Recently Declassified CIA Documents Show Concern Over Gold Manipulation.

Gold Sales From South Africa to the IMF Were Noted.

CIA Comments on the Birth of the SDR and its Purpose As a Gold Substitute.

Recently De-Classified CIA “SECRET” Documents Reveal Observations on the Gold Market*

The documents discussed below were classified as “SECRET”. Secret is the CIA’s second-highest classification which the CIA notes unauthorized disclosure of Secret information would cause “serious damage” to national security.

Each of the documents below was marked “SECRET” and a warning:

The document contains information affecting the national defense of the United States within the meaning of Title 18 sections 793 and 794 of the US Code

A classification of “secret” is just below “top secret” which could cause GRAVE damage and ahead of confidential that would “damage” national security if disclosed without proper authorization.

These following communiques are from 1969-70, immediately preceding the end of the Bretton Woods Gold Standard in August 1971.

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The CIA Suspected Gold Manipulation

Document: Intelligence Memorandum – The World Gold Market- Semi Annual Review January – June 1970.

“an increase in free market demand for gold could develop during the next six months over growing concern about the U.S. balance of payments and the Middle East situation.”

offset by “South Africa selling nearly all of its newly mined gold on the free markets to finance balance of payments deficit”

concluding gold price will remain in the $35- $38 range.

“the [newly] availability of SDRs in the settlement of international payments transactions…led to reductions in official gold movements…”

if trend continues

“official gold transactions in 1970 will be at the lowest annual level since the IMF began compiling data in 1948”

The CIA Eyes the Gold Fix

“Manipulation of the free market price is suggested by the extremely narrow price range that prevailed for seven consecutive weeks”.. During this period more than 85% of all morning and afternoon fixings fell within the $34.97 to $35.01 range, with nearly 40% of all quotations set at exactly $35.”

“Swiss bullion dealers are in an excellent position to influence the London free market fixing. At each of the some 225 morning fixes a year, the manager of Rothchild’s bullion and foreign exchange department suggests an opening price based on the previous half hour of intensive telephone conversations with people at the Bank of England and a host of others mainly dealers in Switzerland.

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How IMF Got Much of its Gold

Document: Intelligence Memorandum – The World Gold Market- in 1969 and prospect for 1970.

The IMF has the third largest gold hoard in the world.

Using South Africa to Stabilize the Price of Gold

At the time, South Africa was the world’s largest gold producer.The IMF had arrangements that allowed South Africa to sell its production to it at $35, effectively offering it price protection against free market dips and helping to maintain the $35 price.

“South Africa may sell gold to the IMF under certain conditions, but agrees to sell most of its newly mined out put on the free market” “While the agreement essentially provides a floor of $35 an ounce for South African gold, it guarantees a free market supply large enough to keep the free market price at or near the floor at least through 1970.”

CIA Suspects Gold Market Manipulation Again

Document: Intelligence Memorandum Recent Trends in the Gold Market – October 1970

This memorandum grapples with the question; Why has there been a sharp rise in the price of gold?

“in the absence of any monetary crisis there seems to be no obvious explanation for the recent substantial price in gold.”

“There is however strong circumstantial evidence that Zurich bullion dealers , under the leadership of the Union Bank of Switzerland are again manipulating the gold markets”

“London bullion dealers had hoped that the 1969 agreement between the IMF and South Africa would restore London as the focal point of the world gold market. It has not.”

“The present situation implies effective control of free market supplies by the Swiss commercial banks.”

The memorandum cites a study that says “gold demand from industrial users and hoarders already exceed free world output…and several – less than interested individuals point to the inevitably of the free market gold price rising to as much as $100 per ounce by 1980.”

The memorandum notes that the Union Bank of Switzerland was trying to induce speculative demand to “force the price beyond $50 an ounce levels” because “they are clearly desirous of recouping last year’s losses accrued during the precipitous decline in free market prices in October and November 1969.”

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CIA Comments on the Newly Created SDR (paper gold)

Document: Intelligence Memorandum – Special Drawing Rights: Paper Gold In Action – September 1970

The memorandum notes that trade was growing faster than growth of reserves and that there was not enough gold production to met reserve requirements.

“the only available means of increasing reserves abroad was through continued deficits in the US balance of payments, But the US no longer had excess gold reserves and other countries had become reluctant to accept large additions to their dollar holdings.”

CIA calls the SDR “a new type of liquidity as permanent as gold it self – to insure increases in liquidity” “The SDR is a form of money and credit”

“SDRs can not be extinguished by being exchanged by gold -they can only be traded among central banks. And unlike gold, there are no private uses for SDRs that compete with their use as an international currency.”

“Nevertheless, Sdrs are not soon likely to supplant the dollar in the international monetary system. Foreign central banks need working balances which are presently denominated largely in dollars.”

Special thanks to Vijay @vijinho for alerting me to these documents.
* Documents were declassified on October 31, 2011.

Further Reading

BLEEDING GOLD RESERVES AT THE FASTEST PACE EVER, THE U.S. CLOSES THE GOLD WINDOW

THE YEAR THE UNITED STATES SOLD OVER 700 TONS OF GOLD

The CIA and Gold – You Tube Playlist

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