-Caveat Lector- All That Glisters BUSINESS AGE - London, England July 1999 By Daivd Guyett The recent dramatic fall in the gold price could have been triggered by the Bank of England irresponsibly signaling a massive unloading of bullion onto the market, amid suspicions that a global cartel has been attempting to manipulate values, writes David Guyett. When the Treasury announced in early May that it was going to auction over half the nations 715 tonne gold reserves, it caused eyebrows to be raised in many parts of the world. It also triggered a steep decline in the market price of gold from just below $290 an ounce to $281.50. In the blink of an eye over $90 million was wiped off the value of the gold the Treasury has earmarked for sale. Ordinarily, central bank gold sales are conducted in the utmost secrecy and are then routinely announced after the event. This ensures a stable market price for the bank to sell into. Effectively talking down the gold price by announcing "future" sales is considered curious, especially for a nation possessing a long history of managing its gold reserves with skill and subtlety. More recently, Gordon Brown's public comments in favour of the proposed sale of 10 million ounces of IMF gold have merely added to the confusion. Unsurprisingly, the prospect of an additional large official disinvestment saw an even more dramatic plunge in the market price to under $260. The Chancellor's 1comments, said to be aimed at raising funds to alleviate the horrendous debt burden of impoverished third world nations, wiped a further $300 million off the value of British gold reserves. While many market analysts ponder just what the Chancellor hopes to achieve by apparently cutting off his nose to spite his face, an independent American gold pressure group believe they know the answer. Formed earlier this year, the Gold-Anti Trust Action Committee, known simply as GATA, claim the gold market is in the grip of a powerful cartel of leading Wall Street and European banks. These are said to have colluded to manipulate the price of gold to their commercial advantage. According to Bill Murphy, a commentator on the gold market and GATA Chairman, up to twenty leading banks may be party to a cartel arrangement. Murphy says that many of these banks have leased gold from central and other gold banks at "strike" prices as low as $290. The lending banks, according to the insiders, charge little more than 1% per annum as a leasing fee. This amounts to "a virtual interest free loan," Murphy says. By selling the leased gold, the banks receive a hefty cash "pool." That is then invested in US Treasury securities or placed in other overseas markets. With Treasury yields climbing above 6%, the net 5% "windfall" returns earned by the borrowing banks generate huge profits. Later covering their short positions at lower strike prices will generate additional income. GATA believes that short sales of this type collectively total as much as 8,000-10,000 tonnes. Others believe it could be higher and amounts of 14,000 tonnes are mentioned. Meanwhile, one Wall Street bank is rumoured to be "short" of 1,000 metric tonnes, worth about $9 billion. This is believed to be Goldman Sachs, America's largest investment bank. Goldman's refused to comment but insiders at the bank deny the position is as large as claimed. The risk of this short sale strategy is if the gold price shoots up beyond the $290 level. With annual gold mining production of 2500 tonnes per year, it could prove impossible for those "short" banks to buy sufficient quantities of metal to repay back their loans. Locked into a trap of their own-making, this could stampede the banks and cause the gold price to skyrocket, turning easy profit into crippling losses. Were just one of these banks to fail under the burden of such losses it could trigger a systemic collapse of the international economy. This, Murphy believes, is the underlying reason why the Treasury too the unusual step of announcing a gold auction in advance, and why Gordon Brown is so strongly committed to an IMF sale. At the time the Treasury issued its announcement, the gold price was preparing to penetrate the $290 level. Forcing down the price enables the banks involved to extricate themselves from their now suspect trading positions. Murphy admits he cannot prove his case. However, he says the circumstantial evidence is overwhelming in support of his view. Not least he points to testimony given by Federal Reserve Chairman, Alan Greenspan, who told the House Banking Committee last summer that "central banks stand ready to lease gold in increasing quantities should the price rise". What else could the Fed be up to?" Murphy asks, other than the wholesale manipulation of the gold price. Whether Murphy's group is ever able to prove that the market is a rigged roulette wheel remains to be seen. Meanwhile GATA's efforts constitute the only truly independent attempt this century to penetrate the mysteries of one of the most secretive of all financial markets. ENDS ----- Aloha, He'Ping, Om, Shalom, Salaam. Em Hotep, Peace Be, Omnia Bona Bonis, All My Relations. Adieu, Adios, Aloha. Amen. Roads End Kris 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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