How Might Gold Price Suppression Policy End?
Presentation at Mining Investment Asia Conference
Marriott Tang Plaza Hotel, Singapore
The slides accompanying this presentation can be viewed here:
For many years on behalf of the Gold Anti-Trust Action Committee I have spoken at this conference and others like it to detail the extensive official records and other evidence of manipulation of the gold market by central banks and particularly by the U.S. government. This manipulation has been undertaken to defend the U.S. dollar as the world reserve currency and to diminish all other currencies, gold especially.
Those records and the other evidence are compiled at GATA's internet site. Because of their sensitivity they have been largely ignored but they have seldom been disputed. I would be delighted with any challenge to them, for at least a challenge would acknowledge them.
But today I want to concentrate on documents that show that central bank policy toward gold is changing profoundly – moving away from price suppression and toward renewed acceptance of gold's superiority as money and its renewed value to central banks that possess it.
I'm talking about the monthly statements of account of the Bank for International Settlements, the central bank of the world's central banks.
The BIS is crucial in analyzing the gold price because the bank acknowledges that it is a primary gold broker for its members. More than that, when the BIS doesn't think that anyone outside the ranks of central banks is listening, the BIS acknowledges that it is the major mechanism by which central banks can control the gold price to protect their currencies against competition.
SLIDE 2: BIS PowerPoint presentation
For example, the BIS has actually advertised to prospective central bank members that its services to its members include secret interventions in the gold market. Here is a slide from a PowerPoint presentation the bank gave to prospective central bank members at BIS headquarters in Basel, Switzerland, in June 2008: http://www.gata.org/node/11012
Indeed, according to its annual reports, the BIS functions largely as a gold banking and gold market intervention service for its member central banks: http://www.gata.org/node/12717
SLIDE 3: BIS statement of account
GATA's consultant about the BIS, Robert Lambourne, examines the bank's monthly statement of accounts, since, if you look very closely at the statement, as Lambourne does, you'll see that it includes entries for "gold and gold loans" and "gold deposits" and that these entries change each month. On the screen is a sample revealing page, taken from the BIS' statement of account for January 2020: http://gata.org/node/20901
In January 2022 Lambourne calculated that the BIS' gold derivative positions remained near their longtime highs, standing at 501 tonnes.
SLIDE 4: BIS swaps chart
But after last January the BIS' gold derivatives positions began falling sharply, going to zero in December last year as the "Basel 3" gold banking regulations promulgated by the BIS were taking effect. Those regulations made it almost impossible for the biggest banks trading in the gold market to trade gold without actually possessing it – sharply curtailing the sale of "paper gold," the imaginary gold used primarily for price suppression.
As you can see from the chart on the screen, since last December the BIS' gold derivatives position has rebounded to 136 tonnes, but that is just a fraction of what it was a year ago. (The data for March and April is not yet available.)
The sharp decline in BIS gold derivatives, as calculated by Lambourne in the chart, shows that a huge change in central bank policy toward gold is underway. That change likely involves an end to price suppression, or at least an end to the cooperation with price suppression by most central banks, and implies even an official upward revaluation of gold, since in recent years central banks on the whole have turned from gold sellers to very big gold buyers.
If you doubt this, please ask the BIS: What exactly has the BIS been doing in the gold market, for what objectives, and for whom? GATA put that question to the BIS in 2017 and the BIS promptly replied that it doesn't answer such questions: http://www.gata.org/node/17793
So you may fairly assume that any honest answers here would incriminate the BIS' members and owners – central banks – in market-rigging policy that the BIS long has assisted and for which it has provided camouflage.
By rigging the currency markets, this policy has expropriated many countries largely for the benefit of the United States. It is a policy by which one country has controlled the valuation of all capital, labor, goods, and services in the world. It is a totalitarian and parasitic system.
How might this system end?
First it's a question of world politics at the highest levels: Who wants to pull the plug on the dollar and begin a new system, and with what? This question is being addressed right now in Europe, Russia, China, Africa, and South America – almost everywhere in the world. Some countries are reducing or discontinuing their use of the U.S. dollar in trade. Some are considering starting new regional currencies.
The parasitic dollar system may end simply upon exhaustion of the relatively small gold supply that is needed to keep the futures and spot gold markets operating under U.S. control. Gold supply was exhausted in March 1968 when huge offtake forced the London Gold Pool to close. Lately there have been signs that gold supplies are critically tight in London and New York, the markets where price suppression is concentrated.
How much more gold from their reserves are the central banks suppressing the gold price prepared to lose? We don't know. That is the most sensitive information. If you knew when the metal used for price suppression would run out, you could get rich.
The system may end when even one country decides to exchange substantial amounts of U.S. dollars and Treasury bonds for more gold – real metal – than is readily available. It may end when any country with a substantial foreign exchange surplus decides that it is hedged enough with gold that it can afford the severe devaluation of its dollar-denominated reserves.
Or the system may end as part of a plan by major central banks to avert the catastrophic debt-induced deflation that now threatens the world – a plan to inflate the debt away, essentially to default on it, by devaluing the major currencies against gold. This has happened before.
SLIDE 5: Peter Millar study
For example, a study in 2006 by the Scottish economist Peter Millar concluded that to avert a catastrophic debt deflation, central banks would need to raise the gold price by a factor of seven to 20 times in order to reliquefy themselves – to dramatically increase the value of their gold reserves as their currencies devalue along with the bonded debts of government and society generally: http://www.gata.org/node/4843
SLIDE 6: Brodsky and Quaintance study / QB Asset Management
In May 2012 the U.S. economists Paul Brodsky and Lee Quaintance published a report speculating that central banks probably were already redistributing gold reserves among themselves in preparation for just such a currency devaluation and an upward revaluation of gold, even in preparation for gold's return as formal backing for currencies. http://www.gata.org/node/11373
This speculation is plausible, since, as I have noted, in recent years central banks have switched from being net gold sellers to net gold buyers. Just recently the Monetary Authority of Singapore has dramatically but quietly increased its gold reserves: https://www.gata.org/node/22464
In February gold researcher Jan Nieuwenhuijs strengthened the speculation about gold revaluation, publishing evidence that European central banks have been working with the People's Bank of China to match their gold reserves with their nations' gross domestic product in preparation for some sort of new gold standard or gold price targeting system. https://www.gata.org/node/22450
But the end of gold market rigging by central banks may also be a matter of education and publicity – a matter of whether governments that are not part of gold price suppression policy, along with investors around the world, will ever realize that as much as 90% of the world's investment gold, supposedly being held in trust at investment banks, is, to put it politely, imaginary or at least oversubscribed.
If there is ever such a widespread realization and if delivery of the imaginary gold is ever demanded, the price of the metal may rise to multiples of its current price even as the holders of "paper gold" discover they have nothing.
While the prospect of much higher gold prices of course excites gold producers and investors, it raises its own questions.
Will governments let gold investors keep extraordinary gains, or will governments impose windfall profits taxes on them or even try to confiscate gold? Decades ago, confiscation was undertaken in the United States and other countries.
In 2005, I had some interesting correspondence with the U.S. Treasury Department about gold confiscation. The chief counsel for the department's Office of Foreign Assets Control told me that under the Trading with the Enemy Act of 1917 and the International Emergency Economic Powers Act of 1977, upon a proclamation of emergency by the president of the United States, the Treasury Department would have the power to seize or freeze any gold- or silver-related asset – and, for that matter, any other damned thing the Treasury Department wanted to seize: https://www.gata.org/node/5606
If the gold price soars, will governments let mining companies keep taking metal out of the ground at current royalty rates? Will royalty rates be sharply raised? Will governments even let private companies keep mining gold at all?
If the gold market is rigged, why should anyone own gold?
You might want to own gold, first, if you think that the fraud being perpetrated by central banks – the longstanding naked short position in the monetary metal, a naked short position maintained in the London gold market via those BIS gold swaps and derivatives – will be exposed and collapse from its dishonesty, from exhaustion of the gold reserves of the most gold-suppressive governments, or because of defections from central bank ranks.
Second, you might want to own gold if you think that, as the economists Peter Millar, Paul Brodsky, and Lee Quaintance have speculated, central banks will change policy on gold and revalue it upward to devalue their currencies and government debts and to reliquefy themselves through a higher value for their gold reserves.
Third, you might want to own gold if you think that central banks, the biggest owners of gold, know something positive about it, as indicated by their recent purchases.
SLIDE 7: Wuermeling presentation
In March gold's value as money received a powerful if strange endorsement from a member of the Executive Board of Germany's central bank, the Bundesbank. The board member, Joachim Wuermeling, spoke at a press conference in Frankfurt presenting the Bundesbank's annual report for 2022. https://www.bis.org/review/r230301j.pdf
"Viewed over the long term," Wuermeling said, "there is still a sustained marked increase in the revaluation reserve for gold. Compared with its starting balance at the launch of [European] monetary union [in 1999] – €21 billion – this revaluation reserve, with its current balance of €176.1 billion, is eight times as large as it was at the start of 1999."
Here was a European central banker noting that gold has steadily outperformed the currency for which he shares responsibility – a central banker noting that gold is an outstanding hedge against inflation and currency devaluation. Central bankers are seldom so candid about the ancient form of money that still competes with their own: https://www.gata.org/node/22457
But don't underestimate the chance that, whatever you do to protect yourself financially, government will find a way to cheat you out of your foresight.
SLIDE 8: For more information
If you would like more information about GATA's work, assistance locating any of the documents I've mentioned, or other information about gold-related issues, please e-mail me at [email protected]. Please consider going to our internet site – http://gata.org/ – and subscribing to our free daily e-mail newsletter. We aim to keep our friends updated about developments in the monetary metals and the possibility that their markets may become free and transparent, as they should be.
Thanks for your kind attention.