Declassified CIA Memos Reveal Probes Into Gold Market Manipulation

The classification of the documents is significant because “secret” is the CIA’s second-highest classification. The CIA notes unauthorized disclosure of secret information would cause “serious damage” to national security.

Each of the declassified gold and SDR documents was marked “SECRET” with 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.”

CIA Concerns of Gold Market Manipulation (link) –  Document: Intelligence Memorandum – The World Gold Market- Semi Annual Review January – June 1970.

This manipulation in turn was interfering with an IMF agreement with South Africa to sell its gold to the IMF under certain conditions when it could not sell its newly mined out put on the free market:.

“While the [IMF] 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.”

The CIA memorandum bemoans Swiss manipulation of the gold market: “There is  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.”

“Manipulation of the free market price is suggested by the extremely narrow price range that prevailed for eleven consecutive weeks — from later January through mid-March. 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 $35.00.  

Moreover, Swiss bullion dealers are in an excellent position to influence the London free market fixing. At each of some 255 morning fixing a year, the manager of Rothschild’s bullion and foreign exchange department suggests an opening price based on a previous half hour of intensive telephone conversations with people at the Bank of England and a host of others, mainly dealers in Switzerland. Representatives of the four other houses are in constant telephone contact with their trading rooms and these in turn are in direct communication with as many as a dozen key clients scattered across Europe. The result is that supply and demand conditions in Zurich are strongly reflected at the London fixings.”

CIA Talks up the IMF’s  Strategic Drawing Rights (link) – Document: Intelligence Memorandum – Special Drawing Rights: Paper Gold In Action – September 1970

The gold standard under Bretton Woods Agreement was showing cracks in 1970. The CIA memorandum notes: “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.”

The CIA memorandum reflects the tenuous position of the gold market and the inclusion of gold in the international monetary system just prior to the break up of the Bretton Woods Agreement in 1971. The CIA viewed the newly created SDR as a potential replacement for gold calling it:  “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.”

CIA however concludes that “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.” 

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CIA Worries of Substantially Higher Gold Prices (link) – 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”

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

The memo also cited 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 inevitability of the free market gold price rising to as much as $100 per ounce by 1980.”  That would represent a three-fold increase to the then prevalent price.

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