Copyright 2000 - Reginald H. Howe, Reproduction by GATA Permitted


FROM THE GOLDEN SEXTANT, Reginald H. Howe,* Proprietor






Note: The first four commentaries, with the introductory notes reproduced below, were included in the written submission, Gold Derivative Banking Crisis, submitted by the Gold Anti-Ttrust Action Committee (GATA) to Members of the United States Congress on May 10, 2000. This document may be viewed online in its entirety at Since that date, I have posted at The Golden Sextant four additional commentaries pertinent to the same subject. They are included here as a supplement. For the purpose of printing copies, be advised that the most recent three articles are on a single html page.


First Article (2/1/2000) - Two Bills: Scandal and Opportunity in Gold? [This article provides an overview of the gold market from 1995 to the beginning of 2000, focusing on the possibility: (1) that official manipulation of the gold market began in 1995 as part of a coordinated international effort led by the central banks of the industrial nations to prevent economic meltdown in Japan spreading to the rest of the industrial world; (2) that the Europeans participated in part to assure reasonably stable international monetary conditions for the planned launch of the euro in January 1999; (3) that the announcement of British gold sales in May 1999 reflected pressures in the gold market arising from withdrawal of European support for continued gold price control in light of: (a) the successful introduction of the euro; (b) increasing doubts about the continued efficacy of Japan's zero interest rate policy; (c) rising worries over derivatives generally after the Long Term Capital Management fiasco in October 1998; and (d) quite specific concern that gold derivatives and the net short gold position had grown too large, posing a systemic risk, and leading to the Washington Agreement announced by European central banks in September 1999 to restrict their official gold sales and gold lending activities. The article begins with a discussion of the possible roles of the Exchange Stabilization Fund and the Federal Reserve in carrying out the U.S. part of the gold price control scheme, and ends with some comments on their difficult situation after the Washington Agreement.]

Second Article (3/26/2000) - It's the Dollar, Stupid [This article discusses the continuing role of gold in the international financial system and the current vulnerability of the dollar to any loss of confidence in U.S. capital markets as a refuge for dollars accumulated by foreigners as a consequence of U.S. trade deficits. Because the dollar price of gold is an indicator not only of U.S. inflation but also of the international health of the dollar, any gold price manipulation can send false signals about both. The emergence of the euro as a potential alternative reserve currency to the dollar makes misleading gold price signals even more dangerous, particularly given that the euro area collectively commands greater gold reserves than the U.S.]

Third Article (4/9/2000) - The ESF and Gold: Past as Prologue? [This article examines the financial reports of the Exchange Stabilization Fund since 1981. Since 1995, a period during which there was little official U.S. intervention in the foreign exchange markets, the ESF's reports show an unusual amount of trading activity, often incurring much larger losses than in earlier periods, and apparently related particularly in the last two years to gold prices.]

Fourth Article (5/3/2000) - House of Morgan: From Gold Bugs to Paper Hangers [This article focuses on the danger that gold derivatives pose to the U.S. banking system. These derivatives are concentrated in three large money center banks, Morgan Guaranty Trust Co. of New York, Chase Manhattan Bank and Citicorp N.A. Their total notional value at the end of March exceeded $87 billion, which converted at market prices exceeds total U.S. official gold reserves of around 8140 metric tonnes.]

Supplementary Articles:

5/15/2000 - The Fed: Up to its Earmarks in Gold Price Manipulation?
5/20/2000 - Deutsche Bank: Sabotaging the Washington Agreement?
5/26/2000 - Gold: Can't Bank with It; Can't Bank without It!
6/11/2000 - Central Banks vs. Gold: Winning Battles but Losing the War?



* Reginald H. Howe, proprietor of The Golden Sextant, is an author and private investor. A graduate of Harvard College, Harvard Law School and the Bologna (Italy) Center of the Johns Hopkins School for Advanced International Studies, he began his business career in 1964 as a financial analyst with the international division of The Kendall Company. From 1976 to 1984, Mr. Howe was a partner in the Boston law firm of Palmer & Dodge, where he specialized in civil litigation and was a member of the firm's investment committee. He was an associate at the same firm from 1970 to 1976. In 1983, Mr. Howe organized Golden Sextant Associates, a general partnership for investing in developing North American gold mining companies, and he served as its managing general partner until its profitable dissolution in 1987. For a few years thereafter, he continued as a sole legal practitioner and served as a registered investment adviser to private clients.