price and today's rate of mining, 2,500 tonnes per year, the world
could run out of economically extractable gold within five years!"
With such hard facts to take into account, the gold
cartel's "Counterparty Risk Management Group" will have been very
busy brainstorming for ideas to undermine public confidence in gold as
security, or open up new sources of gold
supply to the market.
One suspects that the movement to get the IMF to sell some of its gold holdings of 3,200 tonnes originated with the CRMG. It served its purposes admirably. One wonders, did the ministers and officials in the Clinton and Blair administrations hypocritical proposal they were espousing that the IMF sell 300 tonnes of its gold and use the proceeds to bring debt relief to the most highly indebted countries of the Third World.
Officially, in January
1999 the UK had gold holdings of a mere 716 tonnes compared to the
12,574 tonnes of the Euro-system, through the European Central Bank. Thus, by a
tortuous argument, one might say that a lower price of gold would work to
On 26 September 1999, following the IMF/World Bank annual
From The US Dollar: Over Owned and Over Valued
Howe reports this as having happened, in paragraph 41 of the lawsuit complaint. The Exchange Stabilization Fund (ESF), a mysterious US slush fund under the control ofthe secretary of the US Treasury Department, was probably also used.
J.P. MORGAN, CHASE MANHATTAN AND DEUTSCHE BANK ARE FULLY STRETCHED
The figures in the table below tell some of the story of the concerted effort of the bullion banks to drive the price of gold back down to under $300 after the Wall Street rally, but not all the story.
By Howe's estimates, the increase represented some 3,700 tonnes of gold at the $280 an ounce price of gold at end 1999! Of the banks that are required to submit figures to the OCC, J.P. Morgan stands out as the biggest, with gold derivatives at end-1999 of $38.1 billion, up from $18.4 billion before the Washington Agreement. That represents an increase of some 2,000 tonnes to over 4,000 tonnes.
In an essay, J.P. Morgan to the Rescue,
http://www.tocqueville.com/brainstorms/brainstorm0065.shtml he notes that Morgan has the strongest credit
rating among bullion dealers and "might have been called upon, or felt a
calling, to shoulder some of the risk of weaker bullion dealer credits rattled
by the gold short squeeze", caused by the Washington Agreement.
Hathaway also comments on the shutdown of Morgan's New York trading desk at year end 1999 to a new address "conveniently near the anti-gold British Exchequer". He asks: "In rescuing its weakling counterparts, was J.P. Morgan acting strictly in its own self-interest or as an agent for the BoE and US Treasury?" Clearly it was acting in collusion with the BoE and the US Treasury, so far as Reginald Howe and the Gold Anti-trust Action Committee, GATA, are concerned.
IN CONCLUSION, SOME HARD FACTS WITH QUESTIONS TO MATCH
By Frank Veneroso's reckoning, based on years of experience
in the gold market, diligent research and insider contacts, there are now some
14,000 tonnes of gold shorts, up from 8,000 tonnes at end 1998 . That means
that of the total central bank and financial institution gold holdings of
33,500 tonnes, some 14,000 tonnes could be
Reginald Howe spells out the reality in paragraph 27 of his lawsuit complaint "during the term of the deposit or loan, the central bank retains the leased gold as an asset on its books and as part of its official gold reserves notwithstanding that the buyer of the leased gold owns it free and clear."
John Hathaway explains what is happening this way in a
great essay, The Golden Pyramid
http://www.tocqueville.com/brainstorms "Central bank financial accounts refer to leased gold
as 'gold receivable', an item lumped together with gold on hand as if it were
one and the same. in reality, gold receivable is a dubious asset . . . A
significant percentage of the borrowed gold has already been melted down and
sold into the physical markets. It no longer exists in deliverable form.
Aided by poor information and worse governance, physical gold borrowed from the central banks has been sold over and over again in multiple transactions. Through the magic of derivatives, paper claims have multiplied against a shrinking base of physical gold. The short 'covår' ration rivals the most overvalued Internet shares." The public is being wittingly or unwittingly deceived.
Now when it dawns on the people of the oh so rich, "developed" world that the official figures for state gold holdings are totally misleading and that much of the gold may be lost to them, what is that going to do for the way people feel about their government?
What is that going to do to the dollar and linked hard currencies of the "developed" world? What is that going to do to the price of gold? Are the central bankers and treasury officials in the US and UK not ashamed to go to Third World countries like Kuwait, Bangladesh and Jordan to put on pressure for gold loans, especially while the Bank of England continues with the gold give away auctions?