Afternoon all, For those who follow the fortunes of Au, below is...

Afternoon all,
For those who follow the fortunes of Au, below is OzEquities' summary of a very lengthy report tabled by Sprott Asset Management (Canada) a week or two ago. It's still a bit of a tome, but worth the read....IMHO anyway.
Cheers,
Carl.......Hey, I'm a believer!!


SPECIAL

Special report
SOME AMAZING POINTS FROM THE SPROTT STUDY INTO THE LONG TERM MANIPULATION OF THE GOLD PRICE

Sprott Asset Management in Canada, investment manager to the Sprott Canadian Equity Fund, Sprott Gold and Precious Minerals Fund, Sprott Energy Fund, Sprott Hedge Fund LP and several others with over $C1.6 billion in assets under management, on August 24 published a report entitled “Not Free, Not Fair: The Long-term Manipulation of the Gold Price” – grateful thanks to Reader who alerted.
The 71 page report can be read in its entirety on www.sprott.com.

Sprott says in its preamble that it is a money manager, not a crusader, but the more they investigated the gold market the more it became apparent that the gold price was managed.
The report quotes extensively from the work of the Gold Anti-Trust Action Committee (GATA) team whose erudite work Sprott considers to be excellent in scope but chronically under appreciated by gold market observers. The GATA team of four includes Frank Veneroso, arguably the foremost mind on gold supply and demand flows, Sprott says, whose clients have included the World Bank and the International Finance Corporation as well as numerous governments, Reginald H Howe, who was a partner in the Boston law firm of Palmer & Dodge from 1976 to 1984, later formed the Golden Sextant Associates a general partnership for investing in developing North American gold mining companies, whom Sprott says, is one of the leading authorities on the gold market generally and gold derivatives in particular (and who sued Greenspan and others – the case was dismissed on two technicalities, not on lack of evidence), Mike Bolser, a statistician, formerly a military flight instructor who does regression analyses of various segments of the gold market and James Turk, the founder of GoldMoney.com, a specialist in international banking who was for 11 years with Chase Manhattan Bank.
Other reports are also quoted.

Recent history of manipulation of the gold price
*1990’s: The first major manipulation in the gold market was to save Long Term Capital Management who were short 400 ozs of gold – which was reported early, and later removed from LTCM’s books by the Fed Reserve.
*1995: A reference to “gold swaps” in the January 1995 FOMC meeting no longer exists. “Lightly edited” versions of the FOMC meeting are now archived with the verbatim discs of the meetings are now destroyed.
*1999: The first effort was to get the IMF to sell $3 billion worth of its gold reserves to ‘help debt relief from poor nations’ which was criticised since the sales would hurt the price of the yellow metal and depress the economies of the very countries purported to be helped.
*Following the failure of this effort, instigated by the UK, the Bank of England’s well publicised gold auctions bombshell announced on May 7 1999 when the gold price reached $290 and looked like exploding above $300 were designed to protect the shorts by depressing the gold price, not to give the Bank a profit. The overhanging auctions managed to pull the gold price below $300 per oz after it had soared to around $330 after the September 1999 agreement. (The auctions were contrary to usual discreet gold sales by banks through history through the BIS).
* After the September 26 1999 Washington Agreement when 15 European Central Banks agreed to limit their gold sales for 5 years to 400 tonnes per year and not expand their gold leasing activities - which saw the gold price explode upwards and began a regime of major manipulation.
*On October 11 1999 the Dow Jones reported “Central Banks are selling gold in order to prevent a further sharp rise in prices from causing a major financial crisis”, quoting Ted Arnold, analyst at Prudential Bache Securities Ltd.
*According to reliable reports filed by Mr Howe in his case against Dr Greenspan, and others Edward A J George governor of the Bank of England told Nicholas J Morrell, CEO of Lonmin Plc “We looked into the abyss if the gold price rose further. A further rise would have taken down one or several trading houses which might have taken down all the rest in their wake. Therefore at any price, at any cost, the central banks had to quell the gold price, manage it… The US Fed was very active in getting the gold price down. So was the UK”.
*Jan 2000: The US Exchange Stabilisation Fund (ESF) and Federal Reserve were reported as being active in depressing the gold prices. Earlier references to the ESF’s activity in the gold market were no longer reported after January 2000. For example, on December 31 1999 the ESF appears to have held 971,000 ozs of gold.

Gold swaps excluded from Washington Agreement: CB vaults could be half empty
*Gold swaps were excluded from the Sep 1999 agreement, which dealt with only outright sales. Gold loans by the Central Banks have continued apace.
This has led to the conclusion THAT THE GOLD HELD BY CENTRAL BANKS COULD BE FAR, FAR LESS THAN THE OFFICIAL NUMBERS., the Sprott report says.
James Turk uncovered what appears to be a gold liability of up to $20 billion in the Consolidated Financial Statements of the US Government.
The Sprott report says historically central banks have not reported a reduction in their gold reserves when they conduct gold loans or gold deposits.
Veneroso believes total gold loans to be of the order of 10,000 to 16,000 tonnes vs the Gold Fields Mineral Service (GFMS) number only reports approximately 4,000 tonnes of total central bank liquidity. Whereas GFMS records less than 15 per cent of central bank gold lent, Veneroso estimates 30 pct to 50 pct of official sector gold has been mobilised and is no longer in central bank vaults.
The Sprott report says, “Put another way, central bank vaults are one third to one half empty under the Venoroso model”.
Alan Greenspan, testifying to the Over-The-Counter derivative markets had said in 2000 “Nor can private counterparties restrict supplies of gold, another commodity whose derivatives are often traded over the counter, where central banks stand ready to lease gold in increasing quantities should the price rise”.

Gold intervention by official sectors just like currency manipulation
The Sprott report says Venoroso and the GFMS essentially agree on annual mine production being approximately 2,600 tonnes, scrap supply in 2003 according to GFMS was 943 tonnes.
*Sprott quotes from a Lehman Brothers report from January 2000: “We believe that the incredibly high liquidity of the gold market suggests that a net short position is the natural equilibrium for the time being. The reason is that gold can consistently be borrowed much cheaper than money … essentially the price of gold could rise 4.8 pct or about $13 per oz and a bearish speculator would still break even on a short position established today… the risk/return profile of the gold market favors the short side”.
*The US ‘Strong dollar policy’: The Sprott report says the Treasury Department has never articulated the mechanisms by which the strong dollar policy has been implemented. Quoting John Hathaway, the Sprott report says “Gold retains its financial market role as the “canary in the coal mine”. A sharply rising gold dollar price would send a clear message to even the most casual observer that something is awry with the Fed’s “fine tuning” of the economy and financial markets”.
*Sell off in COMEX trading: Research published by Dmitri Speck confirmed work by several observers that gold sold off on COMEX compared to other major gold exchanges.
In a report in September 2003 Frank Veneroso said there are 500 to 600 metric tons of speculative long position on the COMEX, but that is the tip of the iceberg. The big market is the over the counter market. The total net speculative position is probably many times (that) .. Who is taking the other side of that trade? In the old days, it used to be the producers, setting up their hedge books and selling forward. Now they’re covering hedges. Who else? There are gold dealers, and a lot of the people think these are the short sellers in the market. After the price spike in 1999 they have closed such positions. So there is only one possible counterparty now, and that is the official sector. This is just like currency intervention”
A recent article by Dan Norcini, a commodity trader, on July 20 2004, “A Visual Measure of the Recent Selling Pressure in Gold, LeMetropole Café” noted that increased fund buying was being met with an incredible wall of selling by the so-called commercials.
Norcini notes that for the August COMEX gold contract the “open interest bottomed at 226, 780 on March 8 2004. .. On March 16, just shy of two weeks later, gold closed at $404.50, an increase of just about $10/ounce. What was the open interest figure on that date? Answer 245,495 contracts. IN other words it took a total of 18,715 contracts (from 245,495 to 226,780) to drive the gold price to a $10 gain. As of last Friday, July 16, gold closed for the day at $406.80. It had moved $3.80 from its closing price on June 29 in a bit more than two weeks. Simultaneously open interest had increased from 224,251 to 263,574 or an increase of 39,323 contracts. In other words, this time around it required more than TWICE the amount of new buying to move the gold price a mere $3.80 higher than it did four months previously”.
Norcini noted that the huge selling by commercials is inconsistent with proceeds maximising strategies of a legitimate hedger who by nature would not fight bull markets but on the contrary would sell scale up with lighter amounts of sales done at lower levels while slowly increasing levels of selling as the market rises.
*Manipulation of markets ahead of the Iraq war. The Sprott report quotes Japanese Chief Cabinet Secretary Yasuo Fukuda as saying “There was an agreement between Japan and the US to take action co-operatively in foreign exchange, stocks and other markets if the markets face a crisis” (report published on BBC news but not picked up by major newspapers).

“Like all manipulations, this one too will fail (and) the price of gold will explode”
The Sprott report said after examining the preceding material, it does not believe it is possible to conclude that the gold market has not been subject to severe long term manipulation.
“This body of evidence is not illusory and certainly not the work of paranoid people. We believe that it is the only explanation for gold’s prolonged weakness in the face of superb fundamentals … Just as the Gold Pool lost a tremendous amount of metal in an impossible attempt to keep the price low, so too the central banks of today keep feeding their reserves into the market in a scheme destined to end with their gold permanently gone. Given a huge supply/demand deficit whereby the official sector is needed simply to keep the market in equilibrium, it is highly unlikely that many central banks will ever get their gold back at anywhere near the current price ..
“Like all manipulations, this one too will fail. When it does, the price of gold will explode”.