Globe and Mail comments on Sprott report on gold price suppression
- 11:38a ET Wednesday, August 25, 2004
Dear Friend of GATA and Gold:
The Globe and Mail in Toronto has taken long note
of the Sprott Asset Management study of
manipulation of the gold price -- a column by
business writer Mathew Ingram, which is appended.
It is valuable for calling attention to the report,
but it misrepresents Federal Reserve Chairman
Alan Greenspan's comment to Congress about
central bank gold sales. Greenspan did not say
that his comment was taken out of context;
he said that OTHER central banks, not his
own, were ready to lend gold in increasing
quantities should the price rise. When he was
asked by a U.S. senator, at GATA's request,
exactly how he knew of the readiness of other
central banks to lend gold to keep the price
down, Greenspan replied that he knew by
That is, Greenspan's comments, spoken and
written, were actually CONFIRMATION of
central bank collusion against the gold price.
Greenspan can see this collusion and even
acknowledge it in public, even if it still
confuses the Globe and Mail.
But the Globe and Mail isn't alone in such
obtuseness. After all, the central banks put
out press releases and hold press conferences
to discuss their collective efforts in regard to
gold, and still when GATA notes the
collectiveness of this public action, the
mainstream financial press ridicules what it
calls conspiracy theorists.
That central banks are acting collectively in
regard to gold is simply public record. The
only question is how far that collective action
goes. Maybe someday the Globe and Mail will
pick up the phone and call a central bank
to ask about it. That would be called
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
* * *
In Search of a Golden Fleece
By Mathew Ingram
Globe and Mail, Toronto
Tuesday, August 24, 2004
There are plenty of conspiracy theories out there,
from the Kennedy fetishists with their homemade
copies of the Zapruder film to the Area 51 geeks
with their tales of alien technology kept under
wraps by NASA. In the financial arena, the most
popular by far is the idea that central banks, the
International Monetary Fund, bullion banks,
and even the Federal Reserve Board are in
cahoots to suppress the price of gold.
But is this just a wacky theory promoted by gold
bugs and Internet kooks with too much time on
their hands, or is there more to it than that?
Sprott Securities market strategist John Embry
believes the latter -- that despite the
loony-sounding ideas of some conspiracy
advocates, there is a core of truth to their claims
that gold is being "managed" by central banks
and other financial institutions. He laid out those
arguments in a recent 66-page research report.
In effect, Mr. Embry says that while he doesn't
like the term "conspiracy," he believes there is
some evidence that various central banks,
including the U.S. Federal Reserve, have acted
in concert with the International Monetary Fund
and others -- even the U.S. government itself
-- to keep the price of gold depressed. This,
Mr. Embry says, has taken advantage of
"unsuspecting investors labouring under the
illusion that gold is indeed a free market."
This is not the first time Mr. Embry has sided
with those who believe the bullion market is
being manipulated by powerful forces. Two
years ago he wrote a similar report in his
capacity as a fund manager at Royal Bank of
Canada. The bank seemed to take a dim view
of Mr. Embry's thoughts on the subject,
however, since the head of Royal Bank's
investment management arm made it known
that Mr. Embry's report was written for
internal use and thus "in no way reflects the
views of Royal Bank."
As he did in that earlier report, Mr. Embry
relies to a large degree on the "evidence" (as
he puts it) collected by a U.S. group called
the Gold Anti-Trust Action Committee.
Although GATA is dismissed by many as a
group of "grassy-knoll"-style conspiracy
theorists, Mr. Embry describes their work
as "excellent in scope, yet chronically
underappreciated." At another point, the
Sprott strategist admits he is content to
"side with the alleged lunatic fringe on this
contentious topic" because "their assertions
appear to be essentially correct."
In essence, GATA's gold price-fixing theory
goes like this: Central banks, including the Fed,
have colluded with various other institutions to
keep the gold price low. They have done so in
a number of ways: Central banks have announced
large sales of gold, which has put downward
pressure on the price, but in many cases they
have never actually sold any gold. Others have
allegedly engaged in swaps and other trades
aimed at profiting from a falling gold price.
Why would central banks and others, such as
the U.S. Exchange Stabilization Fund (an arm
of the U.S. Treasury) do this?
According to Mr. Embry and GATA, there are
a number of motivations involved. The United
States, for example, is said to be interested in
rigging the price of gold in order to help the U.S.
dollar on the assumption that if gold were to rise
too quickly, many foreign investors holding
dollar-denominated assets might sell in favour
of gold. Central banks are said to be concerned
that their involvement in the short-selling of gold
could come back to haunt them.
This latter part of the theory stems from the gold
"carry trade," a strategy that involves borrowing
gold from central banks at a low interest rate and
then selling or loaning the gold at a higher rate.
Many of those loans, GATA says, have been used
as collateral for short sales -- short sales that the
group says far outweigh the amount of gold
available on the market. If the price of gold were
to rise sharply, the theory goes, those loans would
be "called in" and large banks and other
institutions (or even governments) would be hurt
by the resulting chaos.
One of the problems with any conspiracy theory is
proving that the events in question couldn't have
happened for some other reason -- by accident,
for example. Mr. Embry himself quotes Goethe:
"Why blame conspiracy when human stupidity
explains so much?" He also says the kinds of
manipulation described in the report could have
"at least initially" been the result of powerful
groups acting in their own self-interest. But the
weight of evidence, Mr. Embry says, still shows
that the gold price is being "actively managed."
Unfortunately for GATA's case, however, which
they attempted to bring to court in 2001 by filing
a lawsuit against the U.S. Treasury, Fed Chairman
Alan Greenspan and several banks, a lot of the
evidence they use is questionable. For example,
GATA likes to use a quote from Mr. Greenspan's
testimony to Congress in 1998 in which he referred
to central bank gold being available for sale. But
the Fed chairman later wrote a letter saying the
comment was taken out of context, and that the
Fed has no role in management of the gold price.
Another key piece of GATA evidence is the 1998
bailout of hedge fund Long Term Capital
Management, which it says occurred because the
fund had a short position in gold of 400 tonnes,
the unwinding of which would allegedly have hit
too many banks and other institutions. Principals
of LTCM, however, have said that they had no
short position in gold, even a derivative one. But
of course they and Mr. Greenspan are both in on
the manipulation, so naturally their responses
must be suspect.
There's no question that the workings of the
international gold market are murky, and that
governments and central banks engage in all
kinds of financial machinations that are poorly
understood and in many cases poorly disclosed.
It's quite a jump from that to a full-blown
conspiracy theory, however, and Mr. Embry's
latest report does little to help bridge that gap.
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