GATA tells the real gold story in London
By Paul Mylchreest
Thunder Road News
Monday, May 11, 2009
Last week a three-man team from the Gold Anti-Trust Action Committee (GATA) presented to an audience of more than 70 people including portfolio managers, brokers, journalists, and gold mining executives in London. The event was hosted by Adam Fleming, chairman of Fleming Family and Partners and South African gold company Wits Gold.
Peter Hambro, chairman of Peter Hambro Mining (and former gold trader), was in attendance and highlighted the significance of the massive buying of call options in the June and December 2009 Comex gold contracts. Last week's Thunder Road News discussed Adrian Douglas' analysis of this situation and noted that his sources are telling him the buyers are the two banks closest to the U.S. government. Hambro believes that this option buying might reflect the closing out of carry trades.
A key point that was eloquently conveyed by GATA Secretary/Treasurer Chris Powell was why everyone (and not just gold investors or financial market participants) should take the manipulation of the gold price very seriously. The gold price is the alarm signal on the world's economic system. If the gold price had not been suppressed for more than a decade, it would have sent a clear warning of the dangers of the credit bubble, long before the latter brought financial markets and the world economy crashing down. It would have also inhibited the ability of Western central banks to keep interest rates so low for so long.
Everyone should now have realized that loose monetary policy always creates financial bubbles in due course -- only guilty central bankers, currently doing more of the same, want to deny it. All we can do is try to identify the next bubble.
Powell pointed out that GATA is an educational and civil rights organization that highlights the manipulation of the gold market, something that is a matter of public record. For example, Alan Greenspan's testimony to the House Banking Committee in 1988: "Central banks stand ready to lease gold in increasing quantities should the price rise."
Powell could also have included comments in former Fed Chairman Paul Volcker's memoirs, comments by the general counsel of the Federal Reserve in 1995, 2003 annual report of the Reserve Bank of Australia, comments by the head of the monetary and economic department of the Bank for International Settlements Economics Department in 2005, comments by the president of the Bundesbank in 2006, and so on. Indeed, James Turk of GoldMoney.com last week published "A Short History of the Gold Cartel" (http://www.gata.org/node/7402), which quoted Volcker's comment about the gold bull market in the 1970s: "Joint intervention in gold sales to prevent a steep rise in the price of gold, however, was not undertaken. That was a mistake."
Fast forward to today and Volcker is part of President Obama's economics team. Let's not forget that Larry Summers, Obama's chief economic adviser, wrote "Gibson's Paradox and the Gold Standard" (http://www.gata.org/files/gibson.pdf), which argued that suppressing the gold price would enable interest rates to be kept artificially low -- which is exactly what caused the credit crisis in the first place.
GATA Chairman Bill Murphy spoke of the irony of how his organization has developed relations with China and Russia but has been ignored by officialdom and the mainstream media in the U.S. and U.K. For example, GATA representatives have had three conference calls with Chinese government officials after initial contact was made in 2003. China announced on April 24, 2009, that it had covertly purchased 454 tonnes of gold since 2003.
GATA's 2005 conference in Dawson City was attended by one of Russian President Vladamir Putin's advisers. Subsequently, Putin was photographed holding a gold bar and quoted as saying he supported the Russian central bank's plan to double its gold reserves.
John Embry, chief investment strategist of Sprott Asset Management in Toronto, described his 46-year "personal journey" in the investment world, for more than 30 years of which he has been closely associated with the gold market. He described how in other markets, good analysis could reach logical conclusions about the direction of market prices. In the late 1990s he observed how "the exact antithesis existed in the gold market." This opened his eyes to what was really happening.
Embry believes that the failure of so many people to acknowledge the manipulation of gold resulted from their being unable to believe that governments would conspire against their own citizens. What a touchingly naive notion!
Besides getting the GATA message over to a larger audience, the meeting was also a fund raiser. Additional funds will be used to further GATA's legal efforts to obtain more information on the manipulation in the gold market and bring it to a halt. Such actions might include:
-- Freedom-of-information lawsuits against the Federal Reserve and the US Treasury.
-- Legal action against the U.S. Commodity Futures Trading Commission.
-- And action against the U.S. Mint, which is assigned to mint as many gold and silver coins as are demanded by the public but has violated this requirement in recent years.
In the question session, besides the heavy buying of Comex options raised by Hambro, other issues discussed included:
-- The general agreement that the Achilles' heel of the gold cartel is the shortage of physical gold and silver. GATA representatives agreed that when the spike in gold and silver occurs, silver is likely to outperform gold. I agree with this as laid out in the two-part report, "Silver -- the Best Investment of All?," in previous issues of the Thunder Road News. Mention was made of the lack of central bank silver reserves in contrast to gold. This has led to the absurd concentration of short positions in paper contracts of two banks on Comex, often highlighted by silver analyst Ted Butler.
-- There was scepticism around the whole room that some of the larger exchange-traded funds really hold all of the physical gold and silver they claim and whether some of the bullion they do have is lent to the authorities. Mention was made of the forensic work on this subject by James Turk of GoldMoney.com. I'd heard the story that when Long Term Capital Management (LTCM) went bust in 1998 it was short 400 tonnes of gold, but I didn't know the origin of the story. Indeed, it was the rapid capping of the gold price in the wake of LTCM's collapse (when the financial system as a whole was threatened) and the heavy selling of gold day after day by the same bank (you know the one) that helped to put Murphy on to what was really going on in gold. It turns out that Embry's closest friend knew the Comex trader who sold the gold for LTCM. To my knowledge, the gold was borrowed from the Italian central bank and has never been returned -- now I just need to establish this as fact.
Paul Mylchreest is a resource industry analyst who has worked for S.G. Warburg, Credit Lyonnais, JPMorganChase, Schroders, and Redburn Partners. In January 2006 he wrote the gold mining report for the Cheuvreux investment division of Credit Agricole that confirmed surreptitious intervention in the gold market by central banks: http://www.gata.org/files/CheuvreuxGoldReport.pdf