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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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