12 March 2009

Suppressing gold price to keep dollar strong is over: Adrian Douglas ~ GATA

11 March, 2009, 09:54

A modern day gold rush is under way as people’s confidence in currency is fading fast while the price of gold rises, says Adrian Douglas, financial analyst and the director of the Gold Anti-Trust Action Committee.

RT: Mister Douglas, let's get right down to it. What is the reason for the gold demand surge?

Adrian Douglas: The reason why gold demand is surging is for all the traditional reasons. It is that gold is a stored wealth and it has been a stored wealth for over 6,000 years of recorded history.

But gold is also a unique financial asset. When you buy gold bullion it has no counterparty risk. You don't rely on any third party for your gold to store your wealth. Every other financial asset has what we call counterparty risk. And this is why investors are turning to gold, because they are starting to get worried about their bank deposits because they are scared the banks will not be solved. They are starting to get worried about their stock portfolio because they are scared the companies they have invested in will not stay in business. And they are concerned about their bond portfolio because they are scared that governments will default on sovereign debt. So gold eliminates all of these counterparty risks and this issue is now driving investors towards gold.

RT: What about people that possibly do not have portfolios, they have a little bit of savings in a bank. Should those people take their money out of the bank and buy gold?

A.D.: Yes, they should. Gold and silver will go to astronomic numbers as currencies are inflated to very little purchasing power.

The US government is announcing almost on a daily basis how trillions of dollars are being put into the system and this that is money is created out of nothing has no backing. It will eventually lead to hyperinflation and reduce the purchasing power of their currencies. So how could you protect yourself? By taking money out of the bank and buying gold from a broker.

You must own physical gold. There are a lot of gold substitutes out there which are paper promises for gold, and they won't protect you. You need to have either allocated gold or gold in your hot sweaty hands that you own yourself.

RT: Tangibly holding it and having it in your home?

A.D.: Yes, in the interim while gold prices are going very high people will be able to cash in their gold for the currency as and when they need it.

RT: You are the head of the Gold Anti-Trust Action Committee. And from what we heard the gold market was suppressed for over ten years. What does that mean? That there was suppression of the gold market in US for over a decade?

A.D.: In the first place in 1999 we recognized that there was a total mismatch between the demand for gold and its price performance. And we have met a lot of evidence over the years that was showing that the gold market has been suppressed. This suppression is an effort to maintain the value of the US dollar and also to keep trust rates low.

The whole mechanism for this has been described in a paper by Lawrence Summers, who was ex-Secretary of the Treasury, but when he was professor of the economics of Harvard University he wrote a paper called "The Gibson paradox and the gold standard". In that research he explains how in a freely traded gold market the real interest rates and the gold price should move in inverse relationship to each other. In other words, if trust rates are low, the gold price should be high and visa versa.

What we've seen through the 90s and most of this decade is that we've had a low gold price and low interest rates. So, the conclusion we made was that the gold market is not freely traded and it has been suppressed.

RT: Lawrence Summers is part of President Obama's cabinet.

A.D.: Yes, he is one of his economic advisers and so we can summarize that the suppression to gold price is ongoing.

RT: You've referred to this as basically a Ponzi scheme.

A.D.: Yes, the Western central banks, with the leaders of federal reserves and governments, have investigated this scheme of suppressing the gold price. And this is what is at the core of the strong dollar policy. If you can suppress the gold price and not make it a free market then you can have low interest rates and a low gold price.

The low gold price essentially switches off the alarm in the financial system. What the purpose of the strong dollar was so that the US Government could issue lots of dollars without the alarm bells going off. The benefit for the US has been to live beyond their means. They managed to import goods from foreign countries and they have paid for them essentially with overvalued treasure debt. And they have even been so successful they have convinced other central banks that US treasure debt is a reserve asset. Now central banks around the world are sitting on trillions of dollars of treasure debt as a reserve asset which has a huge counterparty risk now of the American government – they will not repay it.

RT: So we've been inflating the dollar like a balloon. Is this balloon going to pop?

A.D.: Yes, the suppression of the gold price is coming to an end. The gold prices have already risen from as low as $255 in 2001 to a high recently of $1000. This is a sign that the scheme is starting to lose attraction because it depends on central banks being able to continue to put an extra supply of gold into the market to keep the price down. The central banks have been doing this for 15 years. Now, on our estimates, they have probably consumed 50% to 60% of their gold reserves. At the same time demand for gold by the general public is going up. Obviously the breaking point is coming where gold will skyrocket and it will go to numbers which will probably surprise even the most bullish people.

RT: In 2008 the Wall Street Journal published a warning of impending financial disaster due to the suppression of the price of gold. What was their response?

A.D.: What they say was ignored for 10 years has largely been ignored by the US press and of course by the government officials.

And we've got frustrated with that. We took out this full page ad in Wall St Journal, it cost us $64,000 and warning the general public that if this manipulation of gold price has not stopped, then there would be a significant catastrophe and disaster in the market. We have got no response. The problem with the scheme is that it is in lots of people's interest in the financial world and of course they need it to continue.

RT: Do you credit one Russian government official as the first anywhere in the world to acknowledge your claims of gold manipulation.

A.D.: This was deputy chairman of the Russian Central Bank who made a speech in 2004 to the London Bullion Market Association. In that speech he mentioned that a group of economists have got together and came to the conclusion that the gold price is manipulated and that that suppression is allowing the US the exorbitant privilege of being able to spend a lot more than it should be allowed to spend.

RT: You say the entire financial crisis that the US and world is living through right now has come out through derivatives. What are derivatives?

A.D.: This is not understood by a lot of people and it is not mentioned in press very much.

Derivatives are essentially like an insurance contract. And you can take out an insurance contract against something happening, well, because the system is being rigged and many of the big money central banks and large insurance companies like AIG have known that the system was rigged but they could capitalize on it. So they have been able to sell trillions of dollars of derivative contracts to be able to get insurance premiums basically every month of these contracts. And be very wealthy out of that knowing that they would never have to pay out on the contract because the system was rigged. And this is where the problem has recently developed that the sub prime mortgage created defaults of the derivatives. That created a daisy chain effect through the system, but now these contracts are payable. So instantaneously black holes of trillions of dollars appeared on the balance sheets of many banks, and this is what is being referred to its toxic assets.

RT: So instead of these stimulus plans that keeps getting push from Washington, what would you suggest or needs to be done to save the US economy?

A.D.: First of all we need to outlaw the OTC derivatives. Second thing we need to do is to abolish the Federal Reserve and nationalize the banks.

The Federal Reserve is a private bank and the government has to pay them their interest for creating money out of the thin air which the government could do on its own without having to pay any interest. The third thing we need to do is to back the currency with gold. And we need of course to reinstate discipline in landing and enforce the rules that keep the stock market honest and keep the banking system honest.

RT: Do you think that the Obama administration is going do any of the four things you have just mentioned?

A.D.: It would take a lot of courage to do the things which I've said. Because there are a lot of advisors who have vested interests so that those things are not done.

But the American people need to wake up and realize what is happening to their country. And I think if the American people make enough noise then perhaps President Obama might listen to the people instead of listening to some of his advisors who have another agenda.

1 comment:

Anonymous said...

"The benefit for the US has been to live beyond their means."

I couldn't agree more!