Gold Conspiracy

John Embry, chief investment strategist of Toronto based Sprott Asset Management, on Tuesday published a gold conspiracy compendium that he believes provides nearly irrefutable evidence of a global gold price suppression scheme.

In a covering note to clients, Embry and co-author, Andrew Hepburn, explain that anecdotal evidence such as ?counterintuitive price action? is one indicator pointing to a gold market that is ?not free? based on a decade of evidence. The report says initially disconnected activity by powerful gold market players has essentially synchronized. ?A potentially highly dangerous situation developed which now requires expedient collaboration to stave off the inevitable bad ending.?

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The report says the market manipulation hurts all gold investors, but its true victims are communities that depend on gold mining. It says the beneficiaries are central banks intent on camouflaging ?increasingly reckless monetary policies?, whilst financial institutions are profiting by gulling investors who think the gold market is free.

Whilst previously employed by RBC Asset Management, Embry issued a brief that was closely aligned with the position of the Gold Anti-Trust Action Committee (Gata). RBC repudiated the June 2002 report almost immediately, telling investors that it was meant for internal consumption only.

Sources blamed the hasty repudiation on Gata chairman, Bill Murphy, for distributing the report without RBC?s and Embry?s permission. Murphy told Mineweb that he had merely passed on a document forwarded to him by an RBC private client. ?As far as I was concerned, it was a public document that drew largely from specifics in Gata?s own published research,? Murphy said at the time.

The wheel has since turned. Embry parted ways with RBC, joining Sprott in March 2003 which has been an aggressive gold bull for some time. Ironically, just days before Embry?s original report hit the Internet, Eric Sprott of the eponymous investment firm issued a public retraction about Barrick?s [ABX] vulnerability to rising gold prices because of its hedge book.

Entitled: Not Free, Not Fair: The long term manipulation of the gold price, the report runs to 63 pages. It is notable that whilst Gata is acknowledged, Murphy receives no direct recognition although his name litters the footnotes. The primary sources are listed as Frank Veneroso, Reg Howe, Michael Bolser and James Turk, all of whom are in the Gata camp.

In a nutshell

Even though the gold price has risen some $150 per ounce since it bottomed in 2001, the report says market manipulation has capped those gains. Only when the claimed manipulation is ended, by intervention or accident, will gold soar to an equilibrium value which is seen as a four-digit number.

The report dates the gold price suppression conspiracy to the rescue of Long-Term Capital Management in 1998, thereafter commencing ?in earnest after the post-Washington Agreement gold price explosion in 1999.?

It is alleged that the 1999 blow up which crippled Ashanti, since acquired by AngloGold [AU], and Cambior [CBJ], unmasked a gold carry trade run amok.


Having borrowed gold nearly limitlessly to sell forward and invest the proceeds in higher interest bearing instruments, the parties and their de facto insurers, central banks, realized that the positions could not be easily unwound. LTCM?s apparent gold short position of 300-400 tonnes, which is equivalent to nearly a whole year of South African new mine production, could not have been settled without causing a run on the gold price that might have triggered a collapse of the financial system.

The belief is that central banks and the primary financial institutions agreed on a scheme to manage down or conceal the risks without causing a panic. As part of this arrangement, the Bank of England agreed, on behalf of the UK Treasury, to sell a large quantity of gold through a series of bizarrely structured auctions.

Apparently aiding and abetting the Brits were the super-secretive US Exchange Stabilization Fund and the Federal Reserve. The IMF also provided cover by allowing governments to misreport the status of gold reserves and gold swaps.

Not Free, Not Fair repeatedly rejects the statistical compilations of GFMS Limited and other ?consensus statisticians? such as Jessica Cross. It cites the work of Frank Veneroso as more reliable. ?Given Veneroso?s more reliable numbers, we also believe total gold loans to be on the order of 10,000-16,000 tonnes. By contrast, GFMS only reports approximately 4,000 tonnes of total central bank liquidity in the market,? the report says. The Veneroso number suggests that central bank vaults are ?one-third to one-half empty? of their reported gold.

Gold producer executives have generally shied away from endorsing a conspiracy theory. This is primarily because of the association with Gata?s Bill Murphy, a former commodities trader, was fined and expelled by the CFTC over allegations of copper market rigging. He is also prone to incendiary statements and imprudent foretelling that have made a pariah of the activist organization in reasoned company. However, Embry and Hepburn say there is a ?greater inclination [among executives] toward the manipulation hypothesis than most market observers may realize.?

Embry and Hepburn also agree that global gold derivative figures contrasted with net producer dehedging indicate that central banks continue to lend their gold so that the associated carry trade dwarfs mine hedging.

Conclusions

Not Free, Not Fair concludes that there can be no other explanation for the apparently erratic behaviour of gold but ?severe long-term manipulation.?

?We find troubling the consistent unwillingness by mainstream gold analysts to debate, or even acknowledge, the manipulation viewpoint in any depth. Such market watchers pretend, not convincingly, that the people marshalling the price management thesis do not possess either the knowledge or research with which to make a strong case for price-fixing in the gold market,? the authors write.

They are confident that when the scheme unravels, as it would have to, the gold price will explode. ?Until then, we urge the news media, gold industry and relevant arms of government to further investigate and expose what appears to be price-fixing on a scale of truly epic proportions.?