Tag Archives: us

1973 EU CB’s Traded Gold In Secret At Free Market Price

Another piece of the puzzle

The more I read about it the more clear it becomes that the euro, at first a monetary block in Europe, was spawned right after the US abandoned gold in 1971. The European Community (EC) block was the biggest threat for the US hegemony in the seventies, if Europe would unite it could break the USD. Europe’s aggregated gold reserves were (and still are) greater than US holdings, a crucial reserve asset when fully utilized.

Soon after the inception of the Bretton Woods system in 1944 the US needed to suppress the price of gold because they printed far more dollars than they had gold to back it up, finally the suppression failed in 1968 when the London Gold Pool collapsed. What followed was a two-tier system; monetary gold was valued at a fixed price far below the free market price of gold.

The two-tier system created by the American monetary wizards was anything but sustainable; foreign central banks could buy gold at the US Treasury for dollars at a discount, subsequently selling the gold on the free market for a higher price, though the agreement was central banks would not trade with the private market.

Because the dollar was overvalued (against gold) European central banks exchanged billions of dollars for thousands of tonnes of gold, draining US gold reserves.

US Official Gold Reserves

In 1958 the UK exchanged $900,000,000 dollars for 799 metric tonnes of gold at the US Treasury. From January to March 1965 France pulled 428 tonnes from the US, from April to June 1971 France got out 251 tonnes.

That’s when Nixon temporarily suspended convertibility of dollars into gold on August 15, 1971.

Next up for the US was to completely remove gold from the international monetary system. Having the dollar as the sole monetary anchor would ensure the US from world domination. Europe, on the other hand, tried to re-introduce gold into the system at the free market price.

In the next quotes we can read how Henry Kissinger, National Security Advisor and Secretary Of State at the time, was discussing the matter with his team.

Mr Enders to Mr Kissinger about the proposal (re-introduction of gold) from Europe (EC).

…Mr. Enders: Both parties [US and EC] 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.

…They would determine the value of their reserves in a very small group.

Mr Kissinger: And we would be on the outside.

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

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.

…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—

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.

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

The US was against any form of European monetary cooperation. The next quotes are from a phone call between Kissinger and Under Secretary Simon:

K: … I’ve just been called to the President. Let me tell you — Shultz has sent me a copy of the cable that Volker gave him – that Volker sent him about the interventions, and he has asked for my views. I basically have only one view right now which is to do as much as we can to prevent a united European position without showing our hand.

S: Okay. Well, I interpret that as less intervention, which is a good idea, and I think George will be very happy with that comment. Do as much as we can to prevent a unified European position.

K: I don’t think a unified European monetary system is in our interest. I don’t know what you think for technical reasons, but these guys are now helping to put it to us.

In this political battle the US and Europe remained on speaking terms (both not showing their hand). But the EC was occasionally poking the US; if necessary they would trade gold in secret at the free market price.

Wikileaks logo black

From Wikileaks:

1973 November 21, 16:14






(h/t @mortymer001)

Previously released historic documents

1970 February 24, Washington DC, US. Pompidou and Nixon

1971, October 28. Phone call between Nixon and Kissinger on gold

1971, December 13 & 14, Azores. Negotiations between Kissinger and Pompidou about the value of currencies and gold

1971, December 13, negotiations between Nixon, Pompidou and Kissinger about the value of currencies and gold

1973, March 14, Kissinger and Simon telephone conversation

1973, May 18, Paris, France. Meeting Kissinger And Pompidou on value of gold

1974, March 6, Washington, US. Note From the Deputy Assistant Secretary of State for International Finance and Development (Weintraub) to the Under Secretary of the Treasury for Monetary Affairs (Volcker): GOLD AND THE MONETARY SYSTEM: POTENTIAL US–EU CONFLICT

1974, April 22 & 23, Zeist, The Netherlands. Meeting European Ministers Of Finance On Gold

1974, April 25. Minutes of Secretary of State Kissinger’s Principals and Regionals Staff Meeting on gold

1976, October 29, Wikileaks: PBOC focused on gold & SDR’s

Second Thoughts On US Official Gold Reserves Audits

This post is a sequel to “A First Glance At US Official Gold Reserves Audits”.

What is not often covered in the media or blogosphere are the audits of the US official gold reserves stored at the US Mint, which is the custodian for 95 % (7716 tonnes) of the stash – nowadays also referred to as custodial deep storage, and at the Federal Reserve Bank Of New York that safeguards the remaining 5 % (418 tonnes). The lawful owner of the US official gold reserves is the US TreasuryPart one covered the most recent records I could find published by the US government, in this post we’ll examine more historical records and approach this matter from a more critical angle. Because of the amount of information I found this post is split in multiple parts.

What Is A Gold Audit?

From Wikipedia:

Auditing is defined as a systematic and independent examination of data, statements, records, operations and performances (financial or otherwise) of an enterprise for a stated purpose. In any auditing the auditor perceives and recognizes the propositions before him for examination, collects evidence, evaluates the same and on this basis formulates his judgment, which is communicated through his audit report.

Due to constraints, an audit seeks to provide only reasonable assurance that the statements are free from material error. Hence, statistical sampling is often adopted in audits.

To be sure, I’ve asked several bullion dealers about how their audits are being conducted. They all agreed an audit involves three parties: the owner of the gold, the custodian and an external (independent) auditor. The external auditor examines the gold, compares its findings with the statements of the custodian and then reports on the accuracy of the statements of the custodian to the owner of the gold. An example of an audit report by such an external auditor can be found here.

The fact that the auditor is an external party is essential; if the custodian itself would perform the audit it could easily falsify the reports and lend gold that isn’t often transferred in and out of the vaults.

What Is A Gold Assay?

Assaying gold is done to test the purity of the metal; to make sure a bar contains at least the amount of fine gold disclosed on its inscription. For assay tests often samples are taken from random bars (not from all bars of a specific inventory). From Wikipedia:

A metallurgical assay is a compositional analysis of an ore, metal, or alloy. Raw precious metals (bullion) are assayed by an assay office. Silver is assayed by titration, gold by cupellation and platinum by inductively coupled plasma optical emission spectrometry.

Ron Paul

Allegedly the deep storage gold at the US Mint is currently stored in 42 vault compartments at three different locations in the US. 4,583 tonnes is stored at Fort Knox, Kentucky, 1,364 tonnes in Denver, Colorado, and 1,682 tonnes at West Point, New York.

The last time the US official gold reserve audits were publicly discussed was in 2011 when Ron Paul, who was a well informed member of the US House of Representatives, proposed new legislation at the time to have a full audit of the US holdings: The Gold Reserve Transparency Act (H.R. 1495, not enacted). Strangely Dr Paul wasn’t up to date of the audit and assay procedures performed since 1974, while he was in politics because of gold since 1971. From Wikipedia:

When President Richard Nixon “closed the gold window” … on August 15, 1971, Paul decided to enter politics and became a Republican candidate for the United States Congress.

Only during the preparation of the congressional hearing Dr Paul became aware of the audit and assay procedures. From Paul’s opening statement at the hearing June 23, 2011:

For far too long, the United States Government has been less than transparent in releasing information relating to its gold holdings. Not surprisingly, this secrecy has given rise to a number of theories about the gold at Fort Knox and other depositories.

Some people speculate that the gold has been involved in gold swaps with foreign governments or bullion banks. Others believe that the gold has been secretly shipped out of Fort Knox and sold. And, still others believe that the bars at Fort Knox are actually gold-plated tungsten. Historically, the Treasury and the Mint have dismissed these theories rather than addressing these concerns with substantive rebuttals.

The difference between custody and ownership, questions about the responsibility for U.S. gold held at the New York Fed, and that issue of which division at Treasury is ultimately responsible for the gold reserves are just some of the questions that have come up during the research for this hearing. In a way, it seems as though someone decided to lock up the gold, put the key in a desk somewhere, and walk off without telling anyone anything. Only during the preparation for this hearing was my office informed that the Mint has in fact conducted assays of statistically representative samples of gold bars, and we were provided with a sample assay report.  

While the various agencies concerned have been very accommodating to my staff in attempting to shed some light on this issue, it should not require the introduction of legislation or a congressional hearing to gain access to this information.

Why did Paul not know about this? Why did it take a congressional hearing to get the details of the audit and assay tests? Why wasn’t this information easily accessible to him and the American people?

Gold Audits At Fort Knox

The construction of the notorious gold depository was finished in 1936 at the Fort Knox army base in Kentucky; large quantities of gold were first deposited in 1937. After President Roosevelt had ordered the people of the United States to sell all their gold coins and bullion for $20.67 per fine ounce to the Federal Reserve in 1933, through Executive Order 6102 (the great gold confiscation), a fortress was needed to store the bars that were coming out of the smelters of the seized gold. The bars that were melted from gold coins are approximately 90 % pure, the majority of the bars, allegedly, in Fort Knox are coin bars. Though, research has pointed out the huge growth in US official gold reserves after 1933 has primarily been sourced from imports, not by domestic coins.

US Official Gold Reserves

The Gold Reserve Act of 1934 required the Federal Reserve to transfer ownership of the official gold reserves to the Department of the Treasury, in return it received gold certificates (that are mere redeemable for dollars). The US Mint was assigned to safeguard the Treasury Department’s gold, silver and other assets at several depositories across the US, among others at Fort Knox and Denver.

Trains from New York and Philadelphia arrive in Kentucky to unload the gold, 1937 2

Trains from New York and Philadelphia arrive in Kentucky to unload the gold, 1937
Trains from New York and Philadelphia arrive in Kentucky to unload the gold. It took 552 train wagons to complete the transport.
Trucks arrive at the back door loading docks of the Fort Knox gold depository
Trucks arrive at the back door loading docks of the Fort Knox gold depository.
Local farmers were hired to unload the gold at Fort Knox, 1937
Local farmers were hired to unload the gold.
News paper article announcing when gold would arrive at Fort Knox 1937
Newspapers announced when gold shipments would arrive at Fort Knox in 1937.


To research the integrity of the audits performed at Fort Knox (and the other depositories) in all of history, we’ll start from the beginning and work our way to the present. The first audit I could find dates from 1953, when total US reserves accounted for roughly 20,000 tonnes. Many researchers that have worked on this subject in the past refer to the first and last full audit of 1953. However, the audit in 1953 was anything but full.

During my research I came across many articles of researchers that have investigated Fort Knox audits – Ed Durell, James Turk and Tom Szabo, to name a few. Often these articles contained dead web links to documents on US government websites. Everything that was still accessible during my research I copied to my own servers to secure access to them at all times.

The next quotes are from the official report of the gold audit in 1953 (download here).

Fiscal Year Ended June 30, 1953



…The audit was performed in accordance with procedures which were recommended by an advisory committee of consultants appointed jointly by the present Secretary and his predecessor in office. Members of the advisory committee were W. L. Hemingway, Chairman of the Executive Committee of the Mercantile Trust Company, St. Louis, chairman; Wm. Fulton Kurtz, Chairman of the Board, The Pennsylvania Company, Philadelphia; Sidney B. Congdon, President, National City Bank of Cleveland, Cleveland; and James L. Robertson, Member, Board of Governors, Federal Reserve System, Washington. As had been suggested by the advisory committee, the audit was conducted under the general supervision of a continuing committee representing both incoming and outgoing Treasury officials. Representatives of the Comptroller General of the United States observed the audits at each of the various audit sites.

In accordance with a recommendation of the advisory committee the special settlement committee at the Fort Knox depositary opened three gold compartments, or 13.6 per cent of the total of twenty-two sealed compartments at that institution containing 356,669,010.306 fine ounces [11,094 metric tonnes] of gold valued at $12,483,415,360.28. All of the gold contained in the three sealed compartments opened, amounting to 34,399,629.685 fine ounces [1,070 tonnes] valued at $1,203,987,038.94 or approximately 88,000 bars, was counted by members of the settlement committee and found in exact agreement with the recorded contents of the compartments. Slightly in excess of 10 per cent of the total gold values so counted, or some 9,000 bars weighing approximately 130 tons, was further verified through weighing upon special balance scales indicating exact weights to the 1/100 part of a troy ounce. All gold weighed was found in exact agreement with the recorded weight thereof. Further, test assays were made of 26 gold bars selected at random from the total gold counted. The reported results of the test assays indicated, that all gold tested was found to be of a fineness equal to or in excess of that appearing in the mint records and stamped on the particular gold bars involved. Gold samples used for test assay purposes were obtained through drilling from both the top and bottom of each representative gold bar. In final confirmation of the verification of the gold bullion asset values held in the Fort Knox depositary the special settlement committee reported in part as follows:

“0n the basis of assays, your committee can positively report that the gold represented, according to assay, is at the depositary. We have no reason, whatsoever, to believe other than, should all melts be assayed, the results would be the same.”

“We, the undersigned, found the assets verified, to be in full agreement with the assets as indicated by the joint seals affixed to the respective compartments on January 26, 1953.”

“It is the opinion of this committee that the same agreement would be found should all of the compartments be verified.”

In short; an advisory committee of “consultants” assembled special settlement committees that, under the supervision of Treasury officials and Representatives of the Comptroller General, audited 3 of in total 22 compartments filled with gold (it’s likely Fort Knox has many more compartments in total). 13.6 % – 1,070 tonnes – of all the gold bars held at Fort Knox was counted, of which 9,000 bars were weighed upon special balance scales and 26 bars were assayed. The document notes procedures at other depositories closely paralleled those employed at Fort Knox, though no numbers are disclosed.

In 1953 the US Treasury held approximately 1,300,000 gold bars at multiple depositories of which 88,000 were counted, 9,000 were carefully weighed and 26 bars (0.00002 %) were assayed; no external auditing firm was present. This was not a full audit.


The other full audit that keeps buzzin around in the media was the one in 1974, because the media was actually allowed to enter the fortress back then. On September 23, 1974, roughly 100 journalists were allowed entrance, accompanied by 9 members of Congress.

Media allowed in Fort Knox 1974

When the total US official gold reserves had declined by 11,500 tonnes from 1953 to 1974, many Americans began to doubt if the US actually had any gold left at all, especially after Nixon had temporarily suspended the convertibility of dollars for gold at the US Treasury in 1971. The amount of gold at Fort Knox had dropped from 11,094 tonnes (stored in 22 compartments) to 4,585 tonnes (stored in 13 compartments). In an attempt to reassure the American people not all gold was gone a new audit was scheduled.

From several sources we know for the visual inspection by the press and congressmen only one compartment was opened, in which 368.2 tonnes was stored. I edited a small video clip from a History Channel documentary for us to take a look inside Fort Knox.

[youtube https://www.youtube.com/watch?v=JRZc7YEV8rU]

Whether one or multiple compartments were opened is actually irrelevant, unqualified people looking at a wall of yellow bricks and weighing a few bars will not pass as an audit.

The director of the Mint in 1974, Mary Brooks, did a remarkable confession when the press asked if there is a tunnel to the vault. She showed a narrow tunnel, the size of a sewer pipe, which could only be opened from inside the vault in case someone was trapped – no pictures were allowed to be taken from the tunnel. The escape could only be made outside the vault, not the building itself, she said. There are thus three connections to the vault, the front door, the back door and the tunnel.

The real audit started the day after, on September 24, 1974. This audit was performed by “a committee including auditors from GAO and from Treasury’s Office of the Secretary, Bureau of Government Financial Operations (BGFO), U.S. Customs Service, and Bureau of the Mint. The committee also included Bureau of the Mint technicians trained in assaying and weighing gold bullion”. No external auditor was hired; the US Mint, a department of the US government, can audit the gold in cooperation with thousands of other government departments, only an external auditing party can ensure the integrity of an audit.

Again three random compartments were opened (theoretically one or two could have been the same compartments that were opened as in 1953 as no compartment numbers have been disclosed in the audit reports). From the official audit report published in 1975 (download here):  

Mint regulations require that a special settlement committee be established to inventory and maintain physical control over the gold as it is being inventoried, weighed, and sampled. We selected the compartments to be audited, and we did not disclose this information until the inventory began. The committee opened 3 compartments and counted and inspected 91,604 bars representing about 31.1 million fine troy ounces [967 tonnes] of gold valued at about $1.3 billion, or approximately 21 per cent of the gold stored at the depository. From a random sample of all melts in the 3 compartments, the committee weighed 95 melts to the 100th part of a troy ounce. The committee also compared the weights and physical characteristics of all gold … inventoried to inventory records.

To verify the gold’s fineness, a bar from each melt weighed was assayed. Gold samples were obtained by taking a tetrahedron-shaped chip, weighing about four-tenths of an ounce, from both the top and the bottom of the representative gold bar. We assigned control numbers to the sample chips, because the assayer could possibly determine, without assay, the gold’s fineness if he knew the value or melt number from which the chips came. The New York assay office assayed the gold and gave us the results for comparison with inventory records. We observed the assaying of the first samples. The results of the assays indicated that the recorded finenesses were within the tolerances the Mint established.

No assay report was included.

Screen Shot 2015-02-05 at 11.09.19 PM
Note the irony in the “bottom line”: Keep Freedom in Your Future With U.S. Savings Bonds

In 1975 a Committee was appointed for the Treasury’s continuing audits of U.S.-owned gold stored at the Mint. The operation was designed to audit 10 % of the Treasury’s gold per annum. Inspector General (IG) Eric Thorson stated in 2011 during the hearing by Ron Paul:

In June 1975, the Treasury Secretary authorized and directed a continuing audit of U.S. Government-owned gold for which Treasury is accountable. Pursuant to that order, the Committee for Continuing Audit of the U.S. Government-owned Gold performed annual audits of Treasury’s gold reserves from 1975 to 1986, placing all inventoried gold that it observed and tested under an official joint seal.

The committee was made up of staff from Treasury, the Mint, and the Federal Reserve Bank of New York. The annual audits by the committee ended in 1986 after 97 per cent of the Government owned gold held by the Mint had been audited and placed under official joint seal.

These continuing audits would be the first to examine such a large share of the US official gold reserves, 97 % of all the gold held by the Mint equals to 7,485 tonnes, or 92 % of total US official gold reserves. At the same time, this is where the confusion starts. Let’s find out all there is to know about the continuing audits conducted from 1975 to 1986, as this should be what we’re after, the audit of nearly all US official gold reserves.

From the full report that came out of the congressional hearing in 2011, the US Treasury’s best defense I assume, these are the audit reports in existence since the early seventies:

Fort Knox US mint audit list published 2011 1

Fort Knox US mint audit list published 2011 2

We are not interested in the audits of financial statements of the Mint, but in audits of the physical inventory gold.

At first sight we can see that not from all years the continuing audits were supposedly performed (1975 to 1986) reports are listed. Only the following audit are disclosed:

  1. 1974 (released by the GAO 2/10/1975)
  2. 1977 (released by the GAO 5/5/1978)
  3. 1980 (released by the GAO 10/1981)
  4. 1985 (released by the OIG 4/25/1986)
  5. 1986 (released by the OIG 4/24/1987)

The continuing audits report of 1981 notes audits have been performed in 1975, 1976, 1978 and 1979, but no reference is made to audit reports. Only the amount of gold audited in each of those years is mentioned.

The list from 2011 is entitled “List of audits of US gold holdings” suggesting these are the only audits performed. If more audits were conducted they surely would have been disclosed on the 2011 list, right? Also the ones from 1981, 1982, 1983 and 1984. Or were audits conducted, but no reports drafted? More on this later, for now, we’ll focus on the content of the audit reports from the 2011 list:

The first audit report (1974) on the list we’ve discussed above, let’s have a look at the second from 5/5/1978 that covers the audit performed in 1977 (download here).


Reading the report unveils a few problems:

  • No external auditor was present.
  • 11.7 % , or 536 tonnes, of the gold at Fort Knox was audited, but it’s not mentioned how many bars were counted, weighed and assayed.
  • The assay tests found irregularities. From the report:

Two sample melts showed the gold was below the fineness (5 parts per 10,000) permitted by the Bureau. Because of this problem, the vault had to be opened twice more in the presence of the Joint Sealing Committee and the gold reevaluated. This involved considerable time and expense, but was necessary because the fineness of gold must be precisely determined.

On July 29, 1977, bore samples, rather than chips, were taken from the questionable melts and sent to two assay offices for independent evaluations. Half of the samples reassayed were still unacceptable. The Bureau decided that the two melts from which the samples were taken had to be remelted and reassayed. This was done on November 16 and 17, 1977. This time, the gold was within the prescribed level of fineness but below the fineness listed on the inventory schedule. The difference in the original and revalued fineness resulted in a $158.77 adjustment to the records, which was considered insignificant. Previous discrepancies in fineness were attributed to improper melting and casting of the melts in 1920 and 1921. Bureau officials said the remelting process confirmed the validity and integrity of their audit procedures and assays.

  • We can ascertain the assay tests at Fort Knox in 1953 were done by drilling holes through the bars; in 1974 and 1977 the assay tests were changed totaking a tetrahedron-shaped chip, weighing about four-tenths of an ounce, from both the top and the bottom of the representative gold bar”. When this method ‘failed’ in 1977, the committee decided to drill holes, but why was the method of initial assaying changed from drilling holes through the bars, into taking chips from the top and bottom of the bars? When in 1977 the bore samples failed to proof the purity on the inventory list, both melts in question were remelted. But, who processed the remelting? How do we know the metal wasn’t refined/supplemented into higher purity gold? The report states that after the remelting, “This time, the gold was within the prescribed level of fineness but below the fineness listed on the inventory schedule. The difference in the original and revalued fineness resulted in a $158.77 adjustment to the records”. To me it’s not clear what this means. Some kind of adjustment was made and the auditors decided to move on? Didn’t this ring any alarm bells, if irregularities were found in two melts why wasn’t more gold assayed?
  • Apart from the negative assay test, the 1977 audit report is not reliable because it doesn’t disclose any information about how many bars were counted, weighed or assayed.

In the next part we’ll continue from the 1981 audit.

Will Gold Be Part Of A New International Monetary System?

Anyone who has been paying attention to the global economy the past years can agree with me our central bankers have conducted miserable monetary policy and have taken insufficient measures to fight crises. All major economies have embarked in printing unprecedented quantities of money, but the only thing they bought was time. Quantitative easing on such a scale is like kicking the can determined to reach the end of the road. The future looks anything but sanguine.

Where is this going? Are our leaders truly gonna allow for the international monetary system to implode? Is there no plan B? And we are supposed to believe gold isn’t of any significance in economics?

In our current highly unstable economic environment the price of gold is relatively low, according to gold proponents like me. In addition, we can see immense flows of physical gold going from West to East that are guaranteed not to return in the foreseeable future. If the price of gold isn’t suppressed, my previous two observations can only be explained as physical supply outstripping demand since April 2013 – when the price of gold declined substantially to its current relative low levels. But perhaps there is more than meets the eye.

I would like to share a theoretical explanation for the observations just mentioned, supported by historic diplomatic documents that provide some guidance through the present fog.

Let’s start just before gold was removed from the system:

In the sixties France stepped out of the London Gold Pool, as it didn’t want to waste any more gold on the war the US was waging against Vietnam. The London Gold Pool was a joint effort by the US, the Netherlands, France, Germany, Italy, Belgium, Switzerland and the UK to peg the price of gold at $35 an ounce. But because the US was printing dollars to finance the war in Vietnam – this devalued US dollars – a lot of gold was required to be sold to maintain the price at $35. Shortly after France left the Pool it collapsed in March 1968. From the IMF:

While the total number of U.S. dollars circulating in the United States and abroad steadily grew, the U.S. gold reserves backing those dollars steadily dwindled. International financial leaders suspected that the United States would be forced either to devalue the dollar or stop redeeming dollars for gold.

The dollar problem was particularly troubling because of the mounting number of dollars held by foreign central banks and governments: In 1966, foreign central banks and governments held over 14 billion U.S. dollars. The United States had $13.2 billion in gold reserves, but only $3.2 billion of that was available to cover foreign dollar holdings. The rest was needed to cover domestic holdings. If governments and foreign central banks tried to convert even a quarter of their holdings at one time, the United States would not be able to honor its obligations.

The Incredible Shrinking Gold dollar IMF

And that is exactly what happened; in 1971 the US closed the gold window, no longer could foreign central banks convert dollars into gold (except on the open market). As I’ve written before: (i) Europe, most notably France was not amused and wanted to revalue gold, (ii) the US was very persistent to completely phase out gold from the monetary system in order to leverage the power of the US dollar hegemony.

I’ve found documents that connect the past with the present. On February 24, 1970, French President Pompidou met with US President Nixon in Washington DC. The oncoming quotes are from the US minutes of the meeting:

Turning to France, the President [Pompidou] said he wished to emphasize again that – as distinguished from the positions of some of his predecessors in this office – he would not comment on the independent French policy. He might have his own views but he felt that a strong independent France devoted to the same goals as we are is in the interest of the US. A strong Europe in the economic sense might seem not to be in the US interest, in the long term it was. What we need is a better balance in the West. It is not healthy to have just two superpowers; in such a situation there is more chance of a conflict than when there are more centers of power. Greater strength of the European economies, an independent French policy, and, in Asia, a stronger Japan, would eventually make for a more stable world. The position of the U. S. at the end of World War II was not healthy. Twenty-five years had passed and things were changed. This we regarded as a healthy development.

In the final analysis with three billion people on earth if civilization is to survive … this will be decided by the Soviet Union, by China, and eventually Japan, by Western Europe, by that he meant France, Britain and Germany and the United States. Africa is moving along, but it is a century away.

Latin America is also moving but it is fifty years or more away. In Asia, India and Pakistan will have enormous difficulty in simply keeping pace with their increase in population. We have a great responsibility to use the power we have to build the kind of a world that keeps the forces of expansion in check and thus give the forces of freedom a chance to grow in their own way and not like tin soldiers lined up behind the biggest one.

Pompidou’s idea was clearly to spread economic power across the globe for a more balanced, peaceful and prosperous world. We can also read the first signs of a unified Europe between the lines. Pompidou is one of the best forecasters I’ve ever read, what he said 45 years ago has more or less happened by now. However, Pompidou’s ideology could not coexist along the dollar hegemony. The US, therefor, embarked in divide and conquer, a notorious strategy to gain and maintain power. The next quotes are from a telephone conversation on March 14, 1973, between Henry Kissinger, National Security Advisor, and William Simon, Under Secretary of the Treasury: 

K: … I’ve just been called to the President. Let me tell you — Shultz has sent me a copy of the cable that Volker gave him – that Volker sent him about the interventions, and he has asked for my views. I basically have only one view right now which is to do as much as we can to prevent a united European position without showing our hand.

S: Okay. Well, I interpret that as less intervention, which is a good idea, and I think George will be very happy with that comment. Do as much as we can to prevent a unified European position.

K: I don’t think a unified European monetary system is in our interest. I don’t know what you think for technical reasons, but these guys are now helping to put it to us.

S: Yes, sir.

K: I don’t know whether that’s true in the short term, but I’m convinced that that’s true in the long.

S: I just agree with you a thousand percent.

K: So I’d rather play with them individually. You know, if it were a question of supporting an individual currency, I’d be much more inclined to do that.

S: Yes, such as the mark.

K: That’s right.

S: Yes, sir.

K: Does that make sense to you?

S: Yes it does.

K: You understand, my reason’s entirely political, but I got an intelligence report of the discussions in the German Cabinet and when it became clear to me that all our enemies were for the European solution that pretty well decided me.

S: Yes, sir. Well, I pass. I’m going to be talking to George on the telephone.

K: Be careful. Everything in Bonn is tapped.

S: I promise you I will.

Next, from Wikileaks, a report of a meeting held by all European Ministers of Finance about gold, written to the American Ministry Of Foreign Affairs on April 23, 1974 (Europe and the US were debating this issue for a few years):







Now we know what Europe was planning in seventies, this explains a lot better what occurred later on. Remember the Washington Agreement On Gold? Just before the euro was introduced in 1999, all European central banks collaborated in a program called the Central Bank Gold Agreements (CBGA), or the Washington Agreement On Gold, to jointly manage gold sales. (note, Eurozone aggregated gold reserves currently still transcend US reserves)

Central Bank Largest Sellers

In 1991 the Dutch central bank (DNB) held 1,700 tonnes in official gold reserves, currently it holds 613 tonnes. When the Dutch Minister Of Finance, J.C. de Jager, was questioned about these sales in 2011 he answered:

Question 6:  Can you confirm that since 1991 DNB has sold 1,100 tonnes of the 1,700 tonnes it owned…

Answer 6: Since 1991 DNB sold 1,100 tonnes. At the time DNB determined that from an international perspective it owned a lot of gold proportionally. It decided to equalize its gold holdings relative to other important gold holding nations. 

Right, so since the seventies Europe wanted to spread economic power across the globe, replace the dollar as the world reserve currency and sold parts of its official gold reserves “to equalize its gold holdings relative to other important gold holding nations. These types of plans aren’t realized overnight; it can take decades, it can even take more decades than estimated. Who knows? We can be in the final stage right now.  

Not so long ago I published a Wikileaks cable from 1976 wherein China expresses its particular interest in gold and SDR’s. Of course this is all just a theory, but it seems as if the redistribution of the chips, physical gold flowing form West to East, is all part of orchestrated preparations for the next international monetary system, anchored by gold. This system would require gold to be spread among the major economic power-blocks proportionally. 

Chinese mining 1949-2014 x

Total Estimated Chinese Gold Reserves 1995 - 2014

Jean-Claude Trichet, former president of the European Central Bank, said on November 4, 2014:

The global economy and global finance is at the turning point in a way, …new rules have been discussed not only inside the advanced economies, but with all emerging economies, including the most important emerging economies, namely, China.


Gold world


(h/t Freegold)

historic documents:

1970 February 24, Washington DC, US. Pompidou and Nixon. 

1971, October 28. Phone call between Nixon and Kissinger on gold.

1971, December 13 & 14, Azores. Negotiations between Kissinger and Pompidou about the value of currencies and gold.

1973, March 14, Kissinger and Simon telephone conversation. 

1973, May 18, Paris, France. Meeting Kissinger And Pompidou on value of gold.

1974, March 6, Washington, US. Note From the Deputy Assistant Secretary of State for International Finance and Development (Weintraub) to the Under Secretary of the Treasury for Monetary Affairs (Volcker): GOLD AND THE MONETARY SYSTEM: POTENTIAL US–EU CONFLICT.

1974, April 22 & 23, Zeist, The Netherlands. Meeting European Ministers Of Finance On Gold.

1974, April 25. Minutes of Secretary of State Kissinger’s Principals and Regionals Staff Meeting on gold.

China Continues To Drain Global Gold Inventory

Withdrawals from the Shanghai Gold Exchange (SGE), the best indicator for Chinese wholesale demand, have been strong in 2014. In total 2,102 tonnes was loaded out from the SGE vaults. Mid 2014 withdrawals were relatively low, then they ramped up in September.

In this post we’ll examine where this gold was sourced from.

Shanghai Gold Exchange SGE withdrawals delivery monthly 2009 - 2014

At this moment we don’t know exactly what the composition was of the supply side of SGE withdrawals in 2014 – scrap, mine or import, though SGE chairman Xu Luode gave us a hint at the ninth China Gold & Precious Metals Summit that took place in early December:

As regards the concerns over the Chinese gold demand, chairman of the Shanghai Gold Exchange Xu Luode told the conference that the gold market in 2014 is still a CHINA YEAR. …China has imported over 1,100 tonnes of gold by November this year and the whole year’s bullion import is estimated to reach 1,200 – 1,300 tonnes, a number only next to the year of 2013.

As I have demonstrated before the main feeder for China’s gold hunger is the London Bullion Market (the UK), though in 2013 this was more so than in 2014. Let’s go through the most recent customs data published by the largest suppliers to China mainland: the UK, Switzerland, Hong Kong, Australia and the US.

The UK

The great gold exodus from West to East started early 2013; 12.5 Kg London Good Delivery bars (995 purity) from the UK are shipped to Switzerland, where it’s refined into 1 Kg (9999 purity) bars and send forward to the East. The big change since 2014 is that more gold is being send directly to China instead of going via Switzerland and Hong Kong, partially because China has increased its refining capacity.

In total the UK net exported 173 tonnes in November, up 282 % m/m; the biggest outflow since July 2013. Net export to Switzerland also saw a huge spike in November, 118 tonnes, up 179 % m/m, the largest tonnage in 9 months.

In the next chart I have added SGE withdrawals to UK gold trade – since January 2013 we can see a correlation between net export from London and withdrawals in China.

UK Gold Trade 2012 - November 2014

January – November total UK net gold export stands at 447 tonnes, net gold export over this period to Switzerland was for 579 tonnes.

In November UK gold export to China was 30 tonnes, up 186 % m/m, an all time record. Aggregated net gold export (January – November) heading for the mainland was 105 tonnes.

UK - China Gold Trade 2012 - November 2014

For all UK trade data I have used the tonnage disclosed by Eurostat.


The Swiss imported 1,597 fine tonnes in the first eleven months of 2014; export was 1,616 tonnes over this period.

Switzerland gold trade 2011 2014 November

I would like to emphasize fine tonnes in the chart above. Thanks to a commenter on this blog (named sb) I have calculated the fine content of Swiss gold trade. One of Switzerland’s core businesses is refining gold; this means the import tonnage disclosed by Swiss customs is of a significant lower purity than the exported tonnage. A good example is 2014:

Switzerland gold trade November 2014

First the data: in November import was 219 tonnes, up 137 % m/m, a record for 2014; export was 232 tonnes, up 20 % m/m, a record for 2014 as well. Net outflow was 12.5 tonnes.

We can see the more Switzerland is importing the higher the purity of the imported gold. Here is why; there is a certain amount global mines can produce as doré every month (low purity), when demand exceeds this amount the Swiss need to import bullion bars, which makes the overall purity of import rise. The last chart clearly illustrates that the more gold is passing through, the more is drained from global bullion bar inventory.

The top destinations of Swiss gold are India, Hong Kong, Singapore and China mainland.

Switzerland gold trade largest traders Jan Nov 2014

Export to China matches, again, the trend of SGE withdrawals; relative weakness from May until August, strength from September till present.

Switzerland China gold trade November 2014

In November Swiss gold export to China was 35 tonnes, down 18 % m/m. Switzerland net gold export January – November heading for China was 187 tonnes.

Hong Kong

Hong Kong is Asia’s main trading hub. Gigantic amounts of gold are imported, most of which is destined for the mainland, though Hong Kong has also net imported hundreds of tonnes itself since 2013.

Hong Kong gold trade November 2014

I’ve been excepting most of Hong Kong’s stock will ultimately be drained by China. From Koos Jansen, June 21, 2014:

In 2013, the year Chinese demand for physical gold exploded, Hong Kong gross gold import was 2239 metric tonnes. The bulk of this was exported to China mainland (net 1158 tonnes), but a staggering 597 tonnes was left behind.

… It will be interesting when Hong Kong becomes a net exporter.

Not by staggering amounts, but Hong Kong is currently a net exporter for four months in a row.

Hong Kong monthly gold trade January 2013 - November 2014

Hong Kong started net exporting in August when demand in China was relatively weak; I expect these net exports to further increase, as Chinese demand accelerated in September through December.

In the first eleven months of 2014 Hong Kong net exported 742 tonnes to mainland China – down 30 % y/y.

Hong Kong - China gold trade 11-2014

In November net export to China was 99 tonnes, up 28 % m/m, a record since February. Note, again, the SGE withdrawal pattern in exports.

Hong Kong - China gold trade monthly January 2009 - November 2014


Australia is the second largest miner in the world, producing roughly 250 tonnes a year. Gold that is nearly all exported, as the ozzies themselves do not have an appetite for yellow metal comparable to Indians or Chinese.

Export data of the land of down under can be tracked through COMTRADE – that copies its data from the Australian Bureau Of Statistics. This data is deceiving though, as I’ve just found out. Australia discloses gold export to China, also when it’s shipped via Hong Kong. This results in double counting, as Hong Kong counts this gold as exported to China as well.

When I compared Australia’s export to China data from COMTRADE with Hong Kong’s import from Australia data from the Hong Kong Census And Statistics Department, I noticed they are nearly the same. This is an accounting inaccuracy by the Australian Bureau Of Statistics in my opinion.

Australia COMTRADE vs HK census

To make sure the COMTRADE numbers are reliable I double-checked them with numbers from GTIS – that copies its data from the Australian Bureau Of Statistics as well.

Australia Gold Trade Data Comparison png

These data sets are the same – the differences are negligible.

I asked Bron Suchecki, manager at the Perth Mint in Australia, if he knew whether his company sends gold destined for China always via Hong Kong or not. He replied (published with permission):

Generally, little of what gets shipped from the Perth Mint to Hong Kong would stay there – most would be in transit to China. There are many reasons for why Chinese bound metal would transit through Hong Kong, including logistics (more flights Perth to Hong Kong than Perth to China) and the breaking up of the usual one tonne plus sized deals we do with bullion banks into smaller shipments for their end customers.

In another email he explained the Perth Mint mostly sells to Bullion Banks, who are subsequently the legal exporters from Australia to China or Hong Kong. There for he doesn’t know how gold destined for China is shipped.

This comment Bron posted at his own blog, he stated about Perth Mint shipments to China in 2013… 

The Perth Mint probably accounted for 15% of that 1500t China import. 

The 15 % (225 tonnes) doesn’t reflect a precise tonnage, however I think it shows Australia exports more gold to China than is disclosed by COMTRADE/GTIS (180 tonnes).

Conclusion: the numbers I used in this post for gold export from Australia to China have been double counted (I’ll put a link in to this post for clarity). Although we know Australia exports huge quantities to China, we don’t know how much is shipped in addition to what travels via Hong Kong. I don’t feel comfortable, therefor, using any of Australia’s export numbers at this stage.

The US        

Right, so what’s the score? We are chasing 1,100 tonnes, thus far we’ve got 105 tonnes from the UK, 187 tonnes from Switzerland and 752 tonnes from Hong Kong, all added up makes 1,044 tonnes. Where could the remaining 56 tonnes could have come from? Not from the US, according to data from USGS.

The US exports substantial amounts of gold to Switzerland and Hong Kong, but very little to China itself. Worth mentioning, however, is that in September the US for the first time exported a few tonnes of bullion directly to China.

US - China gold trade
Is the US going to send larger amounts of bullion in the future directly to China?

Needless to say the 6 fine tonnes that were exported from the US do not fill the 56 tonnes gap. Were the remaining 50 tonnes came from I don’t know. It can be from mines in Africa or central Asia.

Guest Post: Is Russia Selling Oil For Gold?

This article was originally published at InvestCafe.ru in Russian. The translation in English was first published at Gold-Eagle.com.

Very few people understand what Putin is doing at the moment and almost no one understands what he will do in the future.

No matter how strange it may seem, but right now Putin is selling Russian oil and gas only for physical gold.

Putin is not shouting about it all over the world and of course he still accepts US dollars as an intermediate means of payment. But he immediately exchanges all these dollars obtained from the sale of oil and gas for physical gold!

To understand this, it’s enough to look at the dynamics of growth of gold reserves of Russia and to compare this data with foreign exchange earnings coming from the sale of oil and gas over the same period.


Russia gold puchases Q3 2014

In the third quarter the purchases by Russia of physical gold reached all-time highs; it purchased an incredible amount of 55 tons. That’s more than all the central banks of all countries in the world combined (according to official data)!

In total, the central banks of all countries of the world have purchased 93 tons of the precious metal in Q3. It was the 15th consecutive quarter of net purchases of gold by central banks. Of the 93 tonnes of gold purchases by central banks around the world during this period, the staggering volume of 55 tons belongs to Russia.

Not so long ago, British scientists came to the same conclusion as was published in the conclusion of the U.S. Geological survey a few years ago. Namely: Europe will not be able to survive without energy supply from Russia. Translated from English to any other language in the world it means: “The world will not be able to survive if oil and gas from Russia is subtracted from the global balance of energy supply”.

Thus, the Western world, built on the hegemony of the petrodollar, is in a catastrophic situation in which it cannot survive without oil and gas supplies from Russia.

Russia will now only sell its oil and gas to the West in exchange for physical gold. The twist of Putin’s game is that the mechanism for the sale of Russian energy to the West only for gold now works regardless of whether the West agrees to pay for Russian oil and gas with its artificially cheap gold, or not.

Since Russia has a constant flow of dollars from the sale of oil and gas, it will be able to convert these dollars to buy gold at current gold prices, depressed by all means by the West. This equates a gold price, which has been artificially and meticulously lowered by the Fed and ESF many times via the artificially inflated purchasing power of the dollar through market manipulation.

Interesting fact:  The suppression of gold prices by the special department of the US Government – the ESF (Exchange Stabilization Fund) with the aim of stabilizing the dollar -has been made into a law in the United States.

In the financial world it is (generally) accepted as a given that gold is the anti-dollar; the gold price runs inverse to the value of the dollar.

  • In 1971, US President Richard Nixon closed the ‘gold window’, ending the free exchange of dollars for gold, guaranteed by the US in 1944 at Bretton Woods.
  • In 2014, Russian President Vladimir Putin has reopened the ‘gold window’, without asking Washington’s permission.

Right now the West spends much of its efforts and resources to suppress the price of gold and oil. On one hand to distort the existing economic reality in favor of the US dollar and on the other hand, to destroy the Russian economy, that refuses to play the role of obedient vassal of the West.

Today assets such as gold and oil look proportionally weakened and excessively undervalued against the US dollar. It is a consequence of the enormous economic effort on the part of the West.

And now Putin sells Russian energy resources in exchange for US dollars, artificially propped by the efforts of the West and with these dollar proceeds Putin immediately buys gold, artificially devalued against the US dollar by the efforts of the West itself!

There is another interesting element in Putin’s game. It’s Russian uranium. Every sixth light bulb in the USA depends on its supply, which Russia sells to the US too…for dollars.

Thus; in exchange for Russian oil, gas and uranium, the West pays Russia with dollars, having a purchasing power that is artificially inflated against oil and gold by the efforts (manipulations) of the West. However, Putin uses these dollars only to withdraw physical gold from the West in exchange at a price denominated in US dollars, artificially lowered by the same West.

This truly brilliant economic combination by Putin puts the West led by the United States in a position of a snake, aggressively and diligently devouring its own tail.

The idea of this economic golden trap for the West is probably not authored by Putin himself. Most likely it was the idea of Putin’s Advisor for Economic Affairs – Dr. Sergey Glazyev. Why seemingly not involved in business bureaucrat Glazyev, along with many Russian businessmen, was personally included by Washington on the sanction list. The idea of Dr. Glazyev was brilliantly executed by Putin, but with full endorsement from his Chinese colleague, XI Jinping.

Xi en Putin

Especially interesting in this context is the November statement of the first Deputy Chairman of Central Bank of Russia Ksenia Yudaeva, which stressed that the CBR can use the gold from its reserves to pay for imports, if needed. It’s obvious that in terms of sanctions by the Western world, this statement is addressed to the BRICS countries, and first of all China. For China, Russia’s willingness to pay for goods with Western gold is very convenient. And here’s why:

China recently announced that it will cease to increase its gold and currency reserves denominated in US dollars. Considering the growing trade deficit between the US and China (the current difference is five times in favor of China), then this statement translated from the financial language reads: “China stops selling their goods for dollars”. The world’s media chose not to notice this event in recent monetary history. The issue is not that China literally refuses to sell its goods for US dollars. China, of course, will continue to accept US dollars as an intermediate means of payment for its goods. But, having taken dollars, China will immediately get rid of them and replace with something else in the structure of its gold and currency reserves. Otherwise the statement made by the monetary authorities of China loses its meaning: “We are stopping the increase of our gold and currency reserves, denominated in US dollars.” That is, China will no longer buy United States Treasury bonds for dollars earned from trade with any country, as they did before.

Thus, China will replace all the dollars that it receives for its goods not only from the US but from all over the world with something else not to increase their gold currency reserves, denominated in US dollars. And here is an interesting question: what will China replace all the trade dollars with? What currency or asset? Analysis of the current monetary policy of China shows that most likely the dollars coming from trade, or a substantial chunk of them, China will quietly replace and de facto is already replacing with gold.

In this aspect, the solitaire of Russian-Chinese relations is extremely successful for Moscow and Beijing. Russia buys goods from China directly for gold at its current price. While China buys Russian energy resources for gold at its current price. At this Russian-Chinese festival of life there is a place for everything: Chinese goods, Russian energy resources and gold – as a means of mutual payment. Only the US dollar has no place at this festival of life. And this is not surprising because the US dollar is not a Chinese product, nor a Russian energy resource. It is only an intermediate financial instrument of settlement (an unnecessary intermediary). And it is customary to exclude unnecessary intermediaries from the interaction of two independent business partners.

It should be noted separately that the global market for physical gold is extremely small relative to the world market for physical oil supplies. Especially the world market for physical gold is microscopic compared to the entirety of world markets for physical delivery of oil, gas, uranium and goods.

Emphasis on the phrase “physical gold” is made because in exchange for physical, not ‘paper’ energy resources, Russia is now withdrawing gold from the West, but only in its physical, not paper form.  China accomplishes this by acquiring from the West the artificially devalued physical gold as a payment for physical delivery of real products to the West.

The West hopes that Russia and China will accept as payment for their energy resources and goods…the “shitcoin” or so-called “paper gold” of various kinds. However, Russia and China are only interested in real gold and only the physical metal as a final means of payment.

For reference: the turnover of the market of paper gold, only of gold futures, is estimated at $360 billion per month. But physical delivery of gold is only for $280 million a month. This equates to a ratio of paper gold versus physical gold to 1000 to 1.

Using the mechanism of active withdrawal from the market of one artificially lowered by the West financial asset (gold) in exchange for another artificially inflated by the West financial asset (USD), Putin has thereby started the countdown to the end of the world hegemony of the petrodollar. Thus, Putin has put the West in a deadlock of the absence of any positive economic prospects.

The West can spend as much of its efforts and resources to artificially increase the purchasing power of the dollar, lower oil prices and artificially lower the purchasing power of gold. The problem of the West is that the stocks of physical gold in possession of the West are limited. Therefore, the more the West devalues oil and gold against the US dollar, the faster it loses gold from its not infinite reserves.

In this brilliantly played by Putin economic combination,  physical gold from the reserves of the West is rapidly flowing to Russia, China, Brazil, Kazakhstan and India (i.e. the BRICS countries).  At the current rate of reduction of reserves of physical gold, the West simply does not have the time to do anything against Putin until the collapse of the entire Western petrodollar world. In chess the situation in which Putin has put the West is called “time trouble”.

The Western world has never faced such economic events and phenomena that are happening right now.  The former USSR rapidly sold gold during the fall of oil prices.  Today, Russia rapidly buys gold during the fall in oil prices. Thus, Russia poses a real threat to the American model of petrodollar world domination.

The main principle of the global petrodollar model is allowing Western countries, led by the United States, to live at the expense of the labor and resources of other countries, based on the role of the US currency, dominant in the global monetary system (GMS). The role of the US dollar in the GMS is that it is the ultimate means of payment. This means that the national currency of the United States in the structure of the GMS is the ultimate asset accumulator.

Led by Russia and China,  what the BRICS are doing now is actually changing the role and status of the US dollar in the global monetary system. From the ultimate means of payment and asset accumulation, the national currency of the USA, turning it into only an intermediate means of payment. Intended only to exchange this interim payment for another and the ultimate financial asset – gold. Thus, the US dollar actually loses its role as the ultimate means of payment and asset accumulation, yielding both of those roles to another recognized, denationalized and depoliticized monetary asset – GOLD!

Traditionally, the West has used two methods to eliminate the threat to the hegemony of petrodollar model in the world and the consequent excessive privileges for the West: One of these methods – colored revolutions. The second method, which is usually applied by the West, if the first fails, is military aggression and bombing. But in Russia’s case both of these methods are either impossible or unacceptable for the West.

Because, firstly, the population of Russia, unlike people in many other countries, does not wish to exchange their freedom and the future of their children for Western kielbasa (meat sausage). This is evident from the record ratings of Putin, regularly published by the leading Western rating agencies. Personal friendship of Washington protégé Navalny with Senator McCain played for him and Washington a very negative role. Having learned this fact from the media, 98% of the Russian population now perceive Navalny only as a vassal of Washington and a traitor to Russia’s national interests. Therefore Western professionals, who have not yet lost their mind, cannot dream about any color revolution in Russia.

As for the second traditional Western way of direct military aggression, Russia is certainly not Yugoslavia, not Iraq nor Libya. In any non-nuclear military operation against Russia, in the territory of Russia, the West led by the US is doomed to be defeated. And the generals in the Pentagon exercising real leadership of NATO forces are aware of this. Similarly hopeless is a nuclear war against Russia, including the concept of so-called “preventive disarming nuclear strike”.  NATO is simply not technically able to strike a blow that would completely disarm the nuclear potential of Russia in all its many manifestations. A massive nuclear retaliatory strike on the enemy or a pool of enemies would be inevitable. Its total capacity will be enough for survivors to envy the dead. That is, an exchange of nuclear strikes with a country like Russia is not a solution to the looming problem of the collapse of a petrodollar world. It is in the best case, a final chord and the last point in the history of its existence. In the worst case – a nuclear winter and the demise of all life on the planet, except for the bacteria mutated from radiation.

The Western economic establishment can see and understand the essence of the situation. Leading Western economists are certainly aware of the severity of the predicament and hopelessness of the situation the Western world finds itself in; in Putin’s economic gold trap. After all, since the Bretton Woods agreements, we all know the Golden rule: “Who has more gold sets the rules.” But everyone in the West is silent about it. Silent because no one knows now how to get out of this situation.

If you explain to the Western public all the details of the looming economic disaster, the public will ask the supporters of a petrodollar world the most horrific questions, which will sound like this:

  • How long will the West be able to buy oil and gas from Russia in exchange for physical gold?
  • And what will happen to the US petrodollar after the West runs out of physical gold to pay for Russian oil, gas and uranium, as well as to pay for Chinese goods?

No one in the west today can answer these seemingly simple questions.

And this is called “Checkmate”, ladies and gentlemen. The game is over.

The above article was translated by Kristina Rus. Edited by Koos Jansen.

Guest Post: We Are Headed For A Major Dis-location And It Revolves Around The Dollar

The United States declared economic war on Russia. It is hard to pinpoint the why of the matter but in this author’s opinion it always comes back to US dollar dominance. Russia has made no secret of its disdain for the global pricing mechanism of oil. The chart below shows what matters in the pricing of oil and it has zero to do with shale miracles or over supply.

It is the dollar and only the dollar that matters in the pricing of oil with an exception being an act of nature.


Much like the gold market, supply and demand fundamentals are completely ignored as the pricing of gold revolves around the dollar. Countries such as Russia understand fully that this dynamic of dollar dominance leaves them very vulnerable to shocks. The same is true of all resource rich countries. While some of them see the US as an ally and go along with this, Saudi being the obvious one, the Russian’s have made it clear they want change. Make no mistake about it the Russian’s will get the change they desire.

The chart below shows the dollar against the Ruble. That chart is an act of economic war as the West has attacked the currency of a sovereign nation for UNECONOMIC reasons.


Let me explain the previous sentence. Russian debt to GDP is roughly 14%. Their debt to GDP is pristine. Japan’s is 227%, Greece 175%, Italy 132%, and the US 105%. Now can someone kindly explain why a currency would implode like the Ruble when their financial condition relative to the West and Japan looks like a Ferrari among a bunch of Ford Pintos? You could argue that they are highly dependent on oil. True, but so are other nations and are you certain oil will remain this low for an extended period?

The next chart is the dollar against the Kuwati Dinar, a nation wholly dependent on hydrocarbons. Certainly the dollar has rallied against it but that chart is not even a faint resemblance to the Ruble.


Now, how is the US able to pull this off without a hitch? Ladies and Gentlemen may I show you why the Saudis are NEVER spoken ill of in the US no matter what they do. The Saudi Riyal is PEGGED to the dollar at 3.75 to 1. This occurred in 1986. Why is this crucial? Simply compare the chart below to that of the Ruble and you have your answer.


Isn’t it odd that you don’t hear anyone talking or writing about challenging this currency peg?

And finally in March of this year, Louis Woodhill began a column for Forbes with the following:

“How should the U.S. deal with Vladimir Putin’s invasion of the Ukraine?  We should do to Russia what Ronald Reagan did to its predecessor, the old Soviet Union.  We should drive them into bankruptcy by stabilizing the U.S. dollar.”

Simple question…who is we?

Written by: It’s a Mystery

The Netherlands Has Repatriated 122.5t Gold From US

The Dutch central bank, De Nederlandsche Bank (DNB), has repatriated in utmost secret 122.5 tonnes of gold from the Federal Reserve Bank of New York (FRBNY) to its vaults in Amsterdam, The Netherlands, according to a press release from DNB published today (November 21).

DNB states it has changed allocation policy from 11 % in Amsterdam, 51 % at the FRBNY, 20 % in Canada and 18 % at the Bank Of England (BOE); to 31 % in Amsterdam, 31 % at the FRBNY, 20 % in Canada and 18 % at the BOE. According to the World Gold Council’s latest data DNB has 612.5 tonnes in official gold reserves.

The Netherlands Official Gold Reserves Allocation
Source: the WGC, DNB

Translation DNB press release:

DNB Adjusts Gold Reserves Allocation Policy

Press release, date November 21, 2014.

De Nederlandsche Bank has adjusted its allocation policy for its gold reserves. To achieve a more balanced distribution of gold over the various locations, DNB has shipped gold from the US to the Netherlands.

In the old situation 11% of the gold reserves were located in the Netherlands, 51% in the US, with the remainder in Canada (20%) and the UK (18%). The location distribution according to the revised policy is as follows: 31% in Amsterdam, 31% in New York, while the percentages for Ottawa and London with 20 and 18  % remain unchanged.

This adjustment of DNB joins other central banks that store a larger share of their gold reserves in their own country. Next to a more balanced distribution of the gold reserves over the different locations, this can also contribute to more trust towards the public.

The distribution of gold stocks over various locations is often subjected to change. For example, in the period after the Second World War until the early seventies DNB added a lot to its gold reserves – under Bretton Woods – especially in New York. Since then, more mutations occurred. The main reasons for this have been the gold sales over the past decades and the closure of the vaults of the Reserve Bank of Australia, which made DNB ship gold from Australia to the UK in 2000. 

A few weeks ago I heard a rumor that the Netherlands were repatriating some of their official gold reserves from the FRBNY. From one of my sources I even heard which security logistics company was shipping the metal, but I was kindly asked to not share this company’s name.

Last week I was approached by a financial journalist, Theo Besteman, from the biggest newspaper in The Netherlands, De Telegraaf. He asked me if I knew anything about the repatriation of Dutch gold from the FRBNY as he heard from several sources DNB was following the German central bank in repatriating gold (for the ones that are under the assumption Germany has ceased its repatriation program, please read this). I told him I heard some rumors about it and that the source was one of the big security logistics companies. He wanted to know which one, but I couldn’t tell him that. Apparently the rumors were true and Besteman did a good job finding out what was happening. The front page of De Telegraaf today: Tonnes back from the US, Gold Shipped In Secret.

Screen Shot 2014-11-21 at 9.17.12 AM

De Telegraaf reports that for years there have been doubts at the DNB if the Dutch gold was still in New York. After a very secret and almost military operation DNB has shipped gold from Manhattan to Amsterdam, to bring about a more balanced allocation of its gold reserves and give the Dutch citizens more confidence by storing the gold on own soil to guide the country, if necessary, through a following major crisis. In the previous weeks many armored trucks were seen at the DNB in Amsterdam. Quote from De Telegraaf:

It is no longer wise to keep half of our gold in one part of the world,” said a DNB spokesman on the massive operation of shipping gold bars to Amsterdam. “Maybe that was desirable during the Cold War, not now.”

Global Consequences

The impact of the Dutch gold repatriation can be huge. First of all, because it underlines more and more countries are getting nervous about their gold reserves stored in the US. Venezuela repatriated most of its reserves from abroad in 2012, the year Germany also announced a repatriation schedule from the US and France. While Germany settled with the US to ship 300 tonnes spread over 8 years, the Dutch set a new trend to insist on immediate delivery. If more counties will follow this trend there can be a global run on gold.

Recently the Swiss people also got nervous about the Swiss National Bank (SNB) its gold policy and asked for a referendum to store all of the official gold reserves on Swiss soil. The Swiss referendum is held on November 30 and will most likely be influenced by the repatriation of The Netherlands.

De Nederlandsche Bank 2

Wikileaks: US Knew Exactly How To Provoke Russia

Back in 2008 the Ukraine had already expressed its plans for NATO membership at the NATO Bucharest Summit. Russian Foreign Minister Lavrov and other senior officials have reiterated strong opposition at the time, stressing that Russia would view further NATO eastward expansion as a potential military threat. From Wikileaks (2008):

NATO Enlargement “Potential Military Threat to Russia”

During his annual review of Russia’s foreign policy January 22-23, Foreign Minister Lavrov stressed that Russia had to view continued eastward expansion of NATO, particularly to Ukraine and Georgia, as a potential military threat. While Russia might believe statements from the West that NATO was not directed against Russia, when one looked at recent military activities in NATO countries (establishment of U.S. forward operating locations, etc.) they had to be evaluated not by stated intentions but by potential. …Lavrov emphasized that Russia was convinced that enlargement was not based on security reasons, but was a legacy of the Cold War.

Ukraine and Georgia’s NATO aspirations not only touch a raw nerve in Russia, they engender serious concerns about the consequences for stability in the region. Not only does Russia perceive encirclement, and efforts to undermine Russia’s influence in the region, but it also fears unpredictable and uncontrolled consequences which would seriously affect Russian security interests. Experts tell us that Russia is particularly worried that the strong divisions in Ukraine over NATO membership, with much of the ethnic-Russian community against membership, could lead to a major split, involving violence or at worst, civil war. In that eventuality, Russia would have to decide whether to intervene; a decision Russia does not want to have to face.

…Ukraine’s gradual shift towards the West was one thing, its preemptive status as a de jure U.S. military ally another.

NATO members

And so the stage was set for the US to pressure Russia’s strength in the region. What followed was a good old fashioned CIA coup in Kiev, after which 400 elite mercenaries from the notorious US private security firm Academi (formerly Blackwater) joined the Ukrainian military operation against the ethnic-Russian community in Eastern Ukraine. All part of the US its primary objective; to maintain global power and the US dollar hegemony.

Ukraine Another CIA Coup

The CIA has been involved in the Ukraine for quite some time. CIA director, Brennan, visited the Ukraine in mid April to consult with this coup government. To understand what is happening in the Ukraine we need to put this into historical context. We need to understand that the CIA has overthrown dozens of governments around the world since World War II and that’s what happened in the Ukraine. It was another CIA coup. Just like the coup that overthrew Prime Minister Mosaddegh in Iran 1953, the coup that overthrew President Allende in Chile in 1973, and so many others.

John Perkins in his book, Confessions Of An Economic Hitman, reveals he was working for this program run by the international bankers who are the real powers behind the scenes in the west, to create a world straddling empire. Using the power of usury, that is World Bank loans and financial takeovers all over the world backed up by military power. So this is an aggressive attempt to seize the Ukraine by way of a US sponsored coup, and that is why the CIA is in Kiev right now consulting with their puppet government.

The same forces that overthrew the Ukraine, tried to overthrow the government of Syria, and failed. Their attempt in the Ukraine seems to be stymie, at least in part, by the wishes of so many people in the eastern side of the Ukraine. So I think this world takeover attempt may be slowing down or stalling. I wish President Putin and the rest of the forces who are standing against this all over the world te best of luck!

Kevin Barrett.

In Gold We Trust

Guest Post: The Golden Age Of Our Times Is The Age Of Gold

Towards a new international monetary system – Part 2.

[This is the English translation, first published here on 2014/04/10, of the original article written in French]

We first established in January 2013 the need to resolve the problem of the international monetary system, and its absolute priority. [1]

We then proposed in May 2013 a strategy to effectively prepare the necessary resilience to support the change in the international monetary system. [2] The various official announcements over the past months have largely confirmed that this anticipation was shared. [3]

The synthesis of this strategy was again stressed by Laurence Brahm on 21/10/2013:

” It is not the complete removal of the old Bretton Woods financial architecture but rather the creation of a new parallel structure to the old. Eventually, countries will be able to choose which architecture is better suited to their own plans for reconstruction and renovation. ” [4]

The Golden Age (Zucchi)
The Golden Age (Zucchi)

This week of March 2014 where I release this article sees an important step in international relations. It is nothing less than discussing the 2015 framework and choosing between the repetition of the Vienna Conference in 1815 (the Concert of Nations) or Yalta Conference in 1945 (the Cold War) that will support the “new rules of the game in international politics“. [5]

In fact, this week in Europe a large number of high level bilateral meetings take place:

– President Xi met with the Prime Minister of the Netherlands, François Hollande, Angela Merkel and then with the European Commission president [6]

– President Obama met with President Xi, and then he has extended his trip at the last minute to meet the Heads of State of The Netherlands, Italy, Belgium, UAE, South Korea, Japan, then a meeting with the Pope in Rome and a meeting with the King of Saudi Arabia. [7] Followed by a planned meeting with Mr Barroso and Van Rompuy [8]

– The G7 meeting on the sidelines of the Nuclear Security Summit in 2014.

– And other bilateral meetings, more or less official and prepared, among other heads of state following their presence at the Nuclear Security Summit 2014.
Officially the goal is mostly to talk about the crisis in Ukraine and Crimea, or to sign some contracts. The public communiques will mention them.

We believe that other issues, much more important but related, will be discussed: those around the current reorganization of the new international monetary and financial system. [8.1]

Marketable U.S. Treasuries held by the Fed in custody for Foreign Official and International Accounts; till 3/26/2014; (Sources: St Louis Fed, Conscience-Sociale.org)
Marketable U.S. Treasuries held by the Fed in custody for Foreign Official and International Accounts; till 3/26/2014; (Sources: St Louis Fed, Conscience-Sociale.org)

Our analysis is that the Ukrainian crisis was triggered by the U.S. deep state in preparation for the introduction of this next reorganization. [9] This is to retain the EU in the area of U.S. domination. [9.1]

The time has come to clarify what we mean by new international monetary and financial system.
We believe this is not only about launching what is already announced:

– A Development Bank for BRICS parallel to the World Bank
– A BRICS stabilization fund parallel to the IMF
– New bilateral trade agreements parallel to the WTO but to go much further.


Firstly, the BRICS Development Bank is becoming a “Bank initiated by BRICS for the development of all interested parties” and whose governance is open to any state wishing to join with the framework agreement. [9.2]

Secondly, and this is the most innovative part: it is to create another institution parallel to the Bank for International Settlements (BIS).

This is the oldest international financial institution fully governed by the West (6 permanent members and founders are the central banks of Belgium, France, Germany, Italy, UK and USA, which can have a double voting weight – analogy with Obama’s meetings this week is not a coincidence [10])

BIS is the central bank of central banks, that is to say, it organizes and manage trade between them … especially those concerning physical gold. Activities related to financial regulation (the famous Basel Committee rules) were added much later, after the existence of the bank became public when it was kept secret since its inception. [10.7]

The first problem to solve for the overhaul of the international monetary and financial system is not really the choice of a new currency. This is only a means. This is primarily to ensure price stability and the development of international trade. Otherwise, the only alternative is endless war for resources that are increasingly scarce. It is therefore necessary to separate the problem of a reference currency for international trade, from that of a reserve currency for central banks.

Global geopolitical dislocation following the 2008 crisis has cut the Gordian knot: there is no need any more to make a decision for all countries (which has blocked reform for many years [10.6]). Now BRICS countries have the initiative and willingness to move forward. This will is the key factor as we wrote: [10.9]

The global geopolitical context is characterized primarily by a tilt after reaching the tipping point: the decline of the American empire on the one hand and the rise of the multipolar initiative led by BRICS on the other. Because they are so desperately lacking in autonomy of decision and willingness, the EU and Japan find themselves buffeted by this tidal wave of history.

The choice is made for several years, international trade will be based on gold [10.3].

How will this happen in practice? Not with boats or trucks loaded with bullion, of course. As we said a “second BIS” was designed that can manage a clearing house for payments (settlements) in physical gold, especially to add to it a fundamental function to allow again international settlements for goods using “Real Bills” (a.k.a. Gold Bills), as recommended by the New Austrian School of Economics. In his work Professor Fekete described these Gold Bills as being “destined to be settled in gold coins that are made available after the ultimate consumer surrenders them in exchange for finished consumer goods upon maturity”. [10.4] Their issue is strictly limited by the orders received to buy goods. They allow increasing the money velocity without systematically using coins and without any risk of inflation. [10.1]

This is far from a simple “100% gold” standard.

Gold is the only money (gold – silver ratio must float) as everyone knew for millennia. Today most people have more or less forgotten this unique role, Western central bankers have tried for a century to put lipstick on a pig, so to speak. [10.8] By deceiving us, they deceived themselves and began to believe their own nonsense. A historical failure and on a global scale. Alas, it is a failure of the European spirit. We need to recognize it in order to find the impetus beneath our feet allowing us to arise from the depth of this graveyard by the sea. [10.2]

BRICS countries do not necessarily need the West to initiate this new settlement system. [10.5] It must be noted in this respect what it can supersede. The dollar currency and U.S. Treasury at the foundation of famous “petrodollars” are replaced by the Gold Bills that will allow buying oil for example. [11] It is the function of reference currency for international trade.
But US Treasuries have a function of income related to their mid/long term interest rate too – it is also a fatal flaw in this system. This is the second problem: the choice of the reserve currency for central banks.

The new system offers very smartly to decouple these two functions. The income function can be brought (at appropriate time) by introducing gold bonds, that is to say bonds denominated in gold weight (ie not merely an obligation backed by gold collateral denominated in fiat currency – a.k.a. gold backed bonds), with interests denominated in gold weight and whose principal is redeemable in gold weight. Again, we must have an institution for the issuance of these bonds.

Note that to start, it is not necessary to replace any national currency by gold coins. The gold bills will circulate in parallel of currencies, and user confidence in these currencies will be reflected in real time in the local price of that currency measured in mg of gold (that is to say, the inverse of the ‘price of gold’ measured in the currency, which is the usual vision that we have – a totally wrong perception because you can not measure the length of a bar with a rubber-band: you must take the opposite approach). Hence the fundamental importance of not having rigged gold markets as currently in New York and London. [12]

(Source: GoldSwitzerland.com)
(Source: GoldSwitzerland.com)
Price of one U.S. dollar in mg of pure gold since 1968 till 3/24/2014 (Sources: St Louis Fed, LBMA, Conscience-Sociale.org )
Price of one U.S. dollar in mg of pure gold since 1968 till 3/24/2014 (Sources: St Louis Fed, LBMA, Conscience-Sociale.org )

The U.S. have no way to prevent BRICS countries to launch this parallel system, a competitor of the one based on U.S. Treasury bond, and which finally obliterate their attraction.

The only remaining choice as new rules for American decision-makers (that is to say, the public state and the deep state) are the following, as they are standing with their back to the wall [12.2]:

– either to accept an open cohabitation of two parallel systems, with 100% of the players who know that the dollar system can not be competitive (very quickly one system will endure and all U.S. Treasury assets going up in smoke). Modestly this is called “asset restructuring in U.S. bonds market.” This is the path of Vienna in 1815. [12.1]

– or not to accept this open cohabitation, that is to say close the door to hide behind and build a wall as high as possible so that no one can escape from the dollar zone. For this area can last as long as possible (while being doomed because of deflation), it must be the largest possible, and the EU is a tempting (with its remaining gold reserves) and very easy prey thanks to Atlantist governments and European Commission who are obediently following the interests of the American deep state. The strategy is therefore to make them sign the TTIP as soon as possible, which quickly convinces them not repatriate their gold and abandon the euro (two currencies for the US-EU area only, is one too many) as they have already abandoned their sovereignty. This is the way of Yalta in 1945. [12.3]

The next time you meet your President or Prime Minister, you now know which good question to ask him: what did he choose for us and that is supposed to commit all?
BRICS countries are reaching out to European people since 2009, and our governments show their disdain so far, preferring the shadows of the world before. [13] But it is not too late to think about our place in Europe and in the world, it remains few short months and the ticket can be taken since this week. Hurry up or repent.

What is currently discussed off-line is however everybody’s concern, and will commit us for a long time to come. Do not suffer without understanding.

An error doesn’t become a mistake until you refuse to correct it. (O.A. Battista, 1917-1995)

Written by Dr. Bruno Paul


[1] ‘La crise écologique globale exige une refonte du système monétaire international’, Conscience Sociale, 01/2013; This article was itself in the continuity of the fundamental question raised in 2011: ‘How to replace the world trade reference currency’, Conscience Sociale, 06/2011

[2] a) ‘Towards a new international monetary system – part 1’, EN or FR version, Conscience Sociale, 2013; b) the first mention of this strategy can be found in the conclusion of ‘La géoéconomie des Bons du Trésor US’, Conscience Sociale , 12/2012

[3] a) ‘China, Europe Agree on Currency Deal’, TheTrumpet.com ; b) ‘China’s planned crude oil futures may be priced in yuan’, Reuters ; c) ‘India to resume paying Iran in Euros’, India Times ; d) ‘PBOC Says No Longer in China’s Interest to Increase Reserves’, Bloomberg ; e) ‘China’s central government has reportedly approved 12 new free trade zones, including ones in Tianjin and Guangdong’, The Diplomat ; f) ‘Harbinger: 23 countries begin setting up swap lines to bypass dollar’, The Examiner ; g) ‘FMI: La réforme de l’institution reste bloquée par Washington’, Les Echos ; h) ‘Dollar-based system is inherently unstable – The culprit is the dollar’, Financial Times ; i) ‘A Shanghaï, Pékin s’offre un laboratoire des réformes’, Le Monde ; j) ‘La banque de développement et le FMI des BRICS sont nés’, L’Express ; k) ‘Shanghai Free-trade Zone to lead on yuan reform’, South China Morning Post ; l) ‘IMF Quota and Governance Reform: Political Impulse Needed for Progress on Reform Process’, CIGI ; m) ‘South Korea, Australia ink US$ 4.5 billion currency swap agreement’, Sovereign Wealth Fund Institute ; n) ‘BRICS Bank: Caution is a good policy’, India & Russia Report ; o) ‘G20 regrets IMF reforms delay, India says can’t wait for long’, Industan Times ; p) ‘Медведев: особую экономическую зону в Крыму будет курировать Козак’, RBC Daily ; q) ‘Gold trading to open up to foreigners in Shanghai’, SCMP, 03/2014; r) ‘Russia without dollar – what are the risks?’, pravda.ru, 03/2014

[4] a) Les Brics veulent en finir avec l’extrémisme des marchés financiers’, RIA Novosti ; b) original article: ‘БРИКС положит конец рыночному фундаментализму’ RBC Daily

[5] a) R. Cohen, ‘International Politics: The Rules of the Game’, Longman Group United Kingdom, 1982 ; b) Le Président Xi déclare ainsi cette semaine: “China is firmly committed to … building a new model of major country relations”, Reuters, 03/2014

[6] Le Parisien , 03/2014

[7] The Guardian, 03/2014

[8] European Council , 24/03/2014

[8.1] Ne pas ignorer par exemple: a) ‘Did Russia Just Move Its Treasury Holdings Offshore?’, WSJ, 03/2013 ; b) ‘Emerging Markets central banks sell US government bonds’, Financial Times, 03/2014

[9] a) ‘La crise ukrainienne, un événement de la politique profonde’, Conscience Sociale, 03/2014; b) For the exact definition of ‘deep state’ see ‘La politique profonde et l’Etat profond (deep deep politics and the State), Conscience Sociale, 03/2014

[9.1] ‘Global systemic crisis-escalation in the US reaction for survival: trigger a cold war to make it easier to annex Europe’, Global Europe Anticipation Bulletin n°83, 03/2014

[9.2] ‘The Way Forward for the Brics New Development Bank ‘, All Africa , 03/2014

[10] Obama and Cameron prepared this meeting last week: whitehouse.gov , 03/2014

[10.1] Real Bills maturity is 91 days maximum.

[10.2] ‘La Crise de l’Esprit Européen‘ and ‘La conjecture de Valéry, de Paul à Paul‘, Conscience Sociale, 02/2014

[10.3] ‘Building a strong economic and financial security barrier for China – Actively build and implement national gold strategies’, In Gold We Trust, 09/2013

[10.4] a) For more details, you can read his recent announcement ‘Gold Bills Payable in Gold Sovereigns’ AE Fekete , 03/2014; b) On the distinction between Gold Bills and Real Bills: ‘Interview with Prof. Fekete’, Daily Bell, 03/2014

[10.5] The group formed by the BRICS is already sufficiently autonomous: ‘Sanctions effect: Russia to change its Economic Partners… for the better’, Russia Today , 03/2014

[10.6] ‘U.S. Dollar, Euro, Renminbi as invoicing currencies in international trade and as reserve currencies – A bibliography’, Conscience Sociale

[10.7] Founded in 1930, its existence was publicly unveiled in 1977. Note also that according to the by-laws the small territory of the BIS building is not subject to Swiss law. Police or army can not have access. See also ‘Tower of Basel: The Shadowy History of the Secret That Runs the World Bank’, Adam LeBor , PublicAffairs, 2013

[10.8] ‘Bernanke Tells Congress: I Don’t Really Understand Gold’ , Forbes , 07/2013; But they recognized themselves be burnt out: see Conscience Sociale, 08/2013

[10.9] ‘Focus’ chapter in Global Europe Anticipation Bulletin No. 83, 03/2014

[11] It should be noted in this respect that the BRICS countries have learn from the experience of purchases by India of Iranian oil using gold, through Turkish banks. This is a case of an unjust embargo imposed by the West proved to be a weakness that would lead to huge consequences. History is fond of this kind of irony. See a) WSJ , 02/2014; b) Foreign Policy , 02/2014

[12] a) ‘Sun Zhaoxue: The United States Intends To Suppress Gold To Ensure The Dollar’s Dominance’, In Gold We Trust, 01/2014 ; b) The origin of this strategy date back to distant times. See for instance: ‘Minutes of Secretary of State Kissinger’s Principals and Regionals Staff Meeting, Washington, April 25, 1974’, in FOREIGN RELATIONS OF THE UNITED STATES, 1973–1976 VOLUME XXXI, FOREIGN ECONOMIC POLICY, DOCUMENT 63 ; c) ‘La Manipulation du Prix de l’Or’, 24hgold, 09/2008 ; d) ‘Barclays, Deutsche Bank Accused of Gold Fix Manipulation’, Bloomberg, 03/2014

[12.1] ‘What the world needs is 19th century behavior’, Russia in Global Affairs, 03/2014

[12.2] ‘L’implosion du marché COMEX et la dé-américanisation du monde’, Conscience Sociale, 10/2013

[12.3] ‘L’Union européenne: la nouvelle URSS’, Vladimir Bukovsky

[13] ‘La dérive néo-conservatrice de la politique française’, Agile Democracy , 03/2014

In Gold We Trust

BuBa: Half of German gold reserves will be stored in Germany by 2020

Interview with Carl-Ludwig Thiele, Member of the Executive Board of the Deutsche Bundesbank, published in Handelsblatt on 19 February 2014.

Translation: Deutsche Bundesbank

Interview conducted by Norbert Häring and Jens Münchrath.

Mr Thiele, do you consider yourself a kind of psychotherapist of the German soul?

No, why should I?

Bundesbank President Jens Weidmann described the partial transfer of German gold from New York as a trust-building measure in Germany.You are the one responsible for organising this major logistical undertaking.

Indeed, we are inspiring trust by storing half of the 3,400 tonnes of gold in Frankfurt by 2020. Building trust also means being transparent. We were the first central bank to publish details of our storage facilities, including the respective quantities of gold stored there.

Is there a scenario in which gold could begin to be used in monetary policy?

A highly theoretical scenario would involve extreme turmoil on the foreign exchange markets. Germany safeguards its solvency through reserve assets. In addition to foreign currency, our reserve assets include gold reserves. This gold could be pledged or exchanged directly for foreign currency. That is also why we have left the other half of our gold reserves in New York and London. Although we thankfully do not envisage such a crisis scenario, central banks are designed for the long term.

In October 2012, you promised the German Bundestag that you would transfer a total of 150 tonnes of gold from New York to Frankfurt by 2015.In January 2013, you extended the time frame to 2020 and increased the amount to 300 tonnes. What time frame are you looking at now?

The plans are not contradictory. We specified our initial target in October 2012. In January 2013, we then presented a new gold storage plan and specified a new target that is considerably higher than the first. Instead of only 150 tonnes, we are now transferring 300 tonnes of gold from New York to Germany.

So both targets still apply?

We now consider ourselves bound to the new gold storage plan. But the three years have not yet passed. We shall wait and see. We are on the right track in any case.

But the members of the German Bundestag have acted on the assumption of the initial promise.The second has got a more long-term oriented time frame. Was your initial promise overly ambitious? In the first year, you only returned five tonnes from the USA.

It is not a question of “returning”. The gold is being transferred to Germany for the first time. Until 1998, only 2% of our gold, or thereabouts, was stored in Germany. In the first year, we transported five tonnes from New York. This year, we will transfer 30 to 50 tonnes, or perhaps even more, from New York to Frankfurt. And there is still next year to come.

Does that mean that the target of 150 tonnes is still attainable?

Since we are in the midst of an ongoing process, I would like you to ask me the question again in two years’ time. In any case, we will store half of the German gold reserves in Germany by 2020 at the latest.

Why are you content with such a low target for this year? Is the programme still experiencing teething problems in its second year?

No, it is not. We have planned the timing of the transfers in such a way as to ensure that 300 tonnes are transferred from New York to Germany by 2020 at the latest.

There are these rumours that either the gold in New York is no longer there or you do not have unrestricted access to it. Why have you not called in auditors or other externals to oversee the transfers in response to such rumours?

It astounds me that Handelsblatt pays any attention to such absurd rumours. I was in New York myself in June 2012 with the colleagues responsible for managing the gold reserves and saw for myself how our money is stored in the vault there. The Americans have never stonewalled or hindered us in any way. On the contrary, their cooperation has been most constructive in every respect. Our internal audit team was present last year during the on-site removal of gold bars and closely monitored everything. The smelting process is also being monitored by independent experts.

Does this also apply to opportunities to inspect the stocks? You said a year ago that discussions on the matter with the Federal Reserve Bank of New York were making good progress.

That is correct. We have enjoyed an excellent relationship of trust with the New York Fed for many decades. As regards the details of the contracts, however, we are bound by confidentiality which we cannot unilaterally break. From my visit to New York, I can tell you that a number of bars selected by us were removed, inspected and reweighed even while I was there. The inspections conducted by our internal audit team, during which an external auditor was also present, were also completed to our utmost satisfaction.

Was an external auditor present during your visit to the New York Fed gold storage facility in June 2012?

No, not during my visit. However, an external auditor was present for part of the time during the internal audit team’s inspection of stocks.

Did the gold from New York have to be melted down immediately?

The gold was removed from the vault in the presence of the internal audit team and transported to Europe. Only once the gold had arrived in Europe was it melted down and brought to the current bar standard. Some of the bars in our stocks in New York were produced before the Second World War. It was confirmed after the melting process, as anticipated, that these bars were absolutely fine.

The Federal Court of Auditors (FCA) sparked the debate by calling for an inspection of Germany’s gold holdings abroad. When you announced in October 2012 that part of the holdings were to be transferred to Germany, the FCA responded that this was a first step, but not a comprehensive procedure. Is the FCA now satisfied?

The FCA never demanded that the Bundesbank transfer gold to Germany. It was more concerned with extending its rights with regard to inspecting gold reserves abroad. The Bundesbank’s internal audit department now has rights it never used to have. The Budget Committee has acknowledged the FCA’s report, which concludes this discussion. Incidentally, the FCA examined the Bundesbank’s annual accounts for 2012 and found no irregularities.

The FCA claims it has no knowledge of newly agreed audit rights.

The FCA has access to all information at all times. I am sure the President of the FCA will be able to confirm this for you.

If the intention was to build trust, would it not have been better to postpone the smelting process so that you would have been able to present the original bars to skeptics?

Prior to transportation, the original gold bars were handed over to us in New York. Our internal audit team checked the numbers of the bars there and then against its own lists. Thevery same gold arrived at the European gold smelters that we had commissioned. This ought to demonstrate to everyone that such conspiracy theories are completely unfounded.

Calling in external auditors or critics was not an option?

The Bundesbank’s internal audit department is involved in the process from start to finish. Independent experts were present during the smelting process.

Are there any advantages for the Americans in storing gold for other nations? After all, they are protecting our reserves free of charge.

To answer this question, you need to look at the historical context. As you may know, gold reserves were established during the Bretton Woods fixed exchange rate system. Given the threat from the East at the time, it seemed the safest option was to store German gold as far west as possible. The gold was therefore stored in New York from the outset.

So the Americans are taking on high storage costs for nothing in return?

No, why high storage costs? The gold has been stored there for decades. The storage rooms already exist.

Security guards cost money…

It is not just our gold that they protect, but also that of other central banks. But that is a matter for the New York Fed.

Just over a year ago, you were asked whether storing gold with the victors of the Second World War was not perhaps an echo of the old Bonn Republic when Germany was not yet a fully sovereign state. Back then, your answer was rather vague. What is your answer today?

To my knowledge, gold was stored in New York, London and Paris mainly for security policy reasons. We transferred 930 tonnes of gold from London more than ten years ago without experiencing any difficulties with the Bank of England or upsetting German-British relations.  The same applies to the Banque de France and the New York Fed.

In Gold We Trust

SGE Physical Delivery 2073 Tons YTD, 50 Tons From 9-13 December

The amount of gold withdrawn from the Shanghai Gold Exchange vaults has been increasing in recent weeks. After an explosive week in April, when 117 tons of gold were withdrawn, weekly averages came down to a constant 40 tons throughout the year. At the end of October it seemed Chinese demand for physical gold was declining, but since  November weekly physical delivery has been north of 40 tons. In between 9 and 13 December 50.4 tons of gold were withdrawn from the vaults. Year to date 2073 tons have been withdrawn, which equals to Chinese gold demand according to the PBOC.

Premiums in Shanghai have remained around 1 % over international spot in recent weeks.

USGS estimated total world mining production would be 2700 tons this years, but this estimate was made before the price collapsed in April. After the price drop numerous mines were shut down and thus total world mining production will be far lower than what was expected in January. It could very well be that SGE physical delivery in week 50, which was 50.4 tons, surpassed global mining production, which was estimated at 54.9 tons, but we can only be sure about this when we have the official mining data at year end.


Overview Shanghai Gold Exchange data week 50

– 50 metric tonnes delivered in week 50 (withdrawn from the SGE vaults), 09-12-2013/13-12-2013
– w/w  + 13.8 %
– 2073 metric tonnes delivered year to date
– weekly average 41.46 tonnes YTD, 2013 estimate yearly total 2156 tonnes.


For more information on SGE delivery read thisthisthis and this.

Shanghai Gold Exchange gold withdrawn from vault week 50, 2013

Screen dump from SGE trade report; the second number from the left (本周交割量) is weekly physical delivery, the second number from the right (累计交割量) is total delivery YTD.

Shanghai Gold Exchange withdrawals from vault week 50

Gold premiums on the SGE based on data from the weekly reports. Difference between SGE gold price in yuan and international gold price in yuan.

SGE premiums week 50, 2013 

Below is a screen dump of the premium section of the SGE weekly report; the first column is the date, the third is the international gold price in yuan, the fourth is the SGE price in yuan, and the last is the difference.

SGE premiums week 50

In Gold We Trust

SGE foreign exchange gold system

China Prepares For Financial Warfare

On 17 and 18 September 2011 a conference on “risk management for Chinese corporations” was held in Shenzen, China, organized by the research center of the State-owned Assets Supervision and Administration Commission of the State Council (SASAC).

Chinese enterprise overseas risk control 2011

An introduction of a few speakers:

General Qiao Liang, who wrote this book.

Mei Xinyu, researcher at the Chinese Academy of International Trade and Economic Cooperation (CAITEC).

Zhang Jie, famous financial critic (I’ve published a translation of his work here), author of A Chinese Businessman Buying Mines in Africa.

Zheng Gang, the CEO of Keen Risk Solution Co. LTD, and consultant member of the Chinese Competitive Intelligence Association.

Bi Yantao, director of China International Institute for strategic Society Spread, director of Hainan University Communication Research Center.

Joshua Kwai, terrorism and security advisory expert, the CEO of JK Consultancy Holdings Pte LTD.

Daniel Mlanao, political risk management professor.

To learn a bit more on what this meeting was about I studied the speakers. What I found were numerous articles on the tension in the power relation between the US and China, something not often thoroughly analyzed by the mainstream media. One article I would like to share, from CEO of Keen Risk Solution, Zheng Gang. Exclusively translated by In Gold We Trust.

(Zheng Gang gave me permission to publish the translation)

Zheng Gang, June 2013 (东方锐眼风险管理顾问公司 Keen Risk Solution)

Before actual combat over land, sea and air, an enemy nation that possesses offensive capabilities in Finance can disrupt China’s economic stability, thereby striking before a physical war, subduing us without a fight.

Financial War: The Invisible Conflict

Despite arising doubt towards the US dollar (USD) as the global reserve currency since the financial crisis in 2008, the USD-centric system of world trade and finance remains an important cornerstone of the post-Cold War global economic order.

The strategic ‘Game’ to preserve the USD’s global status is now focus of international political and economic activity; the US makes a new kind of non-military offensive against developing and transforming countries derived from her ability to set favorable rules, an ability she possesses through
the dollar hegemony.

Game of Nations: New Frontier

Based on historical encounters (like the Soros attack on Southeast Asian countries) the outcome of successful attacks will not be limited to finance. Outcomes include widely deteriorating trade conditions, widespread enterprise bankruptcies, high level of unemployment and escalation into political-social crises. As the globalized economy evolves, securitization of the real economy and the subsequent leverage from financial derivatives can sharply increase risks to economies targeted by financial war. One successful blow is like a ‘targeted killing’ towards an enterprise or even a nation’s economy, followed by a collapse and then regression.

A financial war may not be violent like a physical conflict, but it makes another succumb to one’s will through different means. A political motive exists as well. A financial attack initiated by a nation or a non-national entity are both able to achieve a national strategic intent.

War can be waged by different means these days. When war can also be waged over networks, financial attacks pick up operational characteristics of physical combat, its execution carries high level of antagonism and tactical planning. Central intelligence (easily achieved with the American ‘ revolving door’) gathers weaknesses of targets and makes contingency plans for counter-moves all prior to an offensive. The entire move has qualities of a joint-operation – one single effective financial strike requires different resources, participation from different countries and technical competencies to execute concurrently. Participating forces exercise high level of coordination for sub-agendas, time and location; all very similar to an integrated joint-operation.

An economy is the basis of warfare. If an enemy that possesses financial strike capabilities and overall advantage destroys our financial stability, hurts our economy, shake our people’s faith in the government before the start of traditional land, sea, space and air conflict, he can destroy our stability and achieve victory without fighting or compel us to commence battle under unfavorable conditions. Compared to land, sea, space, air and network battlefield, financial war should be considered a kind of outside attack.

The Modes Of Attack In Financial Warfare

The mode of attack can always be different because the main bodies involved in a financial war can vary. However, the main participants in a financial war are central banks and sovereign fundsFor example, the type of attack that worries the US is a massive dumping of USD’s or treasury bonds, or a departure from the US Dollar-centric system when countries sign bilateral currency swap agreements. The US has the means to attack the economies of other nations through quantitative easing, misinformation, local conflicts, inciting public health panic, exerting political pressure, using international bodies to lower credit ratings, etc. The objective of doing so for the US is the preservation of US Dollar hegemony and the revenue from seigniorage that comes along.

Delivering a blow to the opponents economies leads to capital outflow, handicapping said economies’ ability to fight crisis, real economic loss, deteriorating trade conditions, large scale enterprise bankruptcy and unemployment, then ultimately political-social instability; loss of confidence in the government and possibly mistrust in military operations in a targeted country are good preceding conditions for the start of traditional warfare.

Non-national entities consist of hedge funds. Hedge funds target specific enterprises and professions. They seldom attack national entities but the successful raid on Southeast Asian countries and the Bank of England by Soro’s Quantum Fund is an example. Following rapid advancement in the development of financial derivatives, the scale of capital available to hedge funds grew to unprecedented levels; the boundaries of an attack on enterprises and professions in a target country is no longer clear and certain
. Shaking the stability of a nation’s economy by targeting enterprises and professions can also be a prelude to total attack. Because the United States has the following, we have seen hedge funds situated in the US carry out short selling in other stock markets:
– The world’s most developed financial system.
– Possesses numerous hedge funds that have powerful information gathering and analytical competency and the ability to deploy capital.
– Controls IMF, World Bank and various international bodies.
– Has many international mainstream media situated within.

The standard procedure used to short sell in a country appears to be:

1. Identify key industries, regulatory controls, investor psychology, information channels as well as overall political, economic and social stability.

2. Identify weakness of key industries, market mispricing.

3. Drive speculative money into said industries via legal channels and illegal ones like black market brokers to inflate stock prices further.

4. Deploy, prepare in advance.

5. At inflated levels, secretly dump stocks in said industries through middle-men and shell companies.

6. Make use of financial analysts, news media to broadcast negative market moving news such as discrediting analysis reports, reporting fraud, negative information of high level management, professional scandal to incite investor panic followed by dumping.

7. Use foreign bodies to cast doubt on regulatory controls, affected NGO’s, media in order to cast doubt on more professions, stock price valuation of more enterprises ultimately cascading into a stock market depression.

8. Exploit local conflicts, incidents to build very bearish forecast of entire economy causing foreign investment to exit the country.

9. When target country’s stock market, currency exchange rates fall to low levels, re-enter the market to buy up and control the entire economy at one fell swoop.

It is worth mentioning that a short seller’s action is unlikely to be unfounded because the target usually has existing problems. The short seller uncoveres these problems through research and then strategized to exaggerate issues at stake, accelerating into crisis or indeed to give problems a friendly push towards bubble-like proportions and finally succumb to self-ignition. In other words if the target economy is a sick man, the short seller deliberately pushes the patient beyond the point of no return at a critical stage. Inherent traits in a target, combined with the secretive, sophisticated methods used, pulls wool over observers so that attention is given to faults of the victim rather than the role the short seller played.

Main Battlefield To Engage China

The first targets in this finance war by foreign participants are Chinese enterprises that have ventured to overseas capital markets. Short selling syndicates represented by Muddy Waters and Citron Research hunt US Chinese listings mercilessly. From 26 April 2011 when Longtop Financial Technologies was first questioned until it stopped trading on 07 December 2012, the NASDAQ ICS30 Index fell 53.25% from 1250.92 points to 584.73. Within 2012 more than 30 Chinese stocks were delisted and the entire market capitalization fell 50.46% from 192.4 billion to 95.3 billion USD. Within a short one and a half years, market capitalization of ICS shrunk 100 billion USD. At the moment, short selling syndicates have set their eyes on Hong Kong listed Chinese enterprises.

Another battlefield is the bond market. Following another quantitative easing to flood the market with US Dollars, China’s holding of US debt faces a huge depreciation.

There is also a battlefield on China’s domestic stock market. China’s manufacturing is slowing down due to rising labor cost and cost of material. The appearance of short selling on index futures could subject A-shares to short selling pressure as well.

At the moment, hot money continues to pour into the country. If domestic politics or economy were to deteriorate or if conflict were to arise in surrounding regions, there is an increasing possibility that Chinese stocks will be short sold.

The last is the battlefield over the Renminbi exchange rate. Slowing growth could lead to rise in inflation and decline in real purchasing power. Renminbi’s current appreciation against the US Dollar means that the former risks over-valuation.

Hot money flowing into China through various channels is now enjoying RMB appreciation but once China’s politics, economy or society becomes unstable, these foreign capital will flow out rapidly and lead to RMB depreciation.

One possibility

Foreign hedge funds are already short selling China’s banking and property stocks. At the moment China’s principal state owned banks are listed overseas. Some of them do not have strong balance sheets because they are affected by a wave of enterprise bankruptcies and a crisis in the property sector.

Two days ago there was also news that the ex-Vice President of Agricultural Bank of China incurred 3 billion RMB gambling debts in Macau. If more of such scandals surface, China’s banking stocks may encounter great volatility. People are also aware of a bubble in China’s property sector. In March 2013, Kynikos Associates President and Founder Jim Chanos, a great short seller whose short sold Enron Corporation as well as US property market, made this claim on CNBC: “China’s property market is the biggest bubble in history”. It is foreseeable that China’s middle income should lose confidence in the economy, a big correction in the property market is increasingly likely.

Foreign hedge funds have already sold China’s provincial debts. Short sellers find it hard to penetrate central government’s finances because the latter is backed by the nation’s credit and has strict management controls but provinces have fallen into a vicious cycle of selling land to finance spending.

If there is a prolonged decline in the property market, some of these provinces will not be able to make repayments and finance themselves even through land sales. Such a situation will lead to a rise in bond yields of provincial debts, and difficulties to issue new debt.

Foreign capitalist giants are selling Hong Kong listed Chinese stocks. US-listed Chinese stocks have already gone through a round of merciless take downs. Hong Kong listed Chinese stocks are even more numerous, more diverse. If a third of these were to come under assault, losses will be shocking.

Foreign hedge funds have conspired with domestic collaborators to short sell A-shares using index futures. At the moment, China’s investors are very displeased with fraud within listed companies. Many investment companies are calling for the market liberalization and the establishment of mechanisms for short selling. From market principles’ point of view, this call is reasonable. It is essential however to carry out in-depth studies and trial before liberalization in case foreign players use domestic companies as tools to short sell A-shares maliciously.

Apart from hedge funds that are non-national entities, the US government is not an innocent bystander.

Unsurprisingly quantitative easing is diluting US government debt in China’s possession, yet the US is asking China to carry out financial reform while manipulating political conflict in surrounding regions, raising tension between countries on issues such as the South China Sea, Diaoyu Dao, China-India border dispute and North Korea’s nuclear ambitions. If areas surrounding China were to erupt in crisis today, US hedge funds’ geopolitical analysts certainly have the means to predict and deploy in advance in order to exploit.

In a successful execution foreign hedge funds could launch attacks on China’s different industries, provincial government, Renminbi exchange rate and strategic state owned enterprises. By then China will encounter a challenge to its economy and overall social-political stability.

How should China handle a financial war?

‘Be prepared, do not rely on the enemy not coming’ is ancient wisdom but common sense as well. History taught us to acquire new ideas and concepts but not to ignore old ones.

Place emphasis on the set up of a special system to monitor malicious financial attacks. Both participants and mode of attack in a malicious financial assault may be hidden, though not entirely untraceable. If a monitoring framework can be built to surround potential attackers, targets or modes of attack, intention or preparation for an assault can be detected in advance so that the threat can be categorized and countered accordingly.

Financial warfare is a non-traditional threat that can achieve strategic objectives. Following a financial attack, network-wide assault or military intervention can be expected. A financial attack is an invisible way of fighting which exceeds the boundary of traditional military conflict and therefore there is a lack of monitoring for such a threat at the moment.

Therefore, the need to analyze the link between financial safety and national military safety, quickly putting in place measures to secure both is pressing. An effective course to build offensive/defensive capabilities against a financial war is to gather consensus from different departments on the threat posed by financial attacks, cultivate experts in different domains, design an exercise with critical scenarios to simulate mode of attack, different geopolitical incidents and possible outcomes.

(Author is a researcher with Keen Risk Solution)


Zheng Gang

Mankind’s First Financial War Exercise In History

In 2009, the US Pentagon conducted the first financial war game in the world. This simulation exercise was the culmination of months of preparation. It was conducted between March 17-18 in a physics laboratory at the John Hopkins University.

The exercise simulates a global financial crisis where the reserve status role of the US Dollar comes under assault by other nations. Participants must determine what the US should do to defend. The 2-day exercise seeks to find out what modes of attack opponents will adopt through role-playing, how various geopolitical scenarios may affect international finance and what measures nations can adopt.

Participants in the game came from the US military, intelligence service, Rand Corporation, as well as representatives from investment banks and hedge funds. Participants were divided into 6 teams; a white team acted as referee while the 5 other teams were Russia, China, US, Pacific nations (Japan, Taiwan, South Korea) together in one team and Europe and the IMF together in the last team.

This was the game scenario:

1. Russia announces that she will move her gold reserves to Switzerland.

2. Russia conducts bilateral talks with Japan to stop using US Dollar for energy transactions.

3. Russia persuades China to join the arrangement.

These arrangements constitute an assault on the pole position of the USD. Additional scenarios in the simulation included potential collapse of North Korea, rising tension between China and Taiwan, Russia manipulating price of natural gas and opposing countries printing fake US Dollars to spoil its reputation. Modes of attack reflected:

1. The secretive nature of a financial assault.

2. The level of integration the world has arrived.

3. The use of middle men, shadow companies to escape monitoring.

4. Using information-lag and time-lag to carry out feints and attacks on multiple locations.

5. Geopolitical conflicts.

6. Global disasters.

7. Epidemics.

The above were used to simulate outcomes to participating nations economy, financial markets.

After several engagements, Russia was turned back by a US-centered alliance but retains a minor victory. In view of the background of the exercise and the strengths and weaknesses of the participants the US is found to be overall strongest with existing loopholes; Russia may lose but with its own resources remains self-sufficient.

In Gold We Trust


Gold And The Monetary System: Potential US–EU Conflict (1974)

For anyone who is still in doubt if the US have been suppressing the price of gold in the past decades, this article might change your mind. I present a memo written in 1974 by Sidney Weintraub, Deputy Assistant Secretary of State for International Finance and Development, to Paul Volcker, Under Secretary of the Treasury for Monetary Affairs. It was originally published in Document 61, Foreign relations Of The United States, 1973–1976, Foreign Economic Policy, Volume XXXI found at the Office of the Historian website.

The memo addresses the problem of the US’ interest of banning gold from monetary system and capping the free market price (in order to push the USD as the world reserve currency – although the Americans among each other pretended they preferred the SDR for this role), while some European countries wanted to remonetize gold and revalue it market to market.

What I find fascinating is that there is anti-gold propaganda within this internal memo of the Americans. To me this illustrates how politicians operate; a proper lie must be embraced completely and the more often it’s repeated, the stronger it holds.

A long well worth read. Apart from the bold accents by me, this is an exact copy of the original.

61. Note From the Deputy Assistant Secretary of State for International Finance and Development ( Weintraub ) to the Under Secretary of the Treasury for Monetary Affairs ( Volcker )(1)

Washington, March 6, 1974.


This is a paper which we prepared for Secretary Kissinger giving some of our views on the gold question. We discussed it at a meeting for his background, (2) without attempting to reach any conclusions. We would appreciate any reactions you have to the paper. The Secretary said he would most appreciate meeting with you and anybody else you wish to designate in about two weeks to talk out the issue and what might be done, using a revised options paper for this purpose.
One option that is not included in the paper, but which should be for various reasons, is how to deal with thwarting the Europeans if they were to go ahead without us in a way which we felt was inimical to our interests.


Attachment (3)



The Foreign Policy Context

Within the next few months the long-standing U.S.-European dispute on the role of gold will probably be propelled from the back room to the main stage of our relationship. The stakes in this dispute are high, involving the long-run stability of the international monetary system and prospects for increased dissension within Europe and between Europe and the U.S.

The Problem

U.S. objectives for the world monetary system—a durable, stable system, with the SDR as a strong reserve asset at its center—are incompatible with a continued important role for gold as a reserve asset. These objectives are in apparent conflict with the EC desire to facilitate the use of gold in international transactions. There is a belief among certain Europeans that a higher price of gold for settlement purposes would facilitate financing of oil imports, although the argument depends on assumptions regarding producers’ attitude towards gold as an asset which may not be valid. Adamant U.S. insistence on maintaining the present fixed official price is likely to create international conflict with the EC, and may also lead to unilateral EC arrangements which would defeat our aims for the system.

The Conclusion

The U.S. objectives are important, and should not be given up, but they may be achievable without rigid adherence to the present fixed official gold price. Compromise proposals exist which would make adequate progress towards our objectives for the system while meeting principal EC needs. Since the EC is likely to set forth its proposals before the C–20 winds up its existence this summer, a U.S. position will be needed within the next several months. Tactically, it may also be preferable to discuss possible compromise proposals with one or more EC members before we are confronted with an EC position.

Pressures are building within the EC for settlement of intra-EC balances with gold valued at the market price (or some other price substantially higher than the current official price of $42.20 per troy ounce). Unilateral EC action in this direction would run directly counter to the stated United States position on international gold policy. The EC reportedly will try to avoid a direct conflict through pressing for rapid resolution of the problem within the framework of the multilateral monetary reform negotiations. Therefore, the U.S. position needs to be re-examined in light of present circumstances. This memorandum examines the foundations of this potential U.S.–EC conflict on the gold question, and considers which negotiating positions among various options would best serve U.S. interests.

Gold in the International Monetary System — The Issues

Agreementhas been reached in the C–20 monetary reform negotiations that the SDR should take the place once held by gold at the center of the world monetary system. However, there is still substantial disagreement on what the exact future role of gold should be—whether it eventually ought to be phased out of the system (the U.S. view) or retain an important function as a reserve asset and means of international settlement (the position of some European countries).

U.S. interests in this question are in the establishment of stable, durable world monetary system, based on a strong SDR, which would avoid future monetary crises and conflict, such as those that have plagued the Bretton Woods system in recent years. In our view a system which included gold as a major reserve asset alongside SDRs would be inherently unstable, just as bimetallism was in the U.S.

This inherent instability stems from the fact that gold is traded as a commodity on a private market at a variable price subject to the vagaries of world production (largely Soviet and South African) and sales, and of demands by hoarders and speculators. With a fluctuating, and generally rising, free market for gold, a permanently fixed official price is simply not credible, and becomes less so as the gap between private and official prices widens. If, however, the price at which official transactions in gold are made were to be periodically adjusted to the market price, then an unstable situation would rise as between gold and SDRs.

At the present time, the value of the SDR is fixed in terms of gold. However, it has been generally agreed in the C–20 that the new SDR should not be related to gold, but rather to a basket of currencies. In this case, a changing price at which official gold transactions take place would create capital gains (or losses) for gold holders as compared to SDR holders, stimulate speculative central bank demand for gold, and weaken the SDR. (4)

It is the U.S. concern that any substantial increase now in the price at which official gold transactions are made would strengthen the position of gold in the system, and cripple the SDR. If international liquidity were injected via gold, there would be little likelihood of new SDR allocations.(5) There also would be reduced incentive to sell gold on the private market even after an official price increase since central banks would cling to their gold in expectation of further official gold price increases. In addition, too large an increase in world liquidity might add to inflationary dangers. Finally, the distribution of the increase in world reserves would be highly inequitable, with eight wealthy countries getting three-fourths, while the developing countries would get less than 10 percent (see attached table). Producing countries (the USSR and South Africa) would benefit from the implicit floor put under the free-market gold price.

To encourage and facilitate the eventual demonetization of gold, our position is to keep the present gold price, maintain the present Bretton Woods agreement ban against official gold purchases at above the official price (6) and encourage the gradual disposition of monetary gold through sales in the private market. An alternative route to demonetization could involve a substitution of SDRs for gold with the IMF, with the latter selling the gold gradually on the private market, and allocating the profits on such sales either to the original gold holders, or by other agreement.

European views on the role of gold in the world monetary system vary considerably. The British and Germans, on one hand, generally agree in principle to the desirability of phasing gold out of the system. On the other end of the spectrum, the French have been the main proponents of a continued important role for gold in the system.

Support for a continued role for gold in the system is based in large part on the belief that “paper gold”—the SDR—does not command sufficient confidence and acceptability to replace gold completely in the system. There is, in fact, still a considerable emotional attachment to gold as a monetary asset, and a basic distrust of bank or paper money not having intrinsic value. On the other hand, most European officials recognize the basic problems involved in a combined SDR–gold reserve asset system. Belgian Finance Minister De Clerq, (7) for example, speaking at the IMF annual meetings in September stated:
Any redefinition of the role of gold must be based on the principle stated above: that SDR must become the center of the system and that there can be no question of introducing a new form of gold– paper and gold–metal bimetallism, in which the SDR and gold would be in competition.

Despite these differencesamong member countries, the EC position has begun to coalesce around their desire to free gold for use in settling intra-EC debts—a problem raised by the present “immobilization” of gold which has resulted from the wide disparity between the official and free market gold prices. Monetary authorities have been unwilling to use their gold holdings to settle official debts at a price far below the free market price. This has been a problem particularly for the EC, whose rules under the “snake” arrangement require that final settlement of debts arising out of intervention to support intra-EC exchange rates must be made in reserve assets in proportion to the composition of reserve holdings. (This “immobility” is, of course, an example of the difficulties inherent in a system in which gold retains a reserve currency role alongside another reserve asset.)

To some extent, the immobility of gold reserves as a means of payment is a result of self-imposed restraints. Countries are free to use reserve currencies and SDRs to settle debts. Moreover, countries are now free to obtain additional currencies (and realize substantial capital gains) through sales of gold to the private market. The EC problem is a result of their particular rules for settlement, which reflect the interest of creditor countries in receiving gold and applying discipline to deficit countries. It is also a result of their reluctance, so far, to sell gold on the private market. The reasons for this reluctance are probably related to the unsettled status of gold in the system, the basic attraction of gold, the expectation of future price increases, and the “thinness” of the private gold market.

Nor is it clear that European countries would give up gold even after a price increase, since one increase may lead to an expectation of further increases. Even under the Bretton Woods system, the Europeans did not often give up gold to settle deficits.
The “immobility” problem is of particular concern to the French and Italians, who have substantial outstanding EC debts and especially high proportions of their reserve assets in gold. Recently, with the private price continuing to rise, and final decisions on monetary reform apparently further off than previously thought, otherEC countries are coming around to the French-Italian view that this problem must be resolved. However,the Germans and British, in particular, are concerned that the solution be accomplished in a way which would not antagonize the United States. They wish to settle this issue in the C–20 multilateral context, if possible. Failing agreement there, the EC might feel free to unilaterally make some regional arrangement.

Various European proposals have been made to deal with the gold issue. The basic French proposal in the C–20 was simply to increase the official price of gold although this may have been made with tongue in cheek and received no support other than from South Africa. Other European proposals, and the stated French fallback position, have been variations on the idea that the official price of gold be abolished, leaving the SDR as the sole numeraire of the system, and that monetary authorities be free to deal at a negotiated price, or at a price related (perhaps at a discount) to the private market price. In the version reportedly recently proposed to the EC by the UK, such an arrangement would be combined with coordinated central bank sales to the private market. Another possibility reportedly being considered is to have the Italians, who have the greatest need, sell gold on the private market by themselves to avoid unduly depressing the market. The French version of this proposal would allow central banks either to buy or sell gold on the private market (obviously in order to avoid depressing the private market and to keep or augment the role of gold in the system).

In lieu of a general agreement permitting official transactions in gold at a price higher than the official price, some EC countries have proposed special arrangements to deal only with the intra-EC problem. Such proposals have heretofore been shelved by a combination of technical problems, and an unwillingness to take unilateral action of doubtful legality and offensive to the United States. Most recently, the EC Commission has proposed a system which would in effect set a higher provisional price, to be corrected when agreement is reached on a new price for gold.

Both the European C–20 proposal and the intra-EC proposals would fall short of a generalized increase in the official price of gold. However, each would amount to a generalized de facto, if not de jure, (8) official price increase, and strengthen the role of gold in the system. A system of sales, but no purchases, to the private market would mitigate this tendency.

The recent oil price increases have added a new dimension to the gold issue, and in the view of some European officials, relegated the intra-EC problem to a secondary position. Although mobilization of gold for intra-EC settlement would help in the financing of imbalances among EC countries, it would not, of itself, provide resources for the financing of the anticipated deficit with the oil producers. For this purpose, it would be useful if the oil producers would invest some of their excess revenues in gold purchases from deficit EC countries at close to a market price. This would be an attractive proposal for European countries, and for the U.S., in that it would not involve future interest burdens and would avoid immediate problems arising from increased Arab ownership of European and American industry. (The Arabs could both sell the gold and use the proceeds for direct investment, so that the industry ownership problem would not be completely solved.) From the Arab point of view such an asset would have the advantages of being protected from exchange-rate changes and inflation, and subject to absolute national control. Some European officials are thinking in terms of clearing the way for such transactions (which would now be forbidden by IMF rules). It has been argued that Arabs would only be interested in buying gold at near the market price if they could obtain assurances of some sort of floor price . We have received word that such a proposal is being floated within the German Government.

From the standpoint of international liquidity needs, a reasonable case can now be made for a generalized gold price increase, since the probable payments patterns stemming from the higher oil prices (overall deficits for Europe and Japan) may lead to a reduction in world reserve liquidity. However, from the U.S. viewpoint (as well as many countries without large gold holdings) substantial new SDR allocations would be preferable when new liquidity creation is needed.

Options for U.S. Negotiating Policy on Gold

Since the U.S. is likely to be presented with pressure to acquiesce in some arrangements to meet the European objectives sketched out above, it is important that we reconsider what our own negotiating posture should be.

At either end of the spectrum of possible negotiating positions are the following:

Option 1:Continue adamant opposition to any proposal involving an increase in price at which monetary authorities carry out transactions in gold. Advantages: If successful, we will keep gold from regaining strength as an international reserve asset, maintain the strength of the SDR, and probably eventually obtain the demonetization of gold and a more rational, stable international monetary system. Disadvantages: The EC may then go ahead with its own arrangements which would amount to a virtual de facto increase in the official gold price, with undesirable effects on the world monetary system and lead to increased U.S.–EC conflict and bitterness. 

Option 2: Acquiesce in a European-type plan involving abolition of the official price, permitting settlement of official balances at a negotiated price, with a “sales only” rule for transactions in the private market. Advantages: This would be somewhat preferable to a plan involving an outright increase in the official price, and would maintain an avenue for demonetization through one-way sales to the private market. The SDR would become the sole numeraire of the system. In the short run, tensions with Europe over monetary issues would be reduced. The increase in de facto liquidity might be helpful in present circumstances, and gold sales to the Arabs might help finance western balance of payments deficits. Disadvantages: This has most of the disadvantages discussed above of (and may in fact lead to) an outright increase in the official price of gold. We may thereby lose the opportunity to build a stable and rational world monetary system, with adverse long-term consequences involving monetary instability and conflict. The disadvantages to each of these options are such that a search for additional options is justified. Intermediate options do exist which have the potential of meeting EC objectives of mobilizing gold in the short run, while maintaining the desirable trend towards gold demonetization.

Option 3: Complete short-term demonetization of gold through an IMF substitution facility. Countries could give up their gold holdings to the IMF in exchange for SDRs. The gold could then be sold gradually, over time, by the IMF to the private market. Profits from the gold sales could be distributed in part to the original holders of the gold, allowing them to realize at least part of the capital gains, while part of the profits could be utilized for other purposes, such as aid to LDCs. Advantages: This would achieve our goal of demonetization and relieve the problem of gold immobility, since the SDRs received in exchange could be used for settlement with no fear of foregoing capital gains. (9) Disadvantages: This might be a more rapid demonetization than several countries would accept. There would be no benefit from the viewpoint of financing oil imports with gold sales to Arabs (although it is not necessarily incompatible with such an arrangement). The only important disadvantage of option 3 would be its likely unacceptability to countries who would prefer to cling to gold for traditional reasons. But it would show our sensitivity to the immobility problem, and be a good initial bargaining position. We might, in the end, have to fall back on a fourth option:

Option 4:Accept a European-type arrangement in which the official gold price was abolished, and official transactions at a market-related price were permitted, but with agreement that a certain portion of gold be given up to an IMF substitution facility, and that gradual further substitution of SDRs for gold would take place over a longer period of time. One possible rule among many could be that countries should keep the nominal value of their gold holdings fixed at present levels with any increases in value coming from price increases offset by substitutions. Another variant on this proposal would have countries agree to pre-determined, gradual direct sales to the private market. Again, profits could be shared between gold holders and others. Advantages: This would provide adequate momentum towards gold demonetization while providing relief to gold immobility problems. It seems somewhat more compatible with gold sales to the Arabs, if this is desirable. It may be negotiable. Disadvantages: It is somewhat less desirable for the medium-term workings of the system than option 3.


The U.S. objectives in reducing the role of gold in the world monetary system are worthwhile, but they may be achievable without insisting on adherence to the present fixed official price of gold. Moreover, such a stand might unnecessarily create international friction. Compromise proposals exist which have good prospects for achieving our objectives for the system while meeting the principal EC requirements. We should be prepared to use these compromises in the near future.


Negotiation in a broader IMF forum is likely to be a very divisive and contentious process unless based on a prior U.S.-European understanding. The Europeans, however, are not united, although working on a common substantive position. We could wait for this position to develop further or proceed now with bilateral contacts with one or more EC members. Our waiting to be confronted with the EC position puts the French in a strong position through their veto over any departure from the agreed EC line. The gold issue would be an appropriate one to pursue in bilateral contacts with the Germans and British, both of whom could probably agree to options involving more modest flex in our traditional position than the French or Italians want. But there is, of course, no guarantee that the British and/or Germans could carry the resulting compromise in Brussels. Nevertheless, working out a compromise with some of the major Europeans could reduce the prospects for a U.S.–EC standoff, while leaving a substantial intra-EC disagreement to be bridged by the Europeans.

(1) Source: National Archives, RG 56, Office of the Under Secretary of the Treasury, Files of Under Secretary Volcker, 1969–1974, Accession 56–79–15, Box 1, Gold—8/15/71–2/9/72. No classification marking. A stamped notation on the note reads: “Noted by Mr. Volcker.” Another notation, dated March 8, indicates that copies were sent to Bennett and Cross.
(2) The paper was discussed with Kissinger at a Department of State staff meeting on March 6. The summary attached to the front page of the meeting’s minutes notes that Kissinger decided: “That a small State–Treasury group, to include Volcker be assembled to refine the choices in theEB paper and report back in two weeks. The revised paper should include the options of possible unilateral EC action vis-à-vis gold prices and in relation to oil import costs as well as US responses to abort or penalize such action (EB action).” (Ibid., RG 59, Transcripts of Secretary of StateKissinger’s Staff Meetings, 1973–1977, Entry 5177, Box 2, Secretary’s Staff Meeting, March 6, 1974)
(3) Confidential.
(4) If a fixed SDR–gold price were to be maintained, and periodic free-market related adjustments in the official prices of gold were to be made, then the currency value of the world’s primary reserve assets would be tied to a price set on a volatile, unstable market. [Footnote is in the original.]
(5) As can be seen from the table at the end of this memorandum, official gold reserves are now valued at $43 billion at the $42.20 per ounce price. The free market price is almost four times the official price. [Footnote is in the original. The table is attached but not printed.]
(6) The French have stated that they do not consider the IMF Articles as binding under present circumstances (the U.S. having suspended its convertibility obligation). We consider the Articles still binding. Other countries have not yet taken a position. [Footnote is in the original.]
(7) Willy de Clercq was the Belgian Minister of Finance and Deputy Prime Minister.
(8) Under the present IMF Articles of Agreement, a generalized gold price increase (uniform par value change) would require approval of countries representing 85% of the IMF weighted voting power. Thus we have the power to block any legal change. [Footnote is in the original.]
(9) The additional SDRs might be quite acceptable since, for a time at least, they would be “backed” by IMF gold holdings. Some gold “backing” could be maintained until prejudices against paper money waned—in a manner similar to the evolution of domestic monies. [Footnote is in the original.]