Talking Gold Manipulation with GATA

GATA, formally known as the Gold Anti-Trust Action Committee, insists that a gold cartel is suppressing metal prices and is set on exposing that group’s secret activities.

Gold Investing News (GIN) contacted Chris Powell, treasurer, secretary and director of GATA, and had an extensive discussion about what is going on in the gold market.

GIN: Can you outline how the gold manipulation scheme works?

CP: Sure. Central banks that want to support their currencies — and support the US dollar in particular — want to control interest rates and government bond prices, so they intervene in the gold market by selling their gold outright, by leasing it into the market through bullion banks and the Bank for International Settlements (BIS) and by swapping it to other central banks that will be doing these sales or leases. They also sell gold options and futures contracts through the BIS. They do a lot of shorting of gold to control the price.

GIN: Who is involved in this manipulation scheme?

CP: I think all the major western central banks are at least aware of it and are cooperating, if not participating. I think all of the western central banks that were identified openly as being part of the London gold pool in the 1960s are certainly cooperating with it. Though I think the major ones lately have been the US, the Bank of England and the Bundesbank. But I think any central bank that has been identified as having swapped or leased gold is a participant.

GIN: So, you’d say that the gold cartel is composed of central banks?

CP: It is a central bank scheme, but they operate very often through agents like bullion banks, JPMorgan Chase & Company (NYSE:JPM) and HSBC. The BIS in Basel, Switzerland conducts much of the gold trading for the western central banks. So certainly the BIS is an agent as much as the bullion banks are.

GIN: Who does gold manipulation affect? Is the negative impact just limited to gold investors?

CP: Oh no. It’s the destruction of all free markets. It’s the destruction of transparency in government. Certainly gold investors and mining companies and developing countries that rely on the production of commodities for their livelihood are terribly harmed.

But from my standpoint as an American citizen and a journalist who wants transparent government, I think the greatest casualties are free markets and accountability in government. This scheme is a matter of rigging markets surreptitiously, and when you rig markets, you don’t have free markets anymore. And when you lose free markets, you lose your competitive economy as well as your democracy when such major government action is undertaken in secret.

GIN: Is gold manipulation done mostly through leases, swaps and selling gold?

CP: Not only gold, but futures and options as well. They are hugely capitalized operations, so they have very deep pockets. The can probably sell gold futures and options to an extent that no buyer can compete with them. And most buyers will be driven out of the market by the amount of imaginary gold that central banks can sell because they have the ability to create money in infinite amounts.

GIN: How do the bullion banks and the futures market factor in?

CP: Because central banks trade through them, they are acting as agents. Whenever there is any crisis in the financial markets, where do the Fed and the Treasury go to try to put together a bailout? They start with JPMorgan Chase.

The use of New York investment banks by the US government, particularly JPMorgan Chase, that’s public record. I’m sure if you asked for access to all the communications between the Federal Reserve and the US Treasury and JPMorgan Chase, you would get a lot of interesting information — if it was made available to you.

But again, these are questions that are best put to central banks. I am only a derivative source of information. I can’t speak for the Fed and the Treasury and the Bank of England. I can show you the exchanges we’ve had with them. I can show you what has come out as a result of our suing the Fed. But we are not the possessors of the original information here. We are not the original sources.

I have always marveled that we should be questioned at GATA before any questions are put to the central banks about their policy in the gold market. I think if you pose questions [to the central banks] that are specific enough, you will find pretty quickly that the door is slammed in your face.

GIN: You said the motive for gold manipulation is to control interest rates and bond rates?

CP: If you read the academic paper on GATA’s internet site called Gibson’s Paradox and the Gold Standard, that paper analyzes the historical relationship between gold and real interest rates. If you read it, I think you will indeed find that there is a historic relationship. And indeed, gold is pretty much by definition a determinant of currency value and interest rates — and by extension, government bond prices.

Gold is a terribly important determinant of the value of other financial instruments. We have collected a lot of Department of State memorandums, CIA memos and documents throughout history about the importance the US government places on controlling the gold price. Many central bankers have made statements signifying that the gold price is of great concern. Governments have always sought to control the gold price and that’s what the gold standard was really about.

GIN: If gold market price control has pretty much always existed, does the tactic remain the same? Or does the gold cartel switch up how the price is controlled from time to time?

CP: They certainly change their mechanisms. Back in the 1960s, the western central banks were controlling the gold price in a forthright, but very costly, fashion. That is, they were dishoarding a lot of metal out of their reserves and they lost a lot of it. And as they were down to the last tonnage, they decided they couldn’t do it that way anymore

They’ve come up with a much more efficient and powerful way of controlling the gold market insofar as they’ve created a vast imaginary supply of what we call paper gold. That is, certificates claiming ownership to gold. Central banks realized that they could basically underwrite the paper gold market run by bullion banks by advancing gold to bullion banks as necessary to avert a short squeeze in gold when bullion banks sold more gold than they could deliver.

GIN: Can you help our audience better understand Bill Murphy’s [of GATA] comment about central banks realizing in 2001 that there was too much gold at too low of a price? He said central banks then embarked on a management scheme that has been ongoing now for 12 years.

CP: I think he meant that western central banks had to unload some of their gold into the market to cover the short position built up by the bullion banks.

There was something called the gold carry trade that went on during the 90s. We believe it was effectively devised by Robert Rubin when he became Treasury secretary. In the gold carry trade, a lot of western central banks leased gold at a very low interest rates to bullion banks. Bullion banks sold the gold and used the proceeds to buy government bonds paying something like 5 percent per year. And they collected a spread that was risk free as long as central banks could guarantee to make gold available in the event of any short squeeze.

Bullion banks made a lot of money. Gold prices were suppressed. Interest rates were suppressed and government bond prices were supported. That started to become a problem when the gold started to run out and production was decreased by the falling gold price. So all of a sudden, the gold dried up.

I can’t prove it, but I think the gold price rose between 2000 and 2010 — despite central banks announcing gold sales every few weeks — because they really were not sales at all. They were the cancellation of leases that had been issued in the previous decade. Central banks realized they could not recover their gold, so they agreed to let the bullion banks off the hook with a cash settlement.

GIN: If western central banks have lost most of their gold, leased it out, swapped it, sold it and they do not have the physical supply that they claim to have, why would western central banks not also be buyers now that there are so many emerging central banks in the market?

CP: Number one, we don’t know that they are not also buying. But I don’t think they would necessarily announce it. I can give you some examples of how official gold information is wrong or just misinformation. But I do think the western central banks that have been leasing or swapping the gold are in some trouble here.

GIN: Given that gold is so important and western central banks do not have the metal that they once had, why are there no reports of western central banks buying gold when we see emerging nations central banks buying at an increasing pace?

CP: I think it’s because there are two groups of central banks operating in the world, an eastern group and a western group. The western group is, along with United States, suppressing the gold price to support the dollar. The eastern central banks are not part of that, and I think they see gold as a very good reserve asset long term. Not every central bank in the world is in on the gold price suppression scheme.

A few years ago, among the Wikileaks cables that were leaked were cables from the US Embassy in Beijing, China to the Department of State in Washington. They were translations into English of Chinese government news agency reports about the western gold price suppression scheme. The significance of these cables is that they show that the Chinese government has long been aware of the western gold price suppression scheme, and that the US government knows that the Chinese government knows.

GIN: Okay, so the US government then is leading the way of gold suppression along with other central banks? But whoever actually has physical gold is ultimately going to be able to control the gold price — is that correct?

CP: Yes, I would say whoever has the most gold is going to run the gold market. And whoever runs the gold market is going to run all of the world currency markets and probably all of the interest rates and government bond markets as well. Because the gold price is going to determine all of those things.

GIN: And as far as we know, it is predominately emerging markets that are stocking up and in essence gaining control over the gold market?

CP: They are certainly gaining influence, but we don’t know how much. The official gold reports are notoriously unreliable. Everybody expects that China is acquiring a lot more gold than it is reporting. A few years ago, China went for something like five years without reporting any increase in its gold reserves and then one day reported a vast increase in its reserves. That vast increase did not happen overnight. The same thing I’m sure is going on right now.

This is a matter of the highest national security. Western central banks do not want the world to know how much gold they have in the vault and how much they have leased or swapped out because gold is an incredibly powerful weapon.

GIN: So, GATA is raising the money to prepare lawsuits against the Federal Reserve, the US Department of State and the US Department of the Treasury [to sue for all their gold records]?

CP: Yes, we are trying to raise the money. We filed informational requests with the Fed, the Department of State and the Treasury to seek access to all their gold records. Those agencies have not complied with our requests and we are now eligible to sue them in federal court. That kind of litigation we have not undertaken because we just haven’t raised enough money.

GIN: How much does legal action like that cost?

CP: With this kind of lawsuit, which is such a comprehensive request against such major elements of the US government, I don’t think I would want to get into it without having at least half a million dollars in the bank. It could cost substantially more than that though. I think the explosiveness of the material being sought is just overwhelming.

GIN: Over the time that GATA has existed, how has sentiment toward your organization changed?

CP: I think it’s changed vastly. I think at first the attitude in the gold world was that we were nuts. Now, I think the attitude in the gold world is that we’re probably onto something and certainly no one wants to argue with us because we have all of this documentation we offer up and it can’t be argued with.

GIN: If miners were to attempt to make a case to shareholders that they want to invest in supporting GATA, what could a company say it expects to get in return?

CP: As I said, if we could raise a half million or a million dollars, we would undertake these Freedom of Information lawsuits against the Fed, Treasury and Department of State. And within a year or two, I think we might extract some information as interesting as the information we extracted in our [previous] lawsuit against the Fed.

Now, that information by itself won’t do any good, but if it is publicized enough and if it exposes the gold market as rigged, then the gold market will collapse. Nobody will trade there any more and people will try to undertake some other mechanisms for buying and selling gold.

I think that would be an immense benefit to the mining industry in the monetary metals. I think if the world ever wakes up and realizes that, say, something like 75 percent of the investment gold it thinks it owns does not exist and is really a paper claim at a bullion bank that does not have the metal, then the price of investment gold and silver will rise.

GIN: Whether you look at the futures market or ETFs, there are clearly a lot of people who have no interest in taking possession of the physical metal. Why do you think it will be such a bombshell if gold manipulation is unveiled to the mass public when that would mean the current system can work without the underlying gold?

CP: I think it would give gold investors pause. This is the realization that we are trying to bring to gold investors around the world: that if you are not prepared to take delivery of the gold you are buying and move it outside of the banking system and you are investing in gold as a hedge against inflation or a currency collapse or whatever, you might as well just flush your money down the toilet. Because people who are running the world financial system can create infinite amounts of the unreal.

GIN: Taking physical possession and the gold manipulation scheme are basically concerns for people who are using the metal as a hedge against inflation or some type of currency collapse?

CP: It is for anybody who is buying gold because he wants the price to appreciate or the protection that gold can provide. Infinite paper will be created to keep the price down. That’s the scheme now. Central banks have decided that they can beat gold only if they are dishonest and deceptive and create a lot of imaginary gold that doesn’t exist. And that’s how they preserve more of their gold reserves.

GIN: Since this scheme has been in existence, plenty of people have made lots of money with just paper?

CP: Yes, that’s right. And we argue that this is a controlled retreat by the western central banks as their gold reserves are being bled out. And they are just trying to bleed them out as slowly as they can.

Securities Disclosure: I, Michelle Smith, own shares of JPMorgan Chase.