The Fed On Gold Price Manipulation

Tyler Durden's picture

Lately various media outlets have been swamped with stories and allegations of precious metal manipulation ranging from the arcane, to the bizarre to the outright ridiculous. At issue is not that these claims of price fraud are unfounded - they very well may be completely true - but without a notarized facsimile of an actual trade ticket signed by Brian Sack, or his replacement Simon Potter, or any of the BIS traders confirming they are indeed selling gold on behalf of the Fed, BOE, ECB, SNB or BOJ simply to keep the price of the metal down, what such constant factless accusations (and no, sorry, a chart showing that the price of gold may go up or go down sharply indicates merely that and nothing about the underlying factors for such a move) do is to habituate the broader public to the real issues surrounding precious metal, and other asset class, manipulation. So instead of searching for circumstantial evidence which one can easily find everywhere, we decided to go straight to the source. To do that we go back to a post we wrote back in September of 2009, based on an internal previously confidential Fed document, which conveniently enough explains everything vis-a-vis gold manipulation and leaves nothing to speculation or misinterpretation. Zero Hedge presents the smoking gun that may provide responses to all the various open questions regarding the Fed's Modus Operandi in the gold arena which answer the core question - motive - courtesy of a declassified memorandum, written by none other than the then Fed Chairman, and addressed to the president of the United States.

From Zero Hedge, September 27, 2009.

Exclusive Smoking Gun: The Fed On Gold Manipulation

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 Central Bank 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.

 

* * *

As a post-script to all those complaining about gold, silver and other PM price suppression, here is one simple question: can one buy more gold at $1,600 or at $16,000? This is not a trick question.

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I think I need to buy a gun's picture

I still can't believe they would manipulate something for a profit,,,,,,,

BaBaBouy's picture

As I Keep Expounding... GOLD $50K, Bitchies.

BaBaBouy's picture

"" I still can't believe they would manipulate something for a profit,,,,,,, ""

 

Please let me correct that... "For FUN and Profit" ...

BaBaBouy's picture

Just Y'all Remenber WHO took The USA off the GOLD-Standard ...

 

T'was Honest-Dick... NIXON.

Says It all.........  And also tells you what action you should be taking.

BaBaBouy's picture

... Dick (From the Grave) Just -1'nd everybody ...

PS... He's still Bitchin' about Why the Tape-Recorder was ever invented... 

 

strannick's picture

but without a notarized facsimile of an actual trade ticket signed by Brian Sack, or his replacement Simon Potter, or any of the BIS traders confirming they are indeed selling gold on behalf of the Fed, BOE, ECB, SNB or BOJ simply to keep the price of the metal down, what such constant factless accusations

A ridiculous impossible standard not attainable or aspired to in any other realm. Ie. Without a Crown Prosecutor holding a video camera while you blow a guys brainsout and then fingerprinting as he confesses, no charges will ever be laid. So now that we have declared their will never be any charges of manipulation laid, then disband the SEC CFTC ect, if its possible for them to prove manipulation.

CFTC former Justice Painter declared that CFTC Chairman Wendy Gramm (wife of chief deregulator Phil Gramm) instructed him never to rule on behalf of a plaintif claiming manipulation. The current CFTC of Sommers, Gensler, Chilton and Omalia have proven themselves 1. useful idiots, 2. moronic twits, or 3. criminal enablers. Whichever is motivating their mindbendingly stupid useless evil conduct, they should be fired at least, or thrown in jail.

The corruption is institutional and endemic. Gershoms law = wealth flows from bad money to good money. Since the paper gold market is so irredeamably criminal, money will flee from it, and from bonds for that matter.

JustObserving's picture

"A ridiculous impossible standard not attainable or aspired to in any other realm"

Completely agree.  A good mathematician can analyze the trading in gold and especially silver and conclude with high degree of certainty that manipulation has occurred.

strannick's picture

 

This articles reveals some great, telling quotes from Arthur 'the last duty of a central banker is to tell the truth' Burns.

Its sentiments are also apparently endorsed by Europes former head central banker Jean-Claude 'When it gets serious you lie' Junker

Oh regional Indian's picture

The age of revelation is well and truly upon us it seems. WHich would seem to be a short step away from prophetic things coming to pass.

A drought, a fractal drought looms. 

tch....

ori

me > https://www.youtube.com/watch?v=Cmx4JRFrETA

AldousHuxley's picture

http://www.youtube.com/watch?v=PJw_-6H-N1k

 

Hear from poor communist country about Rockefellers and Rothschilds

engineertheeconomy's picture

According to my calculations it is 100% guantareed that all Precious Metal prices are highly manipulated and supressed.

To find the actual value of Gold, take the Global M3 and divide it by the quanity of above ground precious globally.

Physics Bitchez...

Bringin It's picture

Great post.  I think you meant this though

... then disband the SEC CFTC ect, if its [im]possible for them to prove manipulation.

And I agree.  Of course.  Why do they collect a salary?

Benjamin Glutton's picture

heh...when do we get to see the Fed Res REPO 105 transactions and Derivatives book?

cranky-old-geezer's picture

 

 

Just Y'all Remenber WHO took The USA off the GOLD-Standard ...

No one took me off the gold standard,  I still look at how many dollars it takes to buy an ounce of gold.

USD has lost 99% of it's original value now, meaning gold should be $2,000 / oz, but it's hovering around $1,600.   So yea, it's a bargain.

Back then one ounce of gold would buy a very nice suit.  It still will today.

 

RockyRacoon's picture

Greetings old coot -- from the old coon.   I see that Iran has a solution for the manipulation of markets. I wonder if the US will intervene on their behalf and send Jamie Dimon as an emissary?

"An Iranian court has sentenced four people to death for their role in a $2.8bn bank fraud, in a ruling that is set to intensify the battle between president Mahmoud Ahmadi-Nejad and conservative opponents ahead of a crucial election next year."

Iran sentences bank fraudsters to death

Deo vindice's picture

You obviously buy much nicer suits than I do. I wear a lot of suits and none of them cost me an ounce of gold (in dollar terms).

RockyRacoon's picture

There is a range in the pricing of suits.  The saying should say that you can buy a good man's suit.   In the 1930s you could get a $10 suit or a $100 suit.  About $35 was the average nice suit.  Argument for the sake of it doesn't help the theorem.

BigInJapan's picture

Here in Japan, I could buy 6 GOOD men's suits for an ounce of gold. (Not in Tokyo, though)

The arguement is solid and the saying, outdated.

Handmade suits, the same price as a storebought.

Deflation.

BigJim's picture

Instead of measuring how many suits an ounce of gold buys, it probably makes more sense to look at its price vs. a basket of commodities. I have no idea, though, whether anyone's done this properly.

Although the pricing of suits comprises elements of labor, energy and commodity prices, fashion has too large an impact to make it a useful yardstick. Go to an art museum and you'll see that formal dresswear ('suits') has changed wildly over the centuries.

A good Roman toga was quite a complex garment with a lot of cloth...

http://en.wikipedia.org/wiki/Toga

Malachi Constant's picture

They don't care about profit. WHY, in the entire Universe, would they - with a printing press on their side?

This whole State thing is nothing but an exercise in power. This is their fun. They don't give a flying Firefox about money, because it's all theirs anyway - all of it. It's the thrill of manhunt, of humiliation, of moving millions with a phone call. Not money.

No matter how much money exists, all it takes to leave every rich man naked is a new law. Rules change when the house sees a chance of losing.

Thus:

"For FUN."

Ace Ventura's picture

Ahhh, Iceland. Highest per capita ratio of gorgeous women I've ever seen. And now another reason to love that frozen rock in the north Atlantic.

Odd, wouldn't you say, that Iceland's ongoing battle with the banks never seems to rate even a casual mention in the mainstream news?  /turbo-sarc

gaoptimize's picture

Yeah, sigh.  If I could live my life over it would be making a large family with an Icelandic woman who wanted the same thing.  Other pursuits don't seem as trivial until they have been pursued, and by then time is up.

engineertheeconomy's picture

If you found a nice victorian house in a good neighborhood for $100,000.00, wouldn't you buy it?

Gold is going for anywhere between 50% to 90% discount off it's fair market value, thanks to Benwards & Co.

I just keep stackin Gold, Silver, Palladium, Platinum & Rhodium like a squirrel

 I could give a shit where the price goes from here.

 I'll look at the price again in maybe another 10 or 20 years 

strannick's picture

I could give a shit where the price goes from here

That would make a great GATA T-Shirt slogan, or could righteously be stamped on gold and silver eagles, instead of the hypocritical In God we Trust

engineertheeconomy's picture

That's why Gold Bars simply state the metal content, we're not interested in measuring it's value in any paper currency any more than we would measure it in terms how many caveman clubs it could buy

RockyRacoon's picture

The $50 face value on the 1 ounce American gold eagle as its uses.  I know of a used car bought for "$50" and assessed at that price since the dealer invoice said so.  The dealer took a "loss" on the sale, of course.  I'd say that worked out quite well.

francis_sawyer's picture

Kind of makes the case for the utility of "junk silver"...

MeelionDollerBogus's picture

is it defendable? Will it have enough land for water and food needs?

Because if the answer is "no" and the additional answer is "it's right next to the fucksticks all the civil-unrest protesters want to kill for stealing from them" then no, I would prefer not to live there.

Stacking rhodium? Fail. Sorry, do what you want but re-selling it for profit as any holding and not directly for industrial use is just absurd. Unless you're an engineer and you're directly using it in which case I grant status of Epic Win.

sullymandias's picture

It depends on how much dollars you have. If you don't have some ridiculous amount of dollars, of course you can buy more gold at the lower price. But if you have a ridiculous amount of dollars, you can buy more at the higher price, because there will be more sellers at the higher price.

MeelionDollerBogus's picture

no, there won't. When the price is really high because all currencies are collapsing I won't consider paper to be a valid trade. I'll barter gold for a house or something but I won't trade 1 bar of gold for 50k. That 50k will be so worthless it will make no sense to hold it even for a day by the time gold hits that value.

I think I need to buy a gun's picture

"gold 50K"

"The problem moving forward won't be collapse, it will be digestion" Byron Wien CNBC a few month ago ;)

I think I need to buy a gun's picture

"gold 50K"

"The problem moving forward won't be collapse, it will be digestion" Byron Wien CNBC a few month ago ;)

SilverIsKing's picture

It won't be digestion. It will be indigestion. Buy gold, silver, and Alka Seltzer.

DoChenRollingBearing's picture

@ BaBa  $50k...

Yes, although that is a notional figure, but is in the right ballpark.  Physical gold is WAY underpriced.

"Gold, get you some!"  -- "Aristotle"

boogerbently's picture

No matter the price, it is being bought hand over fist, and the buyers only profit when the price of their holdings rise.

The USA will lose hold of gold like everything else, the world will find a way to do business around them.

The govt. can confiscate "physical", but not investments in foreign companies......mining companies.

That's my thinking.

CompassionateFascist's picture

When gold, silver, other PMs begin their terminal, asymptotic rise, the gov'ts concerned will confiscate the mines. So stack at home, then protect with lead.

Freegold's picture

 

I actually think you are a bit conservative, my guess is $65K :)

 

It may go on for a couple of more years but i´m patiently stacking. This one will be epic, but beware paperlongs, you wil get crucified on this journey!

 

 

Henry Hub's picture

What! Executing bankers for criminal fraud. How barbaric! Why in civilized countries like the United States we allow them to collect their multi-million dollar bonuses and go on there way. Shows the difference between democracy loving free enterprise system and brutal Moslem dictatorships