Goldmanipulation - nächste Woche wird spannend!

verfasst von R.Deutsch, 03.09.2000, 11:17

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Reginald H. Howe
www.goldensextant.com
row@ix.netcom.com

September 1, 2000. Buba: Blowing the Whistle on Big Bubba's Gold
Manipulators?

The German Bundesbank, or"Buba" as it sometimes called by
certain locals, is reputed to make its views known on occasion
through articles placed in the Frankfurter Allgemeine Zeitung, one of
Germany's leading newspapers. On August 25, 2000, the FAZ ran an
article about gold that featured GATA and suggested that its
allegations about recent manipulation of gold prices -- likely
orchestrated by the lame duck big Bubba in Washington -- deserve
serious hearing. In a follow-up article on August 30, the FAZ
discussed GATA's theories in more detail, focusing on gold
derivatives and naming all the major players and suspects except
one: Deutsche Bank. English translations of both articles are
available at www.egroups.com/message/gata/517.

It is hard to believe that a major German newspaper, having delved
this deeply into the gold story, plans to leave it without mentioning
the principal German connection. Accordingly, my guess is that there
will be at least one more FAZ article to address the role of Deutsche
Bank, including the recent huge growth of its gold derivatives,
especially during the last half of 1999, and its apparent advance
knowledge of the May 7, 1999, announcement of British gold sales.
In short, the Bundesbank may be about to answer the question posed
at the conclusion of Deutsche Bank: Sabotaging the Washington
Agreement?, and unlike Shoeless Joe, this Buba may not have to
disappoint its fans.

Before speculating on the possible significance of the FAZ articles, a
few other facts may be relevant. First, on July 25, 2000, the BIS
published in the Review section of its website the speech by Hervé
Hannoun, First Deputy Governor of the Banque de France, to guests
of Goldman Sachs at its dinner party at Les Invalides during the FT
World Gold Conference in Paris last June. In discussing the
conservative views of the Banque de France on gold, Mr. Hannoun
identified the Banque de France and the Bundesbank as"a driving
force" behind the Washington Agreement, which, in his words,"has
re-emphasized the role of gold." [Bold and italics in the original.] He
added:

It is true, however, that initial market reaction to the
joint statement was extreme. The immediate impact of
the Washington Agreement was all the more dramatic as
a number of market participants (gold mines, hedge
funds) had accumulated big and, I would say in some
cases, excessive short positions. The fact that the short
sellers had to rapidly square their positions induced a
brief period of higher volatility, but also created the
conditions for a more orderly market and thus, during the
last months, gold prices have fluctuated in a relatively
narrow range.

Second, on June 30, 2000, Hans Meyer, Chairman of the Governing
Board of the Swiss National Bank, unexpectedly announced that he
would retire at the end of the year. The SNB's press release on his
retirement states:"The reason he gave for his decision was that he
was certain it would be in the overall interest if the new Governing
Board could begin its work already at the beginning of next year."
Mr. Meyer is closely identified with the Swiss gold sales. His early
retirement would be consistent with a concern that sharply rising gold
prices might soon make these sales an embarrassment to the SNB,
which in the eyes of many has been less than candid with the Swiss
people about the reasons for them.

Third, Deutsche Bank apparently continued to build up its gold
derivatives in the first half of this year. Its mid-year financial report
does not give the same level of detail on its precious metals
derivatives as its annual report. In the mid-year report, precious
metals derivatives are put in the"other" category, for which the
total notional value is E67.5 billion, broken down by maturity as
follows: < 1 year, E27 billion; 1-5 years, E33.3 billion; > 5 years, E7.1
billion. By way of comparison, at year-end 1999, adding E50.9 billion
total notional value of precious metals derivatives to E9.5 billion of
other commodity derivatives gives a total other category of E60.4
billion.

Because the non-precious metals component of the other category
has been in sharp decline over several quarters, a reasonable
estimate is that this number is now down to E6.5 billion or less, which
suggests a total notional value of precious metals derivatives at June
30 of roughly E61 billion, up E10 billion since year-end, or 20% in
euro terms. Due to the decline of the euro against the dollar, the
increases in dollar terms would be roughly 10% less.

Fourth, moving in the opposite direction from Deutsche Bank, UBS
has apparently reduced its gold derivatives quite sharply during the
first half of 2000. In the case of UBS, the mid-year report does not
give any figures on notional or replacement values. What it does give
are 10-day 99% confidence Value at Risk numbers for precious
metals. Comparable numbers also appear in its 1999 annual report.
The following table gives a comparison for the four time periods
identified in the two reports. All amounts are in SwF millions.

Period Minimum Maximum Average Period-End



7/1/98-12/31/98 16 48 32 19

1/1/99-12/31/99 5 36 21 28

1/1/00-3/31/00 7.1 27.4 15.1 13.5

4/1/00-6/30/00 4.3 15.3 9.4 12.1

Interestingly, at the FT World Gold Conference in Paris,
representatives of UBS were almost alone among the bullion bankers
in wanting to engage in serious discussion with Bill Murphy and me
about our interpretation of the reported figures on gold derivatives.
At the end of 1999, based on total notional value, UBS's gold
derivatives business was by far the largest of any bank, but in
contrast to that of big competitors like J.P. Morgan and Deutsche
Bank, had remained flat rather than surged in the last half of the
year.

Shortly after Deutsche Bank: Sabotaging the Washington
Agreement? was posted here on May 20, GATA added it to the
online version of Gold Derivative Banking Crisis, which several
friends of GATA brought to the attention of top officials at the Bank
for International Settlements. What is more, given the seriousness of
the issues raised by Deutsche Bank's gold derivatives as discussed
in that commentary, concurrently with posting it here, I sent a copy to
Andrew Crockett, General Manager of the BIS, together with a
request that he forward a copy to the Banque de France. A Swiss
banker whom I used as a reference in my communication with Mr.
Crockett also sent a copy of the commentary to a friend in a senior
position at the the Bundesbank, who replied only that it had acted
"responsibly."

Facts are always preferable to speculation, but interpreting the gold
market requires more than the usual amount guessing since
transparency in this market is so limited. This special Labor Day
update to my recent essay, Gold or Dross? Political Derivatives in
Campaign 2000, posted only a couple of days ago, sets forth my
current working hypothesis on the significance of the FAZ articles
and what they may suggest for the future.

Upon initial review by the BIS, GATA's document must have created
sufficient concern to warrant some further investigation. The BIS has
a great deal more information on gold derivatives than what it
publishes, including breakdowns between forwards and options and
between contracts with other reporting financial institutions and
contracts with non-reporting institutions, e.g., gold mining companies,
fabricators, hedge funds, speculators, etc. It has a highly competent
research staff quite knowledgeable in the most sophisticated
mathematical and statistical modeling techniques, backed by
first-rate technology and equipment. And it has its own considerable
knowledge of the gold market plus what must be an unrivaled web of
contacts at the highest levels of international finance.

As a result of this new investigation, the BIS along with the other
major central banks of continental Europe, particularly the
Bundesbank, the Banque de France and the SNB, likely concluded
that the gold market had in fact fallen victim to a much larger degree
of manipulation than they had previously suspected. This new
information also helped to explain why the gold market's reaction to
the Washington Agreement had been more extreme than they had
anticipated. And it suggested that the Bundesbank's gold leasing,
most of it carried out initially through Deutsche Bank, had probably
resulted in a much larger negative impact on gold prices than
previously appreciated. Indeed, both the Bundesbank and the SNB
may now feel somewhat duped by the bullion banks that advised
them on their extensive gold lending programs.

Within the Euro Area, the Bundesbank immediately aligned itself
with the pro-gold views of the other two major gold holders, the
Banque de France and the Bank of Italy. Of course, neither of them
has engaged in any significant gold lending, so within the Euro Area,
the Bundesbank now carries principal responsibility for resolving the
problem of excessive gold lending and gold derivatives activities.
The FAZ articles are Buba's first shot across the bows of the bullion
banks, especially Deutsche Bank.

With respect to the Swiss, their gold sales continue at the maximum
permissible rate under the Washington Agreement for substantially
the reasons discussed in prior commentaries. See Gold: Unchained
by the Swiss; Ready to Rock! and Central Banks vs. Gold: Winning
Battles but Losing the War? Swiss sales also are likely directed
toward assisting UBS to reduce its gold borrowings, just what it
appears to be doing. Even if the SNB wanted to speed up this
process, it is constrained by the limits in the Washington Agreement.
Although the SNB will be embarrassed by any large rise in gold
prices on the heels of its sales, by investing the proceeds in euros, it
expects to be in the currency that will benefit most from higher gold
prices.

In his talk to Goldman Sachs and its guests, the shorts that Mr.
Hannoun mentioned were gold mining companies and hedge funds. At
least some of this group have used the period since last September to
reduce or eliminate their short positions. Mr. Hannoun did not
mention bullion banks, and among the largest, only UBS seems to
have taken the hint. But then, among this same group and whatever
its role prior to 1999, UBS is quite clearly not a party to the
continuing Anglo-American scheme to manipulate gold prices that
began in May 1999 with the British announcement of gold sales.

The FAZ articles suggest that the Euro Area central banks, together
with the BIS and SNB, are now prepared for a showdown over gold.
Whether these articles are also aimed at boosting the foreign
exchange value of the euro is harder to say. Exacerbated by high
dollar oil prices, inflation is becoming a more significant problem for
the Euro Area. Whether by design or not, the Anglo-American war on
gold is effectively an attack on the euro as well. In any event, a
strong rally in gold should help the euro vis-a-vis both the dollar and
the yen.

If another FAZ article is planned, and especially if the Bundesbank is
behind these articles, the next article is likely to come out over the
long Labor Day weekend. In that event, and maybe even without it,
the FAZ articles could well do for the gold market this year what the
Washington Agreement did last year. This year, however, the
European central banks are unlikely to lose their nerve as quickly as
before. They almost certainly will turn a deaf ear to cries of pain
from overexposed bullion banks.

The danger, of course, is that soaring gold prices could trigger sharp
and mutually reinforcing sell offs in stocks, bonds and the U.S. dollar.
But with the future of the euro ever more visibly at stake, and the
manipulation of gold prices growing increasingly blatant, the central
banks of the Euro Area may no longer feel that they have a choice. If
little Buba, weakened but still dangerous, really is about to blow the
whistle on big Bubba's gold manipulators, Labor Day 2000 may mark
the sunset of unchallenged dollar dominance in the world financial
system and the dawn of a new golden millennium.

Final thought for Monday, September 4, 2000. Daniel Webster never
spoke to a Labor Day gathering. The holiday did not exist in his time.
Probably people were working too hard. But he did speak to the
occasion:"Of all the contrivances for cheating the laboring classes
of mankind, none has been more effective than that which deludes
them with paper money."





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GOLD IN THE OFFICIAL SECTOR

by James Turk
© Copyright 2000 by the Freemarket Gold & Money Report.
All rights reserved.

The World Gold Council publishes a monthly report entitled Gold in the Official Sector. I was
struck by a tremendous irony in the July 2000 issue.

The lead article, entitled “Looking for a Scapegoat”, calumniated all who believe that the
Gold price is being manipulated by giving short shrift to their argument. To quote from the
article:"Allegations that there are massive speculative short positions in the gold market,
and that the build-up of these positions has held down the price, are nothing new. In the past
two years, central banks and governments have been accused of colluding with the
short-sellers — by selling or lending gold secretly — in order to hold down the price." Note
their use of the word secretly, which is central to the irony I point out below.

Unfortunately, despite its denigration of the price manipulation theory, the article provided
little analysis to explain why the Gold price is where it is. Says the WGC:

"The actual price is influenced by a huge number of factors and has proved impervious to
previous economic modeling." In other words, they can't explain the current Gold price, but,
they say, it is not the result of central bank and government manipulation.

Because the Gold price is inexplicable to them, one would think that they would be
open-minded enough to consider all explanations, even those that may not be politically
correct, such as the price manipulation theory. After all, their admission that the current Gold
price is"impervious to...economic modeling" is I believe evidence enough to suggest that
something untoward and suspicious is going on in the Gold market. But the sublime irony to
which I referred came three pages later in a second article, entitled"Watch on Central
Banks". Referring to a report prepared by Gold Fields Mineral Services that draws
"attention to the deficiencies in official gold statistics", the WGC says:"GFMS reckoned
that close to 50% of last year's gross [Gold] sales reflected sale of stocks that have never
been included in publicly available statistics".

So let me get this straight. Nearly 50% of central bank Gold disposals are not publicly
reported (so they are indeed acting secretly), but central banks are not acting secretly in an
attempt to manipulate the Gold price? Dear me. I guess I grabbed the wrong end of the stick.
I guess we are supposed to believe that clandestine activity by central banks is not
undertaken to pursue price manipulation. Nor should we even think about questioning the
politically correct notion that central banks act only for altruistic reasons. By this perverted
logic, their clandestine activity in the Gold market is done for a good purpose, but just don't
ask what that purpose is and don't think for even a moment that it could possibly be
self-serving to central banks and their controllers.

I suppose their altruistic goals also explain other unusual actions by these same selfless and
uncalculating central bankers, when on the surface it seems quite clear that their only
purpose is to intentionally mislead and distort the truth. For example, central banks (with the
notable exception of the Swiss National Bank) distort their publicly reported balance sheet
and blatantly defy accounting convention by combining Gold and Gold Receivable as one
ledger item, when in fact these two assets are fundamentally different.

I don't mean to pick on the WGC, because they in fact do some good work and provide many
useful reports. But their article is symptomatic of what ails the Gold industry — there is a
pervasive inability or unwillingness to recognize that central banks are the enemy of Gold.
And it does not take a rocket scientist to understand why central banks are at war with Gold.
It's really very simple.

Gold imposes discipline on money creation. Banks want to create money at will. Central
banks are the handmaiden of a nation's big banks. Therefore, the big banks use central
banks to manipulate the Gold price so the big banks can extend credit at will and with
reckless abandon because the greater their credit extensions, the greater their profits.

The above statement is so simple and so well documented by countless events throughout
monetary history, everyone who is willing to even cursorily study the practice of money
creation 'gets it' — except those in the Gold industry.

Unfortunately, I am at a loss to explain why this inability or unwillingness to understand the
adversarial role and pernicious aims of central banks in the Gold market is unique to the
Gold industry, and particularly the mining companies. It defies belief, but it also explains why
I have said so many times before, the Gold mining industry is its own worst enemy.





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• Goldmanipulation - nächste Woche wird spannend! - R.Deutsch, 03.09.2000, 11:17