Basel 3 already has demolished claims that central banks don’t rig the gold market

Some observers foresee an explosion in the gold price, likely carrying silver and other metals with it, while others expect…

by Chris Powell of the Gold Anti-Trust Action Committee (GATA)

5:31p ET Monday, June 7, 2021

Dear Friend of GATA and Gold:

Many predictions are being offered about the impact of the “Basel 3” regulations on “unallocated gold” that have been proposed by the Bank for International Settlements and that the European Banking Authority has scheduled for implementation in the European Union at the end of this month.

Some observers foresee an explosion in the gold price, likely carrying silver and other metals with it, while others expect nothing special at all, figuring that central banks would never do anything favorable for the once and potentially future world reserve currency, which even now competes most inconveniently with their own currencies.

For your secretary/treasurer, the weightiest piece of evidence about Basel 3 is the astounding panicked protest issued a month ago by the London Bullion Market Association and the World Gold Council, a protest directed to the Bank of England’s Prudential Regulation Authority, opposing implementation of Basel 3 in the United Kingdom:

https://gata.org/node/21135

The LBMA-WGC protest contends that Basel 3 would make the “unallocated gold” business — the business of the LBMA banks — prohibitively expensive by requiring the banks to amass huge new deposits to offset what Basel 3 considers the derivative liabilities of “unallocated gold,” and would impair transactions undertaken for central banks.

Your secretary/treasurer has imagined mechanisms by which central banks seeking to persist in their longstanding policy of gold price suppression might get around Basel 3:

https://gata.org/node/21171

But then international agreements that revalue currencies do come around every half century or so, and the Scottish economist Peter Millar has shown how occasional comprehensive devaluations of government currencies against gold, reducing the burden of debt, are essential in a debt-based fiat money system to prevent interest expense from going exponential and devouring the real economy:

https://gata.org/node/4843

The U.S. economists Paul Brodsky and Lee Quaintance hyporthesized nine years ago that central banks already were planning for such an upward revaluation of gold and were redistributing gold reserves among themselves as part of a plan for the next international currency revaluation:

https://www.gata.org/node/11373

Such speculation is hardly wild. In an interview with Business News Network in Canada in 2008, former Federal Reserve Board Governor Llye Gramley was questioned about the seemingly excessive leverage on the Fed’s balance sheet. To defend the Fed, Gramley surprisingly volunteered a comment about the generally unrecognized value of the gold certificates the Fed has received from the U.S. Treasury Department.

Gramley said: “I think you have to reckon with the fact that one of the Fed’s assets is gold certificates, which are priced, as I remember, at $42 an ounce, and if we were to price them at market prices, the Fed’s leverage would look a lot less than it is now”:

https://www.gata.org/node/6989

BNN has been taken over by Bloomberg News and the video linked in the GATA dispatch about Gramley long since has been removed, but your secretary/treasurer saw the video soon after the interview was given and carefully transcribed Gramley’s comment about the gold certificates.

Gramley’s interview with BNN was 13 years ago and he died six years ago. His service on the Fed board ended 36 years ago:

https://www.federalreservehistory.org/people/lyle-e-gramley

While this may seen ancient history, it’s even more relevant today, for it shows that just as Federal Reserve officials long have thought about what has to be done to defend the U.S. dollar, they also long have thought about what might be accomplished with a revaluation of gold.

Besides, it is hardly a leap to suspect that the U.S. government knows a bit more about what is going on in the gold market, about central bank views of gold, and about the likely impact of the Basel 3 regulations on “unallocated gold” than what GATA knows and tries to convey to you after puzzling through these deliberately mysterious and obfuscated areas of government policy and markets. After all, the Fed chairman and the president of the Federal Reserve Bank of New York are members of the Board of Directors of the Bank for International Settlements: 

https://www.bis.org/about/board.htm?m=1%7C2%7C2

Could the BIS really be disturbing the gold market without the knowledge and even the assent of the U.S. government?

Or, despite the panic from the LBMA and the World Gold Council, will Basel 3 really not disturb the gold market much at all, just the bullion banks? 

There are plausible reasons to consider Basel 3 revolutionary or inconsequential toward gold.

Of course GATA hopes Basel 3 overthrows the comprehensive market rigging that we long have been documenting, protesting, and sometimes litigating against:

https://gata.org/node/20925

But if such an overthrow via the BIS is in the works, it would seem that the U.S. government, the seat of gold suppression policy, must already have a plan to deal with it, maybe involving closing the gold futures exchanges with cash settlement, netting all bullion bank gold derivatives to zero, reliquefying the Fed and Treasury and other central banks as Gramley and Brodsky and Quaintance imagined, and maybe even another attempt at gold confiscation.  

In any case, even if Basel 3 comes to nothing with the price of gold, advocates of free and transparent markets and limited and accountable government may be glad at least that all the recent publicity about the “unallocated gold” regulations already has demolished whatever was left of the opinion that the gold market is not manipulated by central banks, governments, and their agents.

Now that the LBMA and the World Gold Council are openly defending themselves as the essential facilitators and camouflagers of central bank interventions in the gold market, even the Financial Times, a leader in financial journalism, may feel compelled to report relevantly about gold in another 10 or 20 years.

CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
[email protected]

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