2/20 Reginald H. Howe - Faces of Modern Imperialism: AngloGold, Barrick and the BIS
Reginald H. Howe
www.GoldenSextant.com
row@ix.netcom.com
February 20, 2001. Hidden Faces of Modern Imperialism: AngloGold, Barrick and the BIS
Shades of Cecil Rhodes and Alfred Beit. At the Indaba African Mining Conference in Cape Town, Kelvin Williams of AngloGold, South Africa's largest gold producer, used his turn at the podium to take a gratuitous swipe at GATA: "Forget for the moment about the notion of a conspiracy against gold, and worldwide plots between central bankers here, there and everywhere. We face a physical overhang of the metal...."
Huh? Annual new mine production has peaked at around 2500 tonnes. Annual demand for gold now exceeds 4500 metric tonnes. Last week, the World Gold Council reported that demand in the markets it surveys reached almost 900 tonnes in the last quarter of 2000, the highest level of quarterly demand ever recorded by the WGC. For years now, the ever growing gap between new mine supply and demand has been filled by a combination of scrap recovery, official sales and, most importantly, gold borrowed from central banks and sold into the market, much of it pursuant to hedging programs of producers like AngloGold. Its continuing policy, restated by Williams at Indaba, is to hedge mostly through forward sales up to one-half of its production for the next five years.
With financial and editorial support from "South Africans for a free gold market," GATA responded to AngloGold's jibe through a full page ad in Business Day, the principal financial newspaper in South Africa. The ad pointedly questioned whether AngloGold's role in driving down gold prices through heavy forward selling should be rewarded by allowing it to purchase Gold Fields, the country's second largest gold producer, which last week announced that it had used recent weakness in gold prices to close out its remaining forward sales.
AngloGold is 53% owned by Anglo American PLC, the international mining and natural resources conglomerate that also controls Anglo American Platinum, the largest producer of PGM's outside Russia, and De Beers group, the world diamond cartel built by Sir Ernest Oppenheimer and his son Harry after the elder Oppenheimer in 1929 seized control of the corporate empire left by Cecil Rhodes. See Susan Emerling, "Not forever" (www.salon.com). Anglo American has recently announced a reorganization of the De Beers companies amidst reports that De Beers wants to shed the image of a cartel in order to improve its access to the American market. Once, when asked whether he preferred diamonds or gold, Sir Harry replied: "Diamonds, every time. People buy diamonds out of vanity. They buy gold because they are too stupid to think of any other monetary system which will work." Today gold is a loss leader for Anglo American -- cheap settings for its more profitable diamonds.
Barrick Gold is also rumored to have designs on Gold Fields, possibly in conjunction with AngloGold. Barrick is controlled by Canadian financier Peter Munk through TrizecHahn Corporation, his flagship international real estate development company. Like AngloGold, Barrick operates an aggressive forward sales program, including the writing of call options to sweeten the returns from hedging. This tactic is particularly dangerous absent a high level of confidence in continued low gold prices. Since 1997, TrizecHahn has reduced its stake in Barrick from about 16% to under 8%, following earlier large dispositions of Barrick shares by Horsham, TrizecHahn's predecessor. On a split-adjusted basis, Barrick's share price peaked at more than twice its current level in early 1994 and again in early 1996, making all these sales by Munk's holding companies appear prescient indeed.
As parts of larger corporate empires with their major interests outside gold, AngloGold and Barrick differ from other gold mining companies in a way that helps to explain their aggressive hedging policies. The overall profits of their parent companies, Anglo American and TrizecHahn, are far more dependent on continued strength in the G-10 economies than on higher gold prices. One analyst estimates that gold at $600/ounce would add one full percentage point to the economic growth rate of South Africa, where currently each gold miner supports an average of 11 to 12 others. But however warranted by fundamentals, a price increase of this magnitude would unmask the short gold position of the bullion banks, threatening the very consequences that so frightened Eddie George, Governor of the Bank of England, in the wake of the Washington Agreement. See Complaint, paragraph 55.
Accordingly, viewed in the larger context of Anglo American's interests rather than just AngloGold's, it is not surprising that Kelvin Williams at Indaba described a shortage of physical gold as a glut, or that he tried to deflect the blame for low gold prices away from their true source: the G-10 central banks operating a price fixing scheme through the Bank for International Settlements in an increasingly desperate war against gold. Leaders of struggling new democratic regimes in the gold producing nations of Africa should not fall for the G-10's shills. Rather, as African leaders evaluate the evidence of gold price fixing adduced by the GATA impi, they should be guided by Thomas Jefferson's remark to James Madison: "Resort is had to ridicule only when reason is against us." After all, the author of the Declaration of Independence and the principal draftsman of the Constitution have a record for democratic nation building that is hard to beat.
For many gold bugs, the transition of the BIS from a European ally to an important tool of official Anglo-American gold bashing is perhaps the most surprising and disheartening development of the past few years. As reflected in the transcript of the Federal Open Market Committee's conference call on July 20, 1994, this transformation stems from the Treaty of Maastricht, which put the European Monetary Institute followed by the European Central Bank on track to replace the BIS as the primary vehicle for joint action and cooperation among European central banks. To avoid being sidelined as irrelevant, the BIS undertook to reinvent itself as a global financial institution, an effort which the ever opportunistic Alan Greenspan was only too pleased to support. As the Fed chairman explained to the FOMC:
Up until the Maastrich Treaty, our relationships with the BIS seemed to be appropriately constrained to our periodic visits over there to deal with the G-10 on a consultative basis and to be involved with a number of their committees, but to have no involvement at all with the actual management of the BIS. With the advent of the Maastrich Treaty and the development of the European Monetary Institute, the potential of the BIS being effectively neutered because of the overlap in jurisdictions of the EMI and the BIS has led the BIS to move toward a much more global role, one that anticipates inviting a significant number of non-European members, 10 to 25 as I recall the range, to become members of the BIS. That would significantly alter its character from a largely though not exclusively European managed operation to one which is far more global in nature. It is possible, perhaps probable, that the BIS as a consequence will become a much larger player on the world scene. It was our judgment that it would be advisable for us to be involved in the managerial changes that are about to be initiated rather than to stay on the sidelines, as we chose to do through all those decades when we did not want to get involved with a European-type international organization. In contradistinction to that, we think it is important to be an active player in the development of this institution to make certain that we as the principal international financial player have a significant amount to say in the evolution of the institution. That's the basis upon which this decision has been made here at the Board, and it was one which we probably would not have addressed in any meaningful way had not the altered nature of the BIS itself become imminent.
A few days after this FOMC briefing, the BIS announced that Messrs. Greenspan and McDonough would assume the two seats on its board reserved for the American issue, and that the governors of the Bank of Canada and Bank of Japan had also been elected to the board. Thus, with inclusion of the United States, the board would henceforth consist of the G-10 countries. As the International Monetary Fund has already demonstrated, nothing is more dangerous to economic growth and democratic progress in developing nations than an obsolete international financial institution cut adrift from the developed world and left to save itself by trying to help the less developed. No one ever seems to ask how the developed world developed without these institutions.
Like the IMF, the BIS sails today on a monetary course for which it was neither designed nor intended. Article 20 of its Statutes still commands: "The operations of the Bank for its own account shall only be carried out in currencies which in the opinion of the Board satisfy the practical requirements of the gold or gold exchange standard." Among the standing committees of the BIS is the Committee on Gold and Foreign Exchange, sometimes referred to as the Committee of Experts on Gold and Foreign Exchange or the G-10 Committee on Gold and Foreign Exchange. Exactly what this committee does in the area of gold, including why it has not suggested amendment or deletion of Article 20, is an obvious subject for discovery in my lawsuit, as well as for direct inquiry by several gold producing nations of Africa which are members of the BIS, especially South Africa.
One clue is (or was) available online. Until about two weeks ago, the last sentence of the first paragraph of the biographical summary for Peter R. Fisher, head of the New York Fed's markets group, read: "He also is a member of the bank's Management Committee and serves on the Gold and Foreign Exchange Committee of the G-10 central banks." On February 6, 2001, this sentence was deleted while the rest of the biography remained unchanged. (A "Google" search for "Peter Fisher committee gold" will still turn up a reference to the missing sentence.) Fisher is widely reported to have played a major role in the Fed-orchestrated rescue of Long Term Capital Management, which according to reliable sources was short 300 to 400 tonnes of gold. Hard to believe that the presumed captain of the Plunge Protection Team has lost these prestigious committee appointments, and only a few days after a GATA supporter found his online bio, too.
Speaking of the New York Fed, after dropping to low or negligible levels from April through August, withdrawals of gold from earmarked foreign and international accounts have run at a heavy pace in the months since: 40 tonnes in September, 41 in October, and 44 in November. Added to the heavy outflows in the first quarter, total withdrawals in the first 11 months of 2000 equal 315 tonnes, or more than the full year totals of 302 tonnes for 1999 and 309 tonnes for 1998. My hunch is that much of this official outflow is IMF gold deposited with -- and loaned out by -- the BIS. I also suspect that part of the reason for the compulsory freeze-out of the BIS's private shareholders is to avoid publication of annual financial reports that might disclose some of this activity. See, e.g., commentary dated June 11, 2000, Central Banks vs. Gold: Winning Battles but Losing the War? (This commentary also contains a chart showing monthly outflows of foreign earmarked gold from January 1997 through March 2000.)
As shown graphically in a prior commentary, Cycles of Manipulation: COMEX Option Expiration Days and BOE Auctions, the Bank of England's gold auctions are on the same bimonthly cycle as COMEX gold options and futures. Don Lindley reports that immediately following the last auction on January 23, his "option cube" turned from a bullish bias toward $280/ounce to sharply bearish, suggesting a decline to $260 or lower. The basic pattern seems to be that the auctions provide the delta for the bullion banks to write calls, which traders then use to support bear raids on the futures. In any event, the timing of the British auctions betrays their true purpose.
In a recent article, NY Strangulation of World Gold Market - 1 Year, Harry Clawar updates his data on gold price increases overseas and their cancellation by selling on the COMEX. For the year beginning January 25, 2000, when his study started, net overseas price increases amounted to $160/ounce, while net decreases in New York equaled $173/ounce. Meanwhile, as shown in the Gold Market Regression Charts that Mike Bolser continues to update as new data becomes available, the intuitively contradictory trends of strong physical demand and shrinking markets for paper gold continue to manifest themselves. The latter trend is also quite apparent in reduced turnover and open interest in gold contracts on the TOCOM, which Mike does not chart.
Richard Russell has been watching markets and writing about them almost since the day he returned from World War II service in bombers over Europe. His Dow Theory Letters is among the oldest and most successful investment letters. On January 24, 2001, he wrote: "I don't, as a rule, believe in manipulation in the markets, but if there are two areas of manipulation they are (1) gold - everytime gold sticks it's little yellow head up, someone, somewhere - brings a hammer down on that poor head. Ouch." Turning to area (2), he continued: "The Dow and the S&P - watch the last 15 minutes of every session. Someone, probably a fund or a brokerage house, moves in and buys just enough to move the Dow up 15 to 25 points and in the same percentages with the S&P."
Linked, coordinated manipulation of gold and stocks poses the danger that disclosure of rigging in one market will expose it in the other. In that event, spiking gold with a sinking dollar and a collapsing Dow in an already slowing economy will be two sides of the same coin. Given egregious misvaluations of both gold and stocks plus a gargantuan trade deficit with no historical precedent, the ingredients are at hand for an economic crisis on a scale not seen since the Great Depression. The scenario from Gold or Dross? Political Derivatives in Campaign 2000 is looming ever larger.
As the Germans advanced into Poland, W. H. Auden penned September 1, 1939 ("As the clever hopes expire / Of a low dishonest decade"). One stanza's final line ("We must love one another or die") was so misinterpreted and misused that the poet removed the entire stanza from the 1945 collection of his works. Lyndon Johnson's 1964 presidential campaign against Barry Goldwater ran a television spot based on the deleted stanza. Starting with a young girl pulling petals from a daisy while a voice intoned the countdown, the ad ended with a nuclear mushroom cloud and the voice misquoting the final line. After President Johnson put an army of over half a million men into Vietnam, Auden struck the whole poem from subsequent editions of his works.
In today's world, where the imperatives of power and prosperity in the developed nations regularly trump concern for the less developed, September 1, 1939 -- in lines never changed nor repudiated -- speaks hauntingly to the G-10 governments and their satellite international financial institutions:
But who can live for long
In an euphoric dream;
Out of the mirror they stare,
Imperialism's face
And the international wrong. |
