Board of Governors
of the
Federal Reserve System
March 29. 1999
Mr. Richard Harmon
(address omitted)
Dear Mr. Harmon:
Senator Allard has forwarded you concerns regarding the gold market to the Federal Reserve for our response.
Your communication quotes Chairman Greenspan's July 24,1998, testimony before the House Banking Committee in which Chairman Greenspan stated that "...central banks stand ready to lease gold in increasing should the price rise." This statement was made in the context of demonstrating the unlikelihood that private market participants could restrict supplies of commodities traded in over-the-corner(note: yes, that is the way it is in the letter) derivative markets, thereby distorting settlement prices.
You draw the conclusion from chairman Greenspan's remark that the Federal Reserve, together with other central banks. Has manipulated the gold market by leasing quantities to prevent the price rising. However, the Federal Reserve is prohibited by law form buying, selling, or owning gold. The U.S. gold stock is owned by the U.S. Treasury. Accordingly, the Federal Reserve cannot take and has not taken any action in the gold market to manipulate the price of gold.
More broadly, the Treasury has taken no action to manipulate the price of gold.
As for the actions of other central banks, it has been widely reported that an increasing number of them are participating in the gold-lease market to earn a small return on their holdings. When the price of gold rises, it can become more attractive for gold producers to hedge by selling gold forward, an activity that depends on the availability of leased gold form official holdings.
Market forces are unleashed that induce improved incentives to lease. (And this statement makes me know we have them) Central banks stand ready to respond to such incentives and have often, but not always, done so. The Federal Reserve has played no role, and intends to play no reole, in the decisions of other central banks.
I hope this information is helpful.
Sincerely, Donald J. Winn
Assistant to the Board
cc: Senator Allard
(If it is not manipulated, how does he know "Central banks stand ready to respond to such incentives? We know this is a lie, because the Federal Reserve agrees with the IMF statement which prevents members from use of a gold standard!)
rh
PS,
Bill, I know we are on the right track now, it took me less time to get an answer than it has a member of Congress. |
