Every seasoned gold investor and every student of monetary history has likely stumbled upon various theories about institutional manipulation of the gold market. While it is true that rarely is there smoke without fire, it is still important to approach this matter rationally and form opinions based on sound evidence and solid research. This is why I have personally been following the work of the Gold Anti-Trust Action Committee Inc (GATA) for quite some time. Their findings, essays and analyses have not only been enlightening, but also allow for a deeper understanding of the gold market. Thus, it was only natural that I jumped at the opportunity to interview Chris Powell, GATA’s co-founder, and discuss with him the past and current state of the gold market, as well as his expectations for the future.
Chris Powell is a political columnist for the Journal Inquirer, a daily newspaper in Manchester, Connecticut, USA, where he has worked since graduating from high school in 1967. He was managing editor of the newspaper from 1974 until last year. His column is published in newspapers throughout Connecticut. He is also secretary/treasurer of the Gold Anti-Trust Action Committee Inc., (GATA) which he co-founded in 1999 to expose and oppose the rigging of the gold market by Western central banks and their investment bank agents. He edits the GATA Dispatch, that organization’s daily electronic newsletter. He is a member of the Board of Directors of the Connecticut Council on Freedom of Information and was its state legislative chairman from 2004-2010.
Claudio Grass (CG): Why did you decide to focus on the gold market? What attracted you to the topic in the first place?
Chris Powell (CP): GATA focused on the rigging of the gold market because it was the first comprehensive market rigging that the organization’s founders stumbled upon, and because, after some research, we determined that rigging the gold market was the prerequisite for rigging all other markets.
CG: Arguably, one of the most blatant and overt examples of gold manipulation was that of the London Gold Pool. Could you summarise the case for us and explain its implications?
CP: The London Gold Pool was a mechanism created in 1961 by the United States and seven of its European allies to enforce the valuation of the U.S. dollar at $35 per ounce of gold. The pool members dishoarded gold from their reserves as necessary to maintain the dollar’s value and its status as the world reserve currency. This was done in the open and there was no disputing that the gold price was controlled by the gold pool’s members.
This dishoarding prevented gold’s return as the reserve currency. The pool collapsed in 1968 under the pressure of extreme offtake from the pool as governments and investors realized that the U.S. dollar was being inflated too much and that, as a result, gold was substantially undervalued. The gold-rigging governments had to devise another mechanism for controlling the gold price. After a few years, they settled on futures markets, which allowed the price to be rigged without a lot of dishoarding of national gold reserves.
CG: More recently, starting in 1999, Gordon Brown, the then UK Chancellor of the Exchequer, made a historic decision to sell almost half of the UK’s gold reserves during at a 20-year low in gold prices, attracting a lot of criticism in the process and especially after the fact. What did you make of this move?
CP: We have always believed that the UK’s gold sales meant to rescue certain too-big-to-fail investment houses that had engaged in the gold carry trade – borrowing central bank gold, selling it in anticipation of ever-lower prices, and investing the proceeds in government bonds paying secure interest – had been caught short when the gold market turned upward, and could not obtain and return the borrowed gold without exploding the market and risking their own insolvency.
CG: Around the same time, the Swiss, the last nation to retain a kind of gold standard, abolished the 40% backing of the CHF in the constitution and announced the sale of 50% of the so-called “excess” reserves of physical gold. What do you think the reasoning behind this decision was?
CP: The Swiss decision likely was motivated by concerns similar to those of the UK government. But this is just speculation.
CG: We understand that the system is manipulated. However, we also see that the US is using political power to influence the global economy through the SWIFT-System by controlling who is allowed to participate in global trade and who doesn’t. They can freeze bank accounts or impose other financial sanctions if they want to. This contributed to the fact that today China, Russia as well as Europe are working on an alternative banking system, which is going to operate outside of the US government’s control, which will lead to less demand for USD on a global scale. As we know, for a debt-based system, the crashing point is when debt is shrinking and not expanding. Do you think this will be a trigger in bringing down or at least devaluing the USD significantly against other currencies and in particular against the price of gold in the future?
CP: I think the crashing point is where the Scottish economist Peter Millar puts it – where interest on debt starts going exponential and consuming the real economy. In a paper written in 2006 Millar wrote that fiat money systems based on debt require periodic currency devaluations to reduce the burden of interest payments. These devaluations require upward revaluation of the monetary metals and all real assets relative to debt and currency.
Indeed, the U.S. economists and fund managers Paul Brodsky and Lee Quaintance speculated in 2012 that such a devaluation of currencies and upward revaluation of gold was already the long-term plan of central banks – that they were redistributing world gold reserves to allow countries with excessive U.S. dollar surpluses to hedge themselves against a dollar devaluation. The resulting upward revaluation of gold, Brodsky and Quaintance wrote, would reliquefy central banking around the world.
CG: How would you interpret the fact that China has been established as a physical gold trading hub and offers trading oil for yuan “backed by gold”? Do you see a connection with the revelations GATA has put together, from Wikileaks, from key officials and other sources, clearly showing that China’s government is well aware of U.S. efforts to suppress the gold price in order to support the USD?
CP: Yes, China certainly knows all about the West’s policy of gold price suppression. It often has been written about in the government-controlled Chinese press. China seems to see gold as the escape from the dollar system, the once and future world reserve currency. The Wikileaks cables show not only that China knows about gold price suppression but that the U.S. knows that China knows. China’s understanding of this policy is very incisive. But only the Chinese government knows its long-term plans for gold and the yuan.
CG: I recently read an interview with the legendary “FOFOA” in the brand new “In Gold We Trust” report in which the gold/oil ratio was discussed. He opined that the price of gold vs oil has been suppressed for the past decades. In 1946, the ratio stood at 21 and today it stands at 21.9 – so it hasn’t moved at all. Indeed, the gold/oil ratio was basically the same for 70 years, from 1946 at the start of Bretton Woods following WWII, until 2016. “It stayed in a band ranging from about 9 to 29, and averaging about 15. That’s the price of oil in gold and gold in oil. An ounce of gold is 15 barrels of oil, and a barrel of oil is 1/15th of an ounce of gold. But that’s not an equilibrium price.” In this context, do you believe that gold will be revalued against the price of oil in the future, resulting in gold gaining tremendously against oil in purchasing power? And can China’s moves, linking oil and gold physically, be interpreted as a step in that direction?
CP: Records discovered by Bullion Star researcher Ronan Manly at the Bank of England show that in the 1980s central banks saw gold price suppression as necessary to keep oil flowing inexpensively from OPEC nations to the West — that the understanding was that oil could stay cheap as long as gold could, so the oil producers would get an inflation-protected asset in exchange for their wasting asset.
I’m not sure that China has firmly linked gold and oil prices yet. There are influences on the gold price quite apart from oil. Indeed, I suspect that debt and interest levels are more influential with gold now. A worldwide recession or depression might collapse oil prices but cause gold prices to rise.
CG: Through your decades-long experience and extensive research into the gold market, how do you evaluate the role of the precious metal in the global economy and as an investment and how would you respond to those who describe it as a barbarous relic?
CP: Gold is the secret knowledge of the financial universe. Controlling the gold price is the first objective of central banking, since a free-market gold price would allow the monetary metal to compete with government currencies and diminish demand for government bonds. Actually, Keynes did not call gold a “barbarous relic.” He used that term about the gold standard. Gold is just a form of money, but a potentially superior form, since it is money without counterparty risk. If central banks ever stopped suppressing its price, free markets would remonetize gold and make it the new world reserve currency in a matter of days.
CG: Over the last decade, we have witnessed an unprecedented monetary experiment, with QE and extremely low interest rates. What do you expect the impact of this aggressive intervention to be for the economy and do you see it benefiting gold investors in the long run?
CP: Such extreme intervention by central banks has destroyed the world’s market economy. For years now, there really have been no markets at all, only interventions. Since these interventions are largely surreptitious, requiring deception to work, they have become essentially totalitarian. If they are ever re-established, free markets are likely to benefit gold investors. But governments may nullify any benefit to gold investors by confiscating or outlawing possession of monetary gold, nationalizing gold mines, sharply increasing royalty requirements on gold mining companies, and imposing windfall profits taxes on gold-related investments. Diversification of monetary metals storage seems crucial for investors.