Yesterday, we presented a narrative by LoneRangerSilver detailing the account of a secret gold shipment across the US/Mexican border. The Doc would like to present his thoughts concerning the matter, and answer the questions posed by LoneRangerSilver at the end of the narrative.
Many countries sold off a large portion of their gold reserves to build up US dollar foreign exchange reserves during the 1980’s and 1990’s. Regarding the questions about what happened to these gold stores, and where are they now- that is an excellent question for former US Treasury Secretary, Robert Rubin. In the mid 1990’s, Treas Secy Rubin announced a strong dollar policy. Basically Rubin’s strong dollar policy consisted of a gold carry trade- leasing gold out to the primary dealers at 1% interest. The primary dealers turned around and dumped the gold onto the market, raising cash, and they then turned around and invested the proceeds in high yielding debt and stocks. This created enormous artificial supply of gold, suppressing its price, and thus, supported a strong dollar, which was basically the inverse of gold. The policy was also used as a major tool to control interest rates, and keep them at levels much lower than those of a free-trading market.
The bear market in gold induced largely by this gold leasing carry-trade ended in 2001, when the US gov’t ran out of gold to lease to the primary dealers.
These dealers abruptly found themselves short massive amounts of gold, in a suddenly bull market.
They have been attempting to add paper shorts to the market to prevent from having to realize these massive losses ever since- which are increasing exponentially by the way.
As far as where the Mexican “Mystery Gold” was headed- if the Mexican president was involved, we are highly suspicious that a deal was made between Mexico and the US to provide Mexico with manufacturing jobs (NAFTA was passed by Bill Clinton shortly after this episode in 1993) in exchange for Mexico’s gold stores to be used to support the dollar. This is purely speculation, but motive by both the Mexican and US governments for such a swap is clearly evident.
I’ll include a portion of GATA’s report to the CFTC detailing these swaps for our readers who are interested in further explanation.
“The Gold Anti-Trust Action Committee (GATA) was formed in January 1999 to expose and oppose the manipulation and suppression of the price of gold. What we have learned over the past 11 years is of great importance in regard to the CFTC’s forthcoming hearings regarding position limits in the precious metals futures markets. Our efforts to expose manipulation in the gold market parallel those of Harry Markopolos to expose the Madoff Ponzi scheme to the Securities and Exchange Commission.
Initially we thought that the manipulation of the gold market was undertaken as a coordinated profit scheme by certain bullion banks, like JPMorgan, Chase Bank, and Goldman Sachs, and that it violated federal and state anti-trust laws. But we soon discerned that the bullion banks were working closely with the U.S. Treasury Department and Federal Reserve in a gold cartel, part of a broad scheme of manipulation of the currency, precious metals, and bond markets.
As an executive at Goldman Sachs in London, Robert Rubin developed an idea to borrow gold from central banks at minimal interest rates (around 1 percent), sell the bullion for cash, and use the cash to fund Goldman Sachs’ operations. Rubin was confident that central banks would control the gold price with ever-more leasing or outright sales of their gold reserves and that consequently the borrowed gold could be bought back without difficulty. This was the beginning of the gold carry trade.
When Rubin became U.S. treasury secretary, he made it government policy to surreptitiously operate an identical gold carry trade but on a much larger scale. This became the principal mechanism of what was called the “strong-dollar policy.” Subsequent treasury secretaries have repeated a commitment to a “strong dollar,” suggesting that they were continuing to feed official gold into the market more or less clandestinely to support the dollar and suppress interest rates and precious metals prices.
Lawrence Summers, who followed Rubin as treasury secretary, was an expert in gold’s influence on financial markets. Previously, as a professor at Harvard University, Summers co-authored an academic study titled “Gibson’s Paradox and the Gold Standard,” (see Footnote 1 below) which concluded that in a free market gold prices move inversely to real interest rates, and, conversely, if gold prices are “fixed,” then interest rates can be maintained at lower levels than would be the case in a free market. This was the economic theory behind the “strong dollar policy.”
Federal Reserve Chairman Alan Greenspan understood Summers’ research when he remarked at a 1993 meeting of the Federal Open Market Committee:
“I was raising the question on the side with Governor Mullins of what would happen if the Treasury sold a little gold in this market. There’s an interesting question here because if the gold price broke in that context, the thermometer would not be just a measuring tool. It would basically affect the underlying psychology.” (See Footnote 2 below.)
GATA has collected reams of evidence that Western central bank gold has long been mobilized and surreptitiously dishoarded to rig the gold market and influence related markets and that this rigging has drawn upon the U.S. gold reserves.”