The Gold Anti-Trust Action committee (GATA) is an American 501(c)(3) non-profit civil rights and educational organization that educates and litigates against a purported gold cartel. GATA's stated mission is "to advocate and undertake litigation against illegal collusion to control the price and supply of gold and related financial securities."[1]
GATA members contend that central banks have been lending gold from their gold stocks via swap agreements and gold leases to other very large financial institutions who dump it on the market at carefully planned times in order to suppress the price of gold. This would violate the Sherman Anti-Trust Act of 1890. GATA members believe that the central banks do this because gold is the biggest competitor to paper fiat money. The logic is that by keeping the price of gold low, central banks inflate the relative value of paper money. This is to the advantage of the central banks because it allows their client states to run deficits in their budgets.[2]
GATA members believe this gold price suppression scheme to prop up the dollar has been ongoing by the U.S. Federal Reserve since as early as 1996. Their evidence for this includes statements by the participants, written documents obtained from the banks and agencies themselves, and records of movements of the price and volume of gold transactions which appear to contradict the expected behavior of price, supply and demand in a free market.[3]
History edit
The organization was formed in 1999, and arose from essays by Bill Murphy, a financial commentator, and by Chris Powell, a newspaper editor in Connecticut, published at Murphy's Internet site: lemetropolecafe.com. Murphy's essays reported evidence of collusion among financial institutions to suppress the price of gold. Powell, whose newspaper had been involved in antitrust litigation, replied with an essay proposing that gold mining and investor interests should act on Murphy's essays by bringing suit against the financial institutions involved in the collusion to suppress the free market price of gold.
GATA case for gold price fixing edit
From the perspective of governments, and especially the US Government, since the US dollar is the world’s reserve currency and gold is priced in dollars, a low gold price serves several important purposes. It gives the impression that inflation risk is more benign, which leads to: A stronger US$, making it more attractive as the world’s reserve currency and easier to finance huge US deficits, leading to lower US interest rates, which means higher US bond, stock and real estate prices. A rising gold price is, therefore, a challenge to the US dollar, US monetary policy and the condition of the US economy.[4]
GATA offers two sorts of evidence of the alleged manipulation. First, documentary evidence in the form of statements and publications of market participants. Second, statistical evidence; patterns of purchases and sales which indicate manipulation in the gold markets.
Statements and documentary evidence edit
In 1995, J. Virgil Mattingly, general counsel for the Federal Reserve, participated in a meeting of the Federal Open Market Committee discussing the legality of interventions in Mexico's foreign exchange markets by the Treasury Department's Exchange Stabilization Fund (ESF). In response to a question by Lawrence B. Lindsey, Mattingly stated that the law authorizing the ESF interventions had also been applied to "the gold swaps." [5] GATA believes this statement was an inadvertent mention of the suppression scheme. Mattingly later denied making the remark, suggesting that the Federal Reserve's transcription department mis-quoted him.[6]
In 1998, Federal Reserve Chairman Alan Greenspan, testified before a Congressional Committee on Banking and Financial Services. The testimony regarded the legal applicability of the Commodities Exchange Act of 1936 to over-the-counter derivatives transactions. Therein he stated:
"Nor can private counterparties restrict supplies of gold, another commodity whose derivatives are often traded over-the-counter, where central banks stand ready to lease gold in increasing quantities should the price rise." [7]
Subsequent to this, Greenspan stated that he meant "central banks other than the U.S. Federal Reserve" because for the Federal Reserve to do this would be "wholly inappropriate."[8]
In 2003, the world's largest gold mining company, Barrick Gold Corp. and J.P. Morgan & Co. were sued by Blanchard and Company, a large gold coin and bullion dealer. In its defense of the lawsuit, Barrick outlined exactly the gold suppression scheme described by GATA, and acknowledged Barrick's participation in it. Barrick successfully argued, however, that because central banks were sovereign and Barrick was working at the behest of the central banks, and because other gold mining companies which participated in the scheme were not also sued; Barrick was immune to liability for its role.[9]
In June of 2005, William S. White of the Bank for International Settlements (BIS), the "central bank for central banks" and which is not accountable to any national government, said that one of the primary goals for the BIS and central bank co-operation was to "influence asset prices, especially gold and foreign exchange..."[10]
In October, 2007, James Turk, editor of the Freemarket Gold & Money Report, wrote:[11]
"The U.S. Treasury quietly made a subtle change to its weekly reports of the U.S. International Reserve Position, which includes the U.S. Gold Reserve. This change was first made on May 14. Note the additional description of gold provided in the new reporting format. It says the U.S. Gold Reserve is 261.499 million ounces and, importantly, that the gold is now reported:'...including gold deposits and, if appropriate, gold swapped.'" [12] (In comparison, the prior chart of accounts reported on May 8, 2007 makes no mention of gold swaps.) [13]
Fed's Blueprint for Market Intervention: Confidential papers of William McChesney Martin Jr., held by the Missouri Historical Society. Martin was the longest-serving chairman of the Board of Governors of the Federal Reserve System, and worked there under five U.S. presidents from April 1951 to January 1970.
http://www.gata.org/node/7096#attachments
Paul Craig Roberts was assistant secretary of the treasury in the Reagan administration. GATA presumes that from this position he was privy to the facts surrounding the government's gold swap transactions. On the self-professed muckraking political newsletter "counterpunch.org" he asks:
"How long can the US government protect the dollar's value by leasing its gold to bullion dealers who sell it, thereby holding down the gold price?" [14]
Statistical and economic evidence edit
Besides the statements of central bankers and others, the intra-day movement in the gold price over long periods is highly suggestive of intervention. Dimitri Speck, the creator of the website www.seasonal-charts.com, argues that the evidence of systematic interventions during 1993-2006 is shown in the unusual movements in the gold price, which tend to be confined to particular times of the day rather than being evenly distributed.
Speck created a chart for the average minute-to-minute movement in the gold price for approximately 2,000 days and consolidated them into a single day.
His findings were as follows: “Clearly visible is the price decrease at the time of the London afternoon fixing. The minor lows near the morning fixing as well as the open and close in New York are worth noting. Also conspicuous is that during the American market hours, the price generally trends sideways, in contrast to the rest of the time when it is moving upwards.”
Further, the price of gold frequently makes counter-intuitive movements. As an illustration, consider this Reuters headline from 27 June 2007 referring to the fall in the gold price the previous day: “Gold hits three-month low as investors flee risk.”
Would that be the ‘risky’ asset that is no one else’s liability – the one that has maintained its purchasing power for 4,000 years when history shows that the value of all un-backed fiat currencies tends to their intrinsic value of zero?" This is counter-intuitive.
10 May 2007 – gold price fell US$15.50/oz to US$667.00/oz The Fed had left interest rates unchanged on 9 May and the following day, data were released on import prices and the trade deficit. The world’s largest retailer, Wal- Mart, also published its sales figures for April. All were much worse than expected and should have been positive for gold, but the price fell sharply.
15 July 2003 – gold $341.80, down $5.60 The key event was a speech by Fed Reserve Chairman, Alan Greenspan. The COMEX gold price had risen US$1.50 before Greenspan started to speak. In the speech, he announced that he would keep interest rates low for as long as it took to boost economic growth. At the time, Fed Funds was already at its historic low of 1.0% and Greenspan said he was prepared to cut further if needed.
Not surprisingly, the dollar weakened on this news, there was a big fall in ten-year bonds as the yield spiked 20bp to 3.94% and the oil price rose US$35c/bbl. The gold price should have risen sharply but instead fell nearly US$6.00.
18 October 2000 – gold price fell US$1.00 (US$3.00 from its peak) The main event of the day was the release of the US CPI for September 2000. The 0.5% increase was above the consensus of 0.4%. The core rate excluding food and energy was reported at 0.3% versus consensus of 0.2% (and after five consecutive months of 0.2%). The data on housing starts showed a 0.3% increase in September to 1.53m, which was in line with the 1.54m consensus. Chase Bank and IBM also released disappointing earnings. The Dow Jones fell 115 points, the US$ soared 1.45% versus the Euro and the oil price rose US$0.5/bbl – all as would be expected. The chart shows how the gold price initially spiked but the move was quickly capped and the price ended lower on the day.
Adrian Douglas, former oil industry executive and gold market observer on the GATA website: “Here is a game to play. Put a blindfold on and listen to the following information. 1) The Bank of England raised interest rates 0.25% the FED stood pat. Bearish for the dollar, bullish for gold. 2) The Trade deficit LEAPT a massive 10% in a single month to almost 64 B$. Bearish for the dollar, bullish for gold. 3) Import prices rose 1.3% in a single month, which is 15% annualized. Bearish for the dollar, bullish for gold 4) The retail sales decline for April was worse than expected. Bearish for the dollar, bullish for gold, bearish for the Retail (sector) Index. “So keep your blindfold on and tell me: 1) Did gold go up? 2) Did the dollar go down? 3) Did the Retail Index go down? You would be excused if you answered “yes” to all of the above questions. But take off your blindfold and look at your screen, the answer is “NO” to all the questions. All three asset classes did the EXACT OPPOSITE of what logical economic sense would predict!! Could this just be a one-off aberration? NO! is the right answer again. It happens day after day after day.”[15]
GATA critics edit
GATA is frequently criticized as an organization of gold bugs. Dennis Gartman, an analyst, economist, former member of the Chicago Board of Trade, and trader in treasuries, foreign exchange and money market instruments, is also author of 'The Gartman Letter,[16] an investment advisory newsletter. Therein, Gartman has dismissed the claims by GATA that the gold market has been manipulated. In 2004 Gartman states:
"... The GATA folks are again aflame as they blame the weakness [in the price of gold] upon various market machinations by governments and large Wall Street organizations. This is utter nonsense, of course, but we shall never be able to convince GATA of that fact. ... Even if it is not nonsense, even if GATA were truly on to something, we should care not a whit for the market will move where the market needs to move. The gold market had become far too heavily invested-in by the public, and those public investors have to be taken out."[17]
In May 2006, columnist Landon Thomas, Jr. for the New York Times, wrote:
"Indeed, his [GATA/Murphy's] central thesis — that Goldman Sachs and other banks have conspired to keep a cap on the price via short sales to back the government's strong-dollar policy, especially while a former Goldman senior partner, Robert E. Rubin, was Treasury secretary in the late 1990's — is far-fetched."
and
"...There is a kernel of truth to what Mr. Murphy says. Central banks have been aggressive sellers of gold, especially in the late 1990's, when gold was touching record lows. But most economists say that there was no grand design involved, just a badly timed attempt to shift into higher-yielding assets like bonds."[18]
In his newsletter published in October, 2007 Dennis Gartman wrote:
".... While on the topic of gold, we shall nod in the direction of the folks at GATA who've argued for years -- often seemingly braying in the wilderness -- that the US government was manipulating the gold market via gold-lending operations. The government has denied that vehemently, even as GATA has trumpeted it relentlessly."
and
"Last week Mr. James Turk, one of GATA's leading lights and a gentleman whose work ethic and tenacity we have come to admire over the years, wrote that: '... the U.S. Treasury quietly made a subtle change to its weekly reports of the U.S. International Reserve Position, which includes the U.S. Gold Reserve. This change was first made May 14. It says the U.S. Gold Reserve is 261.499 million ounces and importantly, that the gold is now reported including gold deposits, and, if appropriate, gold swapped. This description provides clear evidence that the U.S. Gold Reserve is in play. Gold has been removed from U.S. Treasury vaults and placed on deposit, presumably in the couple of bullion banks the Treasury has selected to assist with its gold price-capping efforts. Gold placed on deposit gets loaned out by these bullion banks, and then sold into the spot market to try capping the gold price.'"
"Sadly, even if Mr. Turk is right (and for the moment it appears that he is), gold is weak. This is enormously bullish news of gold; it is having no effect at all, however, making us recall our old aphorism that: a market that will not rally on overtly bullish news is not bullish."[19]
In February 2007, market technical analyst Clive Maund, a former trader in commodities and stocks and recipient of a diploma [20] from the Society of Technical Analysts, published an article questioning what he dismisses as conspiracy theories; he described GATA's response as "emotional and petulant" and dismissed their efforts as:
"...attempting to aggrandize yourself or any organization you are involved with by means of personal attacks is doomed to fail - it belittles and brings disgrace upon the perpetrator and his associates. A cottage industry has been built up based on this conspiracy nonsense which is distracting some more gullible investors..." [21]
GATA supporters edit
In 2002, U.S. Congressman Ron Paul cited GATA's allegations [22] as a basis for proposed legislation, the "Monetary Freedom and Accountability Act" [23] which he introduced to prevent the U.S. government from intervening in the gold market without authorization from Congress. Then in 2009, Ron Paul introduced [24] a bill to conduct an independent audit of the Federal Reserve System - which includes its claims to gold in Fort Knox, the "Federal Reserve Transparency Act" [25] which has so far attracted 21 co-sponsors:
“It has been several decades since the Fort Knox gold was independently audited or properly accounted for,” said Ron Paul, the Texas Congressman and former Republican presidential candidate. “The American people deserve to know the truth.” [26]
John Embry, a fund manager for Sprott Asset Management, based in Toronto, Ontario, Canada and the first author of a report entitled Not Free, Not Fair: The Long-Term Manipulation of the Gold Price, endorses the work of GATA. Upon its release, Embry stated:
"We, at Sprott Asset Management, have felt for some time that the gold price has not remotely reflected its true underlying fundamentals. In response, we have conducted a comprehensive study of available information on the subject and have concluded that the evidence strongly supports those who believe that the gold price has been and continues to be suppressed."
Crédit Agricole Cheuvreux is an equity brokerage firm within Crédit Agricole SA (CASA) (Euronext: ACA) the largest retail banking group in France, second largest in Europe and the eighth largest in the world. In 2006 it published a report Chevereux Metals & Mining Sector report on the gold market citing GATA and supporting its contention that the gold market was manipulated:
"Despite official denials, there is much evidence to back the gold price suppression claims. Support for GATA has come from senior Russian officials. Our analysis confirms the view that central banks have loaned out 10,000-15,000 tonnes of gold, although the settlement of some of these lease contracts may be being made in cash rather than physical gold.
In September 2007, Analysts for Citigroup noted: "Gold undoubtedly faced headwinds this year from resurgent central bank selling, which was clearly timed to cap the Gold price."[27]
Leadership edit
GATA’s board of directors is: William Murphy, Chris Powell, Ed Steer, Wistar Holt, and Catherine August Fitts. Murphy is the Chairman of GATA and Powell is the Secretary/Treasurer.
Funding edit
GATA receives funding from member donations. It solicits financial and moral support from gold mining companies, investors in gold mining companies and physical gold, and other advocates of a vital monetary role for gold in the world economy.
Lawsuits edit
GATA underwrote the federal anti-trust lawsuit of its consultant, Reginald H. Howe [28] which was pursued in U.S. District Court in Boston from 2000 to 2002. The Howe suit was dismissed on technical issues regarding jurisdiction, but became a model for Blanchard Coin and Bullion's anti-trust lawsuit against Barrick Gold, the largest gold mining company in the world.
GATA filed a lawsuit in 2002 against Barrick Gold and J.P. Morgan Chase & Co., which was filed in U.S. District Court in New Orleans, and is presumed to have prompted Barrick Gold's decision to stop selling gold in advance for 10 years. The lawsuit was settled while the defendants did not admit any wrongdoing.
GATA retains William J. Olson, P.C., of Vienna, Virginia, [29] to file Freedom of Information Act (FOIA) requests to the U.S. Government. These include requests filed for GATA in 2009 to the U.S. Department of the Treasury[30] and the U.S. Federal Reserve. [31]
References edit
- ^ About GATA from GATA website
- ^ Summary by Chris Powell, GATA Website
- ^ GATA press release on GATA Website
- ^ [Redburn Partners, November 12, 2007.]
- ^ Minutes of Federal Open Market Committee February 1, 1995, see page 69(71)
- ^ Dow Jones Newswire July 23, 2001(as reported by GATA, seeking original source)
- ^ Congressional Testimony of Alan Greenspan, July 24, 1998
- ^ Greenspan June 25, 2001 letter to Sen. Bunning, R-KY (as reported by GATA, seeking original source)
- ^ Barrick & Co. et al vs. Blanchard & Co. et all February 28, 2003 Motion for Dismissal
- ^ BIS Papers No 27 Fourth BIS Annual Conference, 27-29 June 2005
- ^ Freemarket Gold & Money Report October 17, 2007
- ^ U.S International Reserve Position, May 14, 2007
- ^ U.S. International Reserve Position, May 8, 2007
- ^ Counterpunch.org February 24, 2009
- ^ gata.org Statement of Adrian Douglas
- ^ The Gartman Letter Website
- ^ Excerpt from'The Gartman Letter' January 5, 2004
- ^ New York Times, May 7, 2006<
- ^ Excerpt from 'The Gartman Letter' October 22, 2007
- ^ clivemaund.com website
- ^ Market Oracle (UK) February 8, 2007
- ^ Speech before U.S. Congress, House of Representatives, February 14, 2002
- ^ Monetary Freedom and Accountability Act of 2002
- ^ Speech before U.S. Congress, House of Representatives February 26, 2009
- ^ Federal Reserve Transparency Act of 2009
- ^ The Times (UK) March 28, 2009
- ^ Citigroup Metals & Mining equity research, page 7, Sept. 21, 2007]
- ^ Howe vs. Bank for International Settlements et al.
- ^ lawandfreedom.com website
- ^ GATA FOIA Request to Treasury
- ^ GATA FOIA Request to Federal Reserve