In July, 2001, Blanchards CEO wrote the World Gold Council a letter which included the following excerpt:
Over a year ago, we presented you with the problem: Gold is no longer an investment, but rather a speculation on the timing and the occurrence of uncertain events that are solely in the control of other parties. That being the case, our clients should avoid gold like the plague until such time as the free market laws of supply and demand are allowed to dictate the price.
Blanchards suit has been filed (under Section 1 of the Sherman Act) against Barrick, J.P. Morgan (who, it is alleged, illegally abetted Barrick by permitting Barrick to defer repayment of borrowed gold, and also waiving the margin requirement), and the World Gold Council itself.
The Barrick/Morgan/WGC (turn a blind eye) alliance has virtually provided a blank check for Barrick a company which professes to be the most successful gold mining company in the world, but which, in reality, makes the bulk of its profits from the manipulation of the price of that which it produces. And those profits are made entirely at the expense of legitimate retail gold investors.
According to the Blanchard letter:
The same type of accounting maze that hid Enrons debts has made it possible for Barrick to manipulate the price of gold without the checks and balances that come from public scrutiny. Barricks short sales of gold are made through the use of privately negotiated derivative contracts that are not reported or traded on a regulated exchange. Barrick treats those short sales as exceptions to the normal rules governing derivative contracts and neither includes them on its balance sheet nor reports changes in their fair market value in its current earnings . We found that, as a percentage of Barricks total assets, its off-balance sheet assets make Enron look like a champion of full disclosure. Barricks SEC filings show that it has $5.2 billion of assets on its balance sheet. Off-balance sheet, it has $5.5 billion in short sales of gold, and mineral reserves that are four times the size of those short sales.
When the price of gold rises, Barrick conveniently has contracts in place that allow it to add physical supply, forcing the price back down. And, thanks to agreements with Morgan, Barrick also has the ability to increase its short sales to approximately 55 million ounces of gold (more than eighty-five percent of worldwide annual gold production).
It would appear that Barrick/Morgan are in a win/win situation of their own making. And those of us who have been purchasing gold (in any form) for the past fifteen years have been footing the bill for their manipulation game.
If Blanchards suit is successful in forcing Barrick to unwind the (20+ million ounce) short position it has used to manipulate the gold market, there is no telling what the price of gold will do. As is always the case, the suit will be resolved neither quickly nor easily. Yet just the fact that the suit has been filed (and will be receiving significant publicity) should put a crimp in Barricks/Morgans style. They will now be forced to conduct their hedging in a fishbowl, making covert manipulation much more difficult.
Then again, where behind-the-scenes global financial manipulators are concerned, when does the little guy ever receive justice? I suppose there's always a first time ....