In
a piece of news that certainly delights GATA, Wikileaks
published a cable going back to 2009 in the year that European central banks
halted their sales of gold. It said the following:
“The U.S.
and Europe have always suppressed the rising price of gold. They intend to
weaken gold's function as an international reserve currency. They don't want
to see other countries turning to gold reserves instead of the U.S. dollar or
euro. Therefore, suppressing the price of gold is very beneficial for the
U.S. in maintaining the U.S. dollar's role as the international reserve
currency. China's increased gold reserves will thus act as a model and lead
other countries toward reserving more gold. Large gold reserves are also
beneficial in promoting the internationalization of the Renminbi
[Yuan]."
Chinese Gold Accumulation
In the five
years from 2003 to 2008 china added 454 tonnes of
gold to their reserves. They amassed these reserves in a government agency which
handed over the extra tonnage to the People’s Bank of China in 2008. We
believe that they continue this policy of using a non-central bank agency to
gather gold for their reserves. If they do stick to this policy they should
make their next announcement in 2013. The volumes of gold added up to 2008
could be seen as adding 91 tonnes a year since 2003
or, more likely, adding the growing domestic gold production directly to
their stockpile. If that is the case then we expect an additional amount of
at least 2,000 tonnes to be passed from the gold
buying agency to the People’s bank of China.
With the government licensing so many
international banks to import gold to China, Chinese citizens are buying
directly from these banks and therefore the international market. The
accumulation of gold reserves in China is therefore a total of the two
sources. So don’t be surprised if China is holding [citizens plus
central bank] around 5,000 tonnes or more by 2013.
This is still a small amount compared to their dollar reserves. But central
banks don’t look at gold in quite the same way as mere mortals.
Gold Price
Suppression
The Chinese belief that the U.S. and
Europe have always suppressed the rising price of gold cannot be refuted
reasonably. The gold sales by the U.S. and then in the seventies the gold
sales by the I.M.F. were direct attempts to squash the gold price in the pretence that gold would be sold out of the system.
In 1978 the Second Amendment of the IMF
Articles was intended to delete gold from the international monetary system.
The amendment followed the failure of previous attempts to establish a new
international monetary system. In particular these included the failure of
European countries to force the United States to either settle its deficit in
gold, or else devalue the dollar against gold. This Second Amendment of the
Articles barred members from fixing their exchange rates to gold and removed
the obligation on members to conduct transactions in gold at the official
gold price.
Not only did the United States refuse to
keep gold in the system, it then led a crusade against gold (while being
careful to keep a very large strategic stock of gold in its own reserve,
sealed off from the outside world). Symbolizing the plan to drive gold out of
the system, the IMF was instructed [the U.S. held the deciding vote in the
I.M.F.] to dispose of 50 million ounces of its gold stock of 153 million
ounces. It achieved this partly by sales to the market and partly by giving
some gold to members in relation to their quotas.
Ironically, this exercise had the effect
of spreading gold much more widely through the international community than
ever before, and gave many countries a new interest in the gold market. Few
countries showed any inclination to sell the gold handed to them, and in the
vast majority of cases it continues to sit on their books. The later sales of
gold were snapped up so fast that the U.S. realized that they would really
have to sell all their gold, if they were to succeed, but they themselves
valued gold so much they halted those sales.
Accelerated
Sales
From the mid-eighties central banks took
a different ‘tack’ on their anti-gold campaign. Just as there is
not greater patriot than, “he who commits you to his cause”, the
anti-gold campaign then allowed mining companies such as Barrick,
to borrow central banks gold then sell it forward for around five years at a
time when gold prices were falling. The mining companies then financed their
own production, getting the gold price up-front plus the interest accruing
for the five years [the Contango] and delivering
their subsequent production back to the central banks. This caused an
acceleration on the amount of gold produced by mining and swamped the gold
market so much that the price of gold fell from $850 an ounce in the eighties
to $275 by the end of the nineties.
1999 the
First Break in the Anti-Gold Campaign
The first fracture in the developed
world’s anti-gold campaign came when the Governing Council of the
European Central Bank decided that the national central banks participating
in the euro area should include gold in the initial transfer of foreign
reserve assets to the European Central Bank. The transfer was to take place
on the first day of 1999, the launch date of the euro as a single currency.
This action confirmed the importance of gold as a reserve asset. The
Governing Council decided the initial transfer of foreign reserves would be
to the maximum allowed amount of €50 billion. This figure was adjusted
downwards by deducting the shares of those E.U. central banks which would not
participate in the euro area at the outset i.e. to a total of approximately
€39.46 billion. The E.C.B. agreed that 15% of this initial transfer
should be in gold. Gold clearly enhanced public confidence a point made in
the 2009 Chinese cable [above]. Despite the gold sales under the gold sale
agreements, gold’s share of the ECB’s total reserves has grown
considerably since then due to the sharp increase in the gold price. As at
September 2010 the E.C.B. had 26% of its reserves in gold.
When the “Washington
Agreement” was instituted in the year 1999 it attended the launch of
the Euro as Europe’s currency. The “Washington Agreement”
plus the subsequent European Central Bank Agreements were to sell ‘up
to’ a ceiling level of 400 or 500 tonnes of
gold and was intended to establish the euro as a major currency, without
competing with gold. Like the U.S. sales of gold, there was no intention to
get rid of gold as an important reserve asset, hence the strictly limited
sales and the retention of the bulk of gold reserves in the different
national foreign exchange and gold reserves. In it, they stated that gold
would remain an important element of global monetary reserves, and agreed to
limit their collective sales to 2,000 tonnes over
the following five years, or around 400 tonnes a
year. They also announced that their lending and use of derivatives would not
increase over the same five-year period. (The signatory banks later stated
that the total amount of their gold they had out on lease in September 1999
was 2,119.32 tonnes.)
The signatory banks accounted for around
45% of global gold reserves. In addition a number of other major holders -
including the USA, Japan, Australia, the IMF and the BIS, either informally
associated themselves with the Agreements or announced at other times that
they would not sell gold. Including these, the proportion of gold reserves
covered by the Agreement or a similar announcement rises to around 85%.
The announcement of the Agreement came
as a major surprise to the market. It prompted a sharp spike in the gold
price over the following days, but it also removed much of the uncertainty
surrounding the intentions of the official sector. Once the markets had
adapted to it, a major element of instability had been effectively removed
with the introduction of greater transparency.
The Chinese
are absolutely correct in believing that the U.S. and Europe have suppressed
the price of gold! The evidence is glaring at us through history.
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