March 27, 2000

I write in order to bring to your attention a scandal of very large proportions involving the misuse of the Exchange Stabilization Fund (ESF) by the United States Treasury Department. As you may know, the ESF contains US$42 billion dollars and is under the sole control of the Secretary of the Treasury with the approval of the President. The ESF has been identified by experts (*) as the likely source of metal and currency used to manipulate otherwise free commodity markets. It is a secret fund with strictly limited Congressional oversight and few if any of the normal monetary safeguards. The victims of this misuse are Third World Nations who must rely upon natural resources for their livelihood, investors, and most of all, the American People who naively imagine they are being governed by fair-minded principles and democratic institutions.

There is now good evidence that the funds of the ESF have been misused by this Administration, particularly since 1995, to suppress the free market prices of certain commodities in order to mask inflation, reduce COLA Social Security payments, issue foreign aid without Congressional approval, and benefit certain banks and investment houses friendly to the Administration. The dynamics of this inappropriate market manipulation are as follows: The secret ESF funds are used to lease, and then sell commodities which suppresses their prices. Why sell commodities? Certain metals are barometers of inflation. Since their prices can be controlled downward by the inappropriate use of the ESF, a false perception of low inflation is promulgated while the US currency is actually being depreciated relative to other uncontrolled similar commodities, e.g., platinum. Also, the cooperation of certain metals producers has been obtained through misleading, financial hedging "exotics" to "sell forward" their production for additional downward selling pressure. The scope of this forward selling is breathtaking--ten years total future production in some cases. This policy of hidden market manipulation is an anathema in a democracy.

Evidence of manipulation

I. Audit analysis of known demand and all supply sources by Veneroso Associates (Harvard trained attorney, Macro economist and International advisor).

Veneroso Associates World Gold Council's Audit Analysis, March 19, 2000 (

Frank Veneroso ( ), noted international macro economist, has audited the World Gold Council's most recent production data county by country and found evidence of large 1999 official sector gold selling totaling many hundreds of tons. The data show a striking rise in gold demand coupled with dwindling supplies. Normal financial strategists would not sell aggressively in such an environment.

"A quarterly market deficit of 300-400 tonnes plus short covering of a comparable or greater magnitude had to be offset by an equal volume of selling. With private market participants covering short positions, selling on such a scale could only have emanated from the official sector. Yet only roughly 100 tonnes of official selling has been announced for the fourth quarter [Q4 1999]. Therefore, we argued that there must have been undisclosed official selling of many hundreds of tonnes and possibly even 1000 tonnes or more in that quarter [Q4 1999]. The analysis presented in this report suggests that, if anything, our earlier estimates of the fourth quarter 1999 gold market deficits and their implied undisclosed official selling may be too low."

Indeed, experts feel that this critical supply deficit has been caused by years of leasing gold that has not even been mined. In 1999 these forward selling practices reached unprecedented levels. This official sector selling was used to force down gold's price which would otherwise have tracked the price of historically related commodities such as platinum. The price of platinum has dramatically risen recently to over US$540, however gold remains below US$300. Mr. Veneroso has thus revealed that official sector selling has suppressed the price of gold in the face of overwhelming upward price fundamentals.

II. Pattern Statistical Analysis of London and New York Market activities by H.J. Clawar, Ph.D.

13 March 2000

Dr. Clawar's data show, with a 99% level of statistical confidence, that commodity selling in New York to below London's close is a fully predictable and therefore manipulated event. This study removes all doubt as to the reality of current commodity market manipulation. Dr. Clawar, taught the subject of statistics for decades. He uses conventional statistical methodologies in his analysis.

"The column of data...London AM - Previous NY [closing price] reflects the first part of my original impressions that the price tended to rise between the NY close and the London AM fix. For twenty-three out of thirty-one times, or over 74% of the differences, this result appeared. The column of data labeled NY close - London AM reflects the second part of the cycle, the falling of prices in New York from their London AM close. Twenty-two out of thirty-two observations or about 69% portray this price drop."

"In order to determine if the frequency of the direction of the differences in favor of a higher price in the London AM fix was beyond a reasonable chance expectation, I applied a binomial test with a correction for continuity to that frequency. Since it was my prediction that this direction was expected I applied what is know as a one-tailed test. The results indicate that the probability that the London AM fix exceeds the previous NY close with this frequency, by chance, is less than 1 in 100."

Dr. Clawar's emphatic conclusion of GOLD PRICE MANIPULATION is straightforward. Moreover, even after his report was released, he has found the practice continues.

Although the above evidence from two independent data sources implicates the Treasury Department and their trading agents in precious metals price fixing, other farm commodities may also be targeted for suppression. If true, can you imagine, given today's family farm depression, the disastrous political consequences if news of farm staple manipulation were to leak to the public?

Absence of ESF Checks, Balances, and Congressional Oversight

Normal financial safeguards don't exist with the Exchange Stabilization Fund. Anna J. Schwartz, Ph.D., Research Associate of the National Bureau of Economic Research has built a stunning Curriculum Vitae, which reveals over 90 articles on national and international macro economics. Possessing special ESF expertise, she blisters the ESF and IMF in her August 26, 1998 article Time to Terminate the ESF and the IMF:

"The International Monetary Fund and the Exchange Stabilization Fund are undemocratic institutions unaccountable for their actions. Their current functions have little to do with their original missions. The ESF is used by the Executive Branch to circumvent Congress in the provision of foreign aid. Its foreign exchange interventions, in any event, have always been ineffective in controlling the relative price of the US dollar...". Dr. Schwartz continues...

"The US Treasury's Exchange Stabilization Fund, which [is] administered by unelected officials, [is] not accountable for [its] actions in extending foreign aid with US tax dollars. In a democratic society [this] institution should have no right to exist."

After reading this article, no one should be surprised that the Treasury Department has been manipulating the price of commodities particularly gold. According to Dr. Schwartz, Congress specifically authorized such manipulations:

"The ESF was conceived to operate in secrecy 'under the exclusive control of the Secretary of the Treasury, with the approval of the President, whose decisions shall be final and not subject to review by any other officer of the United States.' Gold Reserve Act of 1934, Public Law 73-87, sec. 10(b)."

"The 1934 Act authorized the ESF to deal in gold and foreign exchange in order to stabilize the exchange value of the dollar."

"... [ESF] secrecy promoted two objectives; the first...was to conceal from the public and Congress the exchange rates with which foreign currencies were bought and sold, particularly if they involved losses, the second objective was to permit the Treasury, if it so desired, to conceal information about any other operations the ESF might undertake." Dr. Schwartz then provides reference to 1980 ESF expense items becoming "international appropriations".Those appropriations were made without knowledge or review by Congress.

In addition, Robert E. Keleher, Chief Macro economist of the Congressional Joint Economic Committee Study Transparency and the US Dollar ( stated:

"Although some improvements have occurred over the years, this culture of secrecy persists. The ESF's non-transparency is embedded in its financing mechanisms, and is evident in both its "mission creep" and reporting. Since the ESF was originally set up to be self-financing, the Fund is not required to justify and explain its operations during the annual congressional appropriations process. Questions about operations, objectives, or procedures never have to be answered. Self-financing, therefore, has a very important implication: it has significantly contributed to the secrecy of the ESF."

Time to Terminate the ESF and IMF [PDF format] ( and the above bi-partisan Congressional report ( describe, in detail, the anatomy of the ESF and IMF with their associated secrecy, unaccountability and history of interventions for questionable, political purposes. In the bright light of exposure, assertions that markets are being rigged by the Treasury Department have now gained solid credibility. In addition, Federal Reserve Chairman, Alan Greenspan himself has decried any such market manipulation in his recent HHH Testimony on Capitol Hill and has strongly denied Federal Reserve involvement. He remained silent, however, as to the Treasury Department. There can be no doubt now why the Secretary of the Treasury, Lawrence Summers is still delaying after four weeks on GATA's questions about inappropriate market manipulation from Senators Dodd and Leiberman--fear of more truth being revealed.

Dr. Schwartz offers a final, chilling insight...

"No challenge to the constitutionality of the ESF seems possible, since ordinary citizens have no standing. The ESF, designed originally as a creature of the executive branch and immune from legislative oversight, breaches the separation of powers. It is hard to believe that a fund with similar powers would win legislative approval today". Time For Action !!

Through the ESF, The Treasury Department has secrecy, freedom from Congressional controls, funding, and motive to improperly intervene in free markets. Data from two independent sources suggest that they have done so. Indeed, The Treasury department has a growing track record of unethical behavior in other areas. Recall that Federal Judge Royce Lamberth rebuked Treasury Department lawyers for destroying 162 boxes of evidence in the Bureau of Land Mgmt. American Indian Class Action Litigation, according to a recent WSJ editorial. What started as stabilizing the dollar has mutated into masking inflation.

If there were no inappropriate intervention by the Treasury Department, the price of gold would doubtless rise to near that of its historically related commodities. The result would be a US$500 per ounce price. Which is to say that the US currency would have depreciated almost 2/3rds in relation to gold. Moreover, the EURO, a currency that competes with the US dollar, offers a 15% backing in redeemable gold, therefore it would appreciate 10% from current levels in relation to the dollar.

The stakes in this not-so-secret manipulation have become titanic. It gets worse. Since the practice of leasing and selling metal that has not yet been mined has persisted for such a protracted period, thousands of tons of metal must be purchased at market prices in the event of a sharp price rise, potentially causing bankruptcies at some of America's largest financial institutions who are deeply involved. Heavy, organized buying could be the catalyst. This man-made market imbalance has therefore exposed the US to monetary attack--a kind of financial Pearl Harbor.

Mr. Editor, even if you are unmoved by the evidence for commodities manipulation, you ought to be deeply concerned about the corrupting influence that the secret ESF US$42 billion dollar fund has on the President and Secretary of Treasury. They are only we have been repeatedly told. There is so much more to this scandal that I do not wish to burden you with here...only to ask you to suspend your natural disbelief for a while and discover, through the links, the true nature of this deceit, hubris and financial treachery.

Seventy-five percent of all gold in circulation has been extracted since 1910

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