Political Metals

Judge Ellen Segal Huvelle - US District Court, District of Columbia

True to its form, the US federal Reserve (Fed) continues to operate in secrecy just as it was conceived way back in 1910 on Jekyll Island.

The Gold Anti-Trust Action Committee (GATA) sent two letters, one on December 2007 and another on April 2009, to the Fed board requesting the central bank’s records of its market intervention to suppress the price of gold (specifically “gold swaps” related documents). Both requests were denied, despite appeals.

After the unsuccessful attempts to obtain such records under the Freedom-of-Information Act (FOIA), GATA filed a lawsuit against the Fed Board seeking a court order for disclosure of some specific documents on 30th December 2009.

On 3rd February 2011, judge Ellen Segal Huvelle of U.S. District Court for the District of Columbia ruled that most of the Fed’s documents were exempt from disclosure under the FOIA for being “pre-decisional or deliberative”. However, she ordered the disclosure of one document - “a staff member’s notes on the discussion by the Gold and Foreign Exchange Committee of the Group of Ten (or “G-10″), as well as a transmission memorandum from Mr. [Ted] Truman to the board” , and that it be handed over to the plaintiff by February 18.

The very fact that there existed a Gold and Foreign Exchange Committee at the G-10 level suggests that gold is high up the agenda of central banks, rather than being a “barbaric relic” as some would have us believe. Reproduced below is Chris Powell, GATA’s secretary/treasurer’s comments on the minutes of this meeting held on 7th April 1997 that the Fed has been refusing to release until now.

They quote a British delegate as saying that while the gold price seemed “sluggish,” the gold market itself was actually showing “resilience” and “physical demand is high.” The British delegate described the gold market as “traditionally secretive.”

The minutes show committee members acknowledging the heavy involvement of central banks in gold leasing, with the British delegate estimating that a year’s worth of gold production already had been sold forward. That was 14 years ago and of course much central bank gold leasing followed until the last year or so.

According to the minutes, the U.S. delegate cited above, identified only as “Fisher” — apparently Peter R. Fisher, head of open market operations and foreign exchange trading for the Federal Reserve Bank of New York — also warned that central bank gold sales and leasing might be construed as positive for gold. The minutes say: “First, he noted that some market cynics viewed central bank activity as a contrary indicator and therefore one had to be conscious of possible feedback effects. Second, he noted that the price of gold, unlike other commodities, had historically not trended toward the cost of production. This seemed to suggest an ongoing supply/demand imbalance. Third, he had the sense that the gold leasing market was an important component in this puzzle, though he did not understand enough about that market, particularly the credit risk aspects of gold lending.”

A Canadian delegate, the minutes say, wondered whether data about the gold market could be trusted — a point much pressed by GATA and others lately.

U.S. delegate Fisher, the minutes say, “explained that U.S. gold belongs to the Treasury. However, the Treasury had issued gold certificates to the Reserve Banks, and so gold (by these means) also appears on the Federal Reserve balance sheet. If there were to be a revaluation of gold, the certificates would also be revalued upwards; however [to prevent the Fed's balance sheet from expanding] this would lead to sales of government securities. So the net benefit to Treasury would need to be carefully calculated, since sales of government securities would expand the public portfolio of government securities and hence also expand the Treasury’s debt-servicing burden.”

This seems to be as candid an acknowledgement as any of the U.S. government’s profound interest in suppressing the price of gold.

Two years after the G-10′s Gold and Foreign Exchange Committee discussed coordinating Western central bank policies toward gold, most of those central banks announced just such a formal mechanism of cooperation, the Washington Agreement on Gold:

http://www.ecb.int/press/pr/date/1999/html/pr990926.en.html

The minutes of the April 1997 meeting of the G-10 Gold and Foreign Exchange Committee, which the Fed sought to conceal, along with the secrecy on which the Fed successfully has insisted for its other gold records, are powerful confirmations of Western central bank interest in controlling the gold market surreptitiously. The minutes have been posted at GATA’s Internet site here:

http://www.gata.org/files/FedMemoG-10Gold&FXCommittee-4-29-1997.pdf

CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.

Here is ZeroHedge’s take on Fisher’s comments:

Fisher’s comment relates to what would happen to the Fed’s securities portfolio should there be a sudden or gradual revaluation in the price of gold. His conclusion is that in order to keep the Fed’s balance sheet stable, an (acknowledged) surge in the price of gold would lead to a forced selling in Treasurys. Of course, that would mean that the Fed would have to actually value gold at its actual market price, instead of that relic price of $42.22 per ounce. Which means that valuing gold at fair market value would result in dumping over $300 billion in Treasurys, something the Fed can not afford to do at a time when it is engaged in purchasing $100+ billion each month.

To an extent we agree with GATA’s summary of the implication of this statement: “This seems to be as candid an acknowledgement as any of the U.S. government’s profound interest in suppressing the price of gold.” Yes and no. While this is in fact indicative of the Fed’s desire to keep gold price low, it is the case in a world in which the Fed were to see gold as priced at $1,390/ounce. Not at the fake price of $42.22/ounce (perhaps the Fed can sell us some gold at that price?)

Now keep in mind that the Fed discloses the value of its gold stock as $11.041 billion in each weekly H.4.1. If the Fed were to value gold at FMV, the asset side of the Fed’s balance sheet would suddenly balloon by just over $350 billion, as the fair value of the 8,133.5 tonnes of gold allegedly in possession by the US is valued at $361.8 billion. Which of course also means that to account for the surge in paper assets by $350 billion, the Fed would either have to sell a like amount of Treasurys or increase the liabilities side of its balance sheet, by either increasing the Currency in circulation or the Excess bank reserves by a like amount, a result which would increase inflationary expectations by a massive percentage. Both are obviously outcomes that the Fed will fight to the death to avoid.

As for the question of how much of this unauditable gold tonnage is actually there, that’s a different matter entirely.

So yes, thank you JP Morgan for continuing your sworn duty of doing all you have to do, to maintain the Fed’s 4th mandate of suppressing the price of gold, and preserving the myth that there is no inflation in the US. The people of this truly great and democratic nation applaud your efforts.

Finally, this is what I consider a must watch video interview between James Turk of GoldMoney and Chris Powell of GATA, especially if you are new to the political nature of gold & silver and GATA’s work. Listen to what Chris had to say about the FOIA lawsuit, what else is pending besides the disclosure discussed above, the secretive Gold Stabilization Fund (GSF), Gold Reserve Act 1934, what Deutsche Bundesbank (German central bank) had to say about their gold swap operations, central banking secrecy and gold price suppression scheme in general.

For more information on GATA’s work in exposing the central banks’ role in price suppression of PMs, visit www.gata.org

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