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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strannick's picture

You only get jailtime in the US if you steal less than $10,000

engineertheeconomy's picture

They should treat all the Iranian Banksta's to lollypops and bubblegum! Then give them the nobel peace prize... just like in the U.S.

El's picture

Indeed! What is shocking is that Goldman Sachs didn't snap those fellows right up and put them to work.

Davalicious's picture

"Two people were sentenced to life and others received jail sentences of up to 25 years, Mohseni-Ejei said. In addition to jail time, some were sentenced to flogging, ordered to pay fines and banned from government jobs." The last part is very important - banned from government jobs. We need to ban fraudsters from every taking money from the public purse.

I wonder how many of the fraudsters are crypto Jews.

Iranians in Canada are trying to get the chief Iranian fraudster kicked out:

http://www.petitiononline.com/khavari1/petition.html

Bet your bottom dollar that this guy is a Jew. They bypass any regulations for immigration and are pretected from expulsion.

bankruptcylawyer's picture

crypto jews. i'm a plain jew. no crypto hear. your statements are why i thank the u.s. constitution for having the 2nd amendment. 

maybe youre a crypto X or Y or Z. they should lock you crypto's all up.

oddjob's picture

If you really are a lawyer, STFU..your worth as human is zip.

MeelionDollerBogus's picture

at least he's not a banker or politician.

Lawyers don't look so bad these days.

stacking12321's picture

news flash for you, genius - there aren't a whole lot of jews in iran.

you might want to ask for a refund for that college degree of yours, they're doing it all wrong.

TPTB_r_TBTF's picture

Wish i coud ask for a refund of my college degree, but the statutes of limitations have expired...

 

Iran is home to the biggest population of Jews in the Middle East outside Israel

 

by:  Damien McElroy

piceridu's picture

Iran hosts the largest Jewish population of any Muslim-majority country.
http://en.wikipedia.org/wiki/Persian_Jews

fnord88's picture

there are lots of jews living in iran. The world is not so simple as any colledge degree may imply.

Goner's picture

While I like that someone is getitng punished, the details of the story sound similar. A few lower level people losing their freedom and lives while the top level gets away with free

"Mahmoud Reza Khavari, the former head of Iran's biggest bank, state-owned Bank Melli, resigned over the affair and fled to Canada where records show he owns a $3m home, Iranian and Canadian news agencies reported"

"Ahmadinejad has rejected claims that the investment company at the heart of the scandal has links to his closest aide, Esfandiar Rahim Mashaie, a powerful figure who has become the prime target for the president's adversaries within the hardline ruling elite.

Ahmadinejad's economy minister, Shamseddin Hosseini, survived an impeachment vote last year, where members of parliament accused him of lax banking supervision"

"But one of the defendents complained that, while the judiciary had pursued some low-level players in the fraud vigorously, senior officials involved in the scandal had gone unpunished."

Free Corzine and Khavari!

Victorio's picture

The whole shock and rage thing is getting old isn't it?  This article first ran in two thousand and fucking nine.  Its all out there folks. Has been for some time.  Criminality from top to bottom and side to side, plain as day for anyone who wants to look. When is enough enough? I've had my fill of it. How about you?

surfersd's picture

The physcal price of spot gold on the London Bullion Exchange  (and silver) is now over (cash bid/offer over futures offer/bid) the futures price. This move into backwardation is a sign that the Fed has lost control. We might see a few more pushes to the downside, but the train is about to leave the station. Toot Toot All Aboard!

Pladizow's picture

Wish it were true, but this has occured serveral times over the past handful of years!

AUD's picture

It is likely that the spot you mention is actually unallocated gold, that is to say, gold deposits of one kind or another. The vast majority of 'gold' being traded is in the form of unallocated gold.

This makes claims of backwardation of dubious value, since you are pricing futures against another 'future' in the form of unallocated gold. A bit like pricing government bonds in terms of the credit of the government chartered central bank, that is the $, where the 'assets' of the central bank are the same government bonds. Meaningless.

The real backwardation is when the 'big players' attempt to redeem their unallocated gold for allocated or even the physical bullion.

Last I looked there was no sign of any premium on allocated gold. Anyway, government & central bank credit has been junk, in gold terms, for decades, yet no backwardation, a completely irrational situation, for decades. There's no saying when it will happen.

Its_the_economy_stupid's picture

Each time I read it, my heart falls further.

fockewulf190's picture

Tyler, please do the world a favor and KEEP THIS POST HIGHLIGHTED UNTIL COB FRIDAY! I, for one, never saw, nor was aware (but am not really surprised), of the bullshit shenanigans highlighted within this post, and a lot more people need to read this. This needs to go viral.

tekhneek's picture

Agreed and for others -- just look at this (gold) chart real quick: http://www.skoptionstrading.com/storage/short%20intraday%20long%20overni...

Now, read the entire article all over again and you'll quickly realize why so many people play/played the paper game instead of the real one.

The smart ones cashed out a long time ago when the gettin' was still good.

EDIT:

Think about it... If you rode that trade day night/for a good while and cashed out into gold... You're just waiting for the exchange rate to tip towards gold and you're getting a stupid multiple of return on your investment on both sides.

One of those -- wish I knew then, what I know now... kind of moments.

Spitzer's picture

How do you know how much they left on the table ? YOu dont.

Bringin It's picture

Spitzer - I have to ask. As a well-known aficionado, I have to ask ...

What's your take on the highs and lows of that Debt-Bomb video?

fockewulf190's picture

I just have to post this famous exchange between Ron Paul and the Bernank about gold being "a tradition". I'll leave it up to you all who are reading this thread just what kind of tradition the Fed is trying to preserve. No wonder the Chinese are buying gold in stupifying amounts.

www.youtube.com/watch?v=2Dj9v9s9buk

4horse's picture

israeli tradition: not for export

Ven ikh bin Rotshild  .  .  .  na na nana nana na

El's picture

What rock have you been hiding under that you have never heard about this before? You have a LOT of catching up to do with what's going on in this country, I think.

Ted Baker's picture

Spot on ZH on the last thought:- 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.

slewie the pi-rat's picture

tyler has a smoking gun, BiCheZ!

and the markets are screwed down tight except for batman buying gold...

...and robin is buying coffee...

Muppet of the Universe's picture

Welcome to the Second Great Bull Run in gold.

max2205's picture

Ps Kunstler said some shit about us posters. Rec we tar him too

"""""3. ZERO HEDGE. The mysterious person(s) behind this massive continuous stream of reports and analysis from the loony bin of Wall Street and beyond has a manic edge but accurately reflects the madness of the current situation. Zero Hedge seems to post virtually around the clock, every day. They are relentless and hugely comical, with exactly the right sharply malicious overtones required in these evil times. The characters who infest their comment section are some of the worst vermin in trolldom.

I think I need to buy a gun's picture

going against zero hedge is like going against Peter Schiff on CNBC or Jimmy Kimmel publicly, YOU JUST DON'T DO IT!!!!!

SWCroaker's picture

I .... can't recall ever having been referred to as .... vermin.

 

I kind of like it, in a Stainless Steel Rat sort of way.

spanish inquisition's picture

Nice SSR reference.. Reminds me I haven't read the new one. Thx!

CompassionateFascist's picture

"worst vermin in trolldom" - wear it like a Badge of Honor. The KunstlerKike thinks all rural/suburban whites should be herded into the cities ("Peak Oil" and etc.) and brought under the same incipient KosherGulag regime as the blacks/browns and urban whites. Kunstler himself, however, lives on a fuel-swilling farm in the boonies and jetsets about with reckless abandon. With the Tribe, it's always "do as we say not as we do".  

Bringin It's picture

Kunstler's such a sweetheart.  Ask him what he thinks about white phosphorus on Palestinian kids during Operation Cast Lead and find out what a great humanitarian this clown really is.

Controlled opposition in a weird way.

Disenchanted's picture

 

 

"With the Tribe, it's always "do as we say not as we do".  "

 

+1000  You can take that to the bank!

RockyRacoon's picture

Some folk think that coons are vermin.  I'm used to it. 

I just dump over their trash cans... or dump ON their trash cans.

slewie the pi-rat's picture

raccoons are more bearish than most folk realize

HoofHearted's picture

Well let us vermin say in one accord, "Fuck you Kuntsler! Maybe you bitchez should stop posting crap and start just c & p'ing ZeroHedge."

johny2's picture

Does this mean Kunstler is not a fan of Robot trader?

 

The politicians have sold their countries to the banking elite who control the currency and media. There is only one visible power able to take away their control over the currency, and that is China whose politicians have encouraged chinese population to buy and store gold.

There is also the chance EU break up could start the race to the bottom for the fiat currency. Longer term there is also the petroleum availability to consider. In fact when I think of it better, it is looking like dollar has surely had it, matter of months/years at most.

adhoc99's picture

Why the China love? Isn't this an authoritarian state? Aren't ZHers against authoritarianism?

fnord88's picture

chinese leaders are stupid. Our leaders are stupid. One at least learnt some fucking history.....

TPTB_r_TBTF's picture

Dictators who take delivery of physical are cool.

max2205's picture

TD Any idea why my avitar pic has been changed?!

max2205's picture

Oh now it's back. Fucking Corizine

TheFourthStooge-ing's picture

max2205 said:

Ps Kunstler said some shit about us posters. Rec we tar him too

Lighten up, dude. Kunstler was giving high marks to ZH. As for his remark re the commenters, read it again:

"The characters who infest their comment section are some of the worst vermin in trolldom."

I mean, come on, you and I both know it's funny because it's true. AnAnonymous, Max Fischer, MillionDollarBonus, RobotTrader.....need I say more?

CompassionateFascist's picture

Kuntsler was referring to all of us, not just the 4 stooges.

fiftybagger's picture

Kuntsler is just a modern day Paul R. Ehrlich with peak oil replacing the population bomb.  Globalist mind kontrol BS.  Pull up Google maps and check out the thousand mile swaths of Canada, Russia, South America, Australia, and Africa where man's foot has rarely tread.  Then put down your Anglo-Euro-American crack pipe and wake up.

http://www.redrat.net/blackhole/earthlights.htm

 

http://www.brotherjohnf.com/

http://www.youtube.com/user/BrotherJohnF