Here are some of interesting articles on the gold suppression by central banks. My feeling is that major bullion banks have been trapped on in an enormous position on the short side of gold since 1999, and that the US has been willing to do anything to keep that gold carry trade from unwinding and destroying the US financial system (thereby the dollar too).
Golden Sextant reports about central banks at the abyss.
(emphasis mine) [my comment]
The first Washington Agreement on Gold, announced in September 1999 at the close of the annual meetings of the International Monetary Fund and World Bank in Washington, D.C., placed limits for the next five years on the official gold sales of the signatories as well as on their gold lending and use of futures and options. Put together at the instigation of major Euro Area central banks in response to the decline in gold prices caused by the series of U.K. gold auctions announced in May of the same year, WAG I caused gold prices to shoot sharply higher.
Within days, as gold shorts rushed to cover, the price jumped from around $265 to almost $330/oz. and gold lease rates spiked to over 9%. The rally caught the major bullion banks completely wrong-footed, resulting in the panic later described by Edward A.J. George, then Governor of the Bank of England (Complaint, 55):
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.
Comment on gold swaps from Bundesbanks' Axel Weber [pg.7]:
Bundesbank's Weber Comments on Central Bank Gold Reserves
2006-10-05 By Simon Kennedy
Oct. 5 (Bloomberg) -- Bundesbank President Axel Weber comments on the central bank's plans for its gold reserves. Weber, who didn't comment on monetary policy, was speaking to reporters in Paris. ``We are not envisaging gold sales for the third year'' of the current agreement with other central banks, Weber said. ``We have been asked to negotiate with other central banks'' about potential swap deal involving gold. He refused to discuss which central banks may be interested.
Business Wire reports that Russian Central Banker Cites GATA and says gold market may be less than free.
October 04, 2004 08:02 AM Eastern Time
Russian Central Banker Cites GATA, Says Gold Market May Be Less Than Free
MANCHESTER, Conn.--(BUSINESS WIRE)--Oct. 4, 2004--Movements in the price of gold are sometimes "so enigmatic" and central banks and bullion banks are so involved with it that the gold market may be less than free, the deputy chairman of the Bank of Russia says in a speech obtained by the Gold Anti-Trust Action Committee.
The deputy chairman, Oleg V. Mozhaiskov, made the remarks at a meeting of the London Bullion Market Association in Moscow in June, but the LBMA and other participants in the meeting suppressed it, refusing repeated requests to release a copy. After months of negotiation, the Bank of Russia last week provided GATA with an English translation, which has been posted at GATA's Internet site here:
In his speech to the LBMA, Mozhaiskov cited GATA's work at length, and while not formally endorsing it, he showed that the Bank of Russia has been following it closely and knows that much more has been going on in the gold market than is widely acknowledged. Likening the central bank to a giraffe, Mozhaiskov quoted a poem well-known in Russia: "The giraffe is tall, and he sees all."
The central banker acknowledged that the great increase in the use of derivatives and central bank leasing of gold have depressed its price in recent years.
Gold-Eagle reports about the Fed possibly writing call options.
Fed Options: The Plot Thickens
My commentary of September 20, 1999, suggested the possibility that the Bank of England's gold sales were triggered by a plea from Washington aimed at rescuing the Fed from potential big losses on the writing of gold call options. Nothing that has happened since is inconsistent with this suggestion, and what new evidence there is supports it.
But to go back, an initial question -- on which I accepted the opinion of others -- was whether the Fed has statutory authority to write (sell) call options on gold. In my opinion, it clearly does. What is now codified as 12 U.S.C. s. 354 provides in relevant part:
Every Federal reserve bank shall have power to deal in gold coin and bullion at home or abroad, to make loans thereon, exchange Federal reserve notes for gold, gold coin, or gold certificates, and to contract for loans of gold coin or bullion, giving therefor, when necessary, acceptable security....
This provision, included in the original Federal Reserve Act (Dec. 23, 1913, c. 6, s. 14(a), 38 Stat. 264), has remained unchanged and in force ever since. While it does not specifically mention writing call options, the broad grant of authority "to deal" in gold and to make or receive gold loans can readily be construed to include writing or purchasing options.
This authority, it should be noted, addresses only what the Fed can do for its own account. It has nothing whatever to do with buying, selling or otherwise dealing with the official gold reserves of the United States, which are under the control of the Secretary of the Treasury acting with the approval of the President. 31 U.S.C. ss. 5116-5118. Whether the Fed's authority to deal in gold for its own account may in some respects be limited by other statutes is a question that I will leave to others, but under s. 6a(d) the Commodity Futures Trading Act, any transactions for its account are expressly exempt from trading or position limits.
Testifying in July 1998 before the House Banking Committee looking into the regulation of over-the-counter derivatives, Fed Chairman Alan Greenspan distinguished financial derivatives from agricultural derivatives, saying that it would be impossible to corner a market in financial futures where the underlying asset (e.g., a paper currency) is of unlimited supply. The same point, he continued, also applied to certain commodity derivatives where the supply was also very large, such as oil.
Greenspan further volunteered: "Nor can private counterparties restrict supplies of gold, another commodity whose derivatives are often traded over-the-counter, where central banks stand ready to lease gold in increasing quantities should the price rise." In other words, the Fed Chairman opposed any action by Congress aimed at greater regulation of over-the-counter derivatives, specifically including gold derivatives. One reason -- left unstated -- for this opposition may well have been concern that any new legislation might interfere with the Fed's own activities in the derivatives markets, particularly in the gold area.
Why might the Fed have engaged in writing call options on gold? Their immediate purpose and effect would be to facilitate gold leasing by enabling the bullion banks to hedge more easily short positions resulting from the sale of leased gold. Indeed, as the so-called gold carry trade grew, demand for this sort of hedging by bullion banks likely strengthened since here, unlike in mining finance, their customers were not themselves producers of gold. More generally, by thus exercising control over the amount of leasing and resulting short sales, the Fed could have achieved considerable influence over the gold price. Indeed, perhaps it was just this kind of activity that led a former Fed governor to claim on CNN's Moneyline in October 1998: "The Fed has precise control over the price of gold and therefore over commodities such as crude oil. No inflation, therefore no need to raise rates." Emphasis supplied.
safehaven reports about the US borrowing from the Bank of England.
In the Midas of October 13 Rob Kirby made the following contribution:
Doing a bit of research about the make up of Great Britain's sovereign gold reserves and I ran across this tidbit [footnote on the bottom of page 5 of 8 of the pdf file] regarding different types of gold swaps that the Bank of England presumably utilizes,
"Under a gold location swap, gold stored in a particular physical location is swapped with a market counterparty for specified period with gold stored in another physical location. Under a gold quality swap, gold of a particular quality [fineness] is swapped with a market counterparty for a specified period with gold of different fineness. In each case a fee is built into the transaction."
This is a "real smoking gun" find by Rob Kirby. I believe the only possible counterparty for such type of "quality" swaps would be the US Treasury (the US Treasury officially owns the US gold stock not the Federal Reserve). Searching around I found the following on the goldensextant website.
In the course of thus far unsuccessful efforts to obtain details from the Bundesbank on its gold reserves and any gold swaps it has with the United States, one of GATA's German supporters came across some interesting but mostly forgotten details on U.S. gold reserves. Professor Antony C. Sutton in The War on Gold ('76 Press, 1978), pp. 114-116, described an unaudited report by the U.S. Mint detailing the composition of U.S. gold reserves as of November 30, 1973. It showed that of then total 255 million ounces, 206 million consisted of 400 oz. bars of a fineness between .890 and .916 with almost another million ounces having a fineness between .917 and .994. Thus, at that time, more than 80% of the total U.S. gold stock did not meet the standard good delivery requirement of .995 or better.
Professor Sutton's account is confirmed by the late James Blanchard in Confessions of a Gold Bug (Adam Smith, 1990), pp. 76-77:
One of the other projects NCMR [National Committee for Monetary Reform] got involved with was to ask for an auditing of the Fort Knox gold. There was great resistance at first, but finally the Treasury listed the actual number of gold bars, their size and purity. Until then the Treasury had been claiming that we had 264 million ounces of gold in reserve, and that it was made up mostly of .995 to .999 pure bars. What we found was that it was almost entirely made up of melted gold coins from the 1930s at .917 (22-karat) purity.
As far as I know the US is the ONLY holder of "official" gold that does not meet "good for delivery" quality. There are two reasons why the US must swap this gold to sell into the market. First of all if 400 oz bars show up of less than 0.995 fineness there is o nly one possible source and so the market would know about it and the gold price suppression scheme would be toast. Secondly, the world's gold refineries are working day and night. There is no spare capacity to be able to reprocess US goldstock. But the real point of interest is the fact that this swap agreement format exists means that the US is using its gold (indirectly) to hold down the price. This means that the Cabal is hitting the wall in terms of available supply. It also puts in context the comment by Axel Weber of the Bundesbank that they were "being asked to enter into gold swap arrangements".
Financial Sense reports about a very scary idea concerning US DEEP GOLD.
A TALE IN THREE E-MAILS
by Rob Kirby
December 6, 2006
The following is a series of three e-mails that were private correspondence with
GATA Chairman Bill Murphy — proprietor of Lemetropolecafe.com over the past few days:
I've been thinking the concept of "gold quality swaps" over and over again in my mind. At first, my belief was that the U.S. had only categorically done "gold quality swaps" with the Bank of England — only because the Bank of England is the only Central Bank that officially acknowledges they have such trades on their books.
That they do is now matter of historical fact.
But now, my thinking has changed.
I now believe that gold quality swaps were, perhaps also, conducted with the Bundesbank around the year 2000.
I now feel that "Quality Gold Swaps" were "coined" [pun intended] or invented for a darker reason.
My thinking is now that fine "deliverable" gold from the Bundesbank was perhaps "swapped" for "DEEP GOLD".
After all, DEEP GOLD is only gold of a different "fineness" — isn't it?
Quality Gold Swaps by the U.S. with Central Banks around the world would — utilizing DEEP GOLD [gold in the ground] - would go a long way — perhaps a better explanation - to explaining why the gold price suppression has been able to be extended for such a long period of time.
[I don't know if the US has swapped DEEP GOLD. However, my feeling is that the US is now somehow or other short gold.]
It would also provide a "fuller explanation" as to why the Central Banks are so opaque when it comes to double-counting "swapped gold" visa vie "gold in the vault".
A work in progress,
You see, here is a list of the currently acceptable "good delivery" smelters of bars of gold where the LBMA is concerned:
Current Good Delivery Smelters of Gold According to the LBMA:
Johnson Matthey Inc
Salt Lake City, UT
Metalor USA Refining Corporation
No. Attleboro, MA
But take a look at the former good delivery smelters from the U.S.A.:
Handy & Harman Refining Group Inc
Homestake Mining Company
United States Metals Refining Co. Subsidiary of Amax Inc
United States Assay Offices & Mints
Now, ask yourself why "good delivery bar" smelters of gold in the U.S.A. are dropping like flies since the late 90's to the turn of the millennium in the wake of domestic U.S. Gold production [as a percentage of world production] and absolute number of ounces per year are ramping up?
World production is 49.3Moz, up 25% from 1980.
South Africa is flat at 21.6Moz.
Canada, the US, and Australia produce 2.8, 2.4, and 1.9Moz, respectively.
Brazil produces 2.3Moz.
China produces 2Moz and releases a gold bullion coin - the Panda in 1982.
Papua New Guinea, the Philippines, and Columbia each produce over 1Moz.
Technology (heap leaching) has changed mining, forever.
The U.S.S.R is breaking up, so the United States with 9.5Moz production will soon become the world's #2 producer.
Australia produces 7.8Moz.
Canada produces 5.4Moz, peaks at 5.7Moz in 1991, then drifts down to current levels of 5Moz/yr.
World production hits 72.3Moz, but South Africa produces only 16.8Moz.
The United States produces over 10Moz, followed by Australia at 8.2Moz (will produce over 10Moz in 1997)
Chile, Ghana, Peru, and Indonesia each produce about 2.0Moz, versus about .5Moz in 1990.
World production hits 2573mt (82.6Moz), but South Africa produces only 428mt (13.8Moz)
Production in the United States, Australia, Canada dips slightly, with China up.
Other significant producers: Chile, Indonesia, Peru, Russia, and Uzbekistan
The trend toward worldwide industry diversification continues, with the top 5 countries now accounting for just over 50% of world production.
Republic of South Africa: 296mt
United States: 262mt
I would offer that all of the Coin Melt has already been reprocessed. Smelters are shutting down. The LBMA confirms this. Swaps are now being conducted for DEEP GOLD still in the ground.
US ability to process gold bullion is dropping — this is a fact.
The notion that the U.S. has no more gold [all reprocessed and swapped / leased or sold] and is now conducting swaps for "DEEP GOLD" is also highly consistent with — or at least provides a credible reason for — both Rothschild and AIG exiting the gold market in April/May 04 and June 04 respectively. They knew the basis of the physical game was "over".
This obscure news item [originally published in the N.Y. Post by Jennifer Anderson] in late Jan. 04 would probably have hastened the exit from the metals markets of the players named above:
DA investigating Nymex executive - Manhattan, New York, district attorney's office, Stuart Smith - Melting Pot - Brief Article — Feb. 2, 2004
A top executive at the New York Mercantile Exchange is being investigated by the Manhattan district attorney. Sources close to the exchange said that Stuart Smith, senior vice president of operations at the exchange, was served with a search warrant by the district attorney's office last week. Details of the investigation have not been disclosed, but a Nymex spokeswoman said it was unrelated to any of the exchange's markets. She declined to comment further other than to say that charges had not been brought. A spokeswoman for the Manhattan district attorney's office also declined comment.
You see, the offices of the Senior Vice President of Operations - NYMEX — is exactly where you would go to find the records [serial number and smelter of origin] for EVERY GOLD BAR ever PHYSICALLY settled on the exchange. They are required to keep these records. These precise records would show the lineage of all the physical gold settled on the exchange and hence "prove" that the amount of gold in question could not have possibly come from the U.S. mining operations — because the amounts in question coming from U.S. smelters would undoubtedly be vastly bigger than domestic mine production.
We never have found out what happened to poor ole Stuart Smith — after his offices were "raided" — he took administrative leave from the NYMEX and he has never been heard from since. Amazingly [or perhaps not], there has also been ZERO follow up on in the media on the original story as well as ZERO developments stem ming from D.A. Morgenthau's office who executed the search warrant.
There is now absolutely no doubt in my mind that these events are connected.
And These Are The Implications if Deep Gold Has Actually Been Swapped:
If this un-mined gold has been used as collateral for the swaps of good delivery bars with other central banks, and then sold it to cap the gold price; then as a corollary of this - the un-mined gold is the property of the Treasury Dept. even though Barrick Gold and others are presently mining the deposits.
If my supposition is correct, gold mines in the United States will be expropriated should the USD implode. If gold mines are expropriated in the US, the so-called center of free market philosophy, what chance have gold share owners elsewhere in the world of "cashing in" on the gold price explosion?
All the mines will be nationalized or sur-taxed to death. [Not sure I agree, but worth keeping in mind.]
This is why you all need to "own" physical gold and silver — bars and / or coins.
My reaction: Whether it is because of "Deep Gold" or naked call options, I believe the fed has taken a large short position against gold in its desperate attempt to save idiotic financial institutions (ie: JPMorgan) who got trapped on the short side of gold at the end of the 1990s.
I also believe that we are at the very tail end of this desperate cover up. Within a month or two at the latest, physical shortages of gold are going to cause something to break: either a default on the COMEX, or a failure of a gold producer to roll forwards its hedges, or something else. When this even occurs, all forms of paper gold will collapse and things will get really interesting.