Money, Markets, and Metals

For several years now a growing body of suspicious folks has been investigating rumors of a fix in the gold market. They have accused bullion banks – firms that facilitate the lending of gold and silver – of colluding with central banks and governments to jimmy the gold market.

But nobody could find the smoking gun.

Then last December James Turk, editor of the Freemarket Gold & Money Report (Box 5002, N. Conway, NH 03860, http://www.fgmr.com/) found the gun, and it was still smoking. This came in the form of proof that the US Treasury’s secretive Exchange Stabilization Fund (ESF) was intervening in the gold market.

THE MEANS

The Roosevelt regime created the ESF as a presidential slush fund (without any congressional oversight or control) to monkey in the currency and gold markets to manipulate the value of the US dollar and gold – and silver.

So where was the surprise? A string of high level Treasury officials and Federal Reserve officials, including Treasury Secretary Larry Summers (through intermediaries) and Fed chairman Alan Greenspan, had been denying that the government and the ESF had been acting in the gold market recently. But James Turk established that the amount of gold in the US Reserve assets had been changing, and that the changes resulted from ESF games in the gold market since 1996.

THE MOTIVE

But where’s the motive for the crime? Money. Bullion banks were lending gold – borrowed gold -- at a 1.5% interest rate. The gold was coming from central banks eager to put a "non-performing asset" to work, at any price. Hedge funds and others were borrowing the gold, selling it into the market, and investing the funds in safe US Treasury bills, pocketing a neat 5% gain with no risk.

Except the risk that gold’s price would rise. If that happened, well-connected bullion banks and other "players" would have been forced to repay borrowed gold that didn’t exist, or be ruined.

THE OPPORTUNITY

In April James Turk turned up yet more smoking guns.

The Federal Reserve Open Market Committee tapes its minutes, transcribes them, and releases them five years later. However, they only release them after they have heavily edited anything they want to conceal from the public. Apparently James Turk found one place they missed. In a 1995 meeting the chief legal advisor to the Federal Reserve, Virgil Mattingly, opined that the ESP statute was so broad that "it has covered things like the gold swaps."

What gold swaps? James Turk asked himself. Obviously, the gold swaps which the ESF had already been making in the market.

The trail didn’t stop there. Then Jim put that bureaucratic slip-up together with the new audit of West Point gold storage taken when the US Mint got a new director. Bureaucrats tend to be very cautious about a change of management. They don’t want to get stuck with responsibility for something that doesn’t exist. The August 2000 Status Report on US Treasury Owned Gold stored at West Point is designated "Gold Bullion Reserve" (http://207.87.26.43/told/00-08.html). But in the September 2000 status report and later ones, without any explanation this same gold stored at the US mint in West Point is designated "Custodial Gold" (http://207.87.26.43/gold/00-09.html).

James Turk theorizes this happened because the US Treasury wanted to loan gold to bullion banks. To keep the banks from defaulting on their gold loans, they had to find gold somewhere. Treasury (and the bullion banks) also needed to keep the gold price low enough that the likelihood of the banks defaulting would be lessened. James suspects the US Treasury swapped this gold with the German Bundesbank – they couldn’t throw all their own gold onto the market because it was coin melt, 90% pure bars that would raise too many eyebrows. Nor could Treasury act itself without raising too much attention, so it had to use a cat’s paw: the ESF. Since the banks needed gold to deliver in Europe, the Treasury through the ESF just swapped the gold to the Germans. German gold in Bundesbank vaults becomes ESF gold for delivery in Europe, while US gold in West Point was titled over to the Bundesbank.

James Turk writes, "Case closed. They mystery of the abnormally low gold price is solved. The ESF did it."

What does this mean for us? That these criminal manipulations by rogue bureaucrats and criminal insiders from the bullion banks have created deep, deep imbalances in the gold market, suppressing the gold price far below its true market rate. One day they will lose control, as manipulators always do, and that day gold will blast them all aside.

For that ride we have to buy our tickets now.

-- F. Sanders

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