by Nico Simons, Sprott Money:
This article is about the way the Central Bank Community manipulates the price of gold and the role of the LBMA within. We describe some of the signs that the Central Bank Community manipulate the price of gold and that they are using the LBMA to reach their goal. Is the manipulation of the gold price a classic case of Diffusion of responsibility because so many organizations are involved and avoid taking responsibility?
Manipulation is a joint effort of the Central Bank Community
The signs that Central Banks manipulate the price of gold are written all over the wall, for instance:
“The fifth objective of Central Bank cooperation is the joint effort of Central Banks to influence the price of gold and foreign exchange.” William R. White, Head Monetary and Economic Department at the BIS, 27 June 2005.
“For the purpose of stabilizing the exchange value of the dollar, the Secretary of the Treasury, with the approval of the President, … is authorized to deal in gold and foreign exchange … as he may seem necessary…” The Gold Reserve Act of 1934.
“All Central Banks are in the same boat, that threats in either direction are harmful to all of us, and that the dollar stability is the key-note of the whole thing.” Cameron Cobbold, Governor Bank of England 1949-1961, March 1961.
“From 1962 the Central Banks, operated from the BIS in Basel, played a crucial role in stabilizing the free gold price in the London market.” Gold: talks in Basle, 6/7 January 1962.
“However, at the end of the day, the Gold Pool (also called: Basle Syndicate) was nothing more than a ploy, an artificial device to keep the market in line with official policy.” Secret note UK Treasury D.A. Bleach, 26 March 1968 .
An in 2009 declassified telegram from AM Embassy to the Secretary of State sent in 1968 regarding the end of the Gold Pool speaks about: “Remain the masters of gold” … “A gold price of dollar 35 per ounce it is a matter of urgency to reach international agreement on the “rules of the game” …. These rules will have to be more basic than just a “holding operation”. They have to be so simple and convincing that it become crystal-clear to speculators that there is no point any more in speculating on a increase on the price of gold. It is only than that the speculative demand for gold will subside and that, very likely, dishoarding will take place”. … “A reshuffle club should harmonise the ratio between gold holdings and (gross) asset among gold-holding countries and countries with relatively low gold holdings.”
“The US loses influence in world affairs whenever the dollar is weak in exchange markets…vulnerability to confidence crises…gold is a basic problem…” Declassified memorandum CIA dated 4 April 1968.
“The gold reserves were actually not used for interventions, due to the current practices as evidenced by SWAPS.” The Mechanics of Interventions in Exchange Markets by A.L. Balbach Fed St. Louis, February 1978.
“A higher dollar gold price could possible been seen as a proof of distrust against the dollar.” Dr. J. Zijlstra, former head of the BIS and the Dutch Central Bank, memoirs 1993.
“Investing in gold may have become out of favour, but all Central Banks see gold as the most prominent part of their international reserves.” Dr. J. Zijlstra, former head of the BIS and the Dutch Central Bank, memoirs 1993.
“The price of gold is pretty well determined by us.” Governor Wayne Angell Fed meeting 6/7 July 1993.
The Washington Agreement on Gold was signed of 26 September 1999 in Washington, D.C. during the IMF annual meeting, and the US Secretary of the Treasury and the Chairman of the Fed were present. The agreement was perceived as putting a cap on European gold sales. The agreement limits also their gold leasing and their use of gold futures and options.
According to the Swedish Central Bank (Riskbank) is the aim of the agreement to limit the Central Bank’s sales of gold in order to avoid undesirable effect on the gold price.
A confidential IMF report from March 1999 about the reporting template for Central Banks advices western Central Banks to conceal their gold loans and SWAPS because information about them is “highly market-sensitive” and accountability about them would “hinder secret currency” interventions by Central Banks, in view of the limited number of participants in such transactions.
“Letting gold go to dollar 850 per ounce was a mistake.” Memoirs 2004 Paul Volcker former chairman of theUS Fed.
“In reserves management, monetary authorities also may undertake gold SWAPS. …Such gold SWAPS generally are undertaken between monetary authorities and with financial institutions. Monetary authorities may treat gold SWAPS as collateralized loans, leaving the gold claim on the balance sheet… This treatment applies only when an exchange of cash against gold occurs, the commitment to buy back the gold is legally binding, and the repurchase price is fixed at the time of the SPOT transaction. The logic is that in a gold SWAP the “economic ownership” of the gold remains with the monetary authorities, even though the authorities temporarily have handed over the “legal ownership.“ … Usually, the Central Banks receive cash for the gold. The counterparty generally sells the gold on the market but typically makes no delivery of the gold. The counterparty often is a bank that wants to take short positions in gold and bets the price of gold will fall or is one that takes advantage of arbitrage possibilities offered by combining a gold SWAP with a gold sale and a purchase of a gold future.”
Guidelines for international reserves, paragraph 100, IMF, 12 September 2013 .
“The bullion market is often criticised by observers for being secretive and lacking in information and data. Unfortunately, to an extent, this is inevitable given the need for a duty of care to clients which dictates that a high level of discretion is an essential element in so much of the business that takes place in the market, particularly for gold.” Alan Baker, Director Deutsche Morgan Grenfell and LBMA Chairman. January 1997.
“We are not a member of the LBMA, but we continue to play a key role in the London market. We have observes status on the Management, Physical and Vault Committees of the LBMA.” Luke Thorn, Bank ofEngland, 10 March 2013.
“The role of Central Banks in the bullion market preclude ‘total’ transparency, at least at public level” LBMA CEO Ruth Crowell in a letter regarding the Fair and Effective Markets Review to the Bank of England, 30 January 2015.
“The LBMA has a global client base. This includes the majority of the gold-holding Central Banks.”
A guide to the London Bullion Market Association, May 2017.
Central Bankers independence is enshrined in law in many countries, and Central Bankers tend to be independent thinkers. It is worth asking why such a large group of them decided to associate themselves with manipulating of the free gold market. And off course the knowledge of the manipulation makes them responsible.
World Official Gold Holdings 31.978 ton
Sec BIS related Official Gold Holdings 29.805 ton
(Figures World Gold Council, February 2015)
What is the relation between the Central Bank Community and the LBMA?
The LBMA, the London Bullion Market Association, provides for Central Banks a tool for hiding their secret operations in the gold market and their London Spot Price setting. Set up as a quote-driven hardly regulated OTC market through the Bank of England with only 13 Market Making Members.
The LBMA claims to be The Competent Authority for the world Bullion Market.
The LBMA is centred in London with a global Membership and client base including the majority of the Central Banks that holds gold (1).
Important: the London Spot Price is set on the LBMA OTC gold market.
The London Spot Price is the basis for virtually all transactions in gold. It is quote-driven bid/ask price made by the 13 LBMA Market Makers based upon their bilateral trading activity in the hardly regulated LBMA OTC gold market. The London Spot Price refers to the price of gold for immediate delivery (read: two workings days after the day of the deal).
The London Spot Price is published on WebICE and constantly updated by the bullion desks of the 13 Market Makers (2).
Read for the difference between the LBMA Gold Price (Auction) and the London Spot Price our paper dated23 September 2016 . For now it is enough to know that the London Spot Price is the Standard (Benchmark) for the price of gold and thus all other gold-related products.
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