The Fed Has Attacked Nevada

Doug French

The Federal Reserve has attacked Nevada’s second largest industry, mining, and not a word of protest has come from the state’s politicians. Gold mining has the highest average wage rate of any industry in the state, with each job having an average salary of $60,000 per year. But those jobs have become more and more scarce as central bank intervention squashed the price of gold down from 1996’s average price of $388 per oz to $265 per oz in early 2001.

Gold prices have rebounded in recent months to over $300, but the damage to many Nevada communities has been done. Lower prices mean fewer active mines and fewer jobs. There were 35 active mines in Nevada in the mid-1990s. By this year that number had been halved. And as state government struggles with balancing its books, mining’s tax contribution has fallen tremendously. In the mid 1990s, miners paid approximately $140 million into state and local coffers. In 2000, suffering from low gold prices, miners paid $95.7 million in state and local taxes. It was the first time since 1993 that they paid less than $100 million.

The most recent example of gold price manipulation was reported by Reuters on June 28: “Central bank intervention to prop up the dollar pulled the rug out from under COMEX gold on Friday, upending early gains and sending futures to a six-week low as bulls turned tail en masse.” But according to Reg Howe, central bank selling of gold has been going on since the mid-1990s. Howe—who sued the Bank for International Settlements, the U. S. Treasury, the Federal Reserve and others for gold price manipulation—is associated with the Gold Anti-Trust Action committee (GATA), a group that has been instrumental in shining a light on United States government activity in the gold market. 

Up until recently GATA’s findings had not seen the light of day in the mainstream financial press. But recently an internal memo by the Royal Bank of Canada’s highly influential analyst, John Embry, was leaked to the press. Embry’s report included the key elements of the Howe lawsuit and GATA’s gold price-fixing conspiracy case:

  • Aggressive gold lending— economically indefensible—has filled the supply/demand gap.
  • NY Federal Reserve gold has been mobilized when gold’s price is rising.
  • Timing of Exchange Stabilization Fund gains/losses corresponds to gold price movements.
  • Audited reports of U.S. gold reserves show unexplained variances.
  • Minutes of Fed meetings confirm officially denied gold swaps.
  • Rules on gold swaps revised but subsequently denied. However, individual central banks have repudiated the denial.
  • U.S. gold reserves have recently been re-designated twice—initially to “custodial gold” and then to “deep storage gold.”
  • Statistical analysis of unusual gold price movements since 1994 indicate a high probability of price suppression. The invalidation since 1995 of Gibson’s Paradox—that gold prices rise when real interest rates fall—suggests that serious manipulation began in that year.
  • The price movements of New York gold, versus London trading, defy odds.
  • Timing of huge increases in bullion bank gold derivatives is consistent with gold price declines.
  • The rapid decline in U.S. Treasury holdings of gold-backed SDR certificates is not explained.  

GATA’s findings inspired Dr. Ron Paul, a Republican congressman from Texas, to introduce the Monetary Freedom and Accountability Act. This bill would require that the President or the Treasury Secretary receive congressional approval prior to any government buying or selling of gold. “While the Treasury denies it is dealing in gold,” Paul writes, “the Gold Anti-Trust Action Committee (GATA) has uncovered evidence suggesting that the Federal Reserve and the Treasury, operating through the Exchange-Stabilization Fund and in cooperation with major banks and the International Monetary Fund, have been interfering in the gold market with the goal of lowering the price of gold.”

Why would the federal government want to lower the price of gold? “The purpose of this policy,” Paul explains, “has been to disguise the true effects of the monetary bubble responsible for the artificial prosperity of the 1990s, and to protect the politically-powerful banks that are heavy [sic] invested in gold derivatives.”

While the Fed and the Treasury take care of their buddies at the big money center banks, Nevada’s citizens and its miners are left to suffer. It’s time for our congressional representatives, who historically have been very supportive of the industry, to notify their colleagues of this very real danger to one of Nevada’s largest employers and taxpayers.

Doug French, executive vice president of a Las Vegas bank, is a policy fellow of the Nevada Policy Research Institute.