I will say this. Once you realize that the treasury, not he Fed/Wall Street, is the root source of all evils (fiat money, gold suppression, etc...), everything starts fitting into place. Oh, I am not claiming that the Fed and Wall Street are not corrupt, but the source of the cancer infecting America is, without a doubt, the Treasury. The proximity of individuals and institutions to the US treasury determines their level of taint. It is the ESF, not the Fed, which is the institution that most needs dismantling (Fed comes later).
Below is the results of a bunch of research I have done in the last 24 hours. I will organize it and do a proper entry tomorrow with all the links and my comments/reactions. Consider the quotes below a preview.
(emphasis mine) [my comment]
The reason the PPT is secret is because it has been designed to intervene into the stock market to shore it up whenever it is in danger of crashing, and there is no real clear cut authority for the Federal Government's bureaucracies to do this. The Fed and the Treasury Department are clearly not authorized to intervene into the stock market to buy and sell equities. But the Exchange Stablization Fund (ESF), which manipulates our dollar in the Forex market, may be authorized to buy and sell equities on the NYSE. James Sinclair maintains that they are. Though this is not overly clear in the wording of its legal statutes. Since the authority is not clear on this issue, it is my belief that the PPT was designed as a separate and secretive organization by ESF and Treasury bureaucrats to purchase S&P; futures to try and "stablize" the stock market whenever it begins to drop severely.
I believe they have formed the PPT as a secret spinoff from their currency operations. It is secret mainly because they do not want the public to be aware of any attempts at equity manipulation, and perhaps also because of its possible illegality. If it were to become widely known that our Treasury Department, through its ESF division, was intervening into the stock market to shore up the Dow and the S&P; on a regular basis, the effect on the investing public would be quite detrimental. For this reason, I think the PPT was formed surreptitiously, and remains a secretive organization that no one talks about in Washington or on Wall Street. But the ESF and our Treasury Department are the forces behind the PPT.
Given its long-standing culture of secrecy, any ESF scheme to cap the gold price would almost certainly be carried out without notice to Congress, and quite possibly without notice to the Fed either. As to mechanics, a hidden relationship with one or a very few bullion banks would be sufficient. This relationship would give the favored bullion banks an enormous edge in their own gold trading operations, and one that no Chinese wall could likely neutralize.
From the outset, the constitutionality of the ESF has been open to doubt. Its self-funding operations largely immune from effective congressional oversight seem to contravene both the separation of powers and the exclusive control over appropriations vested in Congress. But any scheme by the ESF today to control the gold price would face further legal and constitutional hurdles.
The Clinton administration thumbed its nose at the public and went directly to an obscure source called the Exchange Stabilization Fund, or ESF — the same entity McCain is urging the president to use — to prop up the peso. Of the total $50 billion package, some $20 billion were taken from the ESF fund. The ESF was designed (albeit unconstitutionally) to prop up the dollar. Now it was used to bail out a foreign economy.
What made the bailout all the more outrageous was the fact that Treasury Secretary Robert Rubin had been the co-chairman of Goldman Sachs, which was heavily invested in Mexico. Rubin had been earning $26 million per year, plus his personal holdings at Goldman's had been estimated at $100 million. [Notice a pattern between the Treasury and Goldman Sachs?]
The biography continues, "Prior to joining the Treasury Department, Mr. Kashkari was a Vice-President of Goldman Sachs & Co. in San Francisco, where he led Goldman's IT Security Investment Banking practice, advising public and private companies on mergers and acquisitions and financial transactions."
Despite his high rank, Kashkari has only a few years of experience in finance. After initially studying aerospace engineering at the University of Illinois, he worked at defense firm TRW on contract projects from the US space agency NASA, before switching careers and attending the Wharton School of Business in Philadelphia. He joined Goldman Sachs after graduating from Wharton in 2002.
Once at the Treasury, Kashkari helped prepare the recently passed bailout. The Wall Street Journal wrote, "Mr. Kashkari was part of the Treasury team that negotiated the asset-repurchase program with Congress [...] He was also one of the originators of the plan. Last year, he and Phillip Swagel, assistant secretary for economic policy, crafted a proposal called 'break the glass'-referring to the emergency nature of using such a tool-which envisioned Treasury buying bad loans and other assets."
Kashkari's history highlights the extraordinary influence of Goldman Sachs, a firm that stands massively to benefit from the bailout its former executives have organized at the Treasury. Not only does Goldman now have the option of unloading its failed mortgage-backed assets on the Treasury, but it stands to make large sums from carrying out the actual transactions of the bailout program itself.
On October 7, the New York Times wrote that Kashkari's office was moving to "outsource almost the entire [bailout] project." It continued: "The Treasury said it intended to hire one company as a 'financial agent' to set up the basic system, which would include running the auctions, keeping track of the various portfolios, and overseeing all the operational issues." The OFS will also ask "experienced investment managers" to value and sell the failed assets- and these managers will come from firms that are "either sellers or buyers of mortgage-backed securities."
The deadline for the Treasury to accept firms' bids for the "financial agent" position is today, and the Treasury will announce its choice on October 10.
Goldman Sachs' competitors have leaked objections in the press to the role of an ex-Goldman Sachs executive as the arbiter of this scramble for lucrative government contracts. In its article on Kashkari, the Financial Times wrote, "The prominence of Goldman alumni within the administration has raised eyebrows at competing Wall Street banks, which have become concerned about what some privately see as Goldman's disproportionate influence over policy."
Mr Morgan is referring to the government bailout of AIG, whose collapse would have sent shockwaves through the markets. The Federal Reserve and the then-treasury secretary, Hank Paulson, decided to funnel public funds to AIG, and its counterparties were paid in full. You don't have to scratch far into the internet to find conspiracy theories: Mr Paulson was chief executive of Goldman before going into government; he appointed Edward Liddy, formerly of Goldman, to run AIG; Goldman was AIG's biggest counterparty, receiving $12.9bn from AIG after the bailout. (It says it was hedged and would not have lost even if AIG did go under.)
Mr Morgan is not the sort of young hot head you find protesting against the G8. He is a 53-year-old registered financial adviser from Florida, but he has attracted a handful of volunteers to beef up the website and to amass information on the Goldman alumni network and its power. "Goldman dipped into taxpayer funds via AIG," he says. "Who gets paid off 100 cents on the dollar these days? Only Goldman it seems. It is all about looking at the connections. Where do all the Goldman Sachs executives go? I see them as running the world. They are like the Standard Oil of the last century, too big and too powerful, with people flocking from Goldman to government and from government to Goldman."
In September, after the government bailed out the American International Group, the faltering insurance giant, for $85 billion, Mr. Paulson helped select a director from Goldman's own board to lead A.I.G.
And earlier this month, when Mr. Paulson needed someone to oversee the government's proposed $700 billion bailout fund, he again recruited someone with a Goldman pedigree, giving the post to a 35-year-old former investment banker who, before coming to the Treasury Department, had little background in housing finance.
Indeed, Goldman's presence in the department and around the federal response to the financial crisis is so ubiquitous that other bankers and competitors have given the star-studded firm a new nickname: Government Sachs.
The power and influence that Goldman wields at the nexus of politics and finance is no accident. Long regarded as the savviest and most admired firm among the ranks — now decimated — of Wall Street investment banks, it has a history and culture of encouraging its partners to take leadership roles in public service.
It is a widely held view within the bank that no matter how much money you pile up, you are not a true Goldman star until you make your mark in the political sphere. While Goldman sees this as little more than giving back to the financial world, outside executives and analysts wonder about potential conflicts of interest presented by the firm's unique perch.
They note that decisions that Mr. Paulson and other Goldman alumni make at Treasury directly affect the firm's own fortunes. They also question why Goldman, which with other firms may have helped fuel the financial crisis through the use of exotic securit ies, has such a strong hand in trying to resolve the problem.
The very scale of the financial calamity and the historic government response to it have spawned a host of other questions about Goldman's role.
Analysts wonder why Mr. Paulson hasn't hired more individuals from other banks to limit the appearance that the Treasury Department has become a de facto Goldman division. Others ask whose interests Mr. Paulson and his coterie of former Goldman executives have in mind: those overseeing tottering financial services firms, or average homeowners squeezed by the crisis?
Still others question whether Goldman alumni leading the federal bailout have the breadth and depth of experience needed to tackle financial problems of such complexity — and whether Mr. Paulson has cast his net widely enough to ensure that innovative responses are pursued.
Mr. Geithner, 47, played a pivotal role in the decision to let Lehman die and to bail out A.I.G. A 20-year public servant, he has never worked in the financial sector. Some analysts say that has left him reliant on Wall Street chiefs to guide his thinking and that Goldman alumni have figured prominently in his ascent.
After working at the New York consulting firm Kissinger Associates, Mr. Geithner landed at the Treasury Department in 1988, eventually catching the eye of Robert E. Rubin, Goldman's former co-chairman. Mr. Rubin, who became Treasury secretary in 1995, kept Mr. Geithner at his side through several international meltdowns, including the Russian credit crisis in the late 1990s.
Regarding the latter, the Cleveland Fed is worth quoting, particularly in light of recent market developments arising out of the Treasury's decision to start buying back the long bond. [Insanity]
Since the ESF's inception , the Federal Reserve Bank of New York has been its officially designated agent for the ESF intervention operations. In 1962, the Federal Reserve System's Federal Open Market Committee (FOMC) authorized open-market transactions in foreign currencies for the account of the Fed, and since then, the Federal Reserve Bank of New York has acted as agent for both the Fed and the ESF in such transactions. Starting in 1976, the ESF and the Fed have almost always intervened jointly.
Although the decision to intervene is usually made jointly by the Treasury and the Fed, it falls primarily under the Treasury's purview. While the two entities routinely intervene in the same direction and amounts for their individual accounts, formal independence is maintained. In other words, the Treasury can instruct the Fed to intervene on behalf of the ESF but it cannot force the Fed to intervene for the Fed's own account.
The Congress has thus established a system, ostensibly to stabilize the dollar, where it is possible for the ESF and the Fed to intervene in the foreign exchange markets in opposite directions. What is more, they can do so while leaving the Congress and the American people completely in the dark about what is transpiring with their own currency, and the world ignorant of America's true dollar policy, if any. Certainly the thought that the Treasury and the Fed always coordinate their activities cannot have survived the past week. With the Fed raising short term rates (implying sales of government securities) and the Treasury implementing buy-backs of the long bond, the yield curve inverted sharply, causing chaos particularly in bond and interest rate derivatives. Applying this sort of modus operandi to the dollar and gold raises all sorts of questions.
The odd behavior of the gold price over the past five years, including massive gold leasing and heavy bouts of futures selling apparently timed to abort threatened rallies, has generated considerable speculation regarding intentional manipulation by governmental authorities. What has made weakness in the gold price all the more perplexing are mounting shortfalls of new mine production relative to annual demand. Because most nations deal in gold through their central banks, they are prime suspects. Clarifying remarks that he made to Congress in 1998, Mr. Greenspan confirmed in his letter to Senator Lieberman that some central banks other than the Fed do in fact lease gold on occasion for the express purpose of trying to contain its price. Gold leased by central banks to bullion banks is typically sold by them into the market in connection with arranging forward sales by gold mining companies or making gold loans to mining companies or others. The attraction of gold loans is their typically low interest rates (known in the trade as "lease rates") of around 2%.
The Fed and the ESF are the only arms of the U.S. government with broad statutory authority "to deal in gold" and thus by reasonable extension in gold futures and derivatives. Were the Fed to engage in such activities, it would of necessity have to do so subject to all the institutional safeguards that govern its more important functions. Unlike the Fed, the ESF is virtually without institutional structure or safeguards. It is under the exclusive control of the Secretary of the Treasury, subject only to the approval of the President. Indeed, direct control and custody of the ESF must rest at all times with the President and the Secretary. The statute further provides (31 U.S.C. s. 53 02(a)(2)): "Decisions of the Secretary are final and may not be reviewed by another officer or employee of the Government."
Originally funded out of the profits from the 1934 gold confiscation, the little known ESF is available for intervention in the foreign exchange markets. In the absence of a Congressional appropriation, the Clinton administration used funds from the ESF to finance the 1995 U.S. bailout of Mexico. However, accepting the Greenspan dictum that it "would be wholly inappropriate" for the Fed ever to intervene in the gold market to manipulate the price, it is hard to imagine any situation in which such intervention would be appropriate by the ESF, never mind one involving large profits for the former investment bank of the Secretary himself.
Last week, in response to an inquiry from Bridge News, Secretary Summers "categorically denied" that the Treasury was selling gold. With all due respect to the Secretary, this is not the allegation that knowledgeable gold market participants and observers are making. Their allegation is that the ESF -- by writing gold call options or otherwise -- is making sufficient gold cover available to certain bullion banks to allow them safely to take large short positions in gold, thereby putting downward pressure on the price and in the process making huge profits for themselves.
Last week Barrick made its much anticipated announcement on hedging. According to its press release, Barrick during the last quarter of 1999: (1) reduced its exposure on call options written to 2.7 million ounces (versus 4 million as reported at its website at the end of the third quarter); (2) stretched out the delivery schedule on its its spot-deferred contracts, which now cover a total of 13.6 million ounces (versus 14 million as reported at its website at the end of the third quarter); and (3) engaged in "an important new dimension" by purchasing call options on 6.8 million ounces. The release further states that the new purchased call options "cover 100% of production from March 1, 2000 through 2001," at strike prices of $319/oz. in 2000 and $335/oz. in 2001. Thus Barrick's hedging program, according to the release, "has been reduced from 18.8 million ounces at the end of the third quarter to a net 9.8 million ounces at year-end 1999."
While the numbers do not fully jibe with those at its website for the prior quarter, the net reduction in Barrick's hedge book of some 9 million ounces consists of 400,000 ounces delivered under forward contracts, a reduction of 1.3 million ounces in written calls, and the purchase of new calls for 6.8 million ounces. ...
Barrick's reference to the "net" position of its hedging program is somewhat misleading. Indeed, it fooled at least one gold analyst into asserting that since Barrick was able to close nearly half of its hedged position in the fourth quarter without pushing up the gold price, the gold market is not as short as Frank Veneroso and others claim, and Barrick is not "trapped" by its hedge book. However, buying calls, and particularly CSO calls, is not the same thing as closing forward contracts. Had Barrick bought physical gold in the amount of its calls (6.8 million ounces or 212 tonnes), it almost certainly would have caused the gold price to rise substantially. What is more, the very fact that it bought paper gold -- not to mention paper gold that by its very terms is not convertible into physical gold -- suggests that Barrick was in fact unable to cover its forwards in the physical markets without driving up the gold price.
What seems to have rattled traders, then, is the possibility that Barrick has been recruited to the short side with at least 100 tonnes of ammunition for use in a delta hedge, and that the $319 and $335 levels will be strongly defended by Barrick and others, including its bullion banker sellers. And my questions regarding who sold Barrick the calls, who might be backstopping them, and what is really going on here become even more intriguing.
The story begins in 1995. Gold is slumbering as it has for some time around US$375/oz. Japan's economic situation is worsening, and in mid-1995 the Japanese cut interest rates sharply. Gold begins to stir, jumping over $400 in early 1996, propelled in part by Japanese interest rates so low that they force yen denominated gold futures on the TOCOM into backwardation (i.e., when prices for future delivery are lower than spot). The yen is falling; gold lease rates are rising. From the U.S. perspective, an economic collapse in Japan threatens to exacerbate the U.S. trade deficit and possibly trigger massive dishoarding of Japan's large holdings of dollar denominated debt, including U.S. Treasuries.
From the European perspective, there is concern not only about the obvious economic effects of a Japanese collapse, but also that it might cause sufficient disruption in the existing international payments system to complicate severely or even prevent the planned introduction of the euro in 1999. An accelerating gold price responding to world financial turmoil is hardly a propitious environment for the introduction of a new and untested currency.
The G-7 central banks and finance ministers cobble together a plan to support Japan, including a strategy for controlling the gold price through anti-gold propaganda backed by small but highly publicized official gold sales augmented by leasing of official gold in large quantities at concessionary rates. For Belgium and the Netherlands, the largest European sellers, gold sales also help to meet the Maastricht Treaty's criteria for the euro.
Gold analysts, who at the beginning of 1996 were almost unanimous in predicting a new bull market for gold, are blind-sided. Virtually none foresaw such a coordinated official attack on gold, and many are slow to recognize its broad scope. The gold price steadily declines from over $400 in early 1996 to well under $300 in early 1998, and stays under $300 for most of 1998 and into early 1999. Every time gold looks to rally, it is slammed on the LBMA or COMEX by the same small group of well-connected bullion banks. Particularly notable in these attacks are Goldman Sachs, Chase and Mitsui, which regularly runs by far the largest net short position on the TOCOM.
Scared by falling prices and encouraged to do so by their bullion bankers who are also their lenders, many gold mining companies respond by increasing their hedging activities, expanding forward sales and buying more gold put options. The forward sales, generally made with gold leased from central banks through bullion banks, add to the downward pressure on gold and provide fees to the bullion banks, augmented by further windfall profits on the loaned gold as the price continues to fall. The bullion banks earn further fees by selling put options to the mining companies, who frequently a re forced to finance buying shorted-dated puts from the bullion banks by selling them long-dated calls.
Trading around $280 in April 1999, gold is below the total cost of production for many mines and not far above the cash costs of quite a few. What is more, annual gold demand is now almost 4000 tonnes, exceeding annual new mine production of 2500 tonnes by almost 1500 tonnes. This deficit, building over several years, is largely filled by sales of gold leased from central banks by the bullion banks. Analysts trying to calculate the net short gold position of the bullion banks in early 1999 are coming up with some astonishing figures, some as high as 10,000 tonnes, equivalent to four full years of production.
Since much of this leased gold is sold into the Asian jewelry market, particularly to India which regularly absorbs 25% to 30% of annual world production, many question where all the gold necessary for repayment will be found. But at the beginning of 1999, some is expected to come from the proposed sale of over 300 tonnes by the IMF to raise funds for aid to heavily indebted poor countries, an initiative strongly supported by the U.S. and Britain.
On May 6, 1999, gold again nears $290 and is threatening to explode above $300 due in part to increasing doubts that the proposed IMF gold sales will be approved. Short positions are in grave peril. Then comes a wholly unexpected bombshell which will have even more unexpected consequences.
On May 7, 1999, the British announce that the Bank of England on behalf of the British Treasury will sell 415 tonnes of gold in a series of public auctions ostensibly to diversify its international monetary reserves. The manner of the British sales -- periodic public auctions instead of hidden sales through the BIS -- belie any effort to get top dollar and smack of intentional downward manipulation of the gold price. All indications are that these sales were ordered by the British government over the objection of BOE officials. Palpably spurious and inconsistent reasons for the sales are offered, but no persuasive ones. There is only one logical conclusion: the gold sales were directly ordered by the Prime Minister for unknown political or other reasons. What is more, his reasons are unlikely to have been frivolous. As leading supporters of the proposed IMF gold sales, the British clumsily put themselves in the position of front-running them, and ultimately the British sales are an important catalyst in forcing the IMF to change tack.
For most knowledgeable gold market participants and observers, the British announcement is the smoking gun -- proof positive that the world gold market is being manipulated with official connivance and support. But what none yet suspects is that the BIS, the ECB and the central banks of the EMU countries are having serious second thoughts about the gold manipulation scheme.
The British announcement quickly sends the gold price into near free fall toward $250. Gold mining companies panic. Urged on by the bullion banks, led again by Goldman Sachs, the miners add to their hedge positions. The very dangerous practice of financing short-dated puts with long-dated calls expands exponentially as financially strapped mining companies, threatened with reduction or loss of credit lines by their bullion bankers, are often left with little other choice. Then comes a second and even larger bombshell that takes the bullion bankers and their customers completely by surprise. Indeed, it is likely a watershed event for the entire world financial system, comparable only to the closing of the gold window in 1971.
On September 26, 1999, 15 European central banks, led by the ECB, announce that they will limit their total combined gold sales over the next five years to 2000 tonnes, not to exceed 400 tonnes in any one year, and will not increase their gold lending or other gold derivatives activities. Besides the ECB and the 11 members of the EMU, Britain, Switzerland and Sweden are parties. The 2000 tonnes include the remaining 365 tonnes of British sales and 1300 tonnes of previously proposed Swiss sales, leaving only 335 tonnes of possible new sales. The announcement, made in Washington following the IMF/World Bank annual meeting, is ironically christened the "Washington Agreement" although the government in Washington played no role. However, the BIS, IMF, U.S. and Japan are all expected to abide by it, and the BIS is expected to monitor it.
The effect in the gold market is quick and dramatic. Within days, as some gold shorts rush to cover, the gold price jumps from around $265 to almost $330 and gold lease rates spike to over 9%. By late October gold retreats back under $300, and a month later lease rates are almost back to normal levels. But the hugely over-extended net short position in the gold market is clearly revealed and far from being resolved. Two heavily hedged gold mining companies, Ashanti and Cambior, are virtually bankrupt and in negotiations with their bullion bankers. Indeed, soon the entire rationale of hedging is under comprehensive review throughout the gold mining industry as shareholders rebel at practices that take away the upside of their gold investments.
As the details of Ashanti's and Cambior's hedge books are disclosed, the recklessness of gold hedging strategies foisted onto to them by their bullion bankers becomes all too apparent. Ashanti's lead bullion banker, Goldman Sachs, is the subject of scathing comment, including allegations of serious conflicts of interest. See, e.g., L. Barber & G. O'Connor, "How Goldman Sachs Helped Ruin and then Dismember Ashanti Gold," Financial Times (London), Dec. 2, 1999, reprinted at http://groups.yahoo.com/group/gata/message/299. Clearly the most aggressive bullion bankers have been caught completely wrong-footed and totally unawares by the Washington Agreement. Significantly, rumor is that the agreement was hammered out secretly among the members of the EMU, the BIS and Switzerland, that the British were given a chance to sign on after the fact, and that the U.S. was not informed until just before the Sunday announcement. For references to European press commentary on the genesis of the agreement, see W. Smith, "Operation Dollar Storm," www.gold-eagle.com/editorials_99/wsmith111099.html.
Besides the three provisions relating directly to central bank activities in the gold market and one calling for review after five years, the Washington Agreement contains this statement: "Gold will remain an important element of global monetary reserves." The ECB and 11 EMU nations hold collectively around 12,500 tonnes of gold reserves (almost 1.4 ounces per citizen), making the EMU as a whole by far the world's largest official holder of gold. What is more, unlike the U.S. which values its gold stock of about 8150 tonnes (under 1 ounce per citizen) at an unrealistic $42.22/oz., the EMU marks its gold reserves to market quarterly.
The notion, shared by many, that the EMU would forever acquiesce in the tra shing of its gold reserves by bullion banks operating in the largely paper gold markets of London, New York and Tokyo appears in retrospect to have been incredibly naive. Indeed, a careful reading of the 69th annual report of the BIS issued in June 1999 suggests that European central bankers were already questioning the effectiveness and sustainability of Japan's low interest rate policy, and were very concerned about the implications of the LTCM incident for the world payments system. With the euro successfully launched, they quickly lost reason to continue capping the gold price and became much more concerned about the increasingly parlous state of the gold banking system to which they were lending.
Often referred to as the central banks' central bank, the BIS is not only the principal forum for discussion and cooperation among the world's central bankers but also the world's top gold bank. Established under international treaty in 1930 to facilitate payment of German war reparations, the BIS from its founding has kept its financial accounts in Swiss gold francs, making conversions at designated or market rates as appropriate. It holds approximately 200 tonnes of gold for its own account and records on its balance sheet separate gold deposit and gold liability accounts in connection with the banking services it provides to central banks and other international financial institutions. That the BIS in early 1999 was not as aware as gold analysts in the private sector of the bullion banks' dangerously leveraged condition is almost inconceivable.
Fed Chairman Greenspan's letter to Senator Lieberman is highly significant in that it tends to negate the impression many had, including myself, that a rift had developed between the Anglo-American central banks and those of the EMU over gold. Rather, the Fed's position as expressed in the letter, together with the BOE's position that the decision to sell British gold came from Her Majesty's Treasury, implies a rift not among the major central banks, but between them and the British and American governments operating through their Treasury departments. In this connection, the Fed and the BOE labor under a handicap that does not affect the Europeans, for whereas the central banks of the EMU have direct legal responsibility for their nations' gold reserves, in both Britain and the U.S. this responsibility rest with their Treasury departments.
What is more, a quite plausible scenario now appears to explain the British gold sales. Whether it is true or not, only a very few high officials in the British and American governments and their bullion bankers are in a position to know for sure. But on known and reasonably inferred facts, the following hypothesis can be constructed.
The ESF was writing gold call options for certain bullion bankers, principally those most active in selling futures and arranging forward sales: Goldman Sachs, Chase, et al. As of April 30, 1999, it had outstanding a sizable position at strike prices in the $300 area. For writing these options in a generally falling market, it had net earnings from premiums but these were not in context large amounts, at most a very few dollars per ounce. In the ESF's monthly financial reports required to be filed with the Senate and House Banking Committees, these amounts were listed as miscellaneous income.
When gold threatened to explode over $300 in early May, and with IMF's proposed gold sales in trouble, the ESF found itself in much the same position as that of Ashanti and Cambior after announcement of the Washington Agreement. Gold call options previously sold for a few dollars an ounce threatened to cause losses many multiples of these amounts if the gold price jumped by $50 to $75. If settled in cash, exploding volatility premiums would add hugely to the loss, putting the effective strike price far above the nominal one. On the other hand, if settled in gold at the strike price, the ESF would have to deliver gold from U.S. reserves or go into the market to cover, adding more upward pressure to the gold price.
Worse, unlike the modest premium income from sales of options, huge losses could not be hidden from Congress in the monthly financial reports to the House and Senate Banking Committees. Not to panic. The ESF, being under the direct control of the Secretary and the President, has an option not available to others. Call the British Prime Minister and arrange for a very public official gold sale designed to kill the incipient gold price rally. And for God's sake don't let the BOE or the Fed know what is really afoot. If some of their inflation hawks knew the real situation in the gold market, they might be more inclined to raise interest rates.