Royal Bank of Canada:
Bank retracts gold price-fixing report
By Edward Simpkins (Filed: 30/06/2002)
The Royal Bank of Canada has issued a retraction after a research report by one of its most senior asset managers appeared to support the claims of conspiracy theorists that central banks have secretly connived to keep the price of gold low.
The eight-page report published as a research note by the investment division of the bank speaks of "increasing evidence of unsustainable gold price manipulation" and says the evidence of secret price fixing is "overwhelming".
The report refers to the practice in the past, when the price of gold was pegged to currencies, of central banks dumping gold to keep the price down. "Today, instead of the overt action of yesteryear, it is covert because the market is allegedly free," the report says.
It goes on to claim that instead of selling physical gold the banks have sold derivatives, called hedging, leaving them owing far more metal than they control and giving them an interest in the price of gold continuing to fall.
"The size of the short position, officially acknowledged to be more than 5,000 tonnes by the bullion bank apologists, is thought to be well over 10,000 tonnes and may exceed 15,000 tonnes," the report adds.
The claims were seized on by fringe groups such as the Gold Anti-Trust Action Committee which said it showed that mainstream investors were coming round to their view that central banks secretly act to keep a lid on the price of gold in order to support the dollar.
"The establishment in the gold world is coming around to our central premise," Chris Powell, secretary of GATA, told his members last week. "Central banks and particularly the US Treasury Department have been colluding surreptitiously and desperately to suppress the gold price and manipulate the gold market," he added.
The report has caused embarrassment to Royal Bank as many of its clients and some of the biggest companies on the Canadian stock exchanges are gold miners, including Barrick Gold Corp, the world's second largest producer which is also the world's biggest hedger.
Bank of Novia Scotia is one of the largest bullion banks in the world and the Canadian central bank has been a consistent seller of gold over the past decade. Mark Arthur, head of Royal Bank Investment Management, issued a statement saying the report was produced for "internal use" and "in no way reflects the views of Royal Bank".
However, the report is by John Embry, a senior figure at RBC who sets strategy for the bank's $38bn funds under management and chairs its stock selection committee as well as running its Royal Precious Metals fund. He was not available for comment.
Embry predicts in the report
that the price of gold is set for further steep rises. "Those with a vested
interest in containing the price of gold - central banks, bullion banks,
heavily hedged gold companies - will not die easily but the tide is moving
strongly against them and the embedded short positions could catapult the
gold price higher."