-->IS THERE A CONSPIRACY BY U.S. AUTHORITIES
TO DRIVE DOWN GOLD PRICES?

NEW YORK, May 1 -- Attendees at the spring meeting of the
Committee For Monetary Research and Education today
pondered two controversial questions:

-- Is there a conspiracy on the part of U.S. authorities to
drive down the price of gold on world markets?

-- Is it a reasonable to believe that the dollar will again
become convertible into gold?

CMRE invited Dr. David Willey to share his views on these
two issues with the group. He is a former vice president
of the Federal Reserve Bank of New York with responsibility
for foreign central bank gold accounts there. More recently
he was an adviser to Morgan Stanley's Commodities
Department.

Dr. Willey cast doubt on the allegation made by speakers
at previous meetings that U.S. authorities have conspired
to drive down gold prices, probably by inserting into the
market some of their large U.S. gold holdings through
swaps, deposits, or derivatives. The allegation contended
that without such interventions gold prices would be at
their"natural level" of perhaps $600 per ounce.

In casting doubt on the allegation, Dr. Willey said:

-- There has been no clear evidence of such surreptitious
activity on the part of any U.S. official.

-- A conspiracy to drive down gold prices would be a
reversal of U.S. policy since the late 1970s.

-- The U.S. as a gold holder has no interest in driving down
gold prices and our authorities have no desire to cause
market disturbances.

-- The idea of a"natural price" for gold has not been
substantiated.

-- The gold price has risen since the allegations were initially
made.

Dr. Willey noted while foreign monetary authorities have openly
sold gold since the late 1970s and with increasing frequency in
later decades and beginning in the 1980s used gold for deposits,
swaps, and derivatives as well, they have done so to earn
income and not to drive down the gold price.

There was little parallel between the movement of gold prices
and these official sales until the 1990s, as there are many
influences on the gold price, not least the accelerated mine
production after the gold price peaked in 1980. There was,
however, some parallel in the late 1990s when a number of
large official holders individually and successively announced
sales. These announcements led to market fears that much
of the more than 1 billion ounces of gold held by official
institutions could be dumped on the market.

The announcement in September 1999 by European central
banks that they would cap their gold sales as well as their
deposits, etc., over the next five years seemed to have the
immediate effect of reversing the declining gold price, even
as planned sales continued. This agreement will expire in
September 2004. The speaker felt the gold market would
find helpful a renewal of this agreement and possibly its
widening to other potential sellers and its establishing a
method of coordinating sales to avoid bunching.

Turning to what future role gold may again play in the
monetary system, Dr. Willey said that resumption of
dollar-gold convertibility is highly unlikely. Authorities
would no doubt resist again subjecting economic policy
to the vagaries of gold supply.

There is also a major practical obstacle. In l970, before
President Nixon's suspension of dollar-gold convertibility,
the value of U.S. gold holdings at $35 an ounce was a little
less than half the external dollar reserves of foreign
countries. At that time convertibility might have been
retained, at least temporarily, by approximately doubling
the price of gold. Foreign official dollar holders would then
have felt more confident that the United States had sufficient
gold to redeem their dollars.

To provide the same assurance in 2001, after dollars in the
hands of foreign monetary authorities had escalated and gold
was valued at $267 an ounce, would have required a gold
price 20 times higher. If dollars held by private citizens
abroad, or even U.S. citizens, that might be converted into
gold were considered, the multiplier would be much higher.

To achieve such a gold price increase, would require a
disastrous devaluation of the dollar, a catastrophic inflation,
or, if monetary authorities were simply to decree a higher
price, a great distortion of price relationships.

The increase in foreign official dollar holdings has continued
to rise well beyond the 2001 level and is expected to increase
further. Dr. Willey thought that, aside from the question of
dollar-gold convertibility, this very high level of dollar holdings
will weigh on the dollar's exchange value and may lead
investors to seek non-dollar investments or investments in
"hard" assets, like gold. This, not direct official action,
would seem to be a more probable reason to anticipate a possible
rise in the gold price.

--------

Dr. David Willey is a former vice president of the Federal Reserve
Bank of New York and adviser to Morgan Stanley's Commodities
Department. He spoke at the May 1, 2003, spring meeting of
the Committee for Monetary Research and Education Inc. about
official holdings of gold.