By Chris Powell, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
International Precious Metals and Commodities Show
Munich, Germany
Saturday, November 7, 2009
http://www.gata.org/node/8001
Thank you for coming to listen to me today. Please forgive my inability to speak German. I'll be discussing many documents, some of them fairly complicated, but don't worry if you miss something about them. They'll be posted at GATA's Internet site with these remarks.
On Friday, September 25, Jim Rickards, director of market intelligence for the Omnis consulting firm in McLean, Virginia., was interviewed on the cable television network CNBC in the United States. Talking about the currency markets, Rickards remarked: "When you own gold you're fighting every central bank in the world."
That's because gold is a currency that competes with government currencies and has a powerful influence on interest rates and the price of government bonds. And that's why central banks long have tried to suppress the price of gold. Gold is the ticket out of the central banking system, the escape from coercive central bank and government power.
As an independent currency, a currency to which investors can resort when they are dissatisfied with government currencies, gold carries the enormous power to discipline governments, to call them to account for their inflation of the money supply and to warn the world against it. Because gold is the vehicle of escape from the central bank system, the manipulation of the gold market is the manipulation that makes possible all other market manipulation by government.
Of course what Jim Rickards said about gold was no surprise to my organization, the Gold Anti-Trust Action Committee. To the contrary, what Rickards said has been our premise for most of our 10 years, and we have documented it extensively. Rickards' assertion was spectacular simply because he was allowed to make it in the mainstream financial news media and was allowed to keep talking. While the gold price suppression scheme is a hard fact of history, it is seldom mentioned in polite company in the financial world. I have been asked to talk about it here. I am grateful for this invitation and I will try to be polite.
How have central banks tried to suppress the price of gold?
The gold price suppression scheme was undertaken openly by governments for a long time prior to 1971.
That's what the gold standard was about -- governments fixing the price of gold to a precise value in their currencies, a price at which governments would exchange their currencies for gold, currencies that were backed by gold.
Though the gold standard was abandoned during World War I, restored briefly in the 1920s, and then abandoned again during the Great Depression, that was not the end of government efforts to control the gold price. Throughout the 1960s the United States and Great Britain attempted to hold the price at $35 in a public arrangement of the dishoarding of U.S. gold reserves. This arrangement came to be known as the London Gold Pool.
As monetary inflation rose sharply, the London Gold Pool was overwhelmed by demand and was shut down abruptly in April 1968. Three years later, in 1971, the United States repudiated the remaining convertibility of the dollar into gold -- convertibility for government treasuries that wanted to exchange dollars for gold. At that moment currencies began to float against each other and against gold -- or so the world was told.
For since 1971 the gold price suppression scheme has been undertaken largely surreptitiously, seldom acknowledged officially. But sometimes it has been acknowledged officially, and with a little detective work, more about it can be discovered.
You may have heard GATA derided as a "conspiracy theory" organization. We are not that at all. To the contrary, we examine the public record, produce documentation, question public officials, and publicize their most interesting answers, or their most interesting refusals to answer. I'd like to review some of the public record with you.
The gold price suppression scheme became a matter of public record in January 1995, when the general counsel of the U.S. Federal Reserve Board, J. Virgil Mattingly, told the Federal Open Market Committee, according to the committee's minutes, that the U.S. Treasury Department's Exchange Stabilization Fund had undertaken gold swaps. Gold swaps are exchanges of gold allowing one central bank to intervene in the gold market on behalf of another central bank, potentially giving anonymity to the central bank that wants to undertake the intervention. The 1995 Federal Open Market Committee minutes in which Mattingly acknowledges gold swaps are still posted at the Fed's Internet site:
http://www.federalreserve.gov/monetarypolicy/files/FOMC19950201meeting.p...
The gold price suppression scheme was a matter of public record in July 1998, six months before GATA was formed, when Federal Reserve Chairman Alan Greenspan told Congress: "Central banks stand ready to lease gold in increasing quantities should the price rise." That is, Greenspan himself, supposedly the greatest among the central bankers, contradicted the usual central bank explanation for leasing gold -- which was supposedly to earn a little interest on a dead asset -- and admitted that gold leasing is all about suppressing the price. Greenspan's admission is still posted at the Fed's Internet site:
http://www.federalreserve.gov/boarddocs/testimony/1998/19980724.htm
Incidentally, while we gold bugs love to cite Greenspan's testimony from 1998 because of its reference to gold leasing, that testimony was mainly about something else, for which it is far more important today. For with that testimony Greenspan persuaded Congress not to regulate the sort of financial derivatives that lately have devastated the world financial system.
The Washington Agreement on Gold, made by the European central banks in 1999, was another admission -- no, a proclamation that central banks were working together to control the gold price. The central banks making the Washington Agreement claimed that, by restricting their gold sales and leasing, they meant to prevent the gold price from falling too hard. But even if you believed that explanation, it was still collusive intervention in the gold market. You can find the Washington Agreement at the World Gold Council's Internet site:
http://www.reserveasset.gold.org/central_bank_agreements/cbga1/
Barrick Gold, then the largest gold-mining company in the world, confessed to the gold price suppression scheme in U.S. District Court in New Orleans on February 28, 2003. That is when Barrick filed a motion to dismiss Blanchard & Co.'s anti-trust lawsuit against Barrick and its bullion banker, JPMorganChase, for rigging the gold market.
Barrick's motion claimed that in borrowing gold from central banks and selling it, the mining company had become the agent of the central banks in the gold market, and, as the agent of the central banks, Barrick should share their sovereign immunity and be exempt from suit. Barrick's confession to the gold price suppression scheme is posted at GATA's Internet site:
http://www.gata.org/files/BarrickConfessionMotionToDismiss.pdf
The Reserve Bank of Australia confessed to the gold price suppression scheme in its annual report for 2003. "Foreign currency reserve assets and gold," the Reserve Bank's report said, "are held primarily to support intervention in the foreign exchange market." The bank's report is still posted at its Internet site:
http://www.rba.gov.au/PublicationsAndResearch/RBAAnnualReports/2003/Pdf/...
Maybe the most brazen admission of the Western central bank scheme to suppress the gold price was made by the head of the monetary and economic department of the Bank for International Settlements, William S. White, in a speech to a BIS conference in Basel, Switzerland, in June 2005.
There are five main purposes of central bank cooperation, White announced, and one of them is "the provision of international credits and joint efforts to influence asset prices (especially gold and foreign exchange) in circumstances where this might be thought useful." White's speech is posted at GATA's Internet site:
http://www.gata.org/node/4279
In January this year a remarkable 16-page memorandum was discovered in the archive of the late Federal Reserve Chairman William McChesney Martin. The memorandum is dated April 5, 1961, and is titled "U.S. Foreign Exchange Operations: Needs and Methods." It is a detailed plan of surreptitious intervention to rig the currency and gold markets to support the dollar and to conceal, obscure, or falsify U.S. government records and reports so that the rigging might not be discovered. This document remains on the Internet site of the Federal Reserve Bank of St. Louis:
http://fraser.stlouisfed.org/docs/historical/martin/23_06_19610405.pdf
In August this year the international journalist Max Keiser reported an interview he had with the Bundesbank, Germany's central bank, in which he was told that all of Germany's gold reserves were held in New York. That interview is posted at the YouTube Internet site:
http://www.youtube.com/watch?v=EzVhzoAqMhU
Some people saw the Bundesbank's admission as a suggestion that Germany's gold had become the tool of the U.S. government. GATA consultant Rob Kirby of Kirby Analytics in Toronto then pressed the Bundesbank for clarification. On August 24 the Bundesbank replied to Kirby by e-mail with a denial of Keiser's report, but the denial was actually pretty much a confirmation:
http://www.gata.org/node/7713
"The Deutsche Bundesbank," the reply said, "keeps a large part of its gold holdings in its own vaults in Germany, while some of its gold is also stored with the central banks located at major gold trading centers. This," the Bundesbank continued, "has historical and market-related reasons, the gold having been transferred to the Bundesbank at these trading centers. Moreover, the Bundesbank needs to hold gold at the various trading centers in order to conduct its gold activities."
The Bundesbank did not specify those "gold activities" and those "trading centers." But those "activities" can mean only that the Bundesbank is or recently has been surreptitiously active in the gold market, perhaps at the behest of others -- like the United States, the custodian of German gold.
In September this year a New York financial market professional and student of history named Geoffrey Batt posted at the Zero Hedge Internet site three declassified U.S. government documents involving the gold market.
The first was a long cable dated March 6, 1968, from someone named Deming at the U.S. Embassy in Paris to the State Department in Washington. It is posted at the Zero Hedge Internet site:
http://www.zerohedge.com/article/declassified-state-dept-data-highlights...
The cable described the strains on the London Gold Pool, the
gold-dishoarding mechanism established by the U.S. Treasury and the Bank of England to hold the gold price to the official price of $35 per ounce. The London Gold Pool was to last only six months longer.
The cable is a detailed speculation on what would have to be done to control the gold price and particularly to convince investors "that there is no point any more in speculating on an increase in the price of gold" and "to establish beyond doubt" that the world financial system "is immune to gold losses" by central banks.
The cable recommends creation of a "new reserve asset" with "gold-like qualities" to replace gold and prevent gold from gaining value. To accomplish this, the cable proposes "monthly or quarterly reshuffles" of gold reserves among central banks -- what the cable calls a "reshuffle club" that would apply gold where market intervention seemed most necessary.
These "reshuffles" sound like the central bank gold swaps of recent years.
The idea, the cable says, is for the central banks "to remain the masters of gold."
Also in September this year Zero Hedge's Geoffrey Batt disclosed a memorandum from the Central Intelligence Agency dated December 4, 1968, several months after the collapse of the London Gold Pool. This too is posted at the Zero Hedge Internet site:
http://www.zerohedge.com/article/cia-chimes-gold-control-highlights-hist...
The CIA memo said that to keep the dollar strong and prevent "a major outflow of gold," U.S. strategy would be:
" -- To isolate official from private gold markets by obtaining a pledge from central banks that they will neither buy nor sell gold except to each other."
And:
"-- To bring South Africa to sell its current production of gold in the private market, and thus keep the private price down."
The third declassified U.S. government document published by Geoffrey Batt at Zero Hedge, also in September this year, may be the most interesting, because it was written on June 3, 1975, four years after the last bit of official fixed convertibility of the dollar and gold had been eliminated and the world had been told that currencies henceforth would float against each other and gold and gold would be free trading.
The document is a seven-page memorandum from Federal Reserve Board Chairman Arthur Burns to President Gerald Ford. It is all about controlling the gold price through foreign policy and defeating any free market for gold. It is posted at the Zero Hedge Internet site as well:
http://www.zerohedge.com/article/smoking-gun-fed-controlling-gold
Burns tells the president: "I have a secret understanding in writing with the Bundesbank, concurred in by Mr. Schmidt" -- that's Helmut Schmidt, West Germany's chancellor at the time -- "that Germany will not buy gold, either from the market or from another government, at a price above the official price of $42.22 per ounce."
Burns adds, "I am convinced that by far the best position for us to take at this time is to resist arrangements that provide wide latitude for central banks and governments to purchase gold at a market-related price."
While the Burns memo is consistent with the long-established interest of central banks in controlling the gold price, it was still 34 years ago. But now at last there has been a contemporaneous admission of U.S. government intervention in the gold market. It has come out of GATA's long Freedom of Information Act struggle with the U.S. Treasury Department and Federal Reserve for information about the U.S. gold reserves and gold swaps, information that has been denied to GATA on the grounds that it would compromise certain private proprietary interests. (Of course such a
denial, a denial based on proprietary interests, is in itself a suggestion that the U.S. gold reserve has been placed, at least partly, in private hands.)
Responding to President Obama's declaration, soon after his inauguration, that the federal government would be more open, GATA renewed its informational requests to the Fed and the Treasury. These requests concentrated on gold swaps. Of course both requests were denied again. But through its Washington lawyer, William J. Olson --
http://www.lawandfreedom.com -- GATA brought an appeal of the Fed's denial, and this appeal was directed to a full member of the Fed's Board of Governors, Kevin M. Warsh, formerly a member of the President's Working Group on Financial Markets, nicknamed the Plunge Protection Team. Warsh denied GATA's appeal but in his letter to our lawyer he let slip some stunning information:
http://www.gata.org/files/GATAFedResponse-09-17-2009.pdf
Warsh wrote: "In connection with your appeal, I have confirmed that the information withheld under Exemption 4" -- that's Exemption 4 of the Freedom of Information Act -- "consists of confidential commercial or financial information relating to the operations of the Federal Reserve Banks that was obtained within the meaning of Exemption 4. This includes information relating to swap arrangements with foreign banks on behalf of the Federal Reserve System and is not the type of information that is customarily disclosed to the public. This information was properly withheld from you."
So there it is: The Federal Reserve today -- right now -- has gold swap arrangements with "foreign banks."
Eight years ago Fed Chairman Alan Greenspan and the general counsel of the Federal Open Market Committee, Virgil Mattingly, vigorously denied to GATA, through two U.S. senators who had inquired of the Fed on our behalf, that the Fed had gold swap arrangements, even though FOMC minutes from 1995 quote Mattingly as saying the U.S. has engaged in gold swaps:
http://www.gata.org/node/1181
But now the Fed admits such arrangements.
Of course Fed Governor Warsh did not say that the Fed has actually swapped any gold lately, only that it has arrangements to do so -- and, just as important, that the Fed does not want the public and the markets to know about those arrangements, does not want the public and the markets to know about the disposition of United States gold reserves.
GATA is preparing to sue the Fed in federal court to compel disclosure of these gold swap arrangements.
There is a reason for the Fed's insistence that the public and the markets must not know what the Fed is doing in the gold market.
It is because, as the documents compiled and publicized by GATA suggest, suppressing the gold price is part of the general surreptitious rigging of the currency, bond, and commodity markets by the U.S. and allied governments, because this market rigging is the foremost objective of U.S. foreign and economic policy, and because this rigging cannot work if it is exposed and the markets realize that they are not really markets at all.
And the rigging increasingly is being exposed and understood.
In complaining about the manipulation of the gold market, GATA has not been called "conspiracy nuts" by everyone. We have gained a good deal of institutional support over the years.
First came Sprott Asset Management in Toronto, which in 2004 issued a
comprehensive report supporting GATA. The report was written by Sprott's chief investment strategist, John Embry, and his assistant, Andrew Hepburn, and was titled "Not Free, Not Fair -- the Long-Term Manipulation of the Gold Price." It remains available at the Sprott Internet site:
http://www.sprott.com/docs/PressReleases/20_not_free_not_fair.pdf
Then in 2006 the Cheuvreux brokerage house of Credit Agricole, the major French bank, issued its own report confirming GATA's findings of manipulation in the gold market. The Cheuvreux report was titled "Remonetization of Gold: Start Hoarding," and you can find it at GATA's Internet site:
http://www.gata.org/files/CheuvreuxGoldReport.pdf
And in 2007 Citigroup -- yes, Citigroup, a pillar of the American financial establishment -- joined the supposed conspiracy nuts. It published a report titled "Gold: Riding the Reflationary Rescue," written by its analysts John H. Hill and Graham Wark, declaring: "Gold undoubtedly faced headwinds this year from resurgent central bank selling, which was clearly timed to cap the gold price." You can find the Citigroup report at GATA's Internet site:
http://www.gata.org/files/CitigroupGoldReport092107.pdf
Even those authorities who do not want to run afoul of government institutions that with a few computer keystrokes can create virtually infinite amounts of money may have to admit the opportunity for central banks to manipulate the gold market. For it is widely acknowledged that annual world gold production is about 2,400 tonnes, that annual net world gold demand is about 3,400 tonnes, that gold production has been falling as demand has been rising, and that the thousand-tonne gap between production and net demand has been filled mainly by central bank dishoarding and leasing.
What do you suppose the gold price would be if central banks were not supplying more than a quarter of annual demand?
That dishoarding was not all innocent management of a foreign exchange reserve portfolio. Much of it was meant as market intervention -- and after all, market intervention is exactly why central banking was invented.
Intervening in markets is what central banks do. They have no other purpose.
Central banks admit intervening often in the currency markets, buying and selling their own currencies and those of other governments to maintain exchange rates at what they consider politically desirable levels. Central banks admit doing the same in the government bond markets. There is even evidence that the Federal Reserve and Treasury Department have been intervening frequently in the U.S. stock markets since the crash of 1987.
You do not have to settle for rumors about the "Plunge Protection Team," also known as the President's Working Group on Financial Markets. Again you can just look at the public record.
The Federal Reserve injects billions of dollars into the stock and bond markets every week, on the public record, through the major New York financial houses, its so-called primary dealers in federal government bonds, using what are called repurchase agreements and the Fed's Primary Dealer Credit Facility. The financial houses thus have become the Fed's agents in directing that money into the markets. The recent rise in the U.S. stock market matches almost exactly the money funneled by the Fed to the New York financial houses through repurchase agreements and the Primary Dealer Credit Facility.
Meanwhile, for years the International Monetary Fund, the central bank of the central banks, has been openly intervening in the gold market by threatening to sell gold. The IMF said its intent in selling gold was to raise money to lend to poor nations. This explanation was ridiculous on its face, though the IMF has never been challenged about it in the financial press. No, the financial press has been happy to tell the world that central banks that lately have effortlessly conjured into existence fantastic amounts of money in many currencies could find a little money to help poor countries only by selling gold.
Of course the intent of the IMF and its member central banks was not to help poor countries but to intimidate the gold market and control the gold price.
That the IMF intimidated the gold market so long with this threat of gold sales was all the more remarkable because the IMF probably has never had any gold to sell in the first place.
In April 2008 I wrote to the managing director of the IMF, Dominque Strauss-Kahn, with five questions about the IMF's gold. I copied the letter to the IMF's press office by e-mail, and quickly began to get some answers from one of its press officers, Conny Lotze.
My first question to the IMF was: "Your Internet site says the IMF holds 3,217 metric tons of gold 'at designated depositories.' Which depositories are these?"
Conny Lotze of the IMF replied, but not specifically. She wrote: "The fund's gold is distributed across a number of official depositories." She noted that the IMF's rules designate the United States, Britain, France, and India as IMF depositories.
My second question was: "If you would prefer not to identify the depositories for security reasons, could you at least identify the national and private custodians of the IMF's gold and the amounts of IMF gold held by each?"
Conny Lotze replied, again not very specifically: "All of the designated depositories are official."
My third question was: "Is the IMF's gold at these depositories allocated -- that is, specifically identified as belonging to the IMF -- or is it merged with other gold in storage at these depositories?"
Conny Lotze replied, still not very specifically: "The fund's gold is properly accounted for at all its depositories."
My fourth question was: "Do the IMF's member countries count the IMF's gold as part of their own national reserves, or do they count and identify the IMF's gold separately?"
Conny Lotze replied a bit ambiguously: "Members do not include IMF gold within their reserves because it is an asset of the IMF. Members include their reserve position in the fund in their international reserves."
This sounded to me as if the IMF members were still counting as their own the gold that supposedly belongs to the IMF -- that the IMF members were just listing the gold assets in another column on their own books.
My fifth question to the IMF was: "Does the IMF have assurances from the depositories that its gold is not leased or swapped or otherwise encumbered? If so, what are these assurances?"
Conny Lotze replied: "Under the fund's Articles of Agreement it is not authorized to engage in these transactions in gold."
But I had not asked if the IMF itself was swapping or leasing gold. I had asked whether the custodians of the IMF's gold were swapping or leasing it.
This prompted me to raise one more question for Conny Lotze. I wrote her: "Is there any audit of the IMF's gold that is available to the public? I ask because, if the amount of IMF gold held by each depository nation is not public information, there does not seem to be much documentation for the IMF's gold, nor any documentation for the assurance that its custody is just fine. Without any details or documentation, the IMF's answer seems to be simply that it should be trusted -- that it has the gold it says it has, somewhere."
And that was the last I heard from Conny Lotze. She didn't answer me again. I had spoken a word that is increasingly unspeakable in the gold section of central banking: audit.
This week the IMF at last announced the disposal of some of the 400 tonnes of gold it long had been threatening to sell. Two hundred tonnes have been purchased by the Reserve Bank of India. This may or may not be a real transaction, a real transfer of gold from an IMF vault to a vault of the Reserve Bank of India. More likely this transaction is only a bookkeeping entry among IMF member central banks. But in any case it seems likely that the gold with which the IMF has been threatening the market for years is never going to hit the market, if it even exists. Rather, this gold will remain in the mysterious possession of central banks.
Lately central bankers often have complained about what they call "imbalances" in the world financial system. That is, certain countries, particularly in Asia, run big trade surpluses, while other countries, especially the United States, run big trade deficits and consume far more than they produce, living off the rest of the world. These complaints by the central bankers about "imbalances" are brazenly hypocritical, since these imbalances have been caused by the central banks themselves, caused by their constant interventions in the currency, bond, and commodity markets to prevent those markets from coming into balance through ordinary market action lest certain political interests be disturbed.
Yes, when markets balance themselves they often do it brutally, causing great damage to many of their participants. The United States enacted a central banking system in 1913 because for the almost 150 years before then the country went through a catastrophic deflation every decade or so. Central banking was created in the name of preventing those catastrophic deflations.
The problem with central banking has been mainly the old problem of power --- it corrupts.
Central bankers are supposed to be more capable of restraint than ordinary politicians, and maybe some are, but they are not always or even often capable of the necessary restraint. One market intervention encourages another and another and increases the political pressure to keep intervening to benefit special interests rather than the general interest -- to benefit especially the financial interests, the banking and investment banking industries. These interventions, subsidies to special interests, increasingly are needed to prevent the previous imbalances from imploding.
And so we have come to an era of daily market interventions by central banks -- so much so that the main purpose of central banking now is to prevent ordinary markets from happening at all.
By manipulating the value of money, central banking controls the value of all labor, services, and real goods, and yet it is conducted almost entirely in secret -- because, in choosing winners and losers in the economy, advancing infinite amounts of money to some participants in the markets but not to others, administering the ultimate patronage, central banking cannot survive scrutiny.
Yet the secrecy of central banking now is taken for granted even in nominally democratic countries.
Maybe the Federal Reserve's intervention to rescue Bear Stearns through the Fed's de-facto subsidiary, JPMorganChase, will cause some devastating public inquiries by Congress and the news media. But what a hundred years ago in the United States was called the Money Power is so ascendant today that it sometimes even boasts of its privilege. What other agency of a democratic government could get away with the principle that was articulated on national television in the United States in 1994 by the vice chairman of the Federal Reserve, Alan Blinder? Blinder declared: "The last duty of a central banker is to tell the public the truth."
The truth as GATA sees it is this:
First, gold is the secret knowledge of the financial universe, but it is becoming an open secret. That is GATA's work -- to break the secret open, to show how the gold price has been suppressed by central bank creation of imaginary gold in amounts to match and thus help conceal the vast inflation of the world's money supply. We will continue to use freedom-of-information law against the Fed and the Treasury Department about their policies toward gold and the disposition of the U.S. gold reserve. Of course central banks can no more afford to account fully for their gold reserves than the Fed and JPMorganChase can afford to disclose details of their negotiations for the rescue of Bear Stearns. Indeed, as my correspondence with the IMF suggests, the disposition of Western central bank gold reserves is a secret more closely guarded than the blueprints for the manufacture of nuclear weapons.
Why can't the public and the markets be permitted to know exactly where central bank gold reserves are? Because in the hands of governments gold is a deadly weapon -- as the Reserve Bank of Australia acknowledges, the main weapon of currency market intervention.
Second, all technical analysis of markets now is faulty if it fails to account for pervasive government intervention.
And third, the intervention against gold is failing because of overuse, exposure, exhaustion of Western central bank gold reserves -- we estimate that the Western central banks have in their vaults only about half the 32,000 tonnes they claim to have -- and the resentment of the developing world, which is starting to figure out how it has been expropriated by the dollar system, a system in which people do real work and create real goods and send them to the United States in exchange for mere colored paper and electrons.
For years now the Western central banks have been attempting a controlled retreat with gold, bleeding out their reserves with sales, leases, and derivatives so that gold's ascent and the dollar's inevitable decline may be less shocking. Central bankers often convey part of this strategy in code; they warn against what they call a "disorderly decline" in the dollar, as if an "orderly" decline is all right.
The rise in the gold price over the last decade is just the other side of that coin -- an "orderly" rise, 15 percent or so per year, a rise carefully modulated by surreptitious central bank intervention.
But GATA believes that the central banks may have to retreat farther with gold than anyone dreams, and far more abruptly than they have retreated so far. We believe that when the central banks are overrun in the gold market, as they were overrun in 1968, and the market begins to reflect the ratio between, on one hand, the supply of real gold, actual metal, not the voluminous paper promises of metal, and, on the other hand, the explosion of the world money supply of the last few decades -- as the market begins to perceive the difference between the real and the unreal -- there may not be enough zeroes to put behind the gold price.
A century ago Rudyard Kipling wrote a poem that foresaw the decline of the empire of his country, Great Britain. Kipling's poem attributed this decline to the loss of the old virtues, the virtues that were listed at the top of the pages in the special notebooks, called "copybooks," that were given to British schoolchildren at that time -- virtues like honesty, fair dealing, Ten Commandments stuff. The title of Kipling's poem is "The Gods of the Copybook Headings," and its conclusion is a warning to the empire that succeeded the one he was living in:
Then the Gods of the Market tumbled,
And their smooth-tongued wizards withdrew
And the hearts of the meanest were humbled
And began to believe it was true
That All is not Gold that Glitters,
And Two and Two make Four,
And the Gods of the Copybook Headings
Limped up to explain it once more.
As it will be in the future,
It was at the birth of Man.
There are only four things certain
Since Social Progress began:
That the Dog returns to his Vomit
And the Sow returns to her Mire,
And the burnt Fool's bandaged finger
Goes wabbling back to the Fire;
And that after this is accomplished,
And the brave new world begins,
When all men are paid for existing
And no man must pay for his sins,
As surely as Water will wet us,
As surely as Fire will burn,
The Gods of the Copybook Headings
With terror and slaughter return.
The gold price suppression story is important despite this week's dramatic rise in the gold price. For even as the price of gold has been rising, we really don't yet know what a fair price, a free-market price, for gold is, since gold has not traded in a free market for many years and is not trading in a free market now.
Indeed, since central bank intervention in the currency, bond, equities, and commodity markets has exploded over the last year, we don't really know what the market price of anything is anymore. Thus the gold price suppression story is a story about the valuation of all capital and labor in the world -- and whether those values will be set openly in free markets, the democratic way, or secretly by governments, the totalitarian way.
The specifics of the gold price suppression operation are complicated, but you don't have to remember them all if you know what they mean.
They mean that there is a currency war going on between countries and their central banks. There has been such a war for many years, only the victims were not really fighting back. Now some of them are. Signs of this war are now everywhere -- like the story published a month ago by the British newspaper The Independent that described an international plan to replace the dollar in oil trading:
http://www.independent.co.uk/news/business/news/the-demise-of-the-dollar...
Gold and silver have been and remain currencies and will be remonetized by markets eventually if not by central banks as well, because gold and silver are the only neutral currencies, the only currencies that are not the liabilities of any particular country.
But when you invest in currencies like gold and silver, you risk getting caught in the crossfire of the currency war. As in any war, truth is the first casualty in the currency war, even as secrecy is always the first principle of central banking.
Meanwhile, not asking the right questions of the right people seems to be the first principle of most mainstream financial journalists and even the first principle of some gold and silver market analysts. These journalists and analysts take government secrecy in central banking for granted, even as the evidence of market intervention and manipulation explodes all around them. This acceptance of secrecy reminds me of the bumbling police detective played by Leslie Nielsen in the "Naked Gun" movies, particularly his performance in this scene:
http://www.youtube.com/watch?v=rSjK2Oqrgic
Well, there is something to see here.
The precious metals promise great rewards to investors, but to get the necessary information you have to do a lot more work than other investors.
And you have to remember the remarkable properties of gold and silver. It's not just that gold is the most malleable and lustrous of metals, or that silver is the most conductive and reflective, but also that, once they get into the hands of central banks, bullion banks, and exchange-traded funds, gold and silver can become
invisible.
For further reading:
"Mises, Money, Gold and Gibson's Paradox",
The Free Mensch, March 18, 2009
"Gibson's Paradox and the Gold Standard", Robert B. Barsky and Lawrence H. Summers,
The Journal of Political Economy, Volume 96, Issue 3, June 1988
