Gordon Brown Sold Britain’s Gold at Artificially Low Prices to Bail Out a Large American Bank

Governments Don’t Manipulate the Price of Gold … Do They?

The Telegraph’s Thomas Pascoe reported Thursday:

One decision stands out as downright bizarre, however: the sale of the majority of Britain’s gold reserves for prices between $256 and $296 an ounce ….

When Brown decided to dispose of almost 400 tonnes of gold between 1999 and 2002, he did two distinctly odd things.

First, he broke with convention and announced the sale well in advance, giving the market notice that it was shortly to be flooded and forcing down the spot price. This was apparently done in the interests of “open government”, but had the effect of sending the spot price of gold to a 20-year low, as implied by basic supply and demand theory.

Second, the Treasury elected to sell its gold via auction. Again, this broke with the standard model. The price of gold was usually determined at a morning and afternoon “fix” between representatives of big banks whose network of smaller bank clients and private orders allowed them to determine the exact price at which demand met with supply.

The auction system again frequently achieved a lower price than the equivalent fix price. The first auction saw an auction price of $10c less per ounce than was achieved at the morning fix. It also acted to depress the price of the afternoon fix which fell by nearly $4.

It seemed almost as if the Treasury was trying to achieve the lowest price possible for the public’s gold. It was.

One of the most popular trading plays of the late 1990s was the carry trade, particularly the gold carry trade.

In this a bank would borrow gold from another financial institution for a set period, and pay a token sum relative to the overall value of that gold for the privilege.

Once control of the gold had been passed over, the bank would then immediately sell it for its full market value. The proceeds would be invested in an alternative product which was predicted to generate a better return over the period than gold which was enduring a spell of relative price stability, even decline.

At the end of the allotted period, the bank would sell its investment and use the proceeds to buy back the amount of gold it had originally borrowed. This gold would be returned to the lender. The borrowing bank would trouser the difference between the two prices.

This plan worked brilliantly when gold fell and the other asset – for the bank at the heart of this case, yen-backed securities – rose. When the prices moved the other way, the banks were in trouble.

This is what had happened on an enormous scale by early 1999. One globally significant US bank in particular is understood to have been heavily short on two tonnes of gold, enough to call into question its solvency if redemption occurred at the prevailing price.

Goldman Sachs, which is not understood to have been significantly short on gold itself, is rumoured to have approached the Treasury to explain the situation through its then head of commodities Gavyn Davies, later chairman of the BBC and married to Sue Nye who ran Brown’s private office.

Faced with the prospect of a global collapse in the banking system, the Chancellor took the decision to bail out the banks by dumping Britain’s gold, forcing the price down and allowing the banks to buy back gold at a profit, thus meeting their borrowing obligations.

I spoke with Peter Hambro, chairman of Petroplavosk and a leading figure in the London gold market, late last year and asked him about the rumours above.

“I think that Mr Brown found himself in a terrible position,” he said.

“He was facing a problem that was a world scale problem where a number of financial institutions had become voluntarily short of gold to the extent that it was threatening the stability of the financial system and it was obvious that something had to be done.”

***

Responsibility is evaded by all bar those on whose shoulders it ought to rest. The gold panic of 1999 was expensively paid for by the British public.

JP Morgan was wildly short gold in 1999.  See this and this.  As Reginald Howe has noted:

Prior to 1999, [JP] Morgan had never held more than about $20 billion in total gold derivatives, nor more than 28% of the total outstanding for all banks. But beginning in the second quarter of 1999 [before Brown announced the British gold sales], Morgan took on a much larger role in the under-one-year maturities, possibly presaging the the British gold sales. Then, during the last half of 1999, Morgan more than doubled its total gold derivatives, taking them from $18.4 billion to $38.1 billion, which amounted to 43% of the total for all U.S. banks reporting to the Comptroller of the Currency. What is more, Morgan’s over 40% dominance stretched across all maturities. In the fourth quarter alone, it increased its gold derivatives with maturities over one year by more than 80% to $17.1 billion from $9.4 billion.

(Citi was the third American bank with a huge short gold position in 1999, trailing JP Morgan with the biggest position and Goldman with the second largest.)

But would government employees actually manipulate the price of gold?

Yes, actually.  As Fed chairman Alan Greenspan said in official remarks in 1998:

Private counterparties in oil contracts have virtually no ability to restrict the worldwide supply of this commodity. (Even OPEC has been less than successful over the years.) Nor can private counterparties restrict supplies of gold, another commodity whose derivatives are often traded over-the-counter, where central banks stand ready to lease gold in increasing quantities should the price rise.

Many other governmental sources have confirmed gold manipulation as well.

As CNBC reports today:

Gold may have been manipulated like the London interbank rate or Libor over a long time frame, Ned Naylor-Leyland, investment director at Cheviot [with around $300 million under management], told CNBC.

The scandal surrounding the fixing of the Libor has opened markets up to “more scrutiny and more investigation,” Naylor-Leyland said.

He expects to see revelations over the next few months that the price of gold was also manipulated because “gold and silver reflect the true value of money the same way interest rates do.”

“It is effectively an intervention in two ways; one would be the fact that for central banks, gold and silver going up doesn’t make their currency look any good, and secondly a number of the big commercial banks have very large short positions which they like to manage and make easy money from,” he said.

***

Chris Powell, Secretary and Treasurer of the Gold Anti-Trust Action Committee told CNBC in June that “as central banks are interested in supporting government bonds and the dollar and keeping interest rates low, they continue to manipulate the gold market”.

And raiding so-called “allocated” gold accounts is another form of manipulation.

 

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  • gozounlimited

    THE “BANKING MAFIA CLUB” IS BLOWING UP!

    “We Hope Congress Will Be Enlightened”

    Investigators around the world are examining more than a dozen big banks over allegations that the Libor rates were manipulated. Traders have been suspended, fired or placed on leave at banks including JP Morgan Chase, Royal Bank of Scotland and Citigroup as well as Deutsche Bank.
    BaFin, the German market regulator, stepped up its investigation into Deutsche’s role fixing Libor, designating it a “special investigation”. The results of the inquiry are expected later this month, putting Deutsche in line to be the next major bank after Barclays in the spotlight over the Libor.
    Deutsche is a member of the 10 panels of banks that submit interbank lending rates for the daily fixes in currencies ranging from sterling to the Japanese yen and Swiss franc…

    see video: http://www.youtube.com/watch?v=obb6Oh8vsZY
    ***********
    Peter Joseph’s “Social Pathology”

    Symptoms, prognosis, treatment of the social pathology that is obstructing our progress.

    see video: http://www.youtube.com/watch?v=ElFUUVFC9vg

  • robertsgt40

    There is NOTHING in any market that can’t and will be manipulated. Greed rules

  • Hartzman

    Did Wells Fargo CEO John G. Stumpf profit from stock and option compensation while not disclosing material information?

    http://hartzman.blogspot.com/2012/07/did-wells-fargo-ceo-john-g-stumpf.html

  • http://tgnc.org.uk Darren

    Interesting. JP Morgan was wildly short of gold, huh? And just who went to work for them after Brown took up the reins of leadership in the UK? Tony B-liar!

    And who is now trying to get back into UK politics? Tony B-liar!

    This stinks like a three-week-old kipper…

  • matthew

    News leaking just before the Olympics, I think this is what they used to do in Rome, and somewhat ironic chasing for Gold.

  • http://google hank

    The article mentions overselling of gold by one of the ‘BIG’ banks as amounting to two tons. Who is he fooling? Two years ago, gold was OVERSOLD by 17,000 tons!!!! Even the socalled RESERVES in Fort Knox cannot be audited, like the FED, because we don’t even know how much of the stuff is not Wolfram, (Tungsten). They both have the same specific gravity, almost. I heard that Kissinger moved fourteen tons to Mexico.

  • ddearborn

    Hmmm
    SO the governments of the World are totally corrupt and are in cahoots with the 6 largest banks to rip off the working class. This is news? The question is what is being done about it. And when are specific individuals, such as the leading government officials, bank officers, and Federal Reserve officers going to arrested and tried for treason? Now that information would be worthy of printing.
    The rest was old news 100 years ago.

  • http://twitter.com/JensZp Jens P.

    That the big banks are colluding with the politicians to rob Main Street is well known. When will the arrests start?

 

 

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