Koos Jansen
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Koos Jansen
Posted on 28 Nov 2013 by

Minutes Of Kissinger Meeting On Gold, 1974

After Nixon “temporarily” suspended the convertibility of dollars into gold in 1971, because evil international speculators were attacking the US dollar, some of the European countries were not amused the US broke its promise. In the years that followed a diplomatic battle ensued; the US wanted to completely phase out gold from the monetary system in order to preserve the US dollar hegemony, while other countries wanted a comeback and revalue their gold holdings. In the following minutes we can read how Henry Kissinger, National Security Advisor and Secretary Of State at the time, was discussing the matter with his team. Teaser:

 Mr. Enders: I think we should look very hard then at very substantial sales of gold—U.S. gold on the market—to raid the gold market once and for all.

Nixon kissinger

FOREIGN RELATIONS OF THE UNITED STATES, 1973–1976
VOLUME XXXI, FOREIGN ECONOMIC POLICY, DOCUMENT 63


63. Minutes of Secretary of State Kissinger’s Principals and Regionals Staff Meeting 1

Washington, April 25, 1974, 3:13–4:16 p.m.

[Omitted here is discussion unrelated to international monetary policy.]

Secretary Kissinger: Now we’ve got Enders, Lord and Hartman. They’ll speak separately or together. (Laughter.)

Mr. Hartman: A trio.

Mr. Lord: I can exhaust my knowledge of gold fairly quickly, I think.

Secretary Kissinger: Now, I had one deal with Shultz—never to discuss gold at this staff meeting—because his estimate of what would appear in the newspapers from staff meetings is about the same as mine.

Are you going to discuss something—is this now in the public discussion, what we’re discussing here?

Mr. Enders: It’s been very close to it. It’s been in the newspapers now—the EC proposal2

Secretary Kissinger: On what—revaluing their gold?

Mr. Enders: Revaluing their gold—in the individual transaction between the central banks. That’s been in the newspaper. The subject is, obviously, sensitive; but it’s not, I think, more than the usual degree of sensitivity about gold.

Secretary Kissinger: Now, what is our position?

Mr. Enders: You know what the EC proposal is.

Secretary Kissinger: Yes.

Mr. Enders: It does not involve a change in the official price of gold. It would allow purchases and sales to the private market, provided there was no net purchase from the private market by an individual central banker in a year. And then there would be individual sales between the central banks on—

Secretary Kissinger: How can they permit sale to the private market? Oh, and then they would buy from the private market?

Mr. Enders: Then they would buy.

Secretary Kissinger: But they wouldn’t buy more than they sold.

Mr. Enders: They wouldn’t buy more than they sold. There would be no net increase in gold held by the central banks that was held by the EEC. It could be held by others.

I’ve got two things to say about this, Mr. Secretary. One is: If it happens, as they proposed, it would be against our interests in these ways.

Secretary Kissinger: Have you accepted it or is this just a French proposal?

Mr. Enders: It’s an informal consensus that they’ve reached among themselves.

Secretary Kissinger: Were they discussed with us at all?

Mr. Enders: Not in a systematic way. They’re proposing to send over to Washington the Dutch Finance Minister and the Dutch Central Governor would talk to the Treasury.

Secretary Kissinger: What’s Arthur Burns’ view?

Mr. Enders: Arthur Burns—I talked to him last night on it, and he didn’t define a general view yet. He was unwilling to do so. He said he wanted to look more closely on the proposal. Henry Wallich, the international affairs man, this morning indicated he would probably adopt the traditional position that we should be for phasing gold out of the international monetary system; but he wanted to have another look at it. So Henry Wallich indicated that they would probably come down opposing this. But he was not prepared to do so until he got a further look at it.

Secretary Kissinger: But the practical consequence of this is to revalue their gold supply.

Mr. Enders: Precisely.

Secretary Kissinger: Their gold reserves.

Mr. Enders: That’s right. And it would be followed quite closely by a proposal within a year to have an official price of gold—

Secretary Kissinger: It doesn’t make any difference anyway. If they pass gold at the market price, that in effect establishes a new official price.

Mr. Enders: Very close to it—although their—

Secretary Kissinger: But if they ask what they’re doing—let me just say economics is not my forte. But my understanding of this proposal would be that they—by opening it up to other countries, they’re in effect putting gold back into the system at a higher price.

Mr. Enders: Correct.

Secretary Kissinger: Now, that’s what we have consistently opposed.

Mr. Enders: Yes, we have. You have convertibility if they—

Secretary Kissinger: Yes.

Mr. Enders: Both parties have to agree to this. But it slides towards and would result, within two or three years, in putting gold back into the centerpiece of the system—one. Two—at a much higher price. Three—at a price that could be determined by a few central bankers in deals among themselves.

So, in effect, I think what you’ve got here is you’ve got a small group of bankers getting together to obtain a money printing machine for themselves. They would determine the value of their reserves in a very small group.

There are two things wrong with this.

Secretary Kissinger: And we would be on the outside.

Mr. Enders: We could join this too, but there are only very few countries in the world that hold large amounts of gold—United States and Continentals being most of them. The LDC’s and most of the other countries—to include Japan—have relatively small amounts of gold. So it would be highly inflationary, on the one hand—and, on the other hand, a very inequitable means of increasing reserves.

Secretary Kissinger: Why did the Germans agree to it?

Mr. Enders: The Germans agreed to it, we’ve been told, on the basis that it would be discussed with the United States—conditional on United States approval.

Secretary Kissinger: They would be penalized for having held dollars.

Mr. Enders: They would be penalized for having held dollars. That probably doesn’t make very much difference to the Germans at the present time, given their very high reserves. However, I think that they may have come around to it on the basis that either we would oppose it—one—or, two, that they would have to pay up and finance the deficits of France and Italy by some means anyway; so why not let them try this proposal first?

The EC is potentially divided on this, however, and if enough pressure is put on them, these differences should reappear.

Secretary Kissinger: Then what’s our policy?

Mr. Enders: The policy we would suggest to you is that, (1), we refuse to go along with this—

Secretary Kissinger: I am just totally allergic to unilateral European decisions that fundamentally affect American interests—taken without consultation of the United States. And my tendency is to smash any attempt in which they do it until they learn that they can’t do it without talking to us.

That would be my basic instinct, apart from the merits of the issue.

Mr. Enders: Well, it seems to me there are two things here. One is that we can’t let them get away with this proposal because it’s for the reasons you stated. Also, it’s bad economic policy and it’s against our fundamental interests.

Secretary Kissinger: There’s also a fundamental change of our policy that we pursued over recent years—or am I wrong there?

Mr. Enders: Yes.

Secondly, Mr. Secretary, it does present an opportunity though—and we should try to negotiate for this—to move towards a demonetization of gold, to begin to get gold moving out of the system.

Secretary Kissinger: But how do you do that?

Mr. Enders: Well, there are several ways. One way is we could say to them that they would accept this kind of arrangement, provided that the gold were channelled out through an international agency—either in the IMF or a special pool—and sold into the market, so there would be gradual increases.

Secretary Kissinger: But the French would never go for this.

Mr. Enders: We can have a counter-proposal. There’s a further proposal—and that is that the IMF begin selling its gold—which is now 7 billion—to the world market, and we should try to negotiate that. That would begin the demonetization of gold.

Secretary Kissinger: Why are we so eager to get gold out of the system?

Mr. Enders: We were eager to get it out of the system—get started—because it’s a typical balancing of either forward or back. If this proposal goes back, it will go back into the centerpiece system.

Secretary Kissinger: But why is it against our interests? I understand the argument that it’s against our interest that the Europeans take a unilateral decision contrary to our policy. Why is it against our interest to have gold in the system?

Mr. Enders: It’s against our interest to have gold in the system because for it to remain there it would result in it being evaluated periodically. Although we have still some substantial gold holdings—about 11 billion—a larger part of the official gold in the world is concentrated in Western Europe. This gives them the dominant position in world reserves and the dominant means of creating reserves. We’ve been trying to get away from that into a system in which we can control—

Secretary Kissinger: But that’s a balance of payments problem.

Mr. Enders: Yes, but it’s a question of who has the most leverage internationally. If they have the reserve-creating instrument, by having the largest amount of gold and the ability to change its price periodically, they have a position relative to ours of considerable power. For a long time we had a position relative to theirs of considerable power because we could change gold almost at will. This is no longer possible—no longer acceptable. Therefore, we have gone to special drawing rights, which is also equitable and could take account of some of the LDC interests and which spreads the power away from Europe. And it’s more rational in—

Secretary Kissinger: “More rational” being defined as being more in our interests or what?

Mr. Enders: More rational in the sense of more responsive to worldwide needs—but also more in our interest by letting—

Secretary Kissinger: Would it shock you? I’ve forgotten how SDR’s are generated. By agreement?

Mr. Enders: By agreement.

Secretary Kissinger: There’s no automatic way?

Mr. Enders: There’s no automatic way.

Mr. Lord: Maybe some of the Europeans—but the LDC’s are on our side and would not support them.

Mr. Enders: I don’t think anybody would support them.

Secretary Kissinger: But could they do it anyway?

Mr. Enders: Yes. But in order for them to do it anyway, they would have to be in violation of important articles of the IMF. So this would not be a total departure. (Laughter.) But there would be reluctance on the part of some Europeans to do this. We could also make it less interesting for them by beginning to sell our own gold in the market, and this would put pressure on them.

Mr. Maw: Why wouldn’t that fit if we start to sell our own gold at a price?

Secretary Kissinger: But how the hell could this happen without our knowing about it ahead of time?

Mr. Hartman: We’ve had consultations on it ahead of time. Several of them have come to ask us to express our views. And I think the reason they’re coming now to ask about it is because they know we have a generally negative view.

Mr. Enders: So I think we should try to break it, I think, as a first position—unless they’re willing to assign some form of demonetizing arrangement.

Secretary Kissinger: But, first of all, that’s impossible for the French.

Mr. Enders: Well, it’s impossible for the French under the Pompidou Government. Would it be necessarily under a future French Government? We should test that. 

Secretary Kissinger: If they have gold to settle current accounts, we’ll be faced, sooner or later, with the same proposition again. Then others will be asked to join this settlement thing.

Isn’t this what they’re doing?

Mr. Enders: It seems to me, Mr. Secretary, that we should try—not rule out, a priori, a demonetizing scenario, because we can both gain by this. That liberates gold at a higher price. We have gold, and some of the Europeans have gold. Our interests join theirs. This would be helpful; and it would also, on the other hand, gradually remove this dominant position that the Europeans have had in economic terms.

Secretary Kissinger: Who’s with us on demonetizing gold?

Mr. Enders: I think we could get the Germans with us on demonetizing gold, the Dutch and the British, over a very long period of time.

Secretary Kissinger: How about the Japs?

Mr. Enders: Yes. The Arabs have shown no great interest in gold.

Secretary Kissinger: We could stick them with a lot of gold.

Mr. Sisco: Yes. (Laughter.)

Mr. Sonnenfeldt: At those high-dollar prices. I don’t know why they’d want to take it.

Secretary Kissinger: For the bathroom fixtures in the Guest House in Rio. (Laughter.)

Mr. McCloskey: That’d never work.

Secretary Kissinger: That’d never work. Why it could never get the bathtub filled—it probably takes two weeks to fill it.

Mr. Sisco: Three years ago, when Jean 3 was in one of those large bathtubs, two of those guys with speakers at that time walked right on through. She wasn’t quite used to it. (Laughter.)

Secretary Kissinger: They don’t have guards with speakers in that house.

Mr. Sisco: Well, they did in ’71.

Mr. Brown: Usually they’ve been fixed in other directions.

Mr. Sisco: Sure. (Laughter.)

Secretary Kissinger: O.K. My instinct is to oppose it. What’s your view, Art?

Mr. Hartman: Yes. I think for the present time, in terms of the kind of system that we’re going for, it would be very hard to defend in terms of how.

Secretary Kissinger: Ken?

Mr. Rush: Well, I think probably I do. The question is: Suppose they go ahead on their own anyway. What then?

Secretary Kissinger: We’ll bust them.

Mr. Enders: I think we should look very hard then, Ken, at very substantial sales of gold—U.S. gold on the market—to raid the gold market once and for all.

Mr. Rush: I’m not sure we could do it.

Secretary Kissinger: If they go ahead on their own against our position on something that we consider central to our interests, we’ve got to show them that that they can’t get away with it. Hopefully, we should have the right position. But we just cannot let them get away with these unilateral steps all the time.

Mr. Lord: Does the Treasury agree with us on this? I mean, if this guy comes when the Secretary is out of the country—

Secretary Kissinger: Who’s coming?

Mr. Enders: The Dutch Finance Minister—Duisenberg—and Zijlstra. I think it will take about two weeks to work through a hard position on this. The Treasury will want our leadership on the hardness of it. They will accept our leadership on this. It will take, I would think, some time to talk it through or talk it around Arthur Burns, and we’ll have to see what his reaction is.

Mr. Rush: We have about 45 billion dollars at the present value—

Mr. Enders: That’s correct.

Mr. Rush: And there’s about 100 billion dollars of gold.

Mr. Enders: That’s correct. And the annual turnover in the gold market is about 120 billion.

Secretary Kissinger: The gold market is generally in cahoots with Arthur Burns.

Mr. Enders: Yes. That’s been my experience. So I think we’ve got to bring Arthur around.

Secretary Kissinger: Arthur is a reasonable man. Let me talk to him. It takes him a maddening long time to make a point, but he’s a reasonable man.

Mr. Enders: He hasn’t had a chance to look at the proposal yet.

Secretary Kissinger: I’ll talk to him before I leave. 4

Mr. Enders: Good.

Mr. Boeker: It seems to me that gold sales is perhaps Stage 2 in a strategy that might break up the European move—that Stage 1 should be formulating a counterproposal U.S. design to isolate those who are opposing it the hardest—the French and the Italians. That would attract considerable support. It would appeal to the Japanese and others. I think this could fairly easily be done. And that, in itself, should put considerable pressure on the EEC for a tentative consensus.

Mr. Hartman: It isn’t a confrontation. That is, it seems to me we can discuss the various aspects of this thing.

Secretary Kissinger: Oh, no. We should discuss it—obviously. But I don’t like the proposition of their doing something and then inviting other countries to join them.

Mr. Hartman: I agree. That’s not what they’ve done.

Mr. Sonnenfeldt: Can we get them to come after the French election 5 so we don’t get kicked in the head?

Mr. Rush: I would think so.

Secretary Kissinger: I would think it would be a lot better to discuss it after the French election. Also, it would give us a better chance. Why don’t you tell Simonthis?

Mr. Enders: Good.

Secretary Kissinger: Let them come after the French election.

Mr. Enders: Good. I will be back—I can talk to Simon. I guess Shultz will be out then. 6

Mr. Sonnenfeldt: He’ll be out the 4th of May.

Mr. Enders: Yes. Meanwhile, we’ll go ahead and develop a position on the basis of this discussion.

Secretary Kissinger: Yes.

Mr. Enders: Good.

Secretary Kissinger: I agree we shouldn’t get a consultation—as long as we’re talking Treasury, I keep getting pressed for Treasury chair-manship of a policy committee. You’re opposed to that? 7

[Omitted here is discussion unrelated to international monetary policy.]

1 Source: National Archives, RG 59, Transcripts of Secretary of State Kissinger’s Staff Meetings, 1973–1977, Entry 5177, Box 3, Secretary’s Staff Meeting, April 25, 1974. Secret. According to an attached list, the following people attended the meeting: Kissinger, Rush, Sisco, Ingersoll,Hartman, Maw, Ambassador at Large Robert Mc-Closkey, Assistant Secretary of State for African Affairs Donald Easum, Hyland, Atherton, Lord, Policy Planning Staff member Paul Boeker,Eagleburger, Springsteen, Special Assistant to the Secretary of State for Press Relations Robert Anderson, Enders, Assistant Secretary of State for Inter-American Affairs Jack Kubisch, andSonnenfeldt.

2 Meeting in Zeist, the Netherlands, on April 22 and 23, EC Finance Ministers and central bankers agreed on a common position on gold, which they authorized the Dutch Minister of Finance, Willem Frederik Duisenberg, and the President of the Dutch central bank, Jelle Zijlstra, to discuss with Treasury and Federal Reserve Board officials in Washington. (Telegram 2042 from The Hague, April 24, and telegram 2457 from USEC Brussels, April 25; ibid., Central Foreign Policy Files)

3 Jean Sisco was Joseph Sisco’s wife.

4 From April 28 to 29, Kissinger was in Geneva for talks with Soviet Foreign Minister Andrei Gromyko.

5 France held a Presidential election on May 19.

6 George Shultz’s tenure as Secretary of the Treasury ended on May 8, when he was replaced byWilliam Simon.

7 The summary attached to the front page of the minutes notes that “The Secretary is inclined to oppose the proposal on grounds of non consultation by the Europeans as well as on the proposal’s merits. The Secretary agreed to talk to Arthur Burns in this sense.”

(h/t Goudstudieforum)

Koos Jansen
E-mail Koos Jansen on:

  • Zhanglanv366

    Human beings evolved as fairly vulnerable creatures with relatively large brains, and survival as a species depended upon our ability to ‘join the dots’ and rapidly piece together disparate pieces of information; if I saw a bushy tail, a furry ear and a glimpse of stripy fur, I didn’t need to wait to see the whole Sabre Tooth Tiger, I needed to infer the bits I hadn’t seen yet and get the hell out of there.

    We still tend to do that, and yet experience has taught me the hard way that what I might instinctively interpret as a conspiracy is in all likelihood no more than a chain of unconnected cock-ups without any more generalised rhyme or reason. Sure, my hackles rise when I see that it’s always 1500 contracts which are used to smash the COMEX Gold future down, that it always appears to occur during an off period in the market, and that prices always tend to be capped around suspiciously round and consistent numbers, but to be frank, I suspect that there is no-one (not even the BIS) ‘in control’ of this, and that 99% of COMEX activity is just noise generated by algo programmes spoofing each other without realising that they are trading off each other, rather than inputs from any sentient investor

    I still haven’t got my head around the ‘cui bono’ conundrum of whose interests would be best served by smashing the Gold price down either, and I really don’t buy the ‘shaking the tree’ argument that lower prices bring more physical metal onto the market. However, it is abundantly clear that not only Central Bankers but also geo-politicians (such as Kissinger) not only have an interest in, but also believe they have the ability to directly influence, the Gold price

    Kissinger’s statements are clearly not an isolated incident – you’ll note that as recently as last week, when the preliminary deal was struck with Iran, that although dealing in precious metals was to be allowed, direct settlement of its Oil exports in Gold was not. What has THAT got to do with nuclear proliferation? Similarly Gaddafi’s ‘Gold Dinar’ just before the Libyan conflict, or the odd fact that the first thing the ‘rebels’ did after seizing power was to establish a new Central Bank.

    My conclusion is therefore that whilst politicians and central bankers may well have strong (and I would say illicit) influence over the price of Gold in a long-term strategic sense, it would perhaps be wrong to assume that they have any kind of directive control over short-term price fluctuations; its very easy to overestimate the resources available even to e.g. the BIS, and whoever dropped 1500 contracts earlier this week must now be feeling pretty damned stupid that the downside impact was muted, and the market has now rallied above the starting point at which the smackdown took place.

    Key Events which occurred in 2013, and which will one day be seen to represent a tipping point:

    1. Germany wanting its Gold back, and being told that the cupboard was bare

    2. Obama failing on Syria and cosying up to Iran (thereby ending the Petrodollar)

    3. China announcing that it had enough foreign currency reserves, thankyou, and stockpiling physical Gold instead

    The rest, I believe, is just noise: there is no conspiracy, there is no Sabre Tooth Tiger hiding in the long grass, but the world remains a dangerous place, and you need to keep your wits about you

    • Erebus

      I too have puzzled over the gold smash phenomena. The only sense I can make of it (and I don’t know enough to criticize my own “theory”) is if it is related to a large off-market physical purchase wherein payment [1] is based on Market price, and [2] price fix & (perhaps) delivery are contractually scheduled for a certain time. The purchase amount must be large compared to the dump, and the price fix / delivery must be due shortly after the dump.

      In a recent case 4.7T got dumped, almost certainly using a naked short and taking large paper losses. However, if the dump on the paper market is coordinated to a purchase of (say) 15T physical OTC somewhere (say direct from a miner), the gain can be far more than the paper loss. The $10/oz loss on the paper markets amounts to $1.5M. Real beer, and no-one just throws that away, but if you’ve contracted to buy physical at that morning’s London fix… you gain, say $8/oz (from memory, this was the price rebound in the interim) on 15T… aka $3.8M. Voila, a cool $2.3M in free money, and gold in the hand!

      Sounds like fun :-). I’m sure someone can explain why it ain’t that easy.

      Erebus

      • Zhanglanv366

        With respect, you miss the point

        What I think we were saying was quite the contrary; there is incontrovertible evidence that the value of Gold is manipulated – primarily downwards; however, that evidence is perhaps not to be found by looking at spurious trades on COMEX, which in all probability represent noise rather than some evil conspiracy acted out on the orders of an evil villain stroking a white cat inside a hollowed-out volcano. If the above narrative had shown Kissinger saying ‘Sell 1500 at market, and then another 1500 until they give in and run away, then rinse & repeat’, then I might have pricked my ears up a bit; on the other hand, the fact that there are geopolitical interests in play, and the spot gold price on COMEX represents an imperfect price discovery mechanism is surely no more newsworthy than the awful fact that King Tutankhamen is dead

        I haven’t done much research on this, so I may be totally wrong, but if I recall correctly, when the Troika bailed out Cyrpus last year, they seized 10 tons of Gold as collateral for the loans they provided http://www.zerohedge.com/news/2013-04-12/mario-draghi-orders-cyprus-sell-gold-cover-bailout-shortfall; if you divide the loans by the Gold you find that they in effect paid $30,000 per Troy ounce. Curious, no?

        • Erebus

          With equal respect, if your point was that noise should not be mistaken for signal, I didn’t miss it. FWIW, I can try to make my point clearer.

          As in electronic circuit analysis, an unexpected anomaly in a noise spectrum should be investigated and understood, as it may indicate hidden defects or a marginally stable design.

          As you point out, the loss-making naked dumping of 1500 contracts falls outside the range of normal, profit-seeking trading behaviour. So, the perpetrator “must now be feeling pretty damned stupid”, or he’s smiling at his cleverness. You say the former, while my scenario allows for the latter. BOTH are noise, and neither speaks to the long term price management strategy by CBs / geo-politicians.
          As you say, it’s happened more than once, so either we’re dealing with an idiot, or with a trader who’s making money and can be expected to repeat the anomaly as many times as his physical counterparty falls for the deal.

          What I don’t know is whether my trade scenario is likely in the real world.

          As for Cyprus, one should note that whatever collateral the Troika required may have been indexed to the anticipated risk, not necessarily 100% of loan value. EG: If the loan package was risk discounted to 80 cents on the dollar, the collateral need cover only the potential 20% loss so the implied gold price would adjust pro-rata.

          Thank you for the Iran Gold-for-Oil info. Many have long suspected that it doesn’t have much to do with nuclear anything, and a lot to do with geo-political strategies. That seems to confirm it.

          Erebus

          • Zhanglanv366

            apologies – I was replying to the Comment below, but Disqus put my response on the wrong place. I agree with you entirely

    • Darrell Dobell

      Funny. Gold manipulation stated in plain english and people dismiss it.

  • Pingback: Precious Metals Info from surgreen » State Dept. minutes confirm that whoever has the most gold makes the rules

  • SheaButter

    Sneaky sneaky….power hard thing to share.

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