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GOLD & GATA is chapter VI of the Gold Drivers
Report. It discusses GATA's claims that the Gold market is
not free and not fair. Although this topic won't be discussed
by most main-stream Gold analysts (because they don't want
to be associated with groups like GATA) it's getting harder
and harder for them to ignore the ever increasing amount of
circumstantial evidence which they provide. This chapter shows
the rapid increase of support for GATA's manipulation claims
and discusses the Blanchard case. I realize I won't be able
to convert GATA opponents into GATA believers but nevertheless
I think its important for the average investor to know what
GATA has to say whether you agree with them or not. The thing
is that if GATA turns out to be right it could have tremendous
consequences for the price of gold coming years. I've tried
as best as I can to stick with facts only here but have to
admit that my view is biased since I'm in the GATA camp myself
as well.
Now let's start of with GATA's message. What
do they have to say ? Well, just take peek at this picture
below which tells it all :
GATA says it loud and clear :
Bullion Price deliberately being suppressed.
For years now GATA is trying to do all they can in order
to convince the mainstream gold analyst that the price of
Gold has been manipulated to such a degree that it is an accident
waiting to happen. But instead of listening Gold analyst are
hiding. They hide themselves behind empty statements such
as : "GATA is just a bunch of nuts" , they haven't
proven anything, etc…' . GFMS (which is considered to
be the world's foremost precious metals consultancy) even
went so far by publicly saying :
GFMS does not subscribe to GATA's theory, few do, and most
of them are locked up." END.
When GATA published their Gold Banking Derivative Crisis report
in 2001 it was debunked by most Gold analysts as being crazy
conspiracy stuff and obviously GFMS still thinks so.. Although
I don't mind people disagreeing with GATA but doing so without
debate makes the GATA opponents less credible than GATA itself.
GATA wants to debate anyone, any organization anywhere in
the world at the expense of GATA in front of all journalists
who want to attend, but again all GATA noise is being met
with silence by most mainstream gold analysts. The fact that
no one is willing to discuss GATA's findings is very annoying
to the GATA members. Frank Veneroso made that point clear
during the GATA summit in South Africa May 2001 :
Frank Veneroso at GATA summit SA. May
2001
I find it extremely annoying that there is a hell of a lot
of obvious evidence out there that something is happening
in the gold market---that there are very large supplies coming
into the market---larger than the consensus would claim---and
no one is willing to discuss it.
I have had interviews with the press. After the interviews,
its has always turned out that the articles were killed. I
have requested debates with Goldfields Mineral Services and
they have refused to show up. I have asked the World Gold
Council to fund pertinent research studies and they have not
responded. I never get a response that counters the evidence
that I can bring forward. I simply get extreme silence. Only
GATA has looked at this evidence and taken it to the public,
and so, as a result, I feel it is incumbent on me to present
it once again in their forum because I think that it represents
evidence of very large undisclosed official supplies in the
market that is systematically ignored. If there are any producers
here who have influence on organizations like the Gold Council---if
you find this persuasive---you should go to them and say,
"Hey, listen, this guy has real evidence. He may not
be right but it poses serious questions. It should be addressed.
Why isn't it being addressed?" END.
Good question, why isn't it being addressed ? Why isn't GATA
being heard ? Why is GATA ignored ? Why isn't there any debate
?
Well, to be honest I don't know and I really don't think to
have any influence at all to the GATA opponents here but I
really do hope to reach the average investor out there and
tell the GATA story. Why ? Because it's important to know
what GATA knows simply because if GATA turns out to be right
it could have tremendous consequences for the Gold market
in the years to come. It's up to you to accept if GATA has
a point indeed or not.
This chapter will address the following issues :
1. GATA's Message
2. Managing the price of Gold : Absurd idea or not ?
3. GATA : Bunch of Nuts ?
4. Does market action confirm GATA findings ?
1.GATA's Message :
GATA says that gold is deliberately being suppressed and
behaves far from normal since the mid nineties . This abnormal
market behavior became very clear during the LTCM crisis in
1998 when the price of Gold was heavily capped on all promising
rallies. This despite the 400 ton gold short estimate with
LTCM. Covering this position would have sent the gold price
soaring thereby harming the balance sheets of LTCM and other
significant gold shorts. Knowing that the price of Gold was
managed paved the road for the 'in the know' bullion banks
to accelerate their profitable gold carry trade (selling gold
being lend by the Central Banks). A declining gold price was
win-win situation for many. The US government welcomed a lower
gold price since it lowered inflation expectations and strengthened
the dollar.. Remember Robert Rubin preaching the 'strong dollar
policy'?. Ever wondered 'how' this strong dollar policy was
implemented ? By targeting gold perhaps ? Bullion Banks welcomed
lower gold prices since they were making a killing out of
the gold carry trade (thereby increasing their established
short position in gold).
So everybody 'happy' 'all is fine' as long as the price of
Gold was contained. But suddenly the unexpected happened.
The price of Gold exploded after the Washington Agreement
on Gold announcement whereby 15 European Central Banks agreed
to limit gold sales over 5 years and curtailing lending activities.
The price of Gold shot up $80 in just two weeks time. Suddenly
the Gold carry trade had turned dangerously unprofitable and
the gold shorts were trapped.
Word emerged that the official sector intervened heavily
at this point to prevent what has been termed a gold derivative
crisis.
Reg Howe who filed a lawsuit in December 2001 (Howe vs. Bank
for International Settlements et al) in which it accused the
BIS,FED,US Treasury and some bullion banks of Gold Manipulation
included in his lawsuit next statement regarding this gold
spike after the Washington Agreement spike) :
Howe vs BIS et all item 55
This effort [by the Federal Reserve, Bank of England and
BIS to turn back the gold price] 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. END.
GATA suggests that this whole gold carry trade went so far
out of control that there's no way for the bullion banks to
cover their huge established short positions without rocketing
the price of Gold much higher themselves. So instead they're
capping the price of Gold as much as they can and retreat
in 'slow-motion' picking the pockets of the long specs every
now and then to cover for their losses.
GATA estimates that in order to control the price of Gold
more than 15.000 tonnes of Gold has been leased into the markets
so far. That's a huge difference with the official numbers
of GFMS which only suggest less than 5000 tonnes. Now who
is right and who is wrong ? Good question and the answer is
simple : Nobody knows, it's all about estimates. The thing
is that nothing can be proven since the gold market is not
transparent. In order to prove for example GATA's claim that
JPMorgan caps the price of Gold by means of excessive derivatives
you have to dig into JPMorgan's bookkeeping. Needless to say
that there's not a snowballs chance in hell JPMorgan will
allow you to do so. It's simple, you want to proof JPMorgan
manipulating the gold price by means of excessive derivatives
? OK, file a lawsuit and bring them on ! Needless to say that'll
be a difficult endeavor which requires deep pockets.
So the gold market is not transparent, a fact which is acknowledged
by GATA's opponents as well :
George Milling-Stanley of the World Gold Council was quoted
by Insight Magazine on this subject. Insight magazine reported
:
George Milling-Stanley, manager of gold-market analysis for
the World Gold Council (WGC), a private organization made
up of leading gold-mining companies that promotes the acquisition
and retention of gold, is aware of these papers and shortage
numbers but tells Insight that "there are no official
[gold-reserve] reports." That is, "The central banks
are under no obligation to report what they lend into the
market, what they place on deposit and what they do with their
swaps. END.
Now this is exactly GATA's point :
The central banks are under no obligation
to report what they lend into the market, what they place
on deposit and what they do with their swaps. END
The central Banks can report to own 30.000 tonnes of Gold
without actually have it stored in their vaults. The IMF tells
the central banks not to exclude their leased/swapped gold
from reserve assets. So if a central bank reports having 1000
tonnes of Gold in their vaults, no-one knows for sure how
much of that gold is really there and how much of that gold
is loaned/swapped. Now if a central bank doesn't report the
amount of loaned/swapped gold GFMS won't report it either,
it's simple as that !
Central banks don't report their total amount of loaned/swapped
gold therefore GFMS doesn't (can't) report the total amount
of Gold loans either, therefore the total amount of Gold loans
MUST be higher than the mere 5000 tonnes reported.
Now some banks do report their gold loans/swaps. An example
is the central bank of Portugal. They reported total gold
loans/swaps of 433 tonnes which equals 70% of their total
Gold holdings. Now if GFMS is right then the Bank of Portugal
would be responsible for almost 10% of all outstanding gold
loans. As Frank Veneroso says ; It just doesn't make sense
that one single tiny central bank is accountable for 10% of
all pending gold loans.
As said before Frank Veneroso's and GATA's estimates of outstanding
gold loans are to the tune of 15.000 tonnes.
Why Frank Veneroso thinks
his estimates are correct :
Six Reasons Why Veneroso Associates Estimates Are Correct,
As Opposed To The Consensus Estimates
1. 1994-1995 Bank of England survey reports are consistent
with Veneroso Associates estimates.
2. World Gold Council demand estimates are also consistent
only with our data.
3. Data on gold derivatives supplied to the Bank for International
Settlements are supportive of our estimates.
4. Our estimates are consistent with 200 years of gold demand
income and price elasticities; majority opinion estimates
are not.
5. Drawdowns from visible official sector depositories are,
on a prorated basis, consistent with our estimates.
6. Our information on the gold loan book positions by one-quarter
to one-third of all bullion bankers in the period 1998-1999
also confirms our estimates.
Veneroso adds to this :
We may ask, has there emerged more evidence since our 1998-2000
writings? The answer is "yes."
First, over time, we have encountered more bullion bankers
who have disclosed to us their gold deposit and swap positions
with official sector lenders. All of these inputs have confirmed
our extrapolations from our earlier smaller, partial sample.
Now the picture is more complete. We classify this as information
derived from the public domain since I presume that, if we
have obtained so much of this information, others have been
able to as well. END
GATA's findings are not only based on the reports of Frank
Veneroso , two other independent GATA consultants (Reg Howe
and James Turk) came to the same conclusion as well :
About 15.000 tonnes of central bank gold has been leased into
the markets.
The thing what GATA wants you to know should be clear :
Half of all central bank is gone and is hanging around the
necks of Indian woman.
When the investment world finds out that there' s not a snowballs
chance in hell for all this gold to return to the central
banks vaults a rush on gold could emerge. But hey, if there's
no gold left with the central banks to meet a sudden increase
in demand for gold the price of gold could easily sky-rocket
to its natural equilibrium (+$600) and higher.
It goes far beyond the scope of this article
to discuss all technical details of the Veneroso,Howe and
Turk reports, readers interested can find out all relevant
details in John Embry's/Andrew Hepburn's excellent report
'Not Free - Not Fair, the Long Term Manipulation of the Gold
Market' http://www.sprott.com/pdf/not_free_not_fair.pdf
2.Managing the price of Gold : Absurd
idea or not ?
You might wonder why a government should want to suppress
the price of Gold ?
Well, you could easily ask the opposite as well, why shouldn't
a government want to suppress the price of Gold ? As said
before a sudden increase in the price of Gold would set off
all kind of alarm bells such as high inflation expectations,
less appetite for the almighty dollar, waning confidence in
world's financial system etc…
Please don't think that these ideas are weird, the price
of Gold is being watched like a hawk by government and FED
officials. Former FED president Paul Volcker said in his memoirs
(referring to the dollar crisis of the 70's):
"Joint intervention in gold sales to prevent a steep
rise in the price of gold, however, was not undertaken. That
was a mistake. Through March, the price of gold rose rapidly,
and that knocked the psychological props out from under the
dollar.' END.
Now please don't think that the US government didn't try
to prevent a dollar collapse. How ? Indeed, partly by Gold
sales. The Wall Street Journal reported earlier this year
(referring to the dollar crisis of the seventies) :
WSJ
Jan 17, 2005
As Dollar Weakens, Hidden Strenghts
May Stave off Crisis.
"Worried the falling dollar was undermining its anti-inflation
efforts, the Carter administration announced a multi-part
support package on Nov. 1, 1978: The Treasury would use gold
sales and foreign borrowing and draw on its reserves with
the International Monetary Fund to defend the dollar. At the
same time the Federal Reserve raised its discount rate a full
point."END.
So there it is, The US Government used Gold sales in order
to support the falling dollar. Now tell me, don't you think
that next administrations never came up with same kind of
ideas ?
Again, nothing can be proven but the thing is
that you shouldn't be surprised to see governments intervening
in the gold market. At a time when the dollar is under severe
pressure (see
chapter II - GOLD & US$), don't you think that the
current administration doesn't pay any attention to what the
former FED chief has to say ? Don't you think they won't make
that same mistake again ? Isn't it therefore logical to assume
that joint intervention will be taken place in order to prevent
a steep rise in the price of Gold ?
Now many people argue that the government/FED
don't really care about the gold price since gold doesn't
have any monetary role anymore. Well, I think the Volcker
statement and the gold sales program to defend the dollar
described above already proves the opposite. Now please digest
the following example carefully. It proves beyond any doubt
that FED/Government really do have an interest in gold and
you may guess : indeed their interest is not a higher price
for gold. This example was brought up by Dimitri Speck (www.seasonalcharts.com
) and described in detail in his essay "FED-Musings
on the Eve of the Gold Suppression" which can
be found at :
http://www.gold-eagle.com/editorials_03/speck020303.html
It's a transcript of a FED meeting of July 6,7 1993. Please
read it and read the conclusion :
Excerpt Transcript FED Meeting July 6,7 1993
http://www.gold-eagle.com/editorials_03/speck020303.html
What becomes clear is that mr. Angell didn't like the rise
in the price of Gold at all,
he said :
"this year those who have held gold have said they've
got the best deal going as the [value of the] world's gold
stock has appreciated $234 billion since our February meeting.
We can hold the price of gold very easily;"
"all we have to do is to cause the opportunity cost in
terms of interest rates and U.S. Treasury bills to make it
unprofitable to own gold." END.
Did you read it ?
FED official Wayne Angell said :
We can hold the price of Gold very
easily. END.
Fear of Inflation had caused Angell to talk about Gold and
he recommends to use the interest rate as a means for suppressing
the gold price.
Now what happened between the FED meeting of July 6,7 1993
and the FED meeting on August 17, 1993 nobody knows but Mr.
Angell got what he wanted, he said :
"I recognize that the price of gold has come down from
$400 to $371 and that really is a factor that parallels the
move that took place in the bond market; and that has worked
very, very well.". END.
My point of bringing this up is not to prove any kind of
manipulation scheme or anything like that, no, the reason
for bringing this up is to show that government officials
are watching gold like a hawk and that they won't be amused
by a sharp rise in the price of Gold. Period !
Conclusion :
The FED doesn't like a rising price of Gold and the examples
shown above simply proves the point that it's not an absurd
idea at all that official intervention in the gold market
could be taken place.
3. GATA : Bunch of nuts ?
I don't want to waste too much time on this subject, I would
say just read the biographies of these gentlemen associated
with GATA and judge yourself :
Frank Veneroso :
Frank Veneroso is arguably the foremost mind on gold supply
and demand flows. His 1998 Gold Book Annual made the case
that the consensus supply and demand view of the gold market
established by GFMS Ltd. (formerly Gold Fields Mineral Services)
was seriously flawed. Veneroso's gold market model indicates
that central bank loans are far greater than GFMS estimates
suggest.
Frank Veneroso is currently head of Veneroso
Associates, formerly partner of the hedge fund Omega Advisors
where he was responsible for global investment policy formulation.
Through his own firm, Mr. Veneroso has been an investment
and
economic adviser in investment strategy to institutions and
governments around the world in the areas of money and banking,
financial instability and crisis, privatization, and development
and globalization of securities markets. His clients have
included the World Bank, the International Finance Corporation,
[and] The Organization of American States. He has advised
the Governments of Bahrain, Brazil, Chile, Ecuador, Korea,
Mexico, Peru, Portugal, Thailand, Venezuela and the United
Arab [Emirates]. Frank graduated cum laude from Harvard and
has authored many articles on the subjects of international
finance. Recently, Mr. Veneroso has been "Market Strategist
for the Global Policy Committee of Allianz Dresdner Asset
Management and is responsible for alternative asset product
development at Dresdner RCM."
Reginald H. Howe.
In 2000, Mr. Howe filed suit against the Bank
for International Settlements, Alan Greenspan, Lawrence Summers
(later replaced with Paul O'Neill) five bullion banks, and
William McDonough (thenpresident of the Federal Reserve Bank
of New York). As it concerns the gold market, Howe alleged
horizontal price-fixing by all defendants. In 2002, the presiding
judge dismissed the lawsuit on two technicalities. First,
he ruled that Howe was not the most appropriate plaintiff
to bring a gold antitrust claim. Second, the court found that
defendants Greenspan, O'Neill and McDonough enjoyed sovereign
immunity protection because the alleged actions would have
taken place in their capacity as government officials. Importantly,
the lawsuit was not dismissed due to lack of evidence or quality
of information presented.
From Mr. Howe's biography:
Reginald H. Howe, is an author, private investor and member
of Golden
Sextant Advisors LLC, which provides consulting, management
and
investment banking services to companies and private investors
with an
interest in gold. From 1976 to 1984, Mr. Howe was a partner
in the Boston
law firm of Palmer & Dodge, where he specialized in civil
litigation and was
a member of the firm's investment committee. He was an associate
at the
same firm from 1970 to 1976. In 1983, Mr. Howe organized Golden
Sextant
Associates, a general partnership for investing in developing
North American
gold mining companies, and he served as its managing general
partner until
its profitable dissolution in 1987. For a few years thereafter,
he continued as
a sole legal practitioner and served as a registered investment
adviser to
private clients. Mr. Howe began his business career in 1964
as a financial
analyst with the international division of The Kendall Company.
He is a
graduate of Harvard College, Harvard Law School and the Bologna
(Italy)
Center of the Johns Hopkins School for Advanced International
Studies.
Mr. Howe is being considered to be one of the leading authorities
on gold derivatives
James Turk :
James Turk authors the Freemarket Gold and Money Report and
is the founder of
GoldMoney.com, a digital payment and gold storage service.
He is an authority on the U.S. gold reserve.
From Mr. Turk's biography:
James Turk has specialized in international banking, finance
and investments
since graduating in 1969 from George Washington University
with a B.A.
degree in International Economics. He began his business career
with The
Chase Manhattan Bank, with whom he worked for eleven years,
principally
in the International Department, which included assignments
in Thailand,
Hong Kong and the Philippines. From 1980 to 1983, Mr. Turk
was with RTB, Inc., the private investment and trading company
of a prominent precious metals trader based in Greenwich,
Connecticut. He moved to the Middle East in December 1983
to
be appointed Manager of the Commodity Department of the Abu
Dhabi
Investment Authority. In this position, Mr. Turk was responsible
for developing and implementing the investment strategies
of that organization's portfolios of precious metals. Mr.
Turk held this position until March 1987. Since then Mr. Turk
has acted as Chief Executive of Greenfield Associates, a firm
he established in 1985 to publish his work and to provide
investment research and trading advice, principally to investment
managers, hedge funds and commodity trading advisors in the
United States and Europe. From 1995 to 1999 he was a Director
of Lion Resource Management Ltd. of London, England, a firm
which was the sub-advisor to the Midas Fund, a publicly listed
mutual fund in the United States that invested in the equities
of companies involved in the mining and exploration of precious
metals.
James Turk is co-author of the book 'The Coming Collapse
of the Dollar"
http://www.dollarcollapse.com/
Of course you can disagree with the things these gentlemen
have to say but they sure aren't a bunch of nuts. The unwillingness
of the the mainstream analysts to debate GATA is not only
disturbing GATA itself , John Embry of Sprott Asset Management
finds it troubling as well :
John Embry, Chief Investment
Strategist, Sprott Asset Management Inc.
"I find troubling the consistent unwillingness by the
mainstream gold analysts to debate or even acknowledge the
gold market manipulation viewpoint in any depth. Like all
manipulations, this one too will fail. When it does, the gold
price will explode. Therefore, I believe it is imperative
that gold investors cast their gaze beyond what has become
an ignorant and stale mainstream and towards a fringe whose
thinking is far more intellectual than well-known gold market
commentators have long been able to muster. END.
GATA's findings are getting endorsed by more and more industry
experts as time passes by. Frank Veneroso said in an interview
with CBS Marketwatch :
"GATA has made a lot of publicity about management of
the Gold market, and they are basically correct. Three years
ago, this was regarded as crazy talk. Now when I am in Europe,
I am shocked by the number of serious investment professionals
who take this position, that the Gold market is manipulated"
END.
Then in March of this year a report published by a research
foundation in Dubai endorsed GATA's findings that Western
central and commercial banks have rigged the gold market but
have much less gold than they claim to have and so are vulnerable
to rising demand for gold. The study recommends that the oil-producing
countries of the Middle East diversify their ever-depreciating
U.S. dollar holdings into gold.
The study, "The Role of Gold in the Unified Gulf Cooperation
Council Currency," was written by Eckart Woertz, vice
president of CFC Securities in Dubai, for the Gulf Research
Center. It quotes the work of GATA's consultants, including
Frank Veneroso, and predicts that the gold price suppression
scheme of the Western banks will fail just as their similar
scheme of the 1960s, the so-called London Gold Pool, failed
when the drain on Western gold reserves became too great.
Once the scheme fails, the study says, "it will be highly
difficult and expensive to accumulate a gold reserve. This
is especially true for central banks that have low gold reserves
like those in the Gulf Cooperation Council countries.".
END.
Again, you may disagree with these gentlemen but they certainly
aren't a bunch of nuts.
4. Does market action confirm GATA's
findings ?
GATA says that gold is being suppressed by means of excessive
use of gold derivatives. That simply means that paper gold
determines the price of gold to a high degree. When you realize
that the paper gold market is about 35 times bigger than the
physical gold market (120.000 tonnes vs 3500 tonnes) it ain't
difficult to understand. Since most of the gold papers are
being traded on COMEX we should see a continued selling pressure
on COMEX which exceeds all buying pressure from overseas,
at least that should be the case if GATA is correct.
Well, that's seems to be exactly the case. Gold
writer Dimitri Speck did some outstanding research with regard
to COMEX selling pressure and concludes that ever since August
1993 there is a continued selling pressure on COMEX. Now here
where it gets interesting. We already saw that government
isn't amused at all by sharp rising gold prices (see
2.Managing the price of Gold : Absurd idea or not ?)
Gold writer Dimitri Speck described in detail the FED transcript
of July 6,7 1993 wherein FED official Wayne Angel talked about
gold in lengths and his dislike of higher gold prices. Speck
continues by quoting from the next FED meeting on August 17
1993 whereby FED official Wayne Angel said :
"I recognize that the price of gold has come down from
$400 to $371 and that really is a factor that parallels the
move that took place in the bond market; and that has worked
very, very well.". END.
Speck continues by charting these events, see
chart below :
http://www.gold-eagle.com/editorials_03/speck020303.html
Now Speck concludes that ever since Aug 5 1993
the New York gold market behaved far from normal, in other
words, overseas gains are eliminated during COMEX trading
sessions. The chart below says it all :
http://www.gold-eagle.com/editorials_03/speck080303.html
This chart proves beyond any doubt that the
New York gold traders do whatever they can to countermove
any sharp rise in the price of gold. Look at the 1999 gold-spike
caused by the Washington agreement. It should be obvious that
this spike wasn't caused by the New York boys, no, in contrary,
they did whatever they could in order to get the gold price
down. And this is exactly what GATA wants you to know, paper
gold being used to get the price of gold down. Now let's repeat
again item 55 from Reg Howe's lawsuit 'Howe vs BIS et all'
with regard to the Washington Agreement gold spike.
Howe vs BIS et all item 55 :
This effort [by the Federal Reserve, Bank of England and
BIS to turn back the gold price] 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. END.
Now GATA and Speck conclude that COMEX gold trades lower most
of the time as overseas. Indeed this has been the case in
94% of all COMEX sessions since August 1993. Now any statistician
will admit that a free market doesn't trade this way. Any
item which is being traded freely 24 hrs/day should show equal
gains/losses over time in East and West. It's clear, COMEX
sessions are characterized by extreme aggressive gold selling
every now and then. The chart below is a perfect example of
aggressive gold selling during a COMEX session.
Why these drastic down moves only happens during COMEX trading
hours ?
The next chart shows painfully clear that the trend is down
most of the time indeed on COMEX.
Remember, 94% of all COMEX sessions end up lower than overseas.
This is NOT a characteristic of a free traded market and many
statisticians do endorse this statement.
Now some people argue that COMEX is just much more volatile
as the overseas markets since COMEX is the biggest paper gold
market. Sure, but then you should expect some wild upswings
to the upside as well but strange enough that just NEVER happens
on COMEX. GATA reported over and over again that gold NEVER
exceeds an $6 up-move on COMEX and when it does (happened
only a couple of times in last three years) it will be taken
down immediately the very next day. Again, this is not a characteristic
of a typical free traded market.
Now if there's such an interest in holding the price of gold
down, who are the sellers ? Well, the sellers are the commercials
(bullion banks, JPMorgan, Goldman Sachs, City Bank etc..).
And why are they selling ? Again that's hard to figure out
since the gold market is not-transparent. Maybe some of them
operate for government, maybe they are trying to protect their
short positions in gold, maybe they're just selling for their
clients, no-one knows and no-one will unless someone could
enforce a look into their bookkeeping.
Now some people argue that the commercials are just clever
gold traders and they are right most of the time. So if they
are going short they just see what is ahead of us and again
they are right most of the time.
I just don't agree with this kind of reasoning. Why ? Simple,
because I don't think that all other big banks (besides the
5 big bullion banks) have stupid gold analysts who can't see
what the bullion bankers gold analysts are seeing. So if the
bullion banks are adding shorts rapidly it must be because
their gold analysts are predicting a down-move in gold right
? Now I wonder why all other banks don't see that as well.
Let me give you an example here.
Example :
Quarterly increase in gold-derivatives :
JPM : +10.2%
CITY : +43.4%
All other 372 US Banks together : +1.19%
Now here we see a sudden increase in gold derivatives with
two major bullion banks only while all other US banks reported
hardly any increase at all. Now GATA wonders why drastic down
moves in Gold always coincide with drastic build ups in gold
derivatives with a few major bullion banks.
Now what did we see so far :
" Heavy selling pressure on COMEX
" COMEX trades 94% of all sessions below overseas.
" Enormous increase in gold derivatives of a few big
US bullion banks.
GATA concludes :
New York Gold trades 94% of the time lower than Asia due
to continuous suppressing/selling by a few big US bullion
banks. This suppression becomes transparent due to enormous
increases in gold derivatives of these US bullion banks. END.
Now many people argue that if GATA thinks they are right
they should sue the manipulators. Well that's exactly what
GATA did.
In December 2001 GATA filed a lawsuit (Howe vs. Bank for International
Settlements et al) in which it accused the BIS,FED,US Treasury
and some Bullion Banks of Gold market manipulation, Although
this case ended up being dismissed (just on two technicalities),
many people concluded that enough evidence was presented here
to prove the price-fixing claims.
Unfortunately for the price manipulators Blanchard and Co.
filed a similar suit in US District court in New Orleans against
Barrick Gold and JPMorgan. This time however, the Judge denied
to dismiss the Lawsuit so this case will enter the discovery
stage. What does it tell you ? It tells you that Blanchard
must have some valid points otherwise this case would have
been dismissed.
What is this case all about ?
Blanchard wants the court to force Barrick and J.P. Morgan,
as well as other bullion banks, to stop borrowing gold from
central banks and selling it into the market -- a practice
the dealer says depresses the price and has hurt other investors.
The case is scheduled to go on trial by summer. Needless to
say what it will do to GATA's credibility if Blanchard will
be successful. Will they be successful ? Hard to say but one
thing is clear, you must be absolutely crazy to sue the most
powerful bank in the world unless you are EXTREMELY CONFIDENT
about yourself. Needless to say that Blanchard is EXTREMELY
CONFIDENT about themselves ! Investors stay tuned.
Conclusion :
Gold suppression can't be proven but investors who'll study
all circumstantial evidence brought forward by GATA over the
last 6 years must admit that they have a point. John Embry
of Sprott Asset Mangement once said :
Everyone with a IQ higher than a grapefruit must admit that
they have a point.
And that's exactly what I want investors to
know. I don't ask you to agree with GATA or to disagree but
just listen to what they have to say. Again, I think it's
important to know what GATA has to say because if they turn
out to be right it could have enormous consequences for the
gold market. The longer an item being suppressed the more
volatile the upswing will be. Again it goes far beyond the
scope of this article to go in detail of all circumstantial
evidence brought forward by GATA but I would urge readers
who want to know more to read Sprott Asset's Management excellent
report ' Not Free Not Fair, - the Long Term Manipulation of
the Gold Market) http://www.sprott.com/pdf/not_free_not_fair.pdf
Highlights :
Eric Hommelberg
The Gold Drivers Report
Email : ehommelberg@golddrivers.com
Web-site : www.golddrivers.com
May 15, 2005
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