Wikileaks on gold

The release of the Epstein files has sparked a fresh surge in conspiracy speculation in politics, finance and business. But there are significant past revelations that deserve to be remembered.

The U.S. and Europe have always suppressed the rising price of gold. They intend to weaken gold’s function as an international reserve currency. They don’t want to see other countries turning to gold reserves instead of the U.S. dollar or euro.
—Chinese state radio, April 2009

You may be familiar with Julian Assange, the founder of Wikileaks, who struck a plea deal with the US in 2024. He was thus released following some five years of captivity, awaiting US extradition in the UK maximum security prison at Belmarsh.

He flew to Saipan, US Mariana Islands, of all places, to stand before a US federal judge and plead guilty to conspiring to obtain US classified documents, in exchange for his immediate release and return back to his native Australia.

Someone in the US military, government or agency thereof provided him with the documents, a serious federal crime. Assange made the documents public, which is not a crime. But apparently there is a legal grey area between these two.

In any case, the US has never commented on the veracity of the documents, implying by silence that they are indeed genuine.

While most have something to do with US military operations, national security and diplomatic relations, there are a handful that discuss something else entirely: gold.

In particular, they suggest that the US has an interest in suppressing the price of gold and has the means of doing so.

The gold conspiracy

There is a long-running conspiracy theory in so-called “gold-bug” circles that the US and possibly other governments have been suppressing the price of gold for many years, perhaps ever since the Bretton Woods system of fixed exchange rates broke down in the early 1970s.

Whenever asked or so accused, naturally, the US government and Federal Reserve have always denied that they are doing any such thing.

But some classified US government documents published by Wikileaks, as well as some that have been declassified through the years, suggest otherwise.

Let’s start with Wikileaks. In 2011, as part of a huge batch of documents apparently leaked by a serving member of the US military, there surfaced the following US diplomatic cable on the Wikileaks website. It is a summary of a Chinese state radio broadcast:

The U.S. and Europe have always suppressed the rising price of gold. They intend to weaken gold’s function as an international reserve currency. They don’t want to see other countries turning to gold reserves instead of the U.S. dollar or euro. Therefore, suppressing the price of gold is very beneficial for the U.S. in maintaining the U.S. dollar’s role as the international reserve currency.

China’s increased gold reserves will thus act as a model and lead other countries toward reserving more gold. Large gold reserves are also beneficial in promoting the internationalization of the renminbi.

To be fair, this cable from the US Embassy in Beijing is simply summarising someone’s opinion. It is not presented as an official Chinese government position.

But it lines up rather well with a curious remark made by former Federal Reserve Chairman Alan Greenspan when testifying to Congress back in 1998: “Central banks stand ready to lease gold in increasing quantities should the price rise.”

Wait, what? Were central banks conspiring to suppress the price of gold in the late 1990s?

Greenspan’s comment suggests so.

And not only Greenspan. Another former Fed chairman and adviser to multiple US presidents, Paul Volcker, claimed in his memoirs to have been involved in gold price suppression activities while serving as Undersecretary of State for International Monetary Affairs in the 1970s.

There is no denying that, if desired, the US government and/or Federal Reserve could intervene in the gold market to suppress the price. It is widely known that governments occasionally intervene covertly in the foreign exchange markets to manipulate the value of their currencies. As an international currency, the same could, in theory, be done with gold.

Back in 2001 there was a curious article published in the Journal of Economic Literature regarding covert foreign exchange intervention. In 2013 I wrote an article of my own on the topic, citing the paper. Here is the relevant excerpt:

Most actual intervention operations in the foreign exchange market have been—and still are—largely secret, not publicly announced by monetary authorities…

The traditional relevant literature identifies three types of arguments in favor of secrecy of official intervention: arguments based on the central bank’s desire to minimize the effects of an unwanted intervention operation (for example because the decision has been taken outside the central bank, e.g. by the Treasury), arguments based on the perceived risk and volatility in the foreign exchange market which might be exacerbated by an announcement of official intervention, and portfolio adjustment arguments.

A further explanation may be that although monetary authorities intervene in order to target the value of a foreign currency, since the fundamentals of the foreign currency are not necessarily equal to this objective, the monetary authorities do not have an incentive to reveal their intervention operations as no announcement on their activities will be credible … [S]ecrecy of intervention may be an attempt to affect the exchange rate …without triggering a self-fulfilling attack on the currency.

Now, substitute “gold” for “foreign exchange” or “currency” and you’ll see how they are somewhat interchangeable.

Suppression only buys time. But how much? Decades?

So according to Chinese state radio, as transcribed in a classified US diplomatic cable obtained and subsequently published by Wikileaks, the US has a clear motive to suppress the price of gold. And they have the means, if desired, to do so, and to do so covertly.

So are they in fact doing it? And if so, does this mean that the price of gold won’t continue to rise?

Not at all. Gold has risen a great deal through the decades. But has it risen as much as it otherwise would have done?

Perhaps. Perhaps not. But there is one thing that sets gold apart from currencies.

It can’t be printed into existence.

The gold market has two sides: a physical market, and a paper one. Manipulating the latter is comparably easy: just sell gold futures in size and their price will decline.

But what if those long the futures stand for physical delivery when the contracts expire? Then what?

Then you need to make the physical gold available. In other words, to sustainably suppress the price of gold over a long period you need to sell actual physical gold into the market from time to time.

This is how the London Gold Pool worked under Bretton Woods. The dollar was fixed to gold at $35/tr oz. If there was dollar selling pressure/gold buying pressure in the market, then the US or other Bretton Woods members would need to sell sufficient gold to hold the price at $35.

The Gold Pool was in charge of this price-fixing, the basis for the entire Bretton Woods monetary system of fixed exchange rates linked to gold.

That system came under growing pressure from the mid-1960s. Market participants noticed that the US was running large budget deficits. These were financed by the Federal Reserve at interest rates generally below those elsewhere.

The dollar thus came under downward pressure, in particular versus the Japanese yen and the West German mark. But also versus gold itself.

As Japan and West Germany had become large exporters, they accumulated dollar reserves, which they would periodically exchange for gold.

So it was not mere speculation behind gold demand but the actual workings of the Bretton Woods system itself. By the late 1960s the London Gold Pool was being drained rapidly. Some members began to scale back their gold sales to protect their reserves. (French President Charles De Gaulle was an early mover in this regard.)

Things accelerated going into 1971. As one country after another withdrew from the Gold Pool, leaving the United States essentially alone to maintain the dollar-gold peg, the run on US gold intensified.

Finally, in August that year, President Nixon called out “Enough!” and “temporarily” closed the gold window. Dollar reserves abroad could no longer be exchanged for US gold at any price. Bretton Woods was over.

Smithsonian suppression

But not all at once. Nixon intended the “temporary” closing of the gold window to be a means to force US trading partners to the negotiating table to agree to a coordinated, controlled devaluation of the US dollar, following which the dollar would be re-fixed to gold and Bretton Woods would continue.

These negotiations, conducted at the Smithsonian Institution in Washington, DC, were abandoned without formal agreement in 1973.

It was during this period that Paul Volcker, mentioned above, advocated intervening in the market to suppress the price of gold.

That was a long time ago. Whether the US has ever ceased its manipulation of the gold market is unclear. As discussed above, there have been a few hints that it continues in some form.

But if so, and if paper gold manipulation can only ever be temporary, where is the physical gold to suppress the price coming from? Official US gold reserves haven’t changed in years.

Some speculate the reserve figures are fudged; that there isn’t as much gold in Fort Knox as the government claims. Or that if the gold is there, that it has been pledged in exchange for some third party doing the US government’s suppression business on its behalf.

Yamashita’s gold

Others speculate that the US in fact has far more gold than it officially claims.

There is a theory that, at the end of the war in the Pacific in 1945, the Japanese military had accumulated a huge amount of looted gold from throughout their short-lived, Asia-Pacific empire.

They built a secret gold depository on the main Philippine island of Luzon. There the hoard remained for a few years before it was discovered by the occupying American military or, possibly, the young CIA.

At the time of the supposed discovery, President Truman had signed the National Security Act. This created the CIA, a federal agency in charge of foreign intelligence, counterintelligence and covert operations abroad. It also set out guidelines for what activities were to be kept secret and which would require some form of oversight.

Could it be that the Japanese gold hoard was seized by the US military or national security apparatus but that this was never formally disclosed to Congress and the public? Could it be that the US has a vast secret stash of physical gold that it has used, from time to time, to intervene in the gold market?

The US national security community has a long, documented history of using all manner of covert sources of funding for its activities. Do you recall the 1980s Iran-Contra scandal, about using the proceeds of Congressionally-prohibited arms sales to Iran to generate funds that were subsequently funnelled, also illegally, to the Contra militia in Nicaragua?

If you were able to operate in secret and you came across a huge stash of gold you could use however you wished to further your goals, whatever those might be, would you rush to disclose it to the government and public? Perhaps not.

If you’re intrigued by the above theory, I’d encourage you to search the internet for “Yamashita’s gold”. There’s also been an entire book written on the topic.