Gold market manipulation update, April 2019
The slides for the PowerPoint presentation accompanying these remarks can be found here:
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[SLIDE 1: Introduction]
Remarks by Chris Powell, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
Mines and Money Asia Conference
Hong Kong Convention and Exhibition Centre
Tuesday, April 2, 2019
Mining Investment Asia Conference
InterContinental Singapore Bugis Hotel
Thursday, March 28, 2019
Most of us come to this conference to discover what mining assets are worth financially. Most people go to financial conferences generally to discover what various assets are worth.
For almost 20 years my organization, the Gold Anti-Trust Action Committee, has documented why mining assets particularly and other assets generally can not be valued accurately or even valued at all without first taking into account the largely surreptitious intervention in the markets by governments and central banks, surreptitious intervention that lately has become almost comprehensive.
Government intervention against the price of gold is not mere “conspiracy theory” but an old story fully documented in government’s own archives. It is official policy going back to the United States government’s enactment of the Gold Reserve Act of 1934, which created the U.S. government’s Exchange Stabilization Fund. This policy of gold price suppression continued through the London Gold Pool of the 1960s, a coordinated scheme of gold reserve dishoarding by the U.S. government and seven allied governments to hold the international gold price at $35 per ounce.
The objective of these interventions always has been to defend government currencies and bonds against competition from gold as a currency and store of value. But by the early 1970s the governments participating in gold price suppression had lost too much of their gold reserves to continue suppressing the gold price by dishoarding in the open. So they began operating against gold mostly in secret, through gold leasing, swapping, and futures market manipulation, usually shorting the futures through the large investment banks that trade the monetary metals and execute other market interventions for governments.
In recent years this scheme has been admitted many times by central bankers themselves — sometimes when they think no one outside their circle is listening, sometimes when they have written their memoirs. This and other documentation is archived at GATA’s internet site —
— and several days would be needed to review it all with you. Today I will try to summarize the most important documentation and developments of the last year.
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Let me start with what is perhaps the documentation of the last year that most clearly establishes the comprehensiveness of market rigging by governments and central banks.
[SLIDE 2: CME Group Central Bank Incentive Program]
It is the schedule of discounts provided to governments and central banks by CME Group, operator of the major futures exchanges in the United States, for their secret trading of all major futures contracts. This schedule is posted on CME Group’s internet site and copied to GATA’s internet site:
The discount trading program has been in effect for several years now and a few weeks ago it was renewed for another year with slightly changed rates.
The current discounts range from a mere 3 percent for bitcoin futures contracts and 7 percent for two-year U.S. Treasury futures contracts to a whopping 52 percent for interest rate futures. The huge discount for central banks and government trading of interest rate futures implies that they do a lot of secret trading there, apparently to defeat speculators shorting bonds and driving up interest rates.
Discounts of 15 percent are offered to governments and central banks for secretly trading gold and silver futures as well as metals and energy futures. Discounts of 14 percent are available to them even for secretly trading agricultural futures.
Of course the trading discount schedule doesn’t prove that such secret trading by governments and central banks is actually occurring.
[SLIDE 3: CME Group’s 10-k report]
The proof of such secret trading comes from CME Group’s annual 10-k form filings with the U.S. Securities and Exchange Commission, wherein CME Group specifies that its customers include “governments and central banks”:
Mainstream financial news organizations refuse to report this secret trading by governments and central banks, even though it implies the overthrow of the market economy throughout the world. It implies the suppression of the prices of all mining products.
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Throughout the last year the Bank for International Settlements, the central bank of the central banks, has continued to trade secretly in the gold market on behalf of its members. As far as I can determine, only one person in the world outside of central banking documents this secret trading — GATA consultant Robert Lambourne.
[SLIDE 4: BIS headquarters and February statement of account]
The trading is confirmed not by any regular and candid announcement by the BIS but by changes in the line item for gold in the bank’s monthly statement of account, which is obscurely posted at the bank’s internet site. Subtracting the gold owned by the BIS itself from the valuation reported by the bank for gold loans and swaps, Lambourne concludes that the BIS is swapping dozens of tonnes of gold every month, 56 in February alone:
What is the purpose of these swaps? What is the BIS aiming to achieve in the gold market and for whom? Are Lambourne’s calculations correct?
GATA put those questions to the BIS in November 2017. The bank promptly replied that it provides no information about its activity in the gold market. The BIS referred GATA to its member central banks, which, of course, also refuse to provide information about their activity in the gold market:
A few weeks ago Craig Hemke of the TF Metals Report noticed that Lambourne’s calculation of 56 tonnes of BIS gold swaps in February corresponded almost exactly with the decline in the gold inventory held by the gold exchange-traded fund GLD over about the same period, 57 tonnes:
Had the BIS borrowed gold from GLD to dump it into the market in February and March to push the gold price down, or is the similarity of the numbers here just a coincidence?
When powerful government organizations refuse to answer for themselves, it becomes less likely that suspicious developments involving them are mere coincidence.
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Also recently refusing to answer GATA’s questions about its operations is the U.S. Commodity Futures Trading Commission.
By letter in September GATA asked the CFTC if it has jurisdiction over manipulation of a commodities market that is undertaken by the U.S. government itself, directly or through intermediaries, or whether market manipulation instigated by the government is authorized by federal law. After all, such manipulation seems to be authorized by the Gold Reserve Act of 1934, which established the Treasury Department’s Exchange Stabilization Fund and authorized it to trade secretly in any market in the world:
The CFTC has refused to answer GATA’s questions, which may be construed as confirmation that the U.S. government indeed is authorized to rig the commodity markets and indeed is doing so.
U.S. Rep. Alex Mooney, R-West Virginia, objected to the CFTC’s refusal to answer GATA’s questions. In February he wrote to the CFTC himself, making GATA’s questions his own:
[SLIDE 5: Rep. Mooney’s letter to CFTC]
Mooney also asked the CFTC why its own investigation of the silver market from 2008 through 2013 could find no manipulation when the U.S. Justice Department and FBI recently obtained a confession from a former trader for JPMorganChase that he had manipulated the silver market and the gold market during that period. Further, Mooney asked whether, in light of that trader’s confession to manipulation, the CFTC will reopen its investigation of silver market manipulation:
Two months have passed and the CFTC has not replied to the congressman either.
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Last April Mooney performed an even greater service to accountability in government. He wrote to the Federal Reserve and Treasury Department and asked them to specify which markets they are trading in:
[SLIDE 6: Rep. Mooney’s letter to the Federal Reserve and Treasury Department]
Mooney wrote: “Records in the archives of the historian of the U.S. State Department describe U.S. government policy in recent decades as aiming to drive gold out of the world financial system in favor of the Federal Reserve Note or Special Drawing Rights issued by the International Monetary Fund.
“Is this still U.S. government policy toward gold? If not, what is the U.S. government’s current policy toward gold?”
Mooney continued: “I have heard complaints that the U.S. gold reserve has not been fully audited for many decades, particularly as there seems to have been no acknowledgement of — or account for — ‘swaps’ and leases of gold or arrangements for such to which the U.S. government has been a party.
“Does the U.S. government, through the Treasury Department, the Federal Reserve System, or any other agency or entity transact in gold or gold derivatives either directly or through intermediaries? If so, what are those transactions and what are their objectives?
“Does the U.S. government undertake any transactions in gold or gold derivatives through the Bank for International Settlements, Bank of England, or other central banks or governments? If so, what are these transactions and their objectives?”
Federal Reserve Chairman Jerome Powell replied to Mooney but only in part. Powell denied that the Fed is trading gold but failed to answer whether the Fed is trading in other markets and, if so, which ones. Powell said the Treasury Department would reply on its own behalf, but a year has passed and the Treasury has not replied.
Apparently an honest answer about secret market intervention by the U.S. government would be against the U.S. government’s interests. An honest answer might reveal that complaints of such secret intervention are far more than “conspiracy theory.”
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Then there have been the usual criminal activities in the gold and silver markets by agents of big investment banks, banks that are commonly brokers for the U.S. government.
[SLIDE 7: CNBC page about JPM trader Edmonds’ confession]
In November last year former JPMorganChase trader John Edmonds pleaded guilty in federal court to manipulating the gold and silver markets for about seven years. In his confession he says his superiors and other traders at JPMorganChase knew what he was doing and conspired with him:
[SLIDE 8: CFTC order against Bank of Nova Scotia]
In October last year the Bank of Nova Scotia, whose metals division, Scotia Mocatta, is renowned in the gold and silver business, a bank that has participated in the daily London gold price-setting mechanism, admitted to the U.S. Commodity Futures Trading Commission that its traders had used “spoofing” trades to manipulate the gold and silver markets from 2013 through 2016:
For this “spoofing” the CFTC fined the Bank of Nova Scotia a mere $800,000, maintaining that the bank deserved such leniency because it had reported itself.
And Deutsche Bank, which in 2016 agreed to pay nearly $100 million to settle class-action lawsuits in the United States charging manipulation of the gold and silver futures markets, also agreeing to provide evidence against other banks —
— agreed in February to settle a similar class-action lawsuit in Canada. In Canada Deutsche Bank will pay C$5.5 million and, as in the United States, provide evidence against other market manipulators:
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[SLIDE 9: Page from Volcker autobiography]
In November last year former Federal Reserve Chairman Paul Volcker published an updated edition of his autobiography, excerpts of which first saw print in the Nikkei Weekly in Japan in 2004. In the new edition Volcker recalls his desire for central bank intervention against gold during an international currency revaluation in 1973 while he was an assistant secretary of the treasury:
Volcker writes: “The newly agreed exchange rates and gold price ($42.22), in my view, would be highly vulnerable to renewed speculation. To convey a sense of confidence, we should be prepared to intervene collectively to stabilize the gold market: in effect to create a new gold pool. That, unfortunately, was not agreed.”
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While all of this is hard documentation, not mere speculation or “conspiracy theory,” few mainstream news organizations will touch it, apparently because it is too sensitive to their governments.
But sometimes some notice slips through.
[SLIDE 10: Hong Kong Economic Journal’s article]
In August last year the Hong Kong Economic Journal took note of GATA’s work in a commentary headlined “GATA Is Not Wrong”:
The Hong Kong Economic Journal’s essayist, Shin Lin Shu, wrote: “Gold prices are often artificially depressed.”
Indeed, as shown by the U.S. State Department cables exposed by Wikileaks in 2011, China long has known about gold price suppression by the United States and the U.S. government knows that China knows:
[SLIDE 11: Article from Il Sole / 24 Ore]
Three weeks ago a major newspaper in Italy, Il Sole / 24 Ore — The Sun / 24 Hours — asserted plainly that central banks have been manipulating the gold futures market to push the gold price down so they more easily can acquire real metal to build their reserves:
This, the Italian newspaper said, was being done in anticipation of the formal remonetization of gold under the so-called Basel 3 standards devised by the Bank for International Settlements, whereby, as of last Friday, gold in the vault is to be considered an asset as good as cash and government bonds.
The newspaper’s premise echoed the hypothesis published in 2012 by the U.S. economists Paul Brodsky and Lee Quaintance — that central banks were redistributing gold reserves in favor of countries with large U.S.-dollar-denominated foreign-exchange positions to hedge those countries against the devaluation of the dollar and an upward revaluation of gold that would reliquefy dollar-overweight central banks:
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What does all this mean to mining companies and their investors?
First, it means that metals and minerals are underpriced, along with most commodities, because of the price suppression engineered by central banks to defend their currencies and government bonds. Central banks and governments in the developed world don’t want gold, silver, other metals, and other commodities to compete with their currencies as stores of value.
As the recent acquisition of gold by Russia, China, and other governments suggests, gold price suppression has been figured out at last and certain countries are turning to gold to regain financial sovereignty.
Second, it means that there is a vast and uncoverable short position in the monetary metals and other strategic commodities. Thus they have great potential for price appreciation.
Third, it means that Western central banks are not likely to surrender this short position without a fight or another negotiated international currency revaluation.
Fourth, since governments can create infinite money, it means that if you are trading against secret trading by the government, you are likely to lose.
Fifth, it means that if commodity prices ever regain free markets, commodity producers should be prepared for stiffer royalty requirements and windfall profits taxes.
And sixth, it means that people in the mining and commodities businesses may have an obligation to their investors and clients to inform them of the opposition of major governments to free markets and higher commodity prices. It means we all may have an obligation to clamor for governments to tell us the truth about their surreptitious interventions in the markets. For this price suppression works only through deception.
Because it depends entirely on government for its mining claims, royalty requirements, and enforcement of environmental regulations, the mining industry is the industry most vulnerable to government. Any government can shut down any mining company on any pretext at any time.
And since the mining industry is also the most capital-intensive industry, with a billion dollars or more required to start a large mine, the industry is also the most dependent for its financing on the major investment banks that are the agents of government in the markets.
So objecting to price suppression will require courage from the mining industry. But if the industry united against price suppression, there would be strength in numbers. Besides, the industry’s choice may be only whether to die on its knees or risk dying on its feet.
Sometimes the truth is stronger than you think.
[SLIDE 12: Contact]
I will be delighted to answer your questions here if we have any time left, or at CPowell@GATA.org. If you can’t find any document I have mentioned today, just let me know and I’ll try to locate it for you.
Thanks for your kind attention. Good luck against our common foe.
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