March 27, 2000 – In an article entitled “Managing Markets” published in Letter No. 203 on April 21, 1997, I began to voice my growing suspicion that the Gold market was being manipulated. The source of my immediate concern was some peculiar market events on Friday, April 11th, 1997. I wrote back then:
“The Produced Price Index was released that morning, and it rose 0.4%, far above expectations and far above its recent trend. Also, that morning began with Gold and the other precious metals trading relatively firm, and when the PPI was released, two things happened. As would be expected by an increase in inflation, the Gold price began to rise, and the 30-year T-Bond began to drop hard. However, these trends did not last long. It appeared that some powerful force had entered the market.“
As if on cue, Gold then started to fall and the T-Bond began to rise, notwithstanding the surprise news. When one has been as deeply involved with markets for as long as I have, you begin to intuitively sense when something is wrong, or perhaps I should say, out of the ordinary. The events of early 1997 struck me that way, and I began to write about this “powerful force”.
I suspected all along that government manipulation was the answer to the strange things happening to the price of Gold, and subsequent events I think adequately bolstered my initial hunch. Many uncannily timed announcements began appearing in the media just as Gold was ready to rise – by the Swiss government about its proposed sales, by various finance ministers frequently threatening that the IMF would dishoard its Gold, by the Bank of England and its peculiar announcement apparently designed to knock down the gold price, etc. Perhaps the most important evidence of all was Alan Greenspan’s testimony before Congress in 1998 that central banks stand ready to lend Gold should its price rise. I wrote about all these episodes, and many more, as have a number of other market observers.
Fortunately, by shining a light on these dark events, we are moving closer to the truth. We are closer to finding out what really is happening to the Gold price. One person who has taken a prominent lead in this campaign to investigate the Gold market so that the truth will be revealed is Bill Murphy, chairman of the Gold Anti-Trust Action committee www.gata.org and the proprietor of www.lemetropolecafe.com.
Recently, Bill shared with me two different letters sent by the US Treasury to GATA supporters who had written to their Congressmen looking for answers from the Treasury Department about these apparent manipulations in the Gold market. My response to Bill follows:
Thanks for sending to me the two letters from the Treasury Department stating their denial about any involvement in the Gold market.
At first blush the letter from Acting Assistant Secretary Marti Thomas looks pretty clear. But as we all know, that is what the letter is meant to do. In reality, her letter comes up short and is misleading.
You will recall that Mr. Greenspan’s letter [see Interim Letter 257b] regarding these same issues also looked crystal clear, but upon closer examination there were numerous word games in it. Thus, just like Mr. Greenspan’s letter was in reality misleading, so is this Thomas letter misleading. I offer the following observations to make my point.
The most important statement by Ms. Thomas is: “The Treasury Department does not, either on its own behalf or on behalf of others, including other government agencies such as the Exchange Stabilization Fund, lend gold or silver, facilitate the lending of gold and silver, or trade in any securities, such as futures contracts and call and put options, involving gold and silver.”
First, note the word “including”, which was also used in Mr. Greenspan’s letter, instead of the more precise and correct term, “including but not limited to”. Thus, Ms. Thomas is responding only for the Treasury and its action on behalf of the Exchange Stabilization Fund (ESF), despite the appearance that the denial is meant to be all inclusive. So the possibility remains that the Treasury may act on behalf of others, because only the ESF has actually been excluded by the choice of words she used in her letter. Who could those ‘others’ be?
The most obvious answer is the American people collectively because we own the Gold Reserve. The 262 million ounces of Gold at Fort Knox and the other depositories is not an asset of the federal government, which explains why Inspector General Jeffrey Rush in his letter calls the Gold Reserve a “custodial” asset. The federal government is acting as custodian on behalf of the American people. Thus, because there is nothing in Ms. Thomas’s letter to the contrary, one could still assume that the Treasury may be lending out this Gold owned by the American people.
Second, note that Ms. Thomas’s letter only mentions the lending of gold and silver in a non-specific way. It does not specifically mention the US Gold Reserves. Thus, her letter may be technically correct because the Treasury Department presumably does not lend any gold or silver that it may own, such as the working inventory at the US Mint. But this working inventory of the US Mint is inconsequential compared to the Gold Reserves, which as explained above, are not addressed in Ms. Thomas’s letter.
Third, note that the ESF is labeled as a government agency. That to me is new news, and somewhat surprising. Can a so-called ‘fund’ actually be an ‘agency’? The implication from the use of the word agency is that the ESF is something that exists outside of the Treasury Department. The ESF is actually under the control of the Treasury Secretary, but from the above statement, it would appear that when the Treasury Secretary directs the ESF, he is doing so in a capacity different from the authority given to him as Treasury Secretary. Thus, he is wearing two hats, i.e., Treasury Secretary and head of the ESF.
Fourth, why didn’t Secretary Summers write this letter? Was it because that he knew something as head of the ESF that Ms. Thomas in her capacity in the Treasury Department does not know?
Fifth, note that Ms. Thomas states that the Treasury doesn’t intervene on behalf of the ESF. However, she says nothing about whether or not the ESF intervenes on behalf of the Treasury, which is the more realistic alternative. This point is important.
The Treasury does not have the manpower and other resources needed to intervene in the markets. Consequently, when some action is taken (e.g., the Treasury decides to intervene to manipulate the Dollar’s exchange rate), the Treasury instructs the Federal Reserve to carry out the intervention on the Treasury’s behalf. Thus, it would appear that Mr. Peter Fisher has three roles in his responsibilities as the federal government’s chief market intervenor from his offices at the Federal Reserve Bank of New York. When he intervenes in the markets, he can act for the Federal Reserve, the Treasury Department or the ESF.
Finally, Ms Thomas states that: “I would like to underline that the Treasury Department does not seek to manipulate the price of gold, silver or other precious metals by intervening in or otherwise interfering with the market”. Perhaps, but would Treasury Secretary Summers be willing to make this statement about the ESF?
In conclusion, despite the appearances, there is no blanket denial in Acting Assistant Secretary Thomas’s letter. Consequently, I remain open minded about whether or not the federal government in some capacity, but probably through the ESF, is intervening in the Gold market using the US Gold Reserves.
To my mind, the best way to answer the question about whether or not the federal government is intervening in the Gold market is to engage an independent third party accounting firm to undertake a proper audit of the Gold Reserve in Fort Knox and the other depositories. This audit needs to include among other safeguards, a full count of all the bars in storage to ensure this result tallies with the books and records. It will also include the assaying of a prudent number of bars selected at random to ensure that they contain the weight of fine Gold they are said to contain. A proper audit of the Gold Reserve will tell us what we will never learn from these disingenuous letters from the Treasury Department, which apparently are designed more to deceive than clear the air.
Sincerely, James Turk
So there we have it – more word games from the US Treasury. But eventually, if we keep shining that light at the darkness, the truth will be revealed.