“According to data compiled by the World Gold Council, the Swiss sales peaked in 2002, 2003 and 2004, when they sold around 280 tonnes each year.
Based on the average market prices in those years, the Swiss probably raised about $14 billion from the sales.
The value of that bullion, as of Friday? Try $34 billion — or $20 billion more.
Those missed profits work out at about $2,700 for every man, woman and child in Switzerland.
The Swiss weren’t alone. The Bank of England chose 1999-2001 to halve its total gold holdings. It sold 395 tonnes at an average price of around $275.
Oops. Two hundred years ago, the British might have hanged the man responsible for a blunder of this scale. At the very least they would have shipped him off to Australia in leg irons. He ended up costing Her Majesty’s Treasury $6.9 billion in lost profits (based on Friday’s price).
Today? They make him prime minister. Most Americans know little about Gordon Brown, the dour Scot who recently took over as PM from Tony Blair. But for 10 years, until this spring, he served as Blair’s Chancellor of the Exchequer, Britain’s chief finance minister. And among his landmark moves was this decision to auction off the nation’s gold….”
Comment:
That sale was made against professional advice from the Bank of England.
Ditto for Holland and Spain.
More on this apparent wave of stupidity in high places in the UK, Holland, Spain, and Switzerland by Brett Arends at The Street.com.
And there’s a hint of where the idea for the sale originated here:
“The World Gold Council, a lobbying group for the industry, said this week that the drop in prices over the past two months would reduce the gold export earnings of the world’s heavily indebted countries by more than dollars 150 million a year, or more than the debt relief that the IMF gold sales would finance.
“Selling IMF gold reserves will do more harm than good,” said Gary Mead, head of research for the council.
But it has taken several years for the major industrial nations to agree on gold sales, and officials made clear they did not intend to abandon the plan. Lawrence Summers, the U.S. deputy Treasury secretary, told Congress on Thursday that the Treasury Department would work to ensure that the IMF sale would not have a “meaningful impact on gold prices.”
The planned sales by Britain, Switzerland and the IMF total the equivalent of about six months of global demand for gold….” (Central Bank Sales Could Finish the Decline that Low Inflation Started, International Herald Tribune, June 19, 1999).
Some legwork about the stupid officials seems in order, to be filed under, Oh What a Tangled Web We Weave…
1. Gordon Brown, now UK PM, was for over ten years (the longest tenure of a chancellor) Chancellor of the Exchequer. One of his first acts was to make the Bank of England operationally independent when it came to monetary policy (i.e. setting of interest rates).
Between 1999 and 2002, while Chancellor, Brown sold 60% of the UK’s gold reserves at $275 an ounce. a 20-year low. He pressured the IMF to do the same, but it resisted.
Gavyn Davies, former UK partner of Goldman Sachs (who now heads up the BBC) is a close friend of Brown’s. Davies’ wife, Susan Nye, was office manager to Brown when he was Chancellor.
You’d think savvy Gavy would give better advice to his pals, eh?
2. The activist group, GATA, has for long argued that the big banks had their heads together with the Bank of International Settlements (BIS), the International Monetary Fiund (IMF) and various central banks to keep the price of gold artificially low to diguise inflation and the real weakness of the US dollar. GATA has even filed suit over this charge.
(see my articles on IMF gold manipulation and Goldman Sachs).
And more history:
“For instance, there were a few key words uttered by former Fed Chairman Alan Greenspan when he appeared before Congress in July of 1998. Greenspan was testifying as to why the Commodity Futures Trading Commission (CFTC) should not concern itself with regulation of derivatives traded in the over-the-counter market……..
Greenspan waved off the necessity for the CFTC to regulate gold derivatives, telling Congress to fear not, that the “central banks stand ready to lease gold in increasing quantities should the price rise.”
Oops. Bet he wishes he hadn’t let that slip. As Chris points out, “Greenspan was telling Congress that the purpose of gold leasing was not what the central banks had been telling the world—to earn a little money on a dead asset. The real purpose of gold leasing was to suppress the gold price. His remarks are still posted on the Federal Reserve’s Internet site.” [they are—we checked]
Other confirmations of the central bank price rigging scheme include a rather blatant admission from William R. White, head of the Monetary and Economic Department of the BIS. In late June of 2005, White delivered the opening remarks to the Fourth Annual BIS Conference on the “Past and Future of Central Bank Cooperation,” an elite gathering of “central bankers and academics.” Among the latter were “economists and economic historians,” as well as, for the first time, “political scientists interested in political and other processes, and the development of institutions to support such processes.”
White’s speech enumerated five “intermediate objectives of central bank cooperation.” The fifth, and last, of these was “the provision of international credits and joint efforts to influence asset prices (especially gold and foreign exchange) in circumstances where this might be thought useful.” [emphasis added]
Useful to whom? Well, probably not to the average investor.
Then there is the Washington Agreement—signed in September of 1999 by representatives of the ECB and the central banks of Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, the Netherlands, Portugal, Spain, Sweden, Switzerland, and England—which spelled out how the banks would cooperate in the regulation of the gold market. (The U.S., while not a signatory, hosted the announcement of the agreement, and may be assumed to be supportive of it, if not a direct participant.) It placed a limit on how much they could collectively sell in any given year.
The alleged reason for the Washington Agreement was to control the amount of gold being sold by central banks, in order to keep the price high and protect the value of those banks’ holdings……
Chris sees the agreement as a smokescreen, a way of deceiving all but the insiders as to what’s actually going on. It allows the central banks to say that they’re taking the initiative to limit gold sales, which is true of physical gold. But while they do that with one hand, with the other they ramp up the action in the derivatives markets—forward sales, options, swaps and shorts—thereby maintaining the artificially low price of gold.
That argument is bolstered by BIS statistics showing that gold derivative transactions ballooned from $234 to $354 billion, an all-time high, in the first six months of 2006. Conversely, though, it has been a very uneven progression. For all of 2005, derivatives activity actually fell. So a firm conclusion is difficult to draw……
“By the bullion banks shorting gold,” Chris says, “they deceived the world about the level of inflation and money supply growth, and basically they shorted gold to buy U.S. government bonds and collect the difference. If you’ve been assured that the gold price is going down, you short the metal and use the proceeds to buy government bonds. You’re getting 5% on government bonds and the gold price is going down 5% a year, enabling you to close the short profitably, so you have a risk-free trade. You’re getting 10%, as long as the central banks are willing to back you with more gold sales to keep the gold price going down. And I think everybody was happy with that. Financial houses, recruited as the banks’ agents, were happy with their easy profits. The Treasury Department was happy because it boosted bond prices and kept interest rates down. And the whole world was deceived about the vast growth that was going on in the money supply. It worked for a while. Until they started worrying that they were running out of gold reserves.”
…………………
Thinking about all this, it seems to us that the Treasury Department, the Fed, and the European central banks were engaging in some mighty risky behavior. Chris agrees and says that, in fact, the house of cards almost came tumbling down when gold spiked in late 1999, in the aftermath of the Washington Agreement, and created a short squeeze…..
Since then, of course, steadily rising demand has driven the gold price ever higher. Ongoing market rigging has been unable to suppress it, but has served to prevent the metal from finding its true equilibrium point, in Chris’ opinion. He believes that a day of reckoning will come. And what will that look like?
“Well, I don’t want to make any hard predictions about what will happen, or when,” he says. “But what I think is that we’re going to wake up someday and find out that the Western central banks have met—along with, maybe, some of the Asian central banks—and there are going to be new currency arrangements. Maybe in the name of helping the poor countries, the central banks are going to be buying gold at $1,500 an ounce or something like that. It’ll probably happen overnight, because I don’t think the central banks can withstand a steady escape from the paper currencies into the monetary metals. If they do it overnight, everybody’s locked into the fiat system, there’s no getting out. Either you’ve got your gold and silver or you don’t, and there’s no incentive to get out of the whole central bank system.”
That sounded to us like a sudden and massive devaluation of the buck.”
— Doug Casey, on the gold price fixing conspiracy.
Gouge lived from 1796 through 1863 and was involved in all the great debates on banking in the 19th century. His book is a major attack on all inflationary finance, and reading him underscores just how universal are the lessons on money and banking — universal in the sense that they apply in all times and all places.
Coming a few decades later, but along the same lines, is Charles Holt Carroll’s Organization of Debt Into Currency. This is one of those books that develops a hard-core cadre of fans. When we started reprinting these great American economic classics, people began to ask us: what about Carroll? Well, here it is, and once you get into the book, you realize why Rothbard and George Reisman and so many others swear by it. He patiently explains the difference between money and debt and how the government goes about sowing confusion about what is what.
Under the right form of the gold standard, government could no longer spend with impunity or run up debt without limit. The resources it spent would have to be raised the old-fashioned way.