(Bill) About 15 years. from my testimony at the CFTC hearings on precious metals on March 25. The Gold Anti-Trust Action Committee (GATA) was formed in January 1999 to expose and oppose the manipulation and suppression of the price of gold. What we have learned over the past 11 years is of great importance in regard to this hearing on position limits in the precious metals futures markets. Our efforts to expose manipulation in the gold market parallel those of Harry Markopolos to expose the Madoff Ponzi scheme to the Securities and Exchange Commission.
Initially we thought that the manipulation of the gold market was undertaken as a coordinated profit scheme by certain bullion banks, like JP Morgan, Chase Bank, and Goldman Sachs, and that it violated federal and state anti-trust laws. But we soon discerned that the bullion banks were working closely with the U.S. Treasury Department and Federal Reserve in a gold cartel, part of a broad scheme of manipulation of the currency, precious metals, and bond markets.
As an executive at Goldman Sachs in London, Robert Rubin developed an idea to borrow gold from central banks at minimal interest rates (around 1 percent), sell the bullion for cash, and use the cash to fund Goldman Sachs' operations. Rubin was confident that central banks would control the gold price with ever-more leasing or outright sales of their gold reserves and that consequently the borrowed gold could be bought back without difficulty. This was the beginning of the gold carry trade.
When Rubin became U.S. treasury secretary, he made it government policy to surreptitiously operate an identical gold carry trade but on a much larger scale.
This became the principal mechanism of what was called the "strong-dollar policy." Subsequent treasury secretaries have repeated a commitment to a "strong dollar," suggesting that they were continuing to feed official gold into the market more or less clandestinely to support the dollar and suppress interest rates and precious metals prices.
Lawrence Summers, who followed Rubin as treasury secretary, was an expert in gold's influence on financial markets. Previously, as a professor at Harvard University, Summers co-authored an academic study titled "Gibson's Paradox and the Gold Standard," which concluded that in a free market gold prices move inversely to real interest rates, and, conversely, if gold prices are "fixed," then interest rates can be maintained at lower levels than would be the case in a free market.
Federal Reserve Chairman Alan Greenspan understood Summers' research when he remarked at a 1993 meeting of the Federal Open Market Committee:
"I was raising the question on the side with Governor Mullins of what would happen if the Treasury sold a little gold in this market. There's an interesting question here because if the gold price broke in that context, the thermometer would not be just a measuring tool. It would basically affect the underlying psychology."
Understanding that the manipulation of the price of gold is profoundly important to all markets and the American public, on January 31, 2008, GATA placed a $264,000 full-page color advertisement in The Wall Street Journal. GATA's ad warned, "This manipulation has been a primary cause of the catastrophic excesses in the markets that now threaten the whole world."
What GATA warned against has come to pass. http://www.gata.org/node/wallstreetjournal
(Q) When you show this information to other metals experts, what do other traders and financial professional say about this type of fraudulent trading activity?
(Bill) [In the past] There is nothing but silence. I was interviewed by Ron Insanna of CNBC in February of 1999. The TV and financial market press have blackballed GATA ever since. They won't even mention our name. After we dropped Andrew Maguire's whistleblower commentary at the CFTC hearing, and gave the emails to THREE Reuters reporters, NONE of them mentioned what GATA had to say. There is no free press in America when you take on the most powerful and richest for all.
(Q) Who is hurt by keeping the price low?
(Bill) The American public who has been deceived and is living beyond its means. And, of course, the poor people in southern Africa which should have been going through a boom period the past decade. How shameful it has been for President Clinton and President Bush to say how much they care about the plight of South Africans. The gold price suppression scheme has done more to harm their poor than any gratuitous aid we sent their way.
(Q) What action should the CFTC and other regulatory bodies now take to stop this illegal activity and prevent it from happening in the future?