-Caveat Lector- CHRIS POWELL, Secretary Gold Anti-Trust Action Committee Inc. July 20, 1999 Senator Phil Gramm Senate Banking Committee 534 Dirksen Senate Office Building Washington, D.C. 20510 Dear Senator Gramm: We thank Madelyn Simmons for taking the time to contact us, listening to what we have to say, and for requesting our contentions in writing. It is with that spirit and understanding that I am writing to you on behalf of the Gold Anti-Trust Action Committee. I have a financial Internet site, www.lemetropolecafe.com, and write commentary about the gold market for the "Caf�." I am a veteran trader in the markets and it became apparent to me after the Long-Term Capital Management bailout that the gold market was being manipulated and the manipulation was being carried out by various bullion dealers. The Gold Anti-Trust Action Committee, a non-profit Delaware corporation, was formed in January this year to investigate this matter and we have retained one of the top anti-trust law firms in the United States, Berger & Montague of Philadelphia, to assist us in our quest to learn the truth about what is going on behind the scenes in the gold market. Because of the way the Bank of England sale was announced, we also suspect that the current administration (perhaps the Federal Reserve or U.S. Treasury) may be active in the gold market through a trading account at Goldman Sachs and, therefore, may have some role in the orchestration of a lower gold price. If our assessment is correct, this account is the responsibility of Peter Fisher of the New York Federal Reserve. The relationship between the Federal Reserve, the U.S. Treasury, Goldman Sachs, and the Bank of England is strong and illuminating. Throughout this letter I will bring to your attention various news reports, statements by public officials, and personal commentary that ties our suspicions and allegations together. I hope that you will see that we have quite the "duck" story here -- in that it looks like a duck, quacks like a duck, etc. GATA asks that if you find this letter to be credible, your committee investigate whether what looks like a duck indeed is a duck. Our findings are brought to you in the spirit of proud Americans who cherish democratic principles. For if our suspicions are correct, these democratic principles are being cruelly trampled. The few people and institutions in the know in this scheme are gaining incredible wealth at the expense of many. The manipulation of the gold price is destroying mining companies and their employees and shareholders, as well as whole countries dependent on gold production. We believe that this may be a a scandal more serious than Watergate because so many people are suffering unnecessarily even as the stability of the international financial system is threatened. We believe that to suppress the price of gold, the "collusion crowd" has borrowed so much gold from central banks and sold it into the market that it could not be repaid as promised should the price of gold rise quickly and unexpectedly. Last year gold mine production was 2,529 tonnes. Later in this letter I will refer to a sophisticated study indicating that the gold borrowings were 8,000 tonnes two years ago and are even larger today. There was speculation last year that the investment banks that bailed out Long-Term Capital Management somehow assumed a 300-tonne gold position of the firm because the position was too big to be covered at the market. How would this same cabal help thousands of tonnes of gold shorts get out of the market in a pinch? Such a problem could result in a market calamity and cause great stress for banking institutions. That is why we believe these matters should be investigated by the Senate Banking Committee. Since last fall I have been documenting what led my associates and me to believe that there has been a coordinated effort to hold down the price of gold. But it was the Bank of England's announcement of its plans to sell gold that set off alarm bells around the world. No other central bank has announced a gold sale prior to its completion in more than 20 years, and the Bank of England's announcement was made as the gold price was storming past a key gold loan borrowing point and interest in the gold market was finally rising again. Gold share volume in various bourses was at its greatest level in six years. It appeared that a long- awaited gold rally was finally under way and the "collusion crowd" might finally be losing its grip on the market. Yet, the night before the Bank of England's announcement (May 6, 1999), I feared duplicity, and this is what I wrote in my "Midas du Metropole" commentary, titled, "XAU surges 46 percent": "We know 'the squad' are all lining up to try to stifle a decent gold move to the upside one more time. Deutsche Bank, Chase, Swiss Bank, and Goldman Sachs were all there selling gold during today's session and, when they had to, even throwing the kitchen sink at the bulls' attack. Deutsche Bank has been especially aggressive and noticeable in selling the past few days. "We got word late this afternoon that their bullion desk is calling clients saying that the gold market is stopping at $290. I don't think Midas followers will be surprised when we tell you that big sellers late in the day today and taking on all bids were 'squad' honchos Goldman Sachs and Deutsche Bank. ' The Battle for Navarone' is an important stand for them, for if $290 is taken out to the upside, their longstanding bearish position could begin to look a bit shaky." The next morning I awoke to the Bank of England. Since then the price of gold has collapsed about $36 or 10 percent, and the sale has ignited a furor all over the world and has fostered talk of conspiracy. Before I get into the ramifications of the sale, the following utterances by some of England's most notable officials might raise an eyebrow or two: Wire service commentary on July 14, 1999 (my comments in parentheses): "Asked in Parliament if it was right to sell off part of Britain's reserves, Prime Minister Tony Blair replied, `The gold price has been falling for two years, so in fact if it carried on falling and we didn't sell, we would lose money." He then declined to say if he would meet with the South African gold industry delegation, but justified the sale, "We did this on technical advice from the Bank of England." (Haruko Fakuda, CEO of the World Gold Council, was told that the decision actually was a political one and made by the British Treasury, not the bank.) Prime Minister Blair went on to say of criticism of the bank's gold sales: "It is only the Conservative Party's utter obsession with the euro in some bizarre way. Given that Argentina and Switzerland are also selling gold, what it has to do with the euro I do not know. It is only that which is making them raise this issue. It was done, as I say, on technical advice. It was carried through perfectly sensibly and we actually got the best deal for the country." How wrong can you get? The best deal the Bank of England could have gotten would have been $30-$40 more per ounce by carrying out the sale as all the other major countries have done for 20 year. But on Sunday, July 11, the chancellor of the exchequer, Gordon Brown, was reported by the London Times, to have said that the proposal to sell the gold reserves "was put to ministers by officials, and, say Treasury insiders, agreed to with little discussion." According to the London Times, the chancellor is said to have been surprised and mortified by the reaction to the gold sales by Thabo Mbeki, the new South African president, who said that the sales would have a "potentially disastrous effect" on South Africa. OK, so what gives here? Prime Minister Blair said it was a Bank of England decision. The Bank of England says it was a Treasury decision. The Treasury says it was only a Treasury decision of sorts and was made with little discussion. Good grief. A decision that may have disastrous effects on South Africa, a new democracy the West is committed to encourage, was made with little discussion and no one will take responsibility for it. Yet it is so important that Prime Minister Blair will not even reconsider it, even though he does not even know who made the decision in the first place. Meanwhile, the mortified (but confused) chancellor of the exchequer, Gordon Brown (just prior to the trip to England by the African delegation) was all over the wire services talking about the righteousness of the gold sales decision while continuing to the proposed sale of gold by the International Monetary Fund. The headline on the Reuters dispatch read: "U.K.s Brown Sees Wide Support for IMF Gold Sales." However, a Bloomberg audio report reveals that when Brown was asked whether the Bank of England's gold sale was 1) his decision 2) whether he was involved with it, and 3) whether he was consulted, his responded that he had been "consulted." When asked who made the asset allocation decisions on the "bank reserves," he answered, "The government" -- that is, the politicians. So the British now say their decision to sell gold was planned for some time and they made the announcement just coincidentally as the price the price of gold was taking off. The Bank of England became the first central bank in more than 20 years to make an announcement of this sort prior to the sale. The British knew that this announcement would devastate the market psychologically and send gold prices crashing, and the gold price went almost straight down more than $30 per ounce. This assured Britain the worst price possible and cost the country hundreds of millions of pounds. Meanwhile, as my May 6 commentary indicated, somehow the somehow the bullion dealers knew what was coming and told their clients as much. Now consider Federal Reserve Chairman Alan Greenspan's comment on the Bank of England's gold sale, made before a House Banking Committee hearing on the international financial system on May 20: "It's fairly evident that central banks are acutely aware if they announce they're going to sell gold the price will go down and they're getting a lower price," Greenspan said. "No self-respecting trader would ever think of doing that sort of thing. The reason they do it is they think it's important they do not take advantage of the market." While he said he hasn't discussed the issue with his overseas counterparts, Greenspan said: "It would be inappropriate for a public institution to take advantage of private market participants and effectively sell into the market," so they announce their gold sales. "I can assure you it's not because they're dumb," he said. But Greenspan said the United States should hold on to its own gold stock. "This was debated in the United States in 1976. The conclusion was we should hold our gold. Gold still represents the ultimate form of payment in the world. Germany in 1944 could buy materials during the war only with gold. Fiat money in extremis is accepted by nobody. Gold is always accepted," he said. Something does not seem right here. Greenspan has remarked publicly on many occasions that he is in constant contact with the central bankers all over the world, but though the Bank of England's decision had been made for some time, he would have the world believe that he had not discussed it with anyone prior to its announcement. Greenspan's comment about the Bank of England's not wanting to "take advantage" of the market strains all credibility, as no other central bank has conducted a gold sale in this way in a long time. Is he implying that all the central banks over the past 20 years that announced their gold sales only after completing them were unethical? Perhaps he is! From The Wall Street Journal on July 16, 1999: "In a global survey by former Fed Vice Chairman Alan Blinder, central banks rank `duty to be open and truthful with the public' as the least important reason for trying to build credibility." The Bank of England's gold sale has caused controversy and suspicions in many quarters: "London, July 6 (Reuters) -- Major gold miners seek Blair statement on UK sales. "Executives from some of the world's leading gold miners demanded on Tuesday that British Prime Minister Tony Blair answer rumors that UK gold sales were timed to help out speculative short sellers in the market. "The letter arrived as Britain sold 25 tonnes of gold, the start of a programme intended to cut reserves from 715 tonnes to 300 tonnes during the next few years. "Chairmen and chief executives at Canada's Placer Dome, U.S. miners Newmont Gold and Homestake Mining, South Africans Anglogold and Gold Fields, and Ghana's Ashanti Goldfields sought Blair's response to rumors that reserve sales were to bail out firms running short positions in gold. "The letter, a copy of which was faxed to Reuters, quoted parliamentary remarks made by British opposition MPs on June 16 suggesting Britain's announcement of reserve sales had been to `save the bacon of those firms running short positions.' "`We believe it would be helpful for you to make a public denial of these rumours or investigate them publicly,' said the letter, signed on behalf of all the companies by Placer Dome President and CEO John Willson." There are valid reasons for these suspicions. One is that many observers in London were saying that Goldman Sachs had a 1,000-tonne short gold position on its books in behalf of itself and various clients. That information came to the attention of Lord Lange and others in Parliament. In addition, the following is an excerpt of pertinent discussion in the House of Commons on June 16: "Sir Peter Tapsell (Louth and Horncastle): I am glad to have the opportunity to initiate a debate on the proposed sale by the Bank of England of more than half of this country's gold reserves. That decision was announced by the Treasury on 7 May and has been widely and critically discussed in the financial press, but the Government have been strangely reluctant to defend it or explain it in any detail to the House. "I should start by making it clear that I have no personal financial interest in the value of gold. I have never purchased any gold bullion, gold sovereigns, or shares in any gold mining company for myself, and I have no connection with any mining company or any part of the jewellery trade. However, I have always taken a keen academic interest in the economic role of gold, which has been of importance in every society in recorded history. In the 1980s, in my capacity as a stockbroker, I was required for some years to manage a gold bullion fund, valued at many hundreds of millions of dollars, for the previous sultan of Brunei, Sir Omar Saifuddin. I was therefore able to add practical knowledge of the gold bullion market to my academic and political studies of it. "I regard the decision to sell 415 of the 715 tonnes of our gold reserves as a reckless act, which goes against Britain's national interest. The sale of that crucial element of the United Kingdom's reserve assets will weaken our scope to operate independently, reduce our influence in international financial institutions and diminish the United Kingdom as a world financial power. "I shall briefly set out eight of my main reasons for opposing the decision. Later in my speech I shall expand on some of those and add a few more. "First, a move such as the one announced on 7 May was always likely to destabilise the gold price, as Britain is a leading G7 country whose example is likely to influence other countries and because it was not expected to sell gold. Market sentiment has become overwhelmingly negative and the price has collapsed from $287 per fine ounce immediately before the announcement to $259 at the fix yesterday -- a fall of 10 per cent. That has reduced the value of our gold reserves in a little over a month by about $650 million from $6.5 billion to $5.85 billion at current prices. The chancellor's announcement has so far cost this country's taxpayers over 400 million pounds, which is more than the cost to us of the Kosovo war...... "The immediate effect has been the loss of 400 million pounds of our taxpayers' reserves, and so far the only beneficiaries of this event have been the foreign finance houses, which have been shorting the gold market. As I said to my honorable friend, the member for Rochford and Southend East (Sir T. Taylor), in all friendliness, I am not a subscriber to the conspiracy theory in any aspect of life, so I shall not go into detail about the conspiracy theories that are widely circulating in the city about that shorting of the gold market, but it is often said that some of those famous foreign finance houses have shorted gold to a huge amount -- vastly greater than the tonnage of sales contemplated by the Bank of England -- and that it was therefore vital for them for the gold price to fall substantially so that they could close their positions and take huge profits. I do not know whether that is true, although I think that there is no doubt that several finance houses have been shorting gold in a very large amount, so I suspect that the financial press will pursue that point with vigour in the days and weeks to come...." And with vigor they have! This is just one of the many, many commentaries castigating the Bank of England's gold sale. Christopher Fildes wrote this for the Spectator in London: "Put a green baize cloth over the Treasury's parrot, come down to the House and explain. "The chancellor has yet to say a word to Parliament about his clearance sale of the nation's gold. Instead, a parrot in his office has been taught to say `restructuring' and to go on saying `prudent.' Now the first of his auctions has, predictably, misfired. The market followed my advice and chanced its hand with some cheap bids, and, after the auction, the price of gold carried on sliding. The only winners are the big international punters who have sold gold short and can now (as I was saying a month ago) close their positions at Britain's expense. It is time for Gordon Brown to drape his parrot in a green baize cloth and give the House of Commons some sort of explanation. "He might usefully model himself on Nigel Lawson who, a dozen years ago, was conducting a sale of his own. On offer was the state's remaining shareholding in British Petroleum, priced at 7.25 billion pounds, which made it the world's largest share sale. While this was in progress the markets in New York and London collapsed, giving the sale's underwriters a bad bout of heartburn which they mistook for heart failure. In the end the chancellor could tell the House that he had received his three objectives: `First and most important, to allow taxpayers to secure the full proceeds of the sale to which they are entitled; secondly, to ensure that there are orderly after-markets; thirdly, to make sure that the sale does not add to present difficulties in world markets. "Could today's chancellor make any of these claims? In the British Petroleum debate, Chancellor Lawson rounded on his critics: `The Labour Party is simply the friend of Goldman Sachs.' Now there's a thing." GATA harbors no personal ill will toward Goldman Sachs, but the firm's name has surfaced not only in London but also everywhere GATA turns in our own investigation about the manipulation of the gold market. So consider this about Goldman Sachs: * Former Treasury Secretary Robert Rubin is a former Goldman Sachs CEO. * Former N.Y. Fed Governor Ed Corrigan is a senior partner at Goldman Sachs. * London based senior partner Gavyn Davies is Goldman Sachs' international economist and has close ties to Prime Minister Blair. Davies' wife, Susan Nye, is the chancellor of the exchequer's office manager. * Dr Sushil Wadhwani, former director of equity strategy at Goldman Sachs International (1991-95), sits on the Bank of England's Monetary Policy Committee. * Jon Corzine, former Goldman Sachs CEO, has close ties to John Meriwether, chairman of Long-Term Capital Management. * Former Fed Vice Chairman David Mullins was an investor in Long-Term Capital Management, which, of course, was bailed out in part by Goldman Sachs. It is not only GATA and certain members of Parliament that find Goldman Sachs everywhere they turn in the gold market. This is a July 8 column in the South African Business Report by the columnist David Gleason: "It is almost impossible in this dark week for the gold mining industry to discuss anything other than the apparently grim future for this most lustrous of metals. "Gold has been on a hiding to nowhere ever since it reached those dramatic (and ill-judged) heights in 1980. And ever since central banks were persuaded that they should sweat their gold assets, bullion banks -- led significantly in recent years by Goldman Sachs -- have been enjoying a wonderful feast. "Gold's imbroglio started more than a decade ago when gold producers figured that the clever thing to do was to sell all or part of their future production, so entrenching price levels a few months out. Since there wasn't a gold futures market at the time, one had to be created. "So here was the opportunity (opening?) for smart merchant/investment banks. The bigger and stronger among them persuaded a few central banks to `lend' them some of their gold reserve (at a lease rate that has averaged a tad mopre than 1 percent), which they could sell into the market, invest the proceeds at 5 percent, while providing gold producers with the ability to lock in prices. If, in this process, the investment banks could also drive down the price of gold -- so that when the time came to return to central banks the gold they'd borrowed, they could buy it back cheaper in the market -- well, so much the better. "A side-effect, however, was that once central banks made it clear they would not only entertain the idea of lending their gold but would also sell some of it, investors got the jitters. They began to desert bullion and gold shares. That made gold producers increasingly anxious. And that encouraged a new concern of the part of central bankers. "This is a circle not of virtue but of anxiety which can easily turn to panic. Given our commitment to free and open markets, you can't condemn a man for making for a profit. It is the manner in which profits are made and taken which attracts attention. Powerful U.S. investors now believe the so-called `bullion banks' have `conspired' to drive down the price of gold and it is now in their interests -- because they are said to have taken on such huge short positions -- to keep it down. This i"s probably the reason some of the banks -- specifically Goldman Sachs -- are able to offer five- year lines of credit to inconsequential North American producers. "The only conclusion to be drawn from lending of this kind is that Goldman Sachs must be satisfied the risk element in the loans is virtually zero. How does any bank arrive at that position? Because it knows or is very confident that it is able to influence profoundly what might otherwise be an uncertain feature. "It is at times such as these that it is most difficult -- and most required -- to keep a cool head and remain confident that all cycles turn (even the unprecedented Wall Street bull run will end one day). In bullion's case, what is needed is a financial crack of some kind -- like the imminent collapse of Long-Term Capital Management in the States last year. It was rescued by a consortium of leading U.S. banks when it held short positions, it is said, of about 300 tonnes of gold. "That was when the metal was expected to rally sharply. When it didn't, the non-event attracted attention. Now it is being said that LTCM escaped because of an `off- market' transaction -- in other words a rigged trade to ensure gold wouldn't suddenly reverse course and accelerate. The 14 financial institutions that got together to bail out LTCM have since been asked by the U.S. General Accounting Office for detailed information on how this was effected. And the same institutions may soon be challenged by angry bullion investors who want to know how the Counterparty Risk Management Group, led by Goldman Sachs (which has already complained about me) and J.P. Morgan to manage financial sector risks, can be deemed anything other than a cartel whose actions violate the Sherman and Clayton anti-trust acts." As a result of the swirling rumors in London about the large Goldman Sachs short gold position, it is has been suggested by some that it may possibly be in part a position for our own Federal Reserve. The Gold Anti- Trust Action Committee thinks it is important for the American people to know if the Federal Reserve is trading gold or gold derivatives, lending gold, writing gold calls, or seeking to influence the gold market in any way. We are calling for greater transparency in the gold market just as U.S. Rep. James Saxton, vice chairman of the Joint Economic Committee, calls for greater market transparency in this April 19 committee press release: "Reform Exchange Stabilization Fund Readied. Openness and accountability would be mandated. "WASHINGTON -- Legislation reforming the Treasury's Exchange Stabilization Fund (ESF), the ESF Transparency and Accountability Act, is being readied for introduction, Vice Chairman Jim Saxton of the Joint Economic Committee announced today. The ESF was established in 1934 at a time when the dollar was pegged to gold but has survived into the current era of flexible exchange rates despite its lack of clear objectives and its secretive operations. "`This legislation will end the legacy of secrecy and obscurity at the ESF,' Saxton said. `We need this kind of secrecy in our nuclear weapons programs, not in our international economic policy. The ESF is an important part of U.S. international economic policy, but most Americans have never heard of it. The American people have the right to know how billions of their tax dollars are being used. "`Excessive secrecy is part of an even larger problem: the lack of accountability to Congress or the American people. Although it is part of the U.S. government, the ESF and its operations (except for administrative costs) are not subject to congressional appropriations or approval. "`The executive branch has virtually exclusive control of the ESF, its policies and its operations. My legislation would change this unhealthy lack of balance in economic policy. The new ESF reform legislation will mandate transparency by requiring the public release of monthly statements from the ESF disclosing its finances, operations, policies, and any related monthly changes. Exceptions will be provided for information that is market-sensitive or related to national security...." GATA's call for transparency is intertwined with Saxton's. Peter Fisher is the No. 2 official at the N.Y. Fed and is responsible for trading the Treasury's Exchange Stabilization Fund. We think it is important that he be called to testify before Congress as to whether he is trading the gold market in any way. Our research shows that he has the authority to do so. Federal law says: "Every Federal Reserve bank shall have power to deal in gold coin and bullion at home or abroad, to make loans thereon, exchange Federal reserve notes for gold, gold coin, or gold certificates, and to contract for loans of gold coin or bullion, giving therefor, when necessary, acceptable security, including the hypothecation of United States bonds or other securities which Federal Reserve banks are authorized to hold." Fisher is also said to be in charge of foreign custody accounts at the N.Y. Fed. Many central banks house gold at the N.Y. Fed. If the Fed is intervening in the gold market, why should not the public be allowed to know this? The public is usually informed when there is intervention in the yen. The "duck" story continues to gain credibility when one ties what we have presented with the following Wall Street Journal article about Peter Fisher, the N.Y. Fed's connection to the bullion dealers and the LTCM bailout. The incestuous nature of these entities is apparent. >From The Wall Street Journal on Nov. 2, 1998: "Long-Term Capital Bailout Spotlights a Fed `Radical' By Jacob M. Schlesinger. "On Sunday Sept. 20, Peter Fisher left his parents' 50th anniversary party to get the government's first look at the books of Long-Term Capital Management LP. DECLARATION & DISCLAIMER ========== CTRL is a discussion and informational exchange list. Proselyzting propagandic screeds are not allowed. Substance�not soapboxing! These are sordid matters and 'conspiracy theory', with its many half-truths, misdirections and outright frauds is used politically by different groups with major and minor effects spread throughout the spectrum of time and thought. 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