Note: this is an edited transcript of a debate conducted at the 2005 New York Institutional Gold Conference, 23 May 2005, Marriott Marquis.
To listen to streaming audio of the debate, please click this link.
DR LARRY PARKS (F.A.M.E.): This has been billed as price anomalies in the market for gold but what it is really about is ‘is the gold market rigged or manipulated?’. And the way the format is going to run today is I’m going to make an opening statement for about three or four minutes that will position the issue, then I’m going to introduce our two distinguished panellists, Mr Tim Wood and then Mr James Turk.
So let me start. It used to be in our country that gold and silver were money. This is the way it was from the outset, right after the revolution, at the constitutional convention the delegates specifically voted down the notion of having paper ticket money, it’s called bills of credit. James Madison spoke against it, Thomas Jefferson spoke against it, George Washington spoke against it, John Adams spoke against it and those of you who know your constitution know that the government was empowered to coin money. There’s a problem with gold and silver as money, particularly gold. Gold is 19 times heavier than water, it’s kind of heavy to carry around, it’s too valuable for small purchases, also the coins wear out and it’s liable to be stolen. The solution for that problem was that people came out with receipts, promissory notes for the coin. Put up slide 2 please. This is what money used to look like. This money, I don’t know how much you can read but it says, for the first one it’s a $50 gold certificate, it says payable to the bearer on demand in gold. The next is a $10 gold certificate and these certificates all say that $10 or $50 in gold coin has been deposited and will be payable to the bearer on demand and at the bottom is a $10 silver certificate which says $10 silver dollars have been deposited and will be payable to the bearer on demand. And gold and silver was our money up until 1933 and even when the Federal Reserve legislation was passed in 1913 while the Federal Reserve was authorised to issue Federal Reserve notes, they were promissory notes and in the legislation it says that they are redeemable into lawful money. So it was never anticipated that these notes, these promissory notes to pay money would be lawful money, they were always just receipts for money. Then, the promises to pay money were dishonoured and I’m indebted to Professor Anton Feltke a FAME scholar for this turn of words and then the dishonoured promises to pay money became the money. Unbelievable! Our money is really nothing more than dishonoured promises to pay money and these have gone into circulation by virtue of legal tender laws whereas chief justice Salmon Chase said were necessary only for the purpose of dishonesty.
I’m going to end with a couple of quotes. Put up page five please. There’s a guy in the world by the name of Robert Pringle. Robert Pringle a one-time consultant to the World Gold Council is the editor of a publication called the Central Banks, it’s a trade publication and being the editor of a publication that goes to central banks, he is very much in tune with how central bankers think and it’s inconceivable that Robert Pringle would say anything or do anything that would aggravate his constituency. So about 1992 he and Marjorie Dean, Marjorie Dean then, I think she may still be the deputy editor of The Economist magazine, they wrote a book called The Central Banks, not exactly a page turner, but it has this line on page 193. It says: “Central banks understand that paper money that they issue is in competition with gold and they want the paper money to win.” Subsequently, at a World Gold Council annual meeting he also made the statement and you see it there, the second paragraph, he said: “It’s the US’s fear of gold as a competitor to the dollar.” So in other words this is really the issue that we have today, that the central banks think of gold as competition to these dishonoured promises and that brings us to our topic, are they in fact manipulating the gold market so they can win the competition.
Now I want to introduce Tim Wood who is going to make an opening statement following my introduction. Tim Wood is the founding editor of Resource Investor, www.resourceinvestor.com. This six-month old publication provides independent news, commentary and analysis on the mining, drilling and piping industries.
As you'll soon hear, Tim also thinks gold is money, but considers the whole question of a conspiracy to suppress the price to be pointless given the evidence and circumstances. It is an exercise in misdirected energy and wasted talent in his view.
TIM WOOD (ResourceInvestor.com): Thanks Larry, that was very generous and of course thanks very much to James Turk who has made this possible - GoldMoney’s generosity has made this event possible.
What we are going to see today is that it is possible to have a discussion on this topic without insults, without scurrilous accusations, and without death threats. I hope that we can all learn together through it.
What we’ve got to note at the outset is that if you disagree with the gold price conspiracy, or manipulation, or suppression school of thought, then you are automatically assumed to be negative on the gold price. So let me state for the record right up front that I do believe we will see higher gold and silver prices before this cycle is done. That said, the gold conspiracy theory - the gold price suppression idea - is good theatre but it doesn’t pass muster. We’ve got to apply logic, we’ve got to be rational about this, we’ve got to be reasoned about it.
I’m going to briefly take you through the issues, I’m not going to try a point by point rebuttal on everything. Right at the outset may I have an indication by show of hands – who here does not believe that gold is money? That’s incredible, I’ve got one hand, so I think you will conclude we have a majority and a plurality, not a problem. Okay, so we have this consensus that gold is money. Who controls the price of money? The government does; through credit policies, through interest rates, through any number of things. Of course the government affects the price of gold!
If gold wasn’t money it would be irrelevant. The only reason that gold is affected by government action is because it is money so let’s be glad for it. Exactly the same reasoning applies to hedging. You can only hedge gold because it is money.
The most important reason for dismissing the gold conspiracy as we’ve had it presented is the confusion of its own intentions. It rails against governments for intervening in the gold market but virtually in the same breath they will cry about government attempting to demonetise gold.
So which is it? Must government get out of the gold market or must government protect the gold market? For my money I would prefer government to get out of the gold market.
Show me a currency in the world that is widely circulated, private and with which you can pay your taxes. There isn’t one unless you can tell me something about airline miles that I’m not familiar with. So the fact is that in monetary history, there isn’t a single instance when private money has trumped government money. Government money always wins irrespective of whether it is morally correct or not. That is not the point, government money wins, end of story. Like death and taxes, that’s a reality we have to deal with.
The Federal Reserve was established for a primary reason which is to elevate the likelihood of the incumbent party to retain power, and it does that with two mandates in mind. Firstly, it’s charged with maintaining full employment. Full employment is another way of saying loose monetary policy; you want to be expansionary as often as possible. Second, it is supposed to have a mandate of protecting the purchasing power of the dollar. Expressed another way the price of assets, goods and services over the long run are supposed to be something akin to Goldilocks - neither too hot and neither too cold.
Now it is pretty obvious from history that that has been a dismal failure. It is not a wise idea to allow government bureaucrats to set the price of money, or baked beans, or anything else. But that is what the Federal Reserve does, that is its mandate: to set the price level of everything in this economy from money to baked beans.
The problem for me is that gold conspiracists end up supporting this vestige.
The real threat to gold is that governments covet it at particular times in history. Let’s remind ourselves that 72 and a quarter years ago President Roosevelt expropriated gold. You became a felon if you held gold beyond a certain date, but he gave you dollars in return. However, a little while later he devalued those dollars by 41%. In other words there was a 41% tax on anyone who had gold and silver holdings. What we’ve now seen in the past three decades is an enormous accumulation of gold in private hands. At the same time we are seeing an increasing risk of a monetary accident in the United States for several reasons that we don’t need to go into.
Gold flowing into private hands; politicians with no real out, except possibly to go and grab that gold again - there’s never been a repeal of the intention of that legislation.
Why I say there’s been misdirected energy and purposelessness in this whole issue is that what the gold price conspiracists should have done for the six years of their organised existence was created a lobby to ensure that gold and silver - all precious metal holders - are safe from the arbitrary depredations of the judicial, legislative and executive branches.
If we can own gold safely in the knowledge that it will never again be taken from us, that is a cause worth pursuing, otherwise it’s irrelevant. Government money always wins. Thank you.
DR PARKS: Thank you Tim. Could you put up slide number one and leave it up please? James Turk is the founder and chairman of GoldMoney (whose website is www.goldmoney.com), which provides a convenient and economical way to buy and sell gold online using the digital gold currency for which he was awarded three US patents. In addition, he writes The Free Market Gold & Money Report, an investment newsletter he began in 1987.
His latest book, published by Doubleday in December 2004, is "The Coming Collapse of the Dollar and How to Profit From It". Incidentally, after this debate James will be available at 1.30pm at the Kitco booth in the Exhibit Hall, which is booth number 900, for a book signing for anyone who would like an autographed copy of his new book. I have read this book and let me tell you it is sensational.
For reasons that he will disclose shortly in his opening statement, James believes that gold is money. Consequently, he believes that gold's exchange rate to the dollar -- what we call the 'price' of gold
-- is managed by governments for the simple reason that gold is too important for it NOT to be managed by governments in today's world. He describes it as a world in which government has stuck its very visible hand into every facet of the economy. According to James, government intervention ranges from monetary policy that sets dollar interest rates on one side of the spectrum to the Working Group on Financial Markets -- the so-called plunge protection team or PPT that was formed in 1987 after that year's stock market crash to supposedly reduce systemic risk -- to the other side of the spectrum.
In James's view, gold is free-market money, that when left unfettered reveals the true dire state of the fiat national currency that we now use as money. In short, gold is a messenger of how bad fiat national currencies really are, so in James's view, by trying to manage the gold price, governments are trying to shoot the messenger.
JAMES TURK (GoldMoney.com): Thank you very much ladies and gentlemen, it is a pleasure to be here today. Larry indicated that I believe gold is money. It’s money for one very simple reason, it’s accumulated. It’s the only thing we humans produce for accumulation. Everything else is consumed. Oil is consumed, food is consumed but gold is hoarded. The gold in your wristwatch may have been mined by the Romans, it may have been mined by the South Africans, it’s hoarded wealth. Because it is hoarded wealth it’s very useful for communication.
It may startle some of you but while oil looks expensive in dollar terms at 50, $55 a barrel, in gold terms it’s no more expensive today than it has been at any time in the past 60 years since the end of the Second World War. Let me repeat that. Crude oil in gold terms is no more expensive today than it has been at any time in the past 60 years since the end of the Second World War. This is why gold is sound money, it effectively communicates value over long periods of time and as Larry indicated, governments recognise that, they want their fiat currency to circulate because they can create that fiat currency out of thin air, use it to spend to enhance their own power. Gold stands as a protector against that, that’s why gold is in the constitution, that’s why the framers of the constitution made the money of this country gold and silver because they had lived through the monetary turmoil of the revolutionary war when the discipline was removed, when the gold link was removed and they suffered the consequences. They created the more perfect union so that their legacy would not have to go through the same troubles that they went through in the 1770s and 1780s and that system worked well for 175 years until we threw away the discipline, the last remnants of it, in 1971 and today we are living with the consequences. Huge debt, we are now the world’s largest debtor nation instead of the largest creditor nation, dollars are circulating all over the world, we’re exporting dollars, importing refrigerators. This system cannot last, not to mention all of the derivative problems and other related potential systemic risks.
So is the gold price managed? Of course it’s managed. It’s been managed ever since national currencies were created, but it was different before. Before national currencies were managed to fit the price gold. Now it’s been happening since the 1960s, gold is being managed to fit the ever-diminishing value of national currencies. In the 1960s we saw that management by the 10,000 ton dishoarding of gold from Fort Knox at $35 an ounce to try to make the market believe the dollar was really worth $35, gold was worth $35 when in fact gold was worth something higher than $50 an ounce and subsequently we saw what happened in the 1970s. Today gold is being managed but it’s being surreptitious, we have to really analyse and look at some of the things that are happening. Unlike the 1960s where we saw the gold coming out of central bank vaults, today central banks hide in their accounting, hide on their balance sheet how much gold is actually being loaned into the market and how much gold is actually sitting in their vaults. Completely defined generally accepted accounting principles because they don’t want you to know how hard they are actually working to try to keep gold from exploding.
This is not something that has just happened last week or last month, this has been an ongoing process and I would like to give you just a lit bit of background information on this. In 1997 I started recognising that the markets weren’t working like the markets normally work. I thought wow, what’s going on here? And it became clear in 1998, in testimony before Congress, Alan Greenspan said central banks stand ready to lease gold should the gold price rise. He said it twice, once before the House and once before the Senate. It’s an extremely blunt statement as to when you start to consider the implications, why would any profit maximising institution lend gold if the gold price should rise? Surely you should hard it? Why did the Bank of England sell half their gold hoard under $300 an ounce? It wasn’t a profit maximising effort, it was to try to keep the gold price controlled.
After Greenspan there are other things, I’ve done a lot of work as have done a number of other people. I discovered in late 1999 early 2000 two reports, one prepared by the treasury, one prepared by the Federal Reserve. They measured the gold reserve but the Federal Reserve report was calculated differently because it included the activity of its custodial accounts, the only one being the Exchange Stabilisation Fund which Schwartz who co-wrote Monetary History of the United States with Milton Friedman called an unaccountable slush fund, others have been very critical of the Exchange Stabilisation Fund as well, it’s normally controlled by, it normally reports to Congress but it’s under the office of the president and the treasury secretary and they basically can do with it whatever they want. But these two reports, one by the Federal Reserve and one by the treasury were different so the difference was definitely the activity of gold moving in and out of the Exchange Stabilisation Fund. Now unfortunately it was only month end data but one month showed a million ounces difference between the two reports so obviously the Exchange Stabilisation Fund was an active participant in the market and subsequently what happened, after I wrote my report, the Federal Reserve went back and brushed out all of the Exchange Stabilisation Fund numbers and continued to report from thereon only the way the treasury reported so that we could know even less about the Exchange Stabilisation Fund.
I don’t want to get into all of the work that has been done, it’s been, there’s a number of websites Reg Howe at Golden Sextant he and Michael Bolster have done a lot of work. Frank Veneroso is a name familiar to a lot of people, he’s done a lot of work on this. Of course Gata, the whole Gata organisation, a lot of this work showing government involvement in the gold market is there, gata.org on their website and this includes the flows of gold which is something that I actually came up with. The Federal Reserve reports the amount of gold going out of the custody account but the other central banks don’t. The Bank of England being in the centre of the lending market keeps all of its data confidential. You can’t get in there, you can’t audit, you can’t see it. What I did is I went to the customs records in the UK and saw the flows of gold in and out of the UK over a period of time and the numbers were startling because even though the Bank of England doesn’t report what gold goes in and out of the Bank of England, Her Majesty’s Customs kept very accurate records and since England is not a gold producer we know that gold was coming not out of the ground but out of the Bank of England. When you added the Federal Reserve numbers and the Bank of England numbers and these are just two players in the global market, it excludes everything that happens in Switzerland which is the biggest by far market, Germany, Hong Kong and all the other locations, just those two locations over a period of six years in the late 1990s 7,300 tons of gold was mobilised from the Federal Reserve and from the Bank of England, well over what the gold industry’s estimates are for gold being on loan in the market and that excludes Switzerland and all of the other locations adding credence to the point of view that I’ve been making and others have been making that we’re talking about a number, 10 thousand, 12 thousand, 15 thousand tons of gold on the market, half the gold nominally owned by central banks around the world could be actually lent into the market, no longer there, no longer in the vaults but we wouldn’t know it by looking at the central bank balance sheets because they hide the truth.
And that’s really what it comes down to at the end of the day. We want to get to the truth of this matter. I don’t agree with Tim’s premise that government money always wins. Sure, if they come and put a gun at your head you’re going to use their money, but if you look at monetary history, people find ways to get on with their lives without using government money if government money goes bad. And that’s why the active intervention to keep the gold price going up because it is the barometer as to whether central banks are doing well or not doing well in preserving the purchasing power of national currencies. If you make the gold price lower than it really should be and I think it should be somewhere over $500, $600 an ounce, if you make it lower than it really should be you’re destroying the messenger. If you destroy the messenger people can’t react to take steps to protect themselves to protect their wealth, to protect their families by moving into other assets and other commodities and seeing the true message. That’s why everybody in this room is in a special situation, we understand gold, we understand that in fact governments are doing us a favour by keeping it cheap, just like they were doing a favour for everybody who bought those 10,000 tons dishoarded at $35 an ounce back in the 1960s.
We’re going to look back 10, 20 years from now and say wow, wasn’t I clever buying all of that gold at $400 an ounce because look where it is today and look how much wealth I was able to protect and save myself. On that note, I guess we’re going to open it up for debate. Ladies and gentlemen, thank you very much.
DR PARKS: Thank you James. Can I have slide three please? Both James and Tim mentioned central banks and that really segues into my first question. By the way this is the only question that I have a little bit of exhibits on so please indulge me. There is the notion in this country about what the proper role of central banks are and particularly what the proper role of the Federal Reserve is. Now everybody knows that the Federal Reserve intervenes in the interest rate market and perhaps in the foreign exchange market and that we accept. However, what about other markets? Well here we have a statement from Alan Greenspan and this appears in my book, What Does Mr Greenspan Really Think?, where he says: “We have the responsibility to prevent major financial market disruptions to development and enforcements of prudent regulatory standards and if necessary, in rare circumstances, to direct intervention in market events.” Is Mr Greenspan leaving the door open to intervene in the gold market?
Let’s have slide number four please. This comes from Paul Volker’s book no less and what it shows is that the Federal Reserve, if it seems necessary to them, doesn’t really shirk from engaging in out and out fraud. So here’s what Mr Volker writes talking about phoneying up the central bank balance sheet in Mexico. He says: “So it was a matter of buying time in an effort to hold things together psychologically we agreed with considerable unease…” I would hope it would be unease! “… to extend overnight swap credits once or twice to the Bank of Mexico to bolster the month end figures for their dollar reserves. We would transfer money each month on the day before the reserves were added up and take it back the next day. Our unease did not arise from any fear of financial loss but because the window dressing disguised the full extent of the pressures on Mexico from bank lenders and from the Mexicans themselves.” In other words, they were out and out phoneying up the central bank balance sheet of Mexico and is this something that’s authorised for law?
And so I ask the panellists, have either central banks or governments involved themselves in affecting the gold market and if central banks or governments have involved themselves in affecting the gold market, were their actions authorised, that is were they legal? Would you put up page six please? Let’s start with Tim.
TIM WOOD: Well, the fact is central banks intervene in every single market, not just forex markets, not just the metals market, they intervene in agriculture markets; you name it. The central bank controls the national currency, they affect every single thing that we consume and use. Of course they intervene.
Do I expect government to be honest? Of course not. Why should we? There’s no history of governments being particularly honest. I think it’s an unreasonable expectation to assume that we can isolate gold as the one area which is to be free of all immoral action, that’s not how it works.
The central bank is there at the behest of the politicians who have understood very early on that the way to get re-elected very quickly in America is to transfer wealth from Washington to the states because it creates a presumption that you are gaining something. It’s like someone who gets a $10,000 refund on their IRS bill at the end of the year and is glad for it. You shouldn’t have a bill at the end of the year, you shouldn’t have a refund; the government shouldn’t be getting anything extra. The politicians redistribute wealth and inflation is one of the chief means of redistribution. The only way to achieve sustained inflation over a long period of time is through a central bank that is submissive.
DR PARKS: So is it legal in your view Tim?
TIM WOOD: Yes, it’s legal. I haven’t seen any ruling that declares it illegal. Do I agree with it? Do I think it’s moral? Certainly not. But is it legal? I haven’t seen anyone disagree with that.
DR PARKS: OK. James?
JAMES TURK: Governments don’t intervene in the corn market to keep corn prices down or if they do they subsidise the corn farmers so the corn farmers can continue to make a living. It’s different in the gold market. This is, they’re intervening in order to keep the gold price down. And consider the implications of this action. $50bn was knocked off the market cap of gold mining stocks over the past 18 months. 50bn. Imagine what the market cap of the gold mining stocks should be if gold was trading at a free market level somewhere north of 500, 600, 700 maybe $800 an ounce. The market cap would be hundreds of billions of dollars higher than it is today. Why should the gold industry be singled out? Why should it be punished unlike any other industry is being punished? I think it is totally unfair and with regard to the question of legal, it’s illegal. Look at the constitution. Read article 1 section 80 (10) and if you want to get a detailed economic history as to how we moved from sound money to what we have today I highly recommend a book by a friend of mine, his name is Edwin D’Era. The book is called Pieces of Eight and the website is piecesofeight.us. It’s a 1,600 page treatise with 6,000 footnotes. It’s the most documented wonderful piece of research I think I’ve ever had the pleasure of reading. It takes from the colonial days through the framers of the constitution and where we are today how we came to what we are and why today what we use as money is not constitutional.
DR PARKS: Thank you James. Just one more thing about Dr D’Era he’s a famed foundation scholar and this book that he wrote is 1,700 pages. When he first wrote it he said to me do you think a lot of people will read it and I said I don’t know if a lot of people can lift it!
I want to ask a question to do with legal tender. Legal tender aka forced tender was a big issue in the 19th century in our country. There was a time when the money issue was debated widely, it was in the newspapers, everybody knew about it. Labour asked the exact right question in 1896. They said if the money’s good and would be preferred by the people then why do you need legal tender? Why do you have to force people to use good money? And then they said if the money is not good and would not be preferred by the people in a democracy why should they be forced to use it? The question I want to put to our panellists is that gold is the free market choice for money. The free market choice, not necessarily the money that we have but that’s the choice of the people. In the United States as well as in other countries legal tender laws have been implemented to enable the circulation of fiat money and to preclude the use of gold as money. Since legal tender irredeemable paper ticket electronic fiat token money at least the United States is not authorised by our constitution.
Question. Do such laws constitute manipulation of the market for gold? Let’s put up page 11 please. Let’s start with Tim again. Do the legal tender laws constitute manipulation of the market for gold?
TIM WOOD: I’m just going to quickly invoke panellist’s privilege to respond to James on whether gold is the exclusive sufferer of downward pressure on its prices. Have a look at the lower end of the labour market in the United States. There is concerted effort led from all branches of government to ensure that wage prices at the lower end of the market do not rise and they do that by allowing the importation of vast quantities of illegal immigrants who suppress what would otherwise be a market price.
Getting onto the legal tender issue. Again I don’t think there’s any mystery in this. The fact of the matter is the easiest way to create an inflation that leads to redistribution is to print your own currency. Therefore governments institutionalised legal tender systems in order to force you to pay your taxes using whatever they said you should pay with. That is how the system works. Again, is it legal? I haven’t seen a ruling against it. Certainly it is unconstitutional but the fact of the matter is there’s no one who has gone to the big house for it.
DR PARKS: James?
JAMES TURK: They should go to the big house! Unfortunately they haven’t, but they control the courts that’s why they haven’t gone to the big house. With regard to the point about labour, if governments were pushing down labour costs there wouldn’t be a minimum wage. They would eliminate that so even there I don’t think that’s a good example Tim.
TIM WOOD: May I briefly respond? If you’ve got illegal immigrants that are flying under the radar you don’t employ them at the minimum wage because you’re not reporting.
JAMES TURK: That’s another issue Tim. If the government had it’s way somehow taxing them and giving them a wage you’d better believe they would try to do that as well and keep their wages as high as possible so they get the biggest possible tax.
DR PARKS: Okay, can I have slide 12 please? Roughly, in addition to the legal tender laws which you have in all countries around the planet, again which enable the irredeemable paper ticket money to circulate instead of free market choice, around 1978 the International Monetary Fund modified its articles of agreements aka it’s by-laws in section 42(b) to prohibit member countries from linking their currencies to gold and only to gold. So in other words if you took a country like Argentina which to me its people have to be some of the stupidest people on the planet, they’ve had five currency collapses in my lifetime, according to the IMF if the Argentines wanted to link their currency to sour pickles that would be OK, but to link it to gold, that’s prohibited.
So I ask the panel does this prohibition, the International Monetary Fund prohibition against linking their currencies to gold, does that constitute manipulation of the gold market? Let’s start this time with James.
JAMES TURK: Of course it does. It’s just one of many, many examples that central banks stack the deck in their favour. As you said in your opening statement Larry, gold and the national currency are competitors and because government’s making the rules they’ll make the rules to their advantage, they’re not going to make them to gold’s advantage.
DR PARKS: Do you want to add to that Tim?
TIM WOOD: I’ll second that.
DR PARKS: Okay. One of the things we know now is that central banks have leased a certain amount of their gold, why don’t they call it lending by the way? Why do they call it leasing?
JAMES TURK: It’s another form of propaganda. You lease a Mercedes Benz, they’re trying to make it look like some unuseful commodity but reality is you lend money, you lend gold, that’s why they’ll not use the term lending.
DR PARKS: That’s right. What’s forgotten here is that how did these central banks get all this gold to begin with and in three words, they stole it. People had brought their gold to banks and what have you. They got these certificates that said redeemable on demand in gold and then these promises were reneged upon and then the central banks kept the gold for their own account.
The question I would like the panel to address, does central bank leasing of gold per se constitute manipulation of the market for gold? What do you say Tim?
TIM WOOD: Well, I think we must look at this in two respects. First of all, if you don’t have central bank leasing you don’t have one of the critical pillars of the gold market so you immediately remove one of the monetary functions of gold.
Secondly why do we always pile on the selling side in this debate? How come there’s never a conspiracy charge against the concerted effort by gold longs to drive the price up? Why is it only a conspiracy when it’s people who wish to profit on the short side? We must accept that there are buyers and sellers. Otherwise there is no market.
And when it comes to the question of central bank lending, again let’s go back and have a look, do a quick reality check. If we look at some of the numbers that have been thrown around, we’re expected to believe that between 1995 and 2001 central banks were lending at the rate of approximately 20-40 tonnes of gold a week into the market. In other words the assumption was that that lending was creating downside pressure, 20-40 tonnes a week. The Bank of England comes along and says we’re going to sell 25 tons of gold . . . every two months. It’s just miniscule by scale and yet there’s this huge impact that is ascribed to the Bank of England when the real issue is if you’ve got this massive short position hanging out there, the big central lending pool, it overwhelms everything, it is Jupiter, Mars and Saturn versus the Earth.
DR PARKS: James do you want to add to that?
JAMES TURK: Yes, I’d just like to respond about the comment that Tim was making about the longs. It’s actually timely, kind of, because there was a press release this morning by Gata based on some work that I did on the GoldMoney site that’s published, if you want to see the full piece that I had written. I’d like to use a quote from Frank Veneroso that I’ve used from the site, this was in the gallery release this morning, there’s only one possible, this is Frank Veneroso speaking in March 2005. “There is only one possible explanation for why purchases of thousands of tons of gold in the futures and forwards markets … “ which is what Tim was referring to, “… to knock the price of gold sky high. The official sector must step in and gold price rallies as an offsetting forward seller.” And the interesting thing that I wrote about and which Gata picked up this morning in the release was the bank for international settlements numbers for derivatives which were released on Friday, in an environment when the gold price was rising from June 2004 to December 2004, the derivatives position rose by a 32% annual rate proving Frank was right. The longs didn’t end up winning, central banks won because they just kept pouring more and more paper into the market and that’s ultimately why the gold price is back down here in the 420s digesting all of that paper that the government’s put into the market in the six months of last year.
DR PARKS: Well, it’s come time to turn the questions over the audience, but I want to do something now that I’ve never done before and that is I want to ask the audience a question. Presumably this is a fairly knowledgeable audience and just to illustrate the contention that I have about disinformation about gold, I want to ask you this question. The most important think to happen to gold in the 20th century beyond anything else that happened to gold is that for 40 years it was a felony for Americans to own gold any place on the planet. I’d just like a show of hands. Is there anybody in this audience that has a coherent explanation for the public policy justification for making gold ownership a felony? Yes sir.
[INAUDIBLE]
DR PARKS: OK, the man says the public policy justification for making gold ownership a felony is that they, I assume you mean the government, wanted to circulate its paper money. Interestingly I didn’t get a big show of hands on that one. Let me hear from you. What questions do you have? Let’s start right there. Stand up please.
AUDIENCE PARTICIPANT Actually I had my hand up from your prior question. I was simply going to say that I think there’s a correlation between gold and the seeking of knowledge and I think that in order to acquire unlimited power over a population you have to make the seeking of knowledge the minimus amongst the population and I think that by taking gold out of the equation, the questioning of the ideology of the Federal Reserve and so many things that go with it, have completely left the consciousness of the American people.
DR PARKS: I think that’s a brilliant observation. Thank you very much. OK, who has a question for us? Right here in the front, Dianna.
AUDIENCE PARTICIPANT Given that the United States made it illegal to own gold for 40 years and back in the 30s apparently society respected government very much, and all the gold was really sucked up into Fort Knox, I guess I have a question of where is that gold today? Is it in the public or is the majority in the public or will it be in the public pretty soon, that is the small investor? And what does that mean to the currency? Will the fiat currencies of the world blow up and then we will have a commodity standard take its place? And will government have as much control over those events as they had back in the 30s?
JAMES TURK: I’ll take the first round of that James. First of all when we talk about the gold confiscation, only 40% of the gold was actually turned in. In his book, Monetary History of the United States, Friedman has big footnote on this, they assume, the government assumed that they estimated how much gold was in circulation as opposed to honest Americans understanding that they was no constitutional right for their gold to be confiscated, they just kept it. The 40% of gold that was taken was taken mainly because it was stored in banks and when the banks opened after the closure acting as agents for the federal government, the banks had to turn that gold over to the federal government even though it wasn’t their property. The gold is supposedly in Fort Knox. The questions remain as to how it’s been audited, whether or not some of that gold has surreptitiously been put into the market, nobody knows the answer to that question. There were a couple of sham visits to Fort Knox by some congressmen in the 1970s but was hardly what I would consider to be an audit that met due diligence purposes. So is that 8,000 tons there or is it not there? The interesting thing is that when the government acts it’s getting everybody else to sell their gold. The Canadians sold all of their gold, the Europeans are selling all of their gold but Fort Knox is off limits. Why is that? Is it because the gold’s not there or is it because the government recognises that the gold is too important better let other governments get rid of their gold and keep their own? It’s a question that needs to be answered.
With regard to the comparison to the 30s, technology today is changing everything and as a consequence I don’t think there is going to be much government forcefulness in terms of confiscation of gold. The opportunities for storing gold internationally, the opportunities for the 60% of the people who didn’t turn in their gold in the 1930s, storing it in the back yard, still exists. If government’s grabbed your money this time around they’re going to go after 41Ks, pension plans because they know the money’s there. It’s hard to find gold, it’s easy to call up your broker and see how much you have in your 41K.
DR PARKS: Tim do you want to add to that?
TIM WOOD: Yes, you know whether the gold is in Fort Knox or not, nobody knows and I don’t think we should speculate either way until we get a firm answer.
We can have some interesting suggestions but the whole issue of the fiat currency’s blow up I think that’s the worst thing that people can hope for and there are people who do hope for that. It would presage a government grab and let’s not forget that financial surveillance internationally has become extremely sophisticated.
You cannot open an account whether it is for digital gold or physical gold or dollars or whatever without presenting reams of identification that tie you down. If there is some sort of massive blow up they will confiscate that gold because you have to follow the logic. If there’s a blow up it means that fiat currencies are worthless. Why would they raid a 401 account which is worthless when there’s gold on offer? That is the risk. The best thing we can hope for is what is going on in New Hampshire which is a progressive attempt to integrate monetary gold as a parallel private currency with existing government monies. But if we don’t secure that gold and silver from confiscation, it’s all pretty pointless.
JAMES TURK: Could I make a follow on comment? The reason why John Robino and I wrote this book is for a matter of education so you can understand about gold and what’s going on. I don’t hope the dollar collapses, but I’m prepared for the worst. My motto is very simple. Hope for the best but prepare for the worst and there’s no instance when fiat national currency, when you remove the link to gold has survived. Why should the US be any different? Why should the Japanese and Chinese continue to accept our paper IOUs in exchange for refrigerators and Toyotas ad infinitum? Why should the debt mountain that’s been growing for the last 20 years, why should we assume that it’s going to grow for another 20 years? It could collapse tomorrow. That’s the history of fiat national currencies, it can collapse at any moment and that’s the real concern of this present system as it’s structured and that’s why it’s a tragedy that we’ve abandoned the constitution and have gone on this route the past 30 years.
DR PARKS: I would just like to interject. There is no precedent in the history of the world where dishonoured promises to pay money have maintained their value but also anybody in this audience who has education in engineering or sciences know that you have any system that doesn’t have a negative feedback loop ie a self correcting mechanism, that system blows up. And in our monetary structure there’s no longer any negative feedback loop on increasing financial leverage so you have something approaching $300trn worth of derivatives 37, $38trn worth of debt and there’s many others and all these things keep going up, nothing goes to the sky, at some point there will be an accident.
JAMES TURK: The financial feedback loop is the price of gold and that’s why you have to keep the price of gold, keep a lid on it as best you can because if it were to start going higher people start to understand how vulnerable they are by holding national currencies.
DR PARKS: We’ve got time for one more question.
AUDIENCE PARTICIPANT Good morning. In answer Larry to your question about the 1933 gold confiscation, I read somewhere that President Roosevelt was concerned that since the constitution was amended, the 21st amendment, that booze was going to become legal, he was afraid that people, law abiding Americans would blow their gold on booze.
DR PARKS: Wasted on women and booze? Is that it? Okay!.
AUDIENCE PARTICIPANT My question is this. I’m an ageing baby boomer and for the past 25 years or more I heard all about how great gold is. I remember in 1980, over 25 years ago, it was $875. This past Thanksgiving we were at dinner and my brother said to me look gold is $450. Even so it’s $400 less than it was 25 years ago. My point is or my question is why should we believe people who keep talking gold, gold, gold and for the past 25 years it’s been such a lousy investment?
JAMES TURK: Markets move in cycles. They move from under valuation to over valuation, we move into financial assets, into tangible assets and we swing back and forth. So if you look back since the Second World War, 50s and 60s were a period of financial assets, the stock market boomed but stocks became over valued and people started moving into tangible assets and by early 1980s we had a 12, 15 year cycle where financial assets were under valued and commodities and tangible assets were over valued, the $850 gold price that you were speaking of, then that started changing. People pulled money out of commodities, tangible assets, went back into stocks and we then had a stock market boom until 2000 and again stocks became over valued relative to tangibles. You talk about gold at 425 compared to 850. How about gold today at 425 compared to 250 back in 2000? We are now at the beginning of another cycle that occurred in the late 60s, 70s and early 80s that’s going to last in my opinion for another eight to 10 years. So forget about what’s happened for just 25 years, look at what’s happened over the past three years and what’s likely to happen over the next eight to 10 years, it’s another repeat of the 1970 cycle driven by monetary problems with the dollar just like we had back then, but we’re in much worse shape today because of the size of the mountain of debts of the derivatives, the biggest debtor nation and all the other problems that we know about.
DR PARKS: James, my red light is blinking. We’ve overstepped our time, we’re done, please give the panellists a big hand. James and Tim did a great job and thank you very much.
