GATA , Gold & the ESF

April 23, 2001

Minutes of the Federal Reserve's Open Market Committee meeting of January 31, 1995, reveal that the U.S. Treasury Department's Exchange Stabilization Fund has been, as GATA long has alleged and as the Treasury Department has denied, surreptitiously intervening in the gold market by lending gold.

The minutes were discovered by GATA consultant Reginald H. Howe in pursuit of his lawsuit against the Fed, the Treasury Department, the Bank for International Settlements, and various investment houses, charging that they have illegally manipulated the gold price.

The Treasury Department's denials of involvement in the gold market have been made in the last two years not only to GATA but also to members of Congress and in response to inquiries from the public.

Howe makes reference to the Federal Open Market Committee minutes in a brief filed in U.S. District Court in Boston this week in opposition to motions by the Fed and Treasury Department to dismiss his lawsuit.

Howe's brief can be read here:

http://www.goldensextant.com/commentary17.html#anchor70521

Revealing the Fed minutes about the ESF's clandestine activity in the gold market, Howe writes:

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The plaintiff has recently discovered a highly relevant statement in the transcript of the Federal Open Market Committee's meeting on January 31, 1995.

( http://www.federalreserve.gov/fomc/transcripts/1995/950201Meeting.pdf )

Responding to a question by then Fed Governor Lawrence Lindsey about the ESF's legal authority to engage in a financial rescue package for Mexico, J. Virgil Mattingly, the Fed's general counsel, stated (P.A. 31; Ex. W, p. 69):

"It's pretty clear that these ESF operations are authorized. I don't think there is a legal problem in terms of the authority. The statute [31 U.S.C. s. 5302] is very broadly worded in terms of words like 'credit' -- it has covered things like the gold swaps -- and it confers broad authority. Counsel at the White House called the Treasury's general counsel today and asked, 'Are you sure?' And the Treasury's general counsel said, 'I am sure.' Everyone is satisfied that a legal issue is not involved, if that helps."

Ordinarily the term "gold swap" refers to the spot exchange of gold for cash or securities together with a promise that the transaction will be unwound at an agreed future date and price (P.A. 32). Gold swaps are sometimes used by central banks in the developing world to acquire needed foreign exchange, effectively offering gold as security for repayment.

In recent years, however, gold swaps have also been used as an alternative to gold loans by certain central banks, which then earn interest on the cash or securities deposited with them while a bullion bank or other party has use of the gold.

Another kind of gold swap is a "location swap" in which gold in one depositary or storage facility is temporarily swapped for that in another.

It is not clear whether Mr. Mattingly was speaking of ordinary gold swaps, location swaps, or some combination of the two.

Nor is it clear whether he was referring to a program of gold swaps known to some or all participants in the meeting, or to one or more special transactions with respect to which he had issued an opinion, or to some other set of transactions.

What is clear is that he was referring to gold swaps that, so far as the plaintiff is aware, have never been identified or disclosed in any other publicly available materials relating to the ESF or the Federal Reserve.

This reference to gold swaps was made only a few months after the Federal Reserve's decision to assume the two American seats on the Bank for International Settlements board. This decision, which was effectively hidden from the American people and all but a few members of Congress, coincided with the first incident of preemptive gold selling on the COMEX in excess of three standard deviations as set forth in Michael Bolser's statistical study (C. 48-50; P.A. Ex. Q). Mr. Speck's study dates the beginning of detectable anomalous selling pressures in COMEX gold just a few months earlier (P.A. Ex. T).

Far from limiting its role to providing financial guarantees or backing for gold derivatives as the plaintiff has alleged, Mr. Mattingly's statement suggests that the ESF has engaged -- almost certainly through the New York Fed (P.A. Ex. V) -- in swapping out U.S. gold reserves to one or more bullion banks to facilitate the price manipulation scheme.

Indeed, if the recent reclassification of the "Gold Bullion Reserve" held in the U.S. Mint at West Point to "Custodial Gold Bullion" reflects the combined total outstanding volume of these swaps (P.A. 29, Exs. U1 & U2), the ESF has covertly encumbered more than 20 percent of the total claimed official gold reserves of the United States.

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GATA will press members of Congress who received the Treasury Department's denials to ask the department for clarification in light of the revelation in the Federal Open Market Committee minutes.

GATA appeals to its supporters in the United States to ask their members of Congress to seek explanations and details about the ESF's gold swaps.

We appeal to our supporters in gold-producing countries around the world to urge their governments to protest the ESF's conduct in diplomatic contacts with the United States.

We appeal to journalists to press the issue with the Treasury Department and to report the ESF's surreptitious gold lending.

And once again we appeal to gold mining company shareholders to bring this information to the attention of company executives and urge them to act on it before the mining industry is destroyed.

This is it, people. It's on the record now. The U.S. government is surreptitiously manipulating the gold price. U.S. economic policy is being made privately for the benefit of a chosen few.

We have to stop this. Help us.

Pure gold is so soft that a strong man can squeeze it and shape it.