After the Gold Rout: Blame Central Bank Manipulation, Says GATA’s Powell

[Rayzur]

Gold rose $25 an ounce Tuesday but only managed to recoup a small portion of a wicked two-day slide that wiped out 14% of its value. The speed and depth of gold’s decline drew comparisons to the 1987 stock market crash and prompted veteran trader Dennis Gartman to declare: “We've never… ever… ever… seen anything like what we've witnessed in the past two trading sessions.”

Nomura analyst Tyler Broda echoed those sentiments in a note to clients: "We are running out of superlatives to attach to the gold price move since last Friday."

Gold was down slightly in recent trading Wednesday, suggesting Tuesday’s rally may indeed have been a “dead cat bounce” vs. a sign the selling squall was over.

Related: As Gold Prices Collapse, Investors Seek Answers

As the dust continues to settle after the gold rout, market participants and scribes are still trying to come up with a rationale for the drama. Some of the commonly cited reasons include:

• India’s recent decision to increase its gold import tax to 6% from 3%.
• Reports Cyprus would be forced to sell gold to pay for part of its “bail-in”. (On Wednesday, Cyprus' finance minister Haris Georgiades confirmed his government has committed to sell about 400 million of 'excess' gold reserves.)
• Bitcoin’s collapse, on the theory many of the same investors were long both “alternative” currencies.
• China’s weak GDP report, which prompted a broad flight from commodities, including copper and energy as well as gold.
• Selling begets selling: A lot of 'hot money' has poured into gold in recent years and speculators were quick to rush for the exits when prices started to falter. To be sure, gold's sharp decline is a reminder that momentum is a double-edged sword.

But such explanations miss the forest for the trees, according to Chris Powell, cofounder of the Gold Anti-Trust Action Committee (GATA). The organization's goal is to “expose, oppose, and litigate against collusion to control the price and supply of gold and related financial instruments,” according to its Web site.

“I’m pretty confident it was a central bank operation,” Powell says of the huge drop. “Financial journalism does its best to contrive other reasons but there was too much selling for it to be any source other than an inspiration from central banks.”

According to Powell, global central banks flooded the futures markets in London and New York with sell orders to prevent a short squeeze that was developing. He claims a similar operation occurred in March 1999 when the Bank of England announced plans to auction 58% of its gold.

“Once again central banks had to intervene to protect their currencies and bonds against a rise in gold prices,” he says. “This does happen every decade or so – the gold market gets tight and central banks have to intervene to get the price down.”

By his own admission, Powell “can’t prove” his theories but the folks at GATA believe them with religious fervor. Among other documents, he pointed me to a “secret IMF” report from 1999 that purportedly reveals such machinations.

To his credit, Powell also be believes the price of gold was being manipulated during its huge, historic 650% rally from August 1999 to August 2011.

That was a “controlled retreat by central bankers,” he says. “A free market would not trade so steadily [higher] like that and a free market would not crash like it did without a little help.“

Part of the beauty of GATA’s theories is they cannot be disproven; academics call this an “unfalslifiable theory." But I will note a few facts on the other side of this argument:

- Although the New York Fed's vault is the repository for gold owned by other central banks and the U.S. Treasury, the Fed doesn't own any gold. "None of the gold stored in the vault belongs to the New York Fed or the Federal Reserve System," according to its Website.

The "gold certificates" listed on the Fed's balance sheet are a "historic accounting" from when the Fed used to own gold, according to a spokesman. "The Fed doesn't own gold" and is not involved in buying or selling on behalf of other central banks, he said. "Other reserve banks hold gold, you could ask them."

- The Washington Agreement, signed during the IMF meeting, was designed to limit annual gold sales by central banks to prevent a repeat of the 1999 selloff incited by the BOE, as noted above. The agreement was last renewed in 2009 and remains in force, compelling central banks to limit annual gold sales to 400 tonnes. "They live by that," says Mark Dow, a former IMF staff economist turned hedge fund manager and blogger, who doesn't believe the "big conspiratorial plot" explanation for gold's recent washout.

Aaron Task is the host of The Daily Ticker and Editor-in-Chief of Yahoo! Finance. You can follow him on Twitter at @aarontask or email him at altask@yahoo.com

Below  is the "Secret Report from  IMF" that was referenced in the above article:

 

 

Secret IMF report: Hide gold loans and swaps for market manipulation

 

Submitted by cpowell on Tue, 2012-12-11 04:53. Section: 

11:58p ET Monday, December 10, 2012

Dear Friend of GATA and Gold:

Western central banks conceal their gold loans and swaps because information about them is "highly market-sensitive" and accountability about them would hinder secret currency market interventions by central banks, according to a confidential report by the International Monetary Fund obtained this week by GATA.

The report, provided to GATA by its researcher R.M., was written in March 1999 as the IMF staff proposed to strengthen financial reporting standards for central banks. The report shows that the objections by gold-lending central banks were decisive in weakening the standards. While the first draft of the new reporting rules would have required disclosing central bank gold loans and swaps, the revised rules, later adopted, allowed central banks to hide their gold loans and swaps within their gold reserves and even not to disclose the amount of their monetary gold at all, just the value assigned to it.

That is, the explicit but secret policy of Western central banking toward gold is to deceive and manipulate markets, as GATA long has complained.

The confidential IMF report says that to strengthen its financial reporting standards for central banks -- its Special Data Dissemination Standard reserves template -- IMF staff members consulted top officials of the organization as well as the Bank for International Settlements, the European Central Bank, the Bank of England, the German Bundesbank, the Bank of France, and other European central banks.

... Dispatch continues below ...

"Central bank officials," the confidential report says, "indicated that they considered information on gold loans and swaps to be highly market-sensitive, in view of the limited number of participants in such transactions. Thus, they considered that the Special Data Dissemination Standard reserves template should not require the separate disclosure of such information but should instead treat all monetary gold assets, including gold on loan or subject to swap agreements, as a single data item. They also confirmed a view, taken by a number of countries (both inside and outside the G-10) at the December board meeting that the disclosure of the composition of reserves by individual currencies would be market-sensitive but that they would have no objection to disclosure of such information by groups of currencies. ..." (Page 6, Paragraph 15.)

 

"Conversations with a few executive directors confirmed the reluctance of their authorities at present to disclose information on their international reserve positions on a highly frequent and timely basis, as a matter of policy. The motivations underlying this position were: (a) a desire to preserve the confidentiality of foreign exchange market intervention for a period, in order to enhance its effectiveness;  a reluctance by some monetary authorities to reveal information on their official transactions in exchange markets on a more frequent and timely basis than the disclosure of transactions by major international investors; and c) a concern by some countries that weekly reserves data could be inherently more volatile than monthly data, which could be misleading and potentially destabilizing to exchange markets. This position had stimulated, during the December board meeting, a lively discussion of the costs and benefits of increased transparency under various circumstances and the information requirements for well-functioning international financial markets." (Page 8, Paragraph 20.)

Specifying changes to be made in the reporting standards proposed by the IMF staff, the confidential report says: "On the assets side of the template, the major changes are: a) the elimination of any requirement to disclose the amount of gold loans, and of the explicit requirement to disclose the volume of monetary gold. The revised template would require only that the total value of monetary gold (including gold loans) be disclosed." (Page 8, Paragraph 23.)

The confidential IMF report confirms and elaborates on the Bank of England's admission to GATA a year ago that the bank's gold swap and leasing information is "market sensitive" and its disclosure "would allow enquirers to find out what gold transactions have been taking place." Such knowledge of what the bank was doing in the gold market, a spokesman for the bank said, would harm the interests of both the British government and the bank's "private customers," to whom the bank "owes a duty of confidentiality":

http://www.

While disclosure of the confidential IMF report is unlikely to prompt any acknowledgment from the most determined purveyors of misinformation in gold market analysis and the mainstream financial news media -- nothing is likely to get them to be truthful -- it will enable individual investors and citizens to confront their central bank and elected officials and ask more authoritatively for an accounting and explanation of the purposes of secret central bank gold loans and swaps, transactions in which even the U.S. Federal Reserve is participating, according to a statement extracted by GATA from a member of the Fed's Board of Governors in 2009:

http://www.

The confidential IMF report on the authorization of secrecy for gold loans and swaps is posted in PDF format at GATA's Internet site here:

http://www.

END

Edited April 18, 2013 by Rayzur