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GOLD & GATA

 

By Eric Hommelberg        Printer Friendly Version

May 16, 2005

  www.golddrivers.com

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 :

GATA estimates that half of all central bank gold (15.000 tonnes) is gone


These figures don't show up in GFMS reports


GFMS only reports the reported gold loans by CB's

CB's don't have to report the amount of gold being loaned/swapped therefore they won't show up in official gold loan statistics. Therefore the actual gold loans MUST be higher as officially reported.

Veneroso's gold loan numbers are consistent with gold loan book positions by one-quarter to one-third of all bullion bankers in the period 1998-1999

 










A growing amount of Industry experts do endorse GATA's claims eg :

o John Embry
o Frank Veneroso
o Ferdinand Lips
o James Turk
o Reg Howe

Gold suppression can't be proven but market behavior suggests gold is being suppressed.

NY selling pressure is clearly visible.


A free traded market won't show 94% of all COMEX sessions closing lower than overseas since 1993.

When investors find out that half of all central bank's gold is gone a rush on gold could emerge which could cause a sharp increase in the price of gold.


Blanchard & Co sued JPMorgan & Barrick Gold for suppressing gold and trial is scheduled this summer.

Efforts from JPMorgan and Barrick to convince the judge to dismiss this case have failed. That simply means that Blanchard & Co must have valid points.



GATA will host a legendary gold conference 'GOLD RUSH 21' on August 8 and 9 in Dawson City, Yukon Canada where they will present all their findings with regard to the gold suppression. Joining GATA are guest speakers such as : John Embry, James Turk, Hugo Salinas Price, Peter George and Ferdinand Lips. More info on www.goldrush21.com


Eric Hommelberg
The Gold Drivers Report

Email : ehommelberg@golddrivers.com
Web-site : www.golddrivers.com

May 15, 2005