LBMA Gold Flight Now Threatens Financial System

Today whistleblower Andrew Maguire warned King World News that the massive flight of gold out of the LBMA “has now become a major threat to the Western central banking system.”  Maguire, who recently appeared in the CBC production “The Secret World of Gold,” takes KWN readers around the world on a trip down the rabbit hole once again in part two of a series of extraordinary written interviews that will be released today. 

Maguire:  “The question that keeps coming up to me is how long can this paper market selling continue?  How can it continue to drive price when at the same time we are actually seeing such a massive transfer of physical underway into the Eastern trading blocs?

This recent heavily margined forced capitulation was absolutely Fed-induced.  And the only short-term goal of this was bailing out the defaulting bullion banks.  If you remember, we talked about this back in April after ABN AMRO exposed the whole LBMA system to a probable default.  This was a (major) crack in the system….

“The result of this official intervention:  There’s a tradeoff involved here because it’s tipped the balance and irreversibly broken the relationship between the paper markets and the global physical markets now.

The majority of all traded volumes are actually paper gold in the far less transparent over-the-counter foreign exchange markets.  People believe it (the manipulation) is all happening on the COMEX, but it’s not.  This (over-the-counter trading) is actually much more of a tool for the Fed and the Bank for International Settlements (BIS) than directly intervening in the COMEX.


Talking Gold Manipulation with GATA

GIN: Can you outline how the gold manipulation scheme works?

CP: Sure. Central banks that want to support their currencies and support the US dollar in particular want to control interest rates and government bond prices so they intervene in the gold market by selling their gold outright, by leasing it into the market through bullion banks and the BIS, and by swapping it to other central banks that will be doing these sales or leases. They also sell gold options and futures contracts through the BIS. They do a lot of shorting of gold to control the price.

GIN: Who is involved in this manipulation scheme?

CP: I think all the major western central banks are, if not participating, then at least aware of it and cooperating. I think all of the western central banks who were identified openly as being part of the London gold pool in the 1960s are certainly cooperating with it. Though I think the major ones lately have been the US, Bank of England and the Bundesbank. But I think any central bank that has been identified as having swapped or leased gold is a participant.

GIN: So, you’d say that the gold cartel is composed of central banks?

CP: It is a central bank scheme but they operate very often through agents like bullion banks. JP Morgan Chase and HSBC. The Bank for International Settlements (BIS) in Basel, Switzerland conducts much of the gold trading for the western central banks. So certainly the BIS is an agent as much as the bullion banks are.

GIN: Who does gold manipulation affect? Is the negative impact just limited to gold investors?

CP: Oh no. It’s the destruction of all free markets. It’s the destruction of transparency in government. Certainly gold investors and mining companies and developing countries that rely on the production of commodities for their livelihood are terribly harmed.

But from my standpoint as an American citizen and a journalist who wants transparent government I think the greatest casualties are free markets and accountability in government. This scheme is a matter of rigging markets surreptitiously and when you rig markets you don’t have free markets anymore. And when you lose free markets you lose your competitive economy as well as your democracy when such major government action is undertaken in secret.

GIN: Is gold manipulation done mostly through leases, swaps and selling gold?

CP: Not only gold, but futures and options as well. They are hugely capitalized operations so they have very deep pockets. The can probably sell gold futures and options to an extent that no buyer can compete with them. And most buyers will be driven out the market by the amount of imaginary gold that central banks can sell because they have the ability to create money in infinite amounts.

GIN: How do the bullion banks and the futures market factor in?

CP: Because central banks trade through them, they are acting as agents. Whenever there is any crisis in the financial markets, where do the Fed and the Treasury go to try to put together a bailout? They start with JP Morgan Chase.

The use of New York investment banks by the US government, particularly JP Morgan Chase, that’s public record. I’m sure if you asked for access to all the communications between the Federal Reserve and the US Treasury and JP Morgan Chase you would get a lot of interesting information if it was made available to you.

But again, these are questions that are best put to central banks. I am only a derivative source of information. I can’t speak for the Fed and the Treasury and the Bank of England. I can show you the exchanges we’ve had with them. I can show you what has come out as a result of our suing the Fed. But we are not the possessors of the original information here. We are not the original sources.

I have always marveled that we should be questioned at GATA before any questions are put to the central banks about their policy in the gold market. I think if you pose questions [to the central banks] that are specific enough that you will find pretty quickly that the door is slammed in your face.

GIN: You said the motive for gold manipulation is to control interest rates and bond rates?

CP: If you read the academic paper which is on GATA’s internet site called Gibson’s Paradox and the Gold Standard, that paper analyzed the historical relationship between gold and real interest rates. If you read it I think you will indeed find there is a historic relationship. And indeed gold is pretty much by definition a determinant of currency value and interest rates and by extension government bond prices.

Gold is a terribly important determinant of the value of other financial instruments. We have collected a lot of State Department memorandums, CIA memos and documents throughout history about the importance the US government put on controlling the gold price. Many central bankers have made statements signifying that the gold price is of great concern. Governments have always sought to control the gold price and that’s what the Gold Standard was really about.

GIN: If gold market price control has pretty much always existed, does the tactic remain the same? Or does the gold cartel switch up how they control the price from time to time?

CP: Well they certainly change their mechanisms. Back in the 1960s the western central banks were controlling the gold price in a forthright but very costly fashion. That is, they were dishoarding a lot of metal out of their reserves and they lost a lot of it. And as they were down to the last tonnage they decided they couldn’t do it that way anymore

They’ve come up with a much more efficient and powerful way of controlling the gold market insofar as they’ve created a vast imaginary supply of what we call paper gold. That is certificates claiming ownership to gold. Central banks realized that they could basically underwrite the paper gold market run by bullion banks by advancing gold to bullion banks as necessary to avert a short squeeze in gold when bullion banks sold more gold than they could deliver.


FOR THE RECORD: GATA, Ted Truman And Gold … Another Stunning Revelation

On May 10, 2000 a GATA delegation consisting of Reg Howe, Frank Veneroso, Chris Powell and Bill Murphy met with Denny Hastert, The Speaker of the House in the United States Congress; Spencer Bachus, the Chairman of the House Subcommittee on Domestic and International Monetary Policy; and Dr. John Silvia, the Chief Economist of the Senate Banking Committee. We presented each of them our 100 page “Gold Derivative Banking Crisis” document and personally delivered it to the staff of every House and Senate Banking Committee member. It actually made the news on ABC television in Australia.
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