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Systemic Distrust and GATA Gold Conspiracy Hype

Commodities / Market Manipulation Sep 04, 2008 - 10:24 AM GMT

By: Mike_Shedlock

Commodities Best Financial Markets Analysis ArticleFollowing is a well written email from "CP" on reasons why someone might be inclined to believe in various conspiracy theories. Let's take a look at what "CP" has to say.

From CP:
I always enjoy your writing and am a subscriber to someone I know you respect, and that is Steve Saville. He too does not see any collusion in the markets.

I'm just an older guy that has been drawn to world finance as I realize that that is where real news originates from. What we think of as "political news" often has a origin in the financial world. Follow the money.

And tho I don't have an understanding of future markets like you, Steve and Jon Nadler, and could therefore not dispute anything you say, one thing I do know is that people do influence and even manipulate things in real life as they do in the finance world. Jawboning the markets is certainly influencing (and often intentionally misdirecting). And governmental official figures are manipulating and also a lie. Setting interest rates and reserve requirements and increasing or draining liquidity instantly has an intentional effect. Rating all those MBS's as AAA was a profit motive and a lie. Naked shorts are, I believe, unethical. There is much obfuscation in the market place. There is also a tremendous amount of greed and potential to make an empire of money. Why would anyone in the machinery of finance feel that they should be limited to such well known influences. Why? Because they are ethical people? Riiiighhht.

What I'm trying to say is that people are well aware that governments and large entities lie and try to manipulate. Look at our main stream media (Fox for the best example, though most spew propaganda). Virtue is a hard to find quality sometimes, especially when the consequences are so incredibly high as they are now. We are facing a possible melt down in our economy, the banking industry seems ready to be on it's knees, some say the empire itself is rolling over (Kevin Phillips). So given this context, do I think that there is collusion between big players, including CB's, but also banks? In an environment where ethics have slid over the decades? Without a doubt, even if I can't prove it.

Though you may be able to pick apart what I have said, one thing you can't pick apart is that human nature has a dark side, and sometimes it is very dark. To think that the temptation of market collusion and market manipulation escapes the desires of people in the financial markets is naive. And though we, the public, know of some of the more public displays of this collusion and manipulation, we don't know all of it. Guaranteed.

Willits, CA

Thanks CP.

There is indeed ample reason for mistrust. Few are more cynical than me in this regard.

I am not saying JPMorgan is lily white or that the other accused parties are lily white. In fact, I am quite sure they are not. What I am saying is there is no conspiracy, there no collusion, and there is no reason for the banks involved to continuously and purposely want to suppress the price of gold.

Furthermore, and more to the point, I do not think they could suppress the price of gold or silver even if they wanted to. Previously I posted a chart of Japan's massive intervention in the Japanese Yen. Take another look at Currency Intervention And Other Conspiracies .

Japan acted to suppress the Yen. They openly admitted it. The Yen rose anyway. And the amazing irony is the yen fell for a two year period as soon as they stopped.

The Bank of England dumped gold at $250. It rose ever since. Was the BOE acting to suppress the price of gold or was the BOE guilty of blatant stupidity? I suggest the latter. Never blame conspiracies when stand alone stupidity is a reasonable alternative.

I believe gold is money. I do not believe that government decree can change that fact. Gold has served as money (and silver to a lesser extent) throughout history. I believe there are plenty of reasons to own it, at least over the very long haul. I also think the Fed should be abolished and we should return to a hard money standard or at least something that puts an end to ridiculous deficit spending that for now has been largely financed by foreigners.

Those are the things newsletters should be focusing on instead of these the same tired conspiracy theories. The fact remains that the conspiracy crowd has been harping the same tune for 15-20 years and not a single insider has stepped forward with any proof. Instead all we see are the same allegations over and over when there is a logical, and more reasonable explanation for everyone of them.

I ask you to re-read Conspiracy Theory Psychology where I discussed Occam's Razor. Here is a snip:

Occam's Razor

I am a big fan of Occam's Razor which states "All other things being equal, the simplest solution is the best." In other words, when multiple competing theories are equal in other respects, the principle recommends selecting the theory that introduces the fewest assumptions and postulates the fewest entities.

Competing Theories

Theory 1: The US government, foreign governments, central banks, various broker-dealers, and a consortium of 10 large US banks are all acting together in some massive conspiracy to suppress the price of precious metals for 15 years running, and not a single insider has stepped up to expose the fraud even though housing fraud stories from insiders are being disclosed at a rapid pace, and government, CIA, and other intelligence leaks have been running rampant throughout that entire timeframe.

Theory 2: There was huge selling by over-leveraged hedge funds in response to fundamental changes in regards to the US dollar vs. the Euro. The odds of such a massive collusion over the years between all those players allegedly involved, without a single insider stepping forward to verify the collusion is virtually zero.

Insider Admissions or GATA Hype?

In response to my claim there are no insider admissions about a conspiracy to suppress gold, several people sent me Where are the insider .

I have seen most of this list before. The hyped headlines are just that, hype. Let's take a look at a few of them.

Gold Swaps
January 1995: The Federal Reserve's general counsel, J. Virgil Mattingly, told the Federal Open Market Committee, according to the committee's minutes, that the U.S. Treasury Department's Exchange Stabilization Fund had undertaken "gold swaps." Central banks have only one purpose for "gold swaps": market intervention. The January 1995 FOMC minutes with Mattingly's statement are posted at the Fed's Internet site here:

My Reply: In the entire 147 page PDF, the word gold was mentioned exactly once. It is on page 69 and it is in reference to currency intervention. Here is the statement.

MR. MATTINGLY. It's pretty clear that these ESF operations are authorized. I don't think there is a legal problem in terms of the authority. The statute is very broadly worded in terms of words like "credit"--it has covered things like the gold swaps--and it confers broad authority. Counsel at the White House called the Treasury's General Counsel today and asked "Are you sure?" And the Treasury's General Counsel said "I am sure." Everyone is satisfied that a legal issue is not involved, if that helps.

Virgil Mattingly did not say the "U.S. Treasury Department's Exchange Stabilization Fund had undertaken gold swaps." It mentioned authority to do so. And that authority was not to manipulate the price of gold, but rather to stabilize (manipulate) Forex markets.

Washington Agreement
September 1999: The Washington Agreement on Gold, made by the European central banks in 1999, was a proclamation that Western central banks were working together to control the gold price. The central banks in the Washington Agreement claimed that, by restricting their gold sales and leasing, they meant to prevent the gold price from falling too hard. But even if you believed that explanation, it was still collusive intervention in the gold market. The Washington Agreement can be found at the World Gold Council's Internet site here:

My Reply: Here is the entire text of the agreement.

In the interest of clarifying their intentions with respect to their gold holdings, the above institutions make the following statement:

1. Gold will remain an important element of global monetary reserves.
2. The above institutions will not enter the market as sellers, with the exception of already decided sales.
3. The gold sales already decided will be achieved through a concerted programme of sales over the next five years. Annual sales will not exceed approximately 400 tonnes and total sales over this period will not exceed 2,000 tonnes.
4. The signatories to this agreement have agreed not to expand their gold leasings and their use of gold futures and options over this period.
5. This agreement will be reviewed after five years

If there is a point to the agreement at all, it is to prevent the price of gold falling too far.

Reserve Bank Of Australia's Alleged Confession
September 2003: The Reserve Bank of Australia confessed to the gold price suppression scheme in its annual report for 2003. "Foreign currency reserve assets and gold," the RBA's report said, "are held primarily to support intervention in the foreign exchange market." The RBA's report is posted at the central bank's site here:

My reply: Somehow GATA has twisted "support intervention in the foreign exchange market" to a statement that that the RBA "confessed to the gold price suppression scheme".

I do not support currency manipulation schemes (they do not work), but the fact is GATA deliberately twisted Forex intervention into gold price suppression.

Barrick Gold's Alleged Confession
February 2003: Barrick Gold confessed to the gold price suppression scheme in U.S. District Court in New Orleans when it filed a motion to dismiss Blanchard & Co.'s anti-trust lawsuit against Barrick and its bullion banker, JPMorganChase, for rigging the gold market. Barrick's motion said that in borrowing gold from central banks and selling it, the company had become the agent of the central banks in the gold market, and, as the agent of the central banks, Barrick should share their sovereign immunity and be exempt from suit. Barrick's confession can be found here:

My Reply: Barrick most assuredly did not confess to anything. GATA has twisted its own allegation into a confession.

That GATA would blatantly misstate the facts like they have in the snips above is reason enough to question anything that GATA says.

GATA has no proof and no smoking gun. What GATA does have is over-hyped allegations that fade under casual scrutiny.

Great Silver Shortage Revisited

Much ado over nothing has been made of the "silver shortage". There is no shortage of silver as I have reported before in The Great Gold, Silver Conspiracy Explained . (Note: that link addresses the trader concentration issue as well).

In the above article I quoted Dave Meger at Alaron who stated "There is not a shortage of gold or silver, there is only a shortage of certain retail forms of gold and silver. Producers have no real incentive to make some of these forms. If someone wants gold or silver they can always buy a future and take delivery."

John Nadler at Kitco has said essentially the same thing.

Inquiring minds may want a third opinion. I offer Bron Suchecki Project Manager at The Perth Mint. Please consider FUD. Fear, uncertainty, doubt .

A lot of the hype stems from the interpretation that because it is difficult to get hold of retail forms of gold or silver (e.g. 1oz coins, 100oz silver bars) that there is a “shortage” of gold and silver. I think it has now been accepted that there is no shortage of gold and silver in the wholesale markets (that is, for 400oz gold and 1000oz silver bars). This should be obvious if you consider the fact that miners churn out 2000+ tonnes a year. What we have is a shortage of retail forms. It is also worth noting that demand and supply is also localised in the gold and silver markets. So you really need to be specific instead of just saying “shortage” – you need to indicate of what form and in what location.

Please read the rest of the article as it explains exactly why there was a shortage of various retail forms of metals. Those looking for manipulation or conspiracies as the answer will be disappointed.

GATA's Conclusion

GATA concluded the article on Insider Admissions with:
There's a lot of admission and documentation above, which, it seems, is why Shedlock, Kitco's Jon Nadler, the World Gold Council, and others who disparage complaints of manipulation of the gold market refuse to debate the issue, where they might be compelled to address the evidence specifically. But GATA remains ready, any time these folks or others on their side work up the honesty and courage.

CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.

Well Chris, there is my answer. I clearly was willing to debate the issue.

However, this is or has become a religious issue. People will believe what they want to believe. To continue to discuss trumped up allegations of manipulations and conspiracies makes as much sense as debating the Flat Earth Society.

It's time for me to move on, and so I am.

By Mike "Mish" Shedlock

Click Here To Scroll Thru My Recent Post List

Mike Shedlock / Mish is a registered investment advisor representative for SitkaPacific Capital Management . Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction.

Visit Sitka Pacific's Account Management Page to learn more about wealth management and capital preservation strategies of Sitka Pacific.

I do weekly podcasts every Thursday on HoweStreet and a brief 7 minute segment on Saturday on CKNW AM 980 in Vancouver.

When not writing about stocks or the economy I spends a great deal of time on photography and in the garden. I have over 80 magazine and book cover credits. Some of my Wisconsin and gardening images can be seen at .

© 2008 Mike Shedlock, All Rights Reserved

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04 Sep 08, 18:42
GATA not hype

Your article disproved nothing!. You even admit gold swaps took place. And you question why the banks would intervene. Why indeed? To massively short the gold and silver paper market, cover and use the profits in trading accounts to offset mortgage losses. What is so difficult about understanding the process. Also, there is a silver shortage. The mark up on silver Eagles has now spread to 100oz. bars and gradually to 1000 oz. bars. This is not all retail. In 3 to 6 months the physical shortage will overwhelm and dominate the paper. kherr,CFA

Jason Hommel
08 Sep 08, 05:16
Huge incentive to make gold and silver coins: 1000% annual returns!

"There is not a shortage of gold or silver, there is only a shortage of certain retail forms of gold and silver. Producers have no real incentive to make some of these forms.


you can make much, much more on a 20% mark-up by quickly flipping silver and selling to investors than you can with a 100% mark up selling jewelry, because the jewelry market has slower turnover of product.

Example: If you can make 20% per transaction, and make 12 such transactions per year, only once a month, you can make 792% in a year!


for the math.

Given that silver coins are selling at a $3-4 per ounce premium over the spot price, which is about a 30% premium or profit, then makers of silver coins and bars should be able to make huge profits, if they can find silver bars at COMEX prices to turn into coins!

Richard Wicks
08 Sep 08, 05:20
GATA "hype"

All I know is that there is less than 300 million ounces of silver produced per year which means that if every American just bought one ounce, that would consume the entire world's silver production.

So, silver seems pretty amazingly cheap to me considering that just 50 years ago, nearly every American was carrying around several ounces of silver in their pocket.

The situation should get interesting in a few years - heck, it's pretty interesting now. You'd think with the spreads people would be happy to be producing 100 ounce bars and silver rounds, but it doesn't seem to be the case.

What's even more interesting, is nobody who owns silver is willing to sell silver at this price. We'll see if the US mint starts to ramp up production, as they are legally required to do, since the whole point of the Silver Eagle program is to make silver coins available to anybody that wants them.

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