"MIDAS" COMMENTARY FOR AUGUST 21, 2001 By Bill Murphy www.LeMetropoleCafe.com August 21, 2001 Gold $274.70 down $1.30 Silver $4.18 up 3 cents "Washington, Aug. 21 (Bloomberg) -- Federal Reserve policy makers lowered the benchmark U.S. interest rate a quarter percentage point, the seventh cut this year, and signaled another reduction is possible in coming months. "Fed Chairman Alan Greenspan and his nine voting colleagues on the Open Market Committee reduced the target rate for overnight loans between banks to 3.5 percent, the lowest since April 1994. "'Household demand has been sustained, but business profits and capital spending continue to weaken and growth abroad is slowing, weighing on the U.S. economy,' the Fed said in a four-paragraph statement accompanying its decision. Central bankers warned the economy faces a risk of continued weakness." Just as predictable as that news story was the stock market selloff in the United States. The Dow was mangled to the tune of 145 points as it closed at 10,174, with the Nasdaq dropping to 1,831, down 50. Seven rate cuts and still business conditions are worsening, not improving as the Wall Streeters proclaimed would be the case all this year. Forget the Wall Street bull. What now, brown cow? The stock market debacle still to come is a result of a financial market bubble bursting, the selling of that bubble by Wall Street and the rigging of the gold market, which led to a false sense of security by analysts and the public investor at large. Just as expected and in line with that comment: Gold continued to sell off. With the Fed lowering rates, which is most gold-friendly, the cabal had to do its thing once again and sit on gold. However, one can't help but think that they must be terrified behind the scenes. Who is going to supply the physical gold to hold down the price month after month in the future? There is a big time scramble for physical all over the world at the moment. You can take that one to the bank. Big hedger Normandy Mining of Australia isn't helping the cabal either, as it announced today that it its forward sales were reduced by 2.1 million ounces this past quarter, with 100 percent delivery into production. Supplies at the Comex are even dropping fast too. Today they shrank a sharp 45,791 ounces and now stand at only 793,647 ounces. Most market participants believe that 500,000 of those ounces are long-term holdings that will not come out under any near-term circumstances. In this environment the Gold Cartel soon should be running out of bullets soon to facilitate their scheme to hold down the price of gold. But they are still at it. Goldman Sachs was all over gold today on the sell side as it has been for many days. The funds continue to buy as the open interest has risen to around 132,000 contracts. After recent GATA revelations, one has to wonder whether this is Goldman Sachs selling for itself and clients, or is really selling executed by Goldman Sachs for the U.S. Exchange Stabilization Fund. Meanwhile back at the ranch, you would think that everyone in the gold world would have caught on to the repetitive maneuvering by the Gold Cartel and be screaming bloody murder about the obvious manipulation that has gone on for so many years. Yet, still nary a peep from almost all of them. Not only is this price capping routine nauseatingly boring, it is enraging criminal activity that continues to go unpunished. The evidence that the GATA camp has collected that the gold market has been manipulated by a faction of the U.S. government and certain bullion banks is more than overwhelming. It is a certitude. Those out in gold land that don't "get it" by now never will -- until there is some sort of official announcement by the U.S. government. The good news is that our team is closing in on the crooks. Sooner or later, Treasury Secretary Paul O'Neill is going to have to answer to Congress about such issues as the disappearing Special Drawing Rights certificates. And that is the point of this commentary. That should be the objective of everyone in Gold Land: to take some sort of action to make sure that so much pressure is put on Congress that O'Neill is compelled to answer the questions GATA supporters have asked of him via members of Congress and other influential people. That is doable, is being done, and is action that could easily end the gold nightmare in the near future. By the way, the article by the Harvard Crimson is still up. Why not send it to the mainstream press and ask them why they have not reported on this major story? http://www.thecrimson.com/news/article.asp?ref=13565 I can't stress enough how thrilling it is to see so many GATA supporters taking the time to DO that SOMETHING and not just sit on their duffs yapping away about their sad-sack gold investments. "Thrilling" because it is that kind of effort that is going to win the day. Like Peter S: * * * Dear Bill: Earlier today I sent you notice of my correspondence to several congresswomen. Enclosed please find the text of both letters sent to both Boxer and Feinstein to DC and local San Francisco offices together with four reprints of various articles from www.LeMetropoleCafe.com. Thanks for your continued great work on this issue! Peter S Dear Ms. Boxer, I pass along to you, the majority my friend Bud C's letter to his congressman, the Honorable Mike Thompson. Bud's concerns mimic my own, especially since I've been reading about the gold industry for the last two years. We are printing dollars to the tune of about 14% this past year. For some improper reason the current administration is not telling where our current $80 billion in honest gold bullion resides, nor are they telling us the reason for their silence! Having taken a "bath" in gold investments myself this past year, I've endeavored to understand how this could have happened, given gold's ever increasing demand exceeds it's physical availability by many times! What is becoming apparent is that our government is not forthcoming about its role in the gold market. The following is Bud's letter: "Printing scandalous quantities of funny money, Federal Reserve notes should realistically precipitate serious inflation. It�s reportedly reaching toward $1 trillion for the last year. It will typically multiply through our banking system six times. Rather than simply lend it to businesses to stimulate expansion, our banks will probably collect, risk free, Treasury Bill to Fed Funds interest rate differentials. Some deliberate manipulation is producing 2-3% consumer inflation numbers month after month for these last 12 months. The dollar is indeed still differentially increasing in value against European and Asian currencies and making our annual trade imbalance $300 billion plus year after year for some clandestine reason. What�s going on? Who�s conning John Q. Public and getting away with it? For how long? Then what? The longer it goes on the rougher things will get for poor old John Q. Public. Your colleagues from both sides are getting stonewalled. Can you help them in our mutual and community best interests? Can you get answers to these three scary questions: 1. Why has the gold at the U.S. Mint at West Point, N.Y. been reclassified this year from "gold bullion reserve" to "custodial gold" and then to "deep Storage" gold? Is this gold still owned by the U.S. Government? Did its ownership change at all by virtue of its reclassifications? If so, what is the authority for its having left the possession of the U.S. Government? Who else has owned the gold by virtue of its reclassification? What has the United States received for any change in its ownership? Exactly where is this gold now? Is any of it yet to be mined? It is supposed to have been in really safe storage for years. 2. If, as Chairman Greenspan suggested in his letter of January 19, 2000, to Sen. Joseph I. Lieberman, the Federal Reserve System does not interfere in the free trade of gold, why were "gold swaps" discussed at the FOMC�s meeting on January 31, 1995? 3. The people of the United States have entrusted some 261.5 million ounces of their national gold to be held in trust by the Treasury Department, and its disposition is to be determined by Congress. The status of these assets is reported monthly at the Internet site of the Treasury Department�s Financial Management Service: http://www.fms.treas.gov/gold/index.html. In August 2000, 3400 tons of this gold at the U.S. Mint at West Point, N.Y., was classified as Gold Bullion Reserve. In September 2000, 1700 tons of this gold was reclassified without explanation as Custodial Gold Bullion. In May 2001, all 3400 tons were mysteriously reclassified, this time as Deep Storage Gold, again without explanation. Is this gold still owned by the U.S. Government or has its ownership passed on to other parties without congressional authorization? This apparently unconstitutional conduct makes me rage. I would hope this makes you feel queasy, too. Can you help stop this spurious risk to our future? Please let us know what further some of us might do to expose such apparent chicanery and apparent self-serving rulers. Your help will be very, very much appreciated." Please review the enclosed documents discussing Reg Howe's lawsuit against Alan Greenspan, The Banc of International Settlements (BIS), Goldman Sachs, et al. This issue has been called the largest financial scandal in U.S. history. I respectfully look forward to your response. Very Truly Yours, Peter S P.S. Having done much of the printing (at extremely low cost) for the No On Recall campaign for Paula Kamena, Marin District Attorney, I had the honor of hearing your colleague, Dianne Feinstein, speak at the fund raiser on her behalf. I know you both to be women of conscience and I hope that your sense of fairness dictates that you get involved in this inquiry. As well, I am a native San Franciscan, U.C. Berkeley grad (Class of 1978) and a Marin County resident for 15 years. My dad Harold S (now deceased) stuffed envelopes for you many times in your Marin election campaign headquarters. I'm glad he did, and I'm proud to have you as a California senator! Enclosure: supporting documentation Dear Ms. Feinstein, Recently I sent you some literature generated by Bill Murphy and GATA (Gold Antitrust Action Committee) implicating the U.S. Government, The Treasury Department in collusion with certain investment banks to suppress the price of gold. Please accept these documents as further evidence of this claim. I hope you deem this issue important enough for you to support the pending lawsuit against the federal government. I look forward to your response. Sincerely, Peter S Enclosure: supporting documentation * * * Then, there is Stephen D: Many of us, I suppose, are simply doing what you ask and not reporting back to you on the results. If this gives you a feeling of non-support, be of good cheer. Most of us have joined with GATA in an aggressive effort to "do something about it.' I sent the GATA suggested letter to Senators Breaux and Landrieux. Breaux responded that he'd asked the questions of the Treasury secretary and requested a report, and that he would send the results to me. Landrieux has not replied. I live in New Orleans and have a summer place on the north shore of Lake Ponchartrain, and wrote to both Congressman Williams (where I vote) and Congressman Vitter because I have an address in his district. Vitter responded pro forma. Williams is silent. I saved the Turk article you sent and reprinted it. I've sent all four MOCs a copy attached to another letter indicating that this investigation will not go away and that we are seriously seeking answers, not silence. I am meeting with the Financial Editor of the Times- Picayune over lunch, I hope to be able to put a bee in his bonnet. Freeport-MacMoRan has an office building next to mine here on Poydras St. I regularly eat in their dinning room and I'm trying to meet with some of their exec.s to ask a question or five. I'm preparing an OpEd piece for submission to the financial paper here in town, I'd like you to read it before I do. Stephen D * * * There is more: * * * Attached is a copy of our letter to Senator John Warner. Duplicates went to Senator George Allen and our Representative, Jo Ann Davis. Best regards, Bob and Pat K * * * Then, there are the Peter Spinas and Elwood Teagues who have focused on Colorado Sens. Wayne Allard and Ben "Nighthorse" Campbell. Allard has responded to both with the party line response from the Treasury. Spina notes: "I as well received a letter back from my state Senator, Wayne Allard of Colorado. The response I received was disappointing, to say the least." * * * Pain as it is, this sort of letter needs to be followed up with requests that Allard and Campbell receive responses directly from Treasury Secretary O'Neill. Then there are the Mark Lundeens, who have contributed to GATA, written letters, and are running around all over the place to win the day: "Package delivered. Let's hope for the best! -- Mark" Soon GATA will have been at this for three years. What is most amazing is that the evidence that our camp has collected over the years all supports our first and most basic contention that the gold market was being manipulated. Even more satisfying is that most of the evidence tends to be all-supportive. It has been like a funnel with a bulls-eye at the end of that funnel. We don't expect to have every detail right -- what we are uncovering is just too complicated for that to be the case, but what we have clearly adds up -- the jigsaw puzzle is almost complete. We have them nailed. GATA contributor Stuart Shoemaker sends us his take on what the gold mess is all about. It is most entertaining: * * * To Bill Murphy and Adam Hamilton, Since everyone is coming up with conspiracy theories, I would like to try one of mine out on you folks. The European Union forms and sets up its own central bank, the ECB. The BIS was the banker's bank for Europe and was a "gold" bank. Now it is out of a job and since the US has refused to join a "gold-banking" bank, it has no alternative but to shift policies. BIS says to Greenspan (or vice versa ) that they no longer want to be a gold-banking bank, but they will have to dump their private shareholders, who are all gold bugs. Greenspan sees his chance and takes the two American seats. A deal is struck so that the BIS will replace the discredited IMF in a world financial system based only on a fiat currency (read, "dollar"). The Swiss are to retain their neutrality, but are allowed to participate in the European Common Market. Using that neutrality, the BIS can become the banker's bank for all the world's central banks: the UN of central banks. This would help to defuse the Asian Monetary Fund building in Japan, which is developing in reaction to the bad aftertaste left by the IMF's actions there in the past. In order to accomplish this scheme, Greenspan decides to use the US gold reserves to force the world off any form of monetary-gold reserve. He can do this because the US is the 10,000 SDR gorilla in gold reserves. So the plan becomes to mark the US gold to market ($255 per ounce). At this market valuation, the Fed's 11,046 Gold Certificates are completely backed by about 1650 metric tonnes of gold (West Point, custodial, melt gold), assuming their valuation at $35.00 per ounce when fixed by Roosevelt in 1933 (Note that SDRs are also 1/35th of an ounce). This means that all the Federal Reserve Notes ever issued have claim on only those 1650 tonnes of gold. Also, the Federal Reserve makes a nice tidy profit selling its non-interest-paying, expensive-to-maintain bullion that is left over. (For example, Wayne Angell and the FOMC minutes). With the remaining gold SDRs (minus the 2200 SDR Certificates (or 1650 tonnes at 1 Gold Certificate = 1 SDR Certificate)), the ESF leases or sells them all via the IMF SDR Certificates to stabilize the price for a protracted period of time. This accomplishes Clinton's goals with the bubble market and impeachment, and a Greenspan/BIS goal of a stable price to legitimize the mark-to-market valuation of the 2200 SDR Certificates.Nicely, India's passion for gold and laws limiting the price their dealer's can pay for gold make a good floor price blocking any overshoot in the Fed's dumping of SDR gold. (Re: Greenspan's 'central banks can precisely set the market price by leasing gold'). However, there was just one fly in the ointment. The more traditional European, ECB countries were not part of the deal. They needed to coordinate their national gold reserves so that each county's holdings had about the same relative contribution to a total Euro 15% gold backing. This meant some counties had to sell off portions of their gold reserves to reach the lowest common denominator. This unknowingly aided the Greenspan/BIS plan for a while; but when the ECB countries realized the price of their 15% gold reserve allocation would be decimated, and its own gold sell- offs would occur at a depressed price, they balked. The US was specifically not invited to the Washington agreement, and the ECB banks tried thereby to fight further price declines in gold. They did this by raising their lease rates for gold, whether their own gold, or US swapped gold. However, when they saw the consequences of the resulting short squeeze on their own bullion banks, they were trapped, and had to restore the old lease rates and continue leasing gold to re-stabilize the price. They had to continue to reluctantly support the US strong dollar policy, which was weakening the oncoming Euro's prospects as a viable currency. Meanwhile, to support their long-term goal of a world financial system based on no monetary gold, Greenspan/BIS cronies were appointed to the World Gold Council, who would support the jewelry use of gold and downplay its monetary use. Clinton already had the establishment controlled press in his pocket, so they could spin any unanswered questions their way. So what is the evidence that backs this theory? If you will examine James Turk's table you will see that the ongoing number of SDRs closely matches the fixed number of Gold Certificates. This is what you would expect since they refer to the same gold and both were once fixed at 1/35th of an ounce of pure gold. You will also see that the SDR Certificates appear to have stabilized at 2200, just the amount needed to back all the Gold Certificates at or about the current market price, as per Mr. David Walker's calculations. If we examine David Walker's graphs from Sharelynx, we can see that the rise in lease rates occurs 4 months before the gold price spike caused by the Washington Agreement. The rise in lease rates would seem to be anticipatory by the European central banks in order to limit further decreases in price prior to signing the Agreement: the US not being privy to the deal. If you also examine the price rise after the GATA Durban conference, you will see that the gold price rise occurs simultaneously with the period of increasing lease rates, and was thus, reactive to the event. The very same graph challenges the notion that the falling price was linked to the rising lease rates, but to something else. As for his comment that high lease rates mean rising gold prices and tight supplies, that only applies in a free, unmanipulated market. Considering Mr. Walker's discovery that Norway is consigning its entire marked-to-market gold reserves to the BOE for sale; it suggests some in Europe are beginning to throw in the towel, and to sell off their gold while they can still get something for it monetarily. Norway has always been a non-cooperating participant in the Euro scheme anyway. That would explain Kuwait and other small countries 'donating' their gold reserves for sale by the BOE too. Since Norway's laws require its gold to be valued at market, those laws could well conflict with the requirements for the Euro. Norway, like Ireland, is sounding like they don't want to join the Euro either. So what does this theory propose for the fate of the dollar. It suggests that the world's dollar-based economy may continue to be propped up by gold sales until the world's unencumbered gold reserves are all sold off. At that time the world would have little choice but to accept an unreserved, paper-dollar, world standard: there simply wouldn't be anything else available. The Euro competitor will then have failed as a possible reserve currency. It must be remembered, that it is Greenspan's responsibility to defend the dollar and to keep the banks solvent. By such a scheme, he has done that. How so? If the mark-to-market theory is right, the bullion banks are not accountable to the Fed or BOE for their sold gold. Why is that? Because the Gold Certificates are fully backed by the 1650 tonnes and the surplus gold sold was not needed, nor was it expected to be returned. The banks made huge profits, and the gold fractional reserve system is essentially gone. Greenspan can now retire having accomplished his mission. However, since two thirds of the world's population values gold and not paper, what if they decline to participate in a dollar-ruled world? The likely outcome would seem to be a collapse in the value of the dollar, and repatriation of the hundreds of billions of dollars outstanding. However, all of these Federal Reserve Notes have a claim against only 1650 tonnes of gold. The Federal Reserve, a private association of private companies, will be in massive default. All outstanding dollar claims will be against their Gold Certificates, which equal only the 1650 tonnes in liquidation. The government and the other banks will be saved though, as they have no accountability for either the leased gold or the dollars. The vastly underfunded FDIC is on the hook for the domestic dollar deposits,which they can always repay in "New Dollars": which is likely what the US will have to use for money afterwards. Enter the New Dollar issued by the US Treasury directly. And in this eventuality, what will be the private joke of that discredited, former gold-bug, Greenspan? The US' credibility will be so poor that the New Dollar will likely have to be made of gold --- and the Federal Reserve System will be gone. Who knows? It might even be worth it. Stuart Shoemaker P.S. Another day, another conspiracy theory, but this time, no charts. This one is intended only as food for thought, I am no expert in these matters. * * * Just think about what has surfaced in just the past few weeks alone: * Reg Howe discovers a paper written in 1988 by former Treasury Secretary Lawrence Summers entitled, "Gibson's Paradox and the Gold Standard," published in the Journal of Political Economy. Reg writes: "In other words, the bottom line of their analysis is that gold prices in a free market should move inversely to real interest rates. Under the gold standard, higher prices meant that an ounce of gold purchased fewer goods, i.e., the relative price of gold fell. Since under the Gibson paradox long-term interest rates moved with the general price level, the relative price of gold moved inversely to long-term rates. Assuming, as Barsky and Summers assert, that the Gibson paradox operates in a truly free gold market as it did under the gold standard, gold prices will move inversely to real long-term rates, falling when rates rise and rising when they fall." It appears that Treasury Secretaries Rubin and Summers used this paper as a financial market manifesto to influence interest rates, the gold price and the "strong dollar" policy. * From Bill McDonough, president of the New York Fed, last week to a GATA supporter at a Fed workshop: "There is no chance of going back to the gold standard. The decision was made in the second year of the Clinton presidency." How curious when pondering the Summers paper. * Spotted by another GATA supporter in the Washington Times National Weekly, Page 18, edition of Aug. 13 to 19, 2001: "Noticed in the latest report that the president has put his support behind a new round of US Military Base closures to be started soon. Among the list of bases the Pentagon brass wishes to close are the usual suspects for the Air Force, Marines, Navy and Army. However -- one particular base the Army has under high consideration for closure (with moving of its operations to Texas), is: Fort Knox in KY." How could closing Fort Knox even be considered if it is loaded with gold bullion as we have constantly been reassured by the Treasury? * Finally, we have "The Mystery of the Disappearing SDR Certificates" by James Turk. Things called Special Drawing Rights certificates, a liability of the Exchange Stabilization Fund and an asset of the Federal Reserve, have dropped from 9,200 millions to 2,000 millions from December 1998 to March 2001. These certificates came into being as a result of the International Monetary Fund. Turk writes: "So what I think has happened is that the SDR Certificates are themselves being used by the ESF. Here's what the IMF says about the use of SDRs in swaps: 'In accordance with Article XIX, Section 2(c), the Fund prescribes that...a participant, by agreement with another participant, may engage in an operation by which (a) one of the parties transfers [i.e., swaps] to the other party SDRs in exchange for an equivalent amount of currency or another monetary asset, other than gold.' "Thus, SDRs cannot be swapped for gold, but there is no IMF regulation that prohibits the swapping of SDR Certificates for gold. So let's take this observation to its logical conclusion, namely, that the ESF and/or the Federal Reserve has been swapping SDR Certificates issued by the ESF for gold owned by the Bundesbank, and presumably other central banks as well because we noted above that the Second Amendment states that "members undertook to collaborate with the IMF and other members" for the sake of international liquidity. So presumably, all IMF members are committed to undertake any scheme that the US government may hatch." The bottom line is the dwindling of the SDR certificates suggests that a significant amount of U.S. gold is at risk, if most of it is even there in the first place. This is the topping for the evidence cake GATA has collected over the years. It is time for Secretary O'Neill to speak out on this issue to Congress and the American people. ___________________________________________________ HOW YOU CAN HELP If you benefit from GATA's dispatches, please consider making a financial contribution. GATA welcomes contributions as follows. By check: Gold Anti-Trust Action Committee Inc. c/o Chris Powell, Secretary/Treasurer 7 Villa Louisa Road Manchester, CT 06043-7541 USA By credit card (MasterCard, Visa, and Discover) over the Internet: http://www.gata.org/creditcard.html By bank wire: Gold Anti-Trust Action Committee Inc. c/o Savings Bank of Manchester 923 Main St. Manchester, CT 06040 USA Bank routing number 211-170-185 For account number 9500-574-053 By Gold Money: http://www.GoldMoney.com Gold Anti-Trust Action Committee Inc. Account number 50-08-58-L By E-Gold: http://www.e-gold.com Gold Anti-Trust Action Committee Inc. Account number 110915 GATA is a civil rights and educational organization under the U.S. Internal Revenue Code and contributions to it are tax-deductible in the United States. -END- ------------------------ Yahoo! Groups Sponsor ---------------------~--> <FONT COLOR="#000099">Get your FREE credit report with a FREE CreditCheck Monitoring Service trial </FONT><A HREF="http://us.click.yahoo.com/M8mxkD/bQ8CAA/ySSFAA/WfTolB/TM";><B>Click Here!</B></A> ---------------------------------------------------------------------~-> Your use of Yahoo! Groups is subject to http://docs.yahoo.com/info/terms/
