Exclusive Smoking Gun: The Fed On Gold Manipulation

Tyler Durden's picture

Zero Hedge has recently presented several declassified documents from the pre-1971 "Nixon Shock" days, that endorse the case for gold as a major historical factor in US monetary and foreign policy, as demonstrated by State Department and CIA disclosure. Gold's special status in policy and administrative decision-making was a direct factor in Nixon's choice to abolish the gold reserve at a time of an exploding budget deficit.

Yet what about the days after 1971, and specifically, how did that critical "behind the scenes" organization, the Federal Reserve, perceive and manipulate gold in the post Bretton-Woods world? Was gold, freed from its shackles to the dollar, once again merely a symbolic representation for money?

Zero Hedge presents the smoking gun that may provide responses to all the various open questions, courtesy of a declassified memorandum, written by none other than the then Fed Chairman, addressed to the president of the United States.

On June 3, 1975, Fed Chairman Arthur Burns, sent a "Memorandum For The President" to Gerald Ford, which among others CC:ed Secretary of State Henry Kissinger and future Fed Chairman Alan Greenspan, discussing gold, and specifically its fair value, a topic whose prominence, despite former president Nixon's actions, had only managed to grow in the four short years since the abandonment of the gold standard in 1971. In a nutshell Burns' entire argument revolves around the equivalency of gold and money, and furthermore points out that if the Fed does not control this core relationship, it would "easily frustrate our efforts to control world liquidity" but also "dangerously prejudge the shape of the future monetary system." Furthermore, the memo goes on to highlight the extensive level of gold price manipulation by central banks even after the gold standard has been formally abolished. The problem with accounting for gold at fair market value: the risk of massive liquidity creation, which in those long-gone days of 1975 "could result in the addition of up to $150 billion to the nominal value of countries' reserves." One only wonders what would happen today if gold was allowed to attain its fair price status. And the threat, according to Burns: "liquidity creation of such extraordinary magnitude would seriously endanger, perhaps even frustrate, out efforts and those of other prudent nations to get inflation under reasonable control." Aside from the gratuitous observation that even 34 years ago it was painfully obvious how "massive" liquidity could and would result in runaway inflation and the Fed actually cared about this potential danger, what highlights the hypocrisy of the Fed is that when it comes to drowning the world in excess pieces of paper, only the United States should have the right to do so. 

Another notable observation is that despite a muted antagonism between the Fed and the US Treasury persisting for decades, the fuse is and always has been short, and the conflict can promptly hit a crescendo, with the Fed ultimately always getting the upper hand. In the case of the Burns memo, the Fed's position was diametrically opposed to what the Treasury proposed was the proper approach. The result: full on assault by the Federal Reserve over the Treasury's credibility and even then, more than three decades ago, a veiled threat by the Fed involving escalating problems if the recommendation of the Treasury was picked over that of the Fed. "Severe criticism on the part of prominent and influential financiers would inevitably follow if the Treasury's present position prevailed." It is not surprising that the Fed's modus operandi has not changed one bit since 1975: it is our way or virtually assured destruction/embarrassment way.

Additionally, a curious tangent of the Burns memo is the fact that gold was explicitly used as an engine to enact political doctrine: "If the United States took a stand on the gold question that failed to satisfy the French in current international negotiations, would there be adverse economic or political consequences? I doubt it... If we do ever accede to French views on gold, we should at least use our bargaining leverage to achieve some major political advantage." And while gold as a policy mechanism was unable to satisfy its role this time, one wonders on how many subsequent occasions was global democracy trampled over in order to placate the US Federal Reserve:

"I have consulted Henry Kissinger as to whether there is some political quid pro quo we might want to extract from the French in exchange for acceding to some part or all of their desired position on gold. But Henry tells me there is none at this time."

At some point governments of advanced nations will say "enough" to the covert domination of their controlling bodies by the Federal Reserve, which through manipulation of its gold and money interests, effectively has control over not just the French, but every government which has a monetary basis to its respective economy and a relationship to the US "reserve" currency... Which means virtually every country in the world. The backlash, if and when it occurs, will be memorable.

Lastly, the memo presents a useful snapshot into the cloak-and-dagger, and highly nebulous world of CB negotiations and gold price manipulation:

"I have a secret understanding in writing with the Bundesbank that Germany will not buy gold, either from the market or from another government, at a price above the official price."

So to all conspiracy theorists claiming that gold is being manipulated on a daily basis by the Federal Reserve: when it occurs over and over, and is so well documented, it is no longer a theory, it is merely sad. And the fact that the US government goes to great lengths to hide the illicit dealings of the Federal Reserve, which through its monetary tentacles, has prima facie control over not just US policy but also over sovereign governments, is an unprecedented failure in the checks and balances system that the founding fathers had planned when they created the United States of America. Yet saddest is that the United States no longer pursues strategic goals that are in the best interest of the majority of its citizens, but merely manipulates other, less powerful nations into a servile existence that only provides gain to a very limited subset of the American financial oligarchy. It is time for the Fed's unprecedented control over affairs, both global and domestic, to end.

Full memo from Arthur Burns presented, compliments of Geoffrey Batt who collaborated in the creation of this post.


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Anonymous's picture

You forgot the LOL. Way to miss the point, wanker.

Anonymous's picture

Fascinating. This letter was written on June 5, 1975. Saigon fell on April 30, 1975. It's incredible that the French were such a great concern for the Fed during the back half of US involvement in Vietnam.

Also amazing is the Fed's concern about the significance of the IMF 3 years after the abondonment of the Bretton Woods Agreement. And even more fascinating is the World Bank coming out today warning about the dominance of the dollar as a reserve currency.

God, I love international political economy.

Anonymous's picture

Could you please elaborate a little on the source of those documents in order to counter claims that those are "forgeries"?

Thanks from Germany

DrPsycho's picture

Heartfelt thanks for publishing this.


I sent copies to all at jsmineset.com, Jim Sinclair's site, including the link to this page.


Now he can tell all his people he has written proof of the manipulation all along.

nopat's picture

Good piece of work, thanks for posting.  You've just fully motivated me to get off my ass and write something; a lightbulb went off in my head.


Marla, keep your eyes open around Thursday for something from me.

blackebitda's picture

i think this made a bad morning for bernanke, barney frank, et all just. censor and spin control sirens on alert awaiting further instructions. cement trucks in the wings.  

andrew123's picture

Ok, nice job, but this is really and was written during a time period when people paid alot more attention to gold (Nixon closed the gold window in 1971, I believe), so it is not surprising that they were ery concerned.  It was a time period when the average person, at least internationally, really thought of gold as money, as opposed to another asset class.    I don't find this to be a smoking gun for current manipulation (although I am open to teh idea that it is occurring).

MsCreant's picture

Hi Andrew,

I am curious, besides your take on the status of gold, do you think there is any reason that they would act differently now?

andrew123's picture

I have no idea what they are in fact doing, but I think that the price of gold is a lot less important now than it was in the 1970's.  Now it is just another asset class, and while some people might view the move in gold as inflationary, I think a huge move in the 1970's would have been catastrophic to investor and consumer sentiment, since it really did serve as money at the time.

Narcolepzzzzzz's picture

If gold is 'just another asset class', it makes you wonder why Eddie George said the following in 1999 whilst Governor of the Bank of England:

"We looked into the abyss if the gold price rose further. A further rise would have taken down one or several trading houses, which might have taken down all the rest in their wake. Therefore, at any price, at any cost, the central banks had to quell the gold price, manage it. It was very difficult to get the gold price under control but we have now succeeded. The U.S. Fed was very active in getting the gold price down. So was the U.K."

Anonymous's picture

"Now it is just another asset class"

true, one that is the bedrock of central banks' balance sheets all over the world.

TumblingDice's picture

I have no idea what they are in fact doing, but I think that the price of gold is a lot less important now than it was in the 1970's.  Now it is just another asset class,

Promotion of that paradigm is exactly the goal of the Fed et al.

Anonymous's picture

you are the paris hilton of monetary science...

i just deleted a page of refutation realizing
to whom i am speaking....possibly even to a fed-cai
hack afraid of resurgent gold which has never
diminished contrary to the foolish commentary

naiverealist's picture

As the others have already stated, outstanding work.  You have managed to take a conspiracy "theory" out of the wing-nut sphere and give that shadowy world of international finance some clarity.


Now, along the lines of Rep. Grayson interrogating the AG for the Federal Reserve, we just need to know who "owns" the gold in Fort Knox, the Treasury (the people of the US) or the Federal Reserve (a private consortium of international banks).  I am hoping on the former, but betting on the latter.  Maybe this is why the Fed is buying all the garbage from the banks, so they can get paid back in gold and not fiat script (whoops, slipped into my conspiracist mode, sorry!)

lsbumblebee's picture

What gold in Fort Knox? Has anyone actually seen it since 1954?

TumblingDice's picture


According to this report, written in part with the help of Chris Dodd and Ron Paul there are 264 million ounces of gold in Fort Knox.

The report also claims that the Treasury still owns the majority of this gold. Whether this is referring to a current tally or to a 1974 GOA audit is unclear. If they are referencing the 1974 information then it is a lot more likely that the information presented is based on truth. However, by 1982, the year this report was written, it would be hard to believe that a tally would reveal majority Treasury ownership of the gold in fort Knox.

As far as I know this is the last known official report on Fort Knox.

Anonymous's picture

this is mouser98, noob to finance and economic under-

but, and i hope this turns out to be a really stupid

264 million ounces at $1000 per ounce is only
$264 billion. Where is the other $26 trillion or so?
and if i am off on the total amount don't crucify me,
i don't have the m1,m2,m3 chart handy.

my point is that if we only have 264 million ounces in
gold reserves, and say $26 trillion in dollars, then
isn't each ounce really worth $100,000?

or am i completely clueless as to how this works.

TumblingDice's picture

Here's the kicker mouser, they're valuing the gold at the last official price, $42.22 per ounce, on both the Treasury an Fed balance sheets.

But as far as the relation between gold and the monetary bases, well that one has been null since 1971. No gold standard so there doesnt have to be any link between the m's an gold.

Gubbmint Cheese's picture

Faber doesn't see credit bubble in China - really? Are we talking about the same China?



Anonymous's picture

outstanding sleuthing and thanks for posting....although it is not in the least bit surprising or new to those who understand the dictum, he who owns the gold makes the rules,
this finding is of utmost importance in advancing our understanding of the fed's universal permeation into all matters of government....

that the fed is participating if not dictating foreign and domestic policy is outrageous but something which i have been screaming at my butthole representatives all year....

the fed is indeed the 4th branch of government answerable to no one...

it is time to return the control of money to elected representatives and take it away from the vampire squid financial terrorists of wall street and from the rockefeller / rothschild axis of evil....

chumbawamba's picture

You might want to get yourselves some new representatives for your butthole.

I am Chumbawamba.

Anonymous's picture

if U would like to come down and run for our orifice,
we would be tickled with glee to write Chumbawamba on our ballot.

MsCreant's picture

I am MsCreant.

I vote Chumbawamba.

B_Movie's picture

The Fed position ...Governments are free to do as they are told ...

Daedal's picture

...still waiting to read the counter-argument from Vitaliy.

theGhostofXmasPast's picture

@naiverealist according to the Fed, the Treasury has loaned the US gold supply to the Fed, whatever the hell that really means. And if some of GATA's speculations are true, then neither the Fed nor the Treasury owns the gold in Fort Knox. Roughly 50% of central bank gold has been loaned or swapped over the past 2 decades, so of the US roughly 8000 tons of gold, 4000 of it is probably loaned, swapped and thus SOLD into the market to keep the price down.

naiverealist's picture

It just gets curiouser and curiouser. . . .


Warning bells started going off on the IMF's announcement of the planned sale of, what, 403 tons of gold.  My question is where did they get all that gold?  Whose gold are they selling?  Did Congress (and other nations) authorize money to the IMF, who then bought gold with it?  Or, did they just make an accounting ledger update from Fort Knox to their books?


I know, stupid questions, but I am not as knowledgeable on International finance as others on the board (which is great, as we all know). 


Kudos to Tyler for ferreting this information out. 

Anonymous's picture

when the imf was formed member nations were require
to pony up a certain amount of gold....the usa
had the most gold and thus contributed the most
giving it veto control of the dispostion of the

so the imf at one time really had the gold at least
on paper....it's
not clear how much of their gold has been used
to suppress the gold price over the years
but this year was the
first year of which i am aware that congress has
ever authorized sale of gold....we hold 85% of
the votes....

it is also not clear how the gold was stored, etc...
for most of these years it has been moot point....

i believe that the imf sale was a way to launder
gold to cover large short positions but that is a
tale for another time...

Cognitive Dissonance's picture

My understanding is that while various countries "gave" gold to the IMF, the gold still resides in the various donor countries and under their control.

I personally believe that there is less than 10% of actual real physical gold on hand everywhere to back up all the claims and counter claims on Gold.

Once this understanding becomes wide spread, all hell will break loose. And precisely why the Fed (nor the US Gold depositories) will never be audited. Once the last card is turned over, the game is over. Thus they will never allow this to happen.


TumblingDice's picture

IMF owns the gold to address any contigincies that might crop up in the financial landscape. The only way for it to return the gold is by a 85% vote, of which the US would HAVE to be part of, obviosuly, because it has more than 15% of the vote.

Anonymous's picture

The IMF gold-garage-sale jawboning is just that. Every year they bleat out dire impending garage sales of gold, and nothing happens.



Even if they wanted to sell it, the gold in IMF holding belongs to the member nations.

Anonymous's picture

Who'd of thunk those "CASH 4 YOUR GOLD" commercials would have been so successful? :)

"Gold is money and nothing else." JP Morgan

Anonymous's picture

The IMF gold-garage-sale jawboning is just that. Every year they bleat out dire impending garage sales of gold, and nothing happens.



Even if they wanted to sell it, the gold in IMF holding belongs to the member nations.

Anonymous's picture

You are just figuring this out? It has been a known fact for, I don't know, 38 years now...

Steak's picture

The CIA assassinated democratically elected leaders, the FBI spied on US citizens, the govt has performed heinous medical experiments on citizens, we've committed war crimes against (some) innocent folk the likes of which we executed Japanese for back when.

In the context of the crimes perpetrated by this country, fixing the price of gold is hardly the most egregious.  Citizens if broadly made aware of gold price fixing would be upset but unable to distinguish that from the myriad other ways the govt screws folk.

The real key is WHO has this information.  A million US citizens reading this post, meh...one well placed chinese banker, and the lid comes off.

Uncovering secret presidential memos like this one is quality journalism the likes of which the teevee refuses to provide.  I hope things like this can help this country's financiers figure this game out and help us stop our kleptocracy.

Daedal's picture

"In the context of the crimes perpetrated by this country, fixing the price of gold is hardly the most egregious."

But consider the scope of the problem and potential harm as a result. Look toward what happens to a country whose monetary system collapses -- famine, civil unrest, crime, and even war are common outcomes. Nazi party gained popularity after a prosperous Germany printed money to pay its WW1 debts...'fixing' the price of Gold is merely a means toward perpetuating a fiat monetary system that is headed toward collapse.

Tipo anónimo's picture


Forget gold manipulation, currency, et al.


It just is one more brick in the wall of proof that government is a necessary evil, one that should be kept caged, as was planned for by the founders of the US.

Anonymous's picture

um, there is nothing interesting in this 1975 document. The Fed and Tres are simply discussing strategies on how to best keep inflation at check, and how to maintain competitive advantage in the world economy/political landscape.

You people seriously need to relax. What, you would rather the fed and tres not discuss anything or strategize at all?

Nothing in this article suggests any conspiracy, unless you have the ZeroHedge Goldbug lenses on, in which case I also suggest you build a bunker and buy food and ammo (which has more common sense behind it than gold conspiracy)

Assetman's picture

This was my intial impression as well.  Sure, it may villify the Goldbug crowd, but so what?  It's been suspects for decades now...

Thinking through this though, this finding by TD may be more than meets the eye.  If the coaxing of gold valuation by the Fed carried over from the days of Arthur Burns to our current Uncle Ben, I think the global markets would like to know about it.

In other words, here is one more reason why Audit the Fed should gain more traction.  If it's not a conspiracy theory, as your comment purports, the audit will prove the Fed it-- and the lunatic fringe of the Goldbug collective will be silenced.  But if an audit reveals something more ominous... well, who knows what will happen?

I'm getting the sense that between the Fed and Treasury, something will be created to roadblock Audit the Fed.  Whether it's something sneaked in to waterdown the intital intent (via Barney Frank) or something more dramatic (like intitiating a market collapse), it appears to me that the Fed keeping its opacity and unilateral powers is of primary importance.

Anonymous's picture

I guess the fundamental question is given the degree of power of the FED and its integral dealings with our treasury department and their effect on the well being of all citizenry, what argument is there against auditing the fed? That it costs too much money relative to what it's likely to uncover? That the bogey man is going to get us?

It seems that transparency and representative democracy must be bedfellows if the later stands any chance of surviving. And, inherently, no cost is high enough to preclude the public from the truth.

So we can't implement economic policy as cheaply if everyone knows what we're doing... maybe... but, who's to say we should be participating in (manipulating) the market anyway? We obviously don't have a grasp on certain issues that are capable of growing over time and manifesting themselves so large we cannot fix them... It's time to admit what we don't know and let that guide our policy as well.

Assetman's picture

I don't disagree with any of that... but the "bogey man" is precicely what the Fed and others in the oligopoly are likely to scare us with as an alternative to Fed transparency.

And they'll likely do whatever it takes.

MsCreant's picture

I asked this elsewhere and got little response. I'll try it here.

What happens, in reality, if the fed is found to have participated in criminal activity?

Don't gloss this shit. Really get your brain cells around this.

I don't think anyone will know what to do. I think it all grinds to a f@cking halt. Justice and court systems incapacitated. Govt. shut down.

Are we responsible for the debt anymore if it can be proved that the United States is a victim of fraud?

I'd love to see the thought experiment unfold with more (wall)street wise minds on it than my own.



Assetman's picture

You pose a very good and very relevant question.  In all honesty, I think when we seek the desire of auditing the Fed, a repsonse of "you can't handle the truth" may well apply.

To answer your question, it's likely that an international criminal court would be the most likely venue, as it is very likely criminal activity would be cross border in nature.

And unfortunately, I would expect taxpayers would still be responsible for paying the debts its so burdened-- even if they are the unwitting victims for fraudulent activity.  I'm not sure most of us would want to point weapons of mass detruction and threaten on our international neighbors with war when we know that we are the ones untilmately responsible for our own demise.

As for what goes on inside this country, the Fed as we know it would be dissolved and our elected leaders would be under very intense pressure to radically overhaul our financial and regulatory (and perhaps political) systems.  I'd give anarchy a 20% chance of happening, only led by martial law at 79%.

It's something I don't even want to think about, but boy, I guess it is a possiblity, isn't it?


Anonymous's picture

can we reserve the 1% for aliens landing on the white house lawn?

Assetman's picture

... you know me better than I know myself.


Cognitive Dissonance's picture

Plenty of international and domestic legal precedent to repudiate debt that was incured without the citizens knowledge or if the proceeds were not used for the benefit of the public.

TumblingDice's picture

It is extremely unlikely that various creditor parties will agree on or even engage in negotiation of the distinction of legitimate debt and the type of debt you are talking about. It is a nearly impossible task.