Tuesday, May 24, 2005

Government Intervention Against the Gold Price

The Gold Anti-Trust Action Committee (GATA) reported today "Government intervention against the gold price has risen sharply since the middle of last year."

GATA said, the increase in intervention in the gold price was disclosed last week in the Bank for International Settlements' (BIS) semi-annual report on the issuance of derivatives by major banks and dealers in G-10 countries.

The report was studied by GATA's consultants, James Turk, founder of GoldMoney and editor of the Freemarket Gold & Money Report; Michael Bolser, editor of the Interventional Analysis newsletter; and Reginald H. Howe, gold market analyst and principal of Golden Sextant Advisers.

James Turk described the new derivatives numbers from the BIS as "stunning" in regard to gold. Turk said "In major banks and dealers in the G-10 countries, the total notional value of gold derivatives rose from $318 billion at mid-year 2004 to $369 billion at year-end. "That $51 billion increase (32-percent annual rate of growth) occurred while gold miners were reducing their gold hedge positions. The reduction in hedge positions by mining companies should have resulted in a decrease in the aggregate position in the BIS report. That it didn't happen suggests that the international economist Frank Veneroso is right."

Here's what Frank Veneroso had to say in the March issue of Gold Newsletter:

There is only one possible explanation for why purchases of thousands of tonnes of gold in the futures and forwards markets do not blow the price of gold sky-high: The official sector must step in on gold price rallies as an offsetting forward seller.

How much more gold can governments dishoard to throw at the gold market to keep the price down? "The answer," Turk says, "is of course unknowable, both to us as well as to the governments intervening in the gold market. At some point the banks executing the government positions are going to reach the tipping point, when the free-market demand for gold overwhelms government gold price capping. I think that moment is near for one important reason.

"Price capping in gold can be prolonged only by continually supplying the market with physical metal. Right now the demand for physical metal is strong. So governments can sell all the paper derivatives they want, but it isn't going to stop people from buying metal. In fact, the low price of gold resulting from government price capping is causing the demand for physical gold to increase."

GATA's findings on the latest BIS gold derivatives report can be found here:

BIS Gold Derivitives Report

GATA Chairman Bill Murphy said this new evidence of government intervention against the gold price should compel mining companies to be represented at GATA's Gold Rush 21 conference in Dawson City, Yukon, Canada, on August 8 and 9. "Gold Rush 21 will hear presentations from gold and silver market experts from around the world," Murphy said, "and will develop a plan of action to restore free markets to the precious metals."

Information on Gold Rush 21 can be found here:

Gold Rush 21 Conference

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