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27 Mar, 2009 09:08

Adrian Douglas: All that glitters is gold

With the global recession looking certain to stay with us for the foreseeable future, what do you do with your hard-earned money? RT spoke with gold industry expert Adrian Douglas.

RT: “The stock market may me sinking, but what’s rising is the price of gold. Economists say a modern day gold rush is under way, and that's because confidence in paper currency is fading fast. Joining me now to talk more about this topic is Adrian Douglas, CEO of Market Force Analysis and the director of the Gold anti-trust Action Committee. Thank you for joining me.”

Douglas: “Thank you.”

RT: “Mister Douglas, let's get right down to it. What is the reason for the gold demand surge?”

Douglas: ‘The reason why gold demand is surging, is for all the traditional reasons – is that gold is a stored wealth and it’s been a store of wealth for over 6 thousand years of recorded history.

But gold is also a unique financial asset, in that when you buy gold bullion it has no counterparty risk. You don't rely on any third party for your gold to store your wealth. Every other financial asset has what we call counterparty risk. And this is why investors are turning to gold, because they are starting to get worried their bank deposits, because they are scared the banks will not be solvent. They are starting to get worried about their stock portfolio, because they are scared the companies they have invested in will not stay in business. And they are concerned about their bond portfolio because they are scared that governments will default on sovereign debt. So gold eliminates all of this counterparty risk, and this issue is now driving investors towards gold.“

RT: “What about people that possibly do not have portfolios, they have a little bit of savings in a bank. Should those people take their money out of the bank and buy gold?”

Douglas: ”Yes, they should. Gold and silver will go to astronomic numbers as fiat currencies are inflated to very little purchasing power.

The US government is announcing, almost on daily basis, how many more trillions of dollars they are going to put into the system, and this is money that is created out of nothing. It has no backing. And this will eventually lead to hyperinflation and reduce the purchasing power of fiat currencies.

So how can you protect yourself? Well by taking that money out of the bank and buying gold from a broker, and you must own physical gold. There are a lot of gold substitutes out there which are paper promises for gold. And they won't protect you. You need to have either allocated gold or gold in your hot sweaty hands, that you own yourself.“

RT: “Tangibly holding it and having it in your home.”

Douglas: “Yes, in the interim, while gold prices go very high, people will be able to cash in their gold for fiat currency as and when they need it.”

RT: “You are the director of the Gold Anti-Trust Action Committee (GATA), and, from what I read GATA has been blowing the whistle on the suppression of the gold market for over ten years. What does that mean? That there was a suppression of the gold market in US for over a decade?”

Douglas: ”This is what led to GATA being formed in the first place. In 1999 we recognized that there was a total mismatch between the demand for gold and its price performance.

And we’ve amassed a lot of evidence, over the years, that was showing that the gold market has been suppressed. And this suppression is an effort to maintain the value of the US dollar, and also to keep interest rates low. The whole mechanism for this is has been described in a paper by Lawrence Summers, who was an ex-Treasury Secretary, but when he was professor of economics at Harvard University he wrote a paper called “The Gibson paradox and the gold standard”. In that research he explains how, in a freely traded gold market, the real interest rates and the gold price should move in inverse relationship to each other. In other words, if interest rates are low, the gold price should be high, and vice versa. What we've seen through the 90’s, and most of this decade, is that we've had a low gold price, and low interest rates. So the inference from Lawrence Summers own work is that the gold market is not freely traded, and it has been suppressed.“

RT: “Lawrence Summers is part of President Obama's cabinet.”

Douglas: “Yes, he is one of his economic advisers and so we can surmise that the suppression of the gold price is ongoing, and alive and well.”

RT: “You've referred to this as, basically, a ponzi scheme.”

Douglas: ”Yes, the Western Central banks, but with the ringleader as the Federal Reserve and the U.S. government, have instigated a scheme of suppressing the gold price, and this is what is at the core of Robert Rubin’s strong dollar policy – that if you can suppress the gold price, and not make it free market, then you can have low interest rates and a low gold price.

And the low gold price essentially switches off the fire alarm in the financial system. What was the purpose of the strong dollar? Well it was so that the US Government could issue lots of dollars, without the alarm bells going off. The benefit for the US has been to live beyond their means. They have managed to import goods from foreign countries, and they have paid for them, essentially, with overvalued treasury debt. And they have even been so successful they have convinced other central banks that US treasury debt is a reserve asset. Now central banks around the world are sitting on trillions of dollars of treasury debt as a reserve asset, which has a huge counterparty risk, now, of the American government. They will not repay it.“

RT: “So we've been inflating the dollar, inflating the dollar, inflating the dollar – like a balloon. Is this balloon going to pop?”

Douglas: “Yes, the suppression of the gold price is coming to an end. The gold price has already risen from $255 in 2001 to a high, recently, of $1000. And this is a sign that the scheme is starting to lose traction, because it depends on central banks being able to continue to put extra supply of gold into the market to keep the price down. The central banks have been doing this for 15 years, and are now, on our estimates, probably consumed 50-60% of their gold reserves. At the same time, demand for gold by the general public is going up. There obviously is the breaking point coming, where gold will skyrocket, and it will go to numbers which will probably surprise even the most bullish people.”

RT: “In 2008 GATA took out a full page ad in the Wall St Journal warning of impending financial disaster due to the suppression of the gold price. What was the response?”

Douglas: ”What GATA has had to say for ten years, has largely been ignored by the US press and, of course, government officials, and we got so frustrated with that, we took out this full page ad in Wall St Journal, and it cost $264 thousand, and warning the general public that if this manipulation of the gold price doesn’t stop, then there would be significant catastrophe and disaster in the market. And we got no response.

So the problem with this scheme is that its in a lot of peoples interests, in the financial world, and of course the media that’s linked to the financial world, for it to continue."

RT: “Do you credit one Russian Government official as the first, anywhere in the world, to acknowledge your claims of gold manipulation?”

Douglas: “This was Oleg Mozhaiskov who is the Deputy Chairman of the Russian Central bank, who made a speech in 2004 to the London Bullion Market Association – their annual meeting. And in that speech he mentioned that a group of economists had got together to form GATA, and that we had expounded these theories. That the gold price is manipulated, and that suppression is allowing the U.S. an exorbitant privilege, ofbeing able to spend a lot more than it should be able to spend.”

RT: “Mr Douglas, you say the entire financial crisis that the US and world is living through right now has come about through derivatives. What are derivatives?”

Douglas: “This is not understood by a lot of people, and it is not mentioned in press very much. But derivatives are essentially like an insurance contract, and you can take out an insurance contract against something happening. Well because the system is being rigged and many of the big money centre banks and the large insurance companies, like AIG have known that the system was rigged, they’ve been able to capitalize on it, so they have been able to sell trillions of dollars of derivative contracts, to be able to get insurance premiums basically on those contracts, and be very wealthy out of that, knowing that they would never have to pay out on the contract, because the system is rigged. And this is where the problem recently developed, because the sub-prime mortgage created defaults in the derivatives. And that has created a daisy chain effect through the system – that now these contracts are payable. So instantaneously black holes of trillions of dollars have appeared in the balance sheets of many banks. And this is what is being referred to as toxic assets.”

RT: “So instead of the stimulus plans that keep getting push out of Washington, what would you suggest needs to be done to save the US economy?”

Douglas: “First of all we need to outlaw the OTC derivatives. Second thing we need to do is to abolish the Federal Reserve and nationalize the banks. The Federal Reserve is a private bank and the government has to pay them interest for creating money out of the air, which the government could do on its own without having to pay any interest. The third thing we need to do, is to back the currency with gold. And we need of course to reinstate discipline in landing and enforce the rules that keep the stock market honest and keep the banking system honest.”

RT: “And do you think the Obama administration is going to do any of the four things you have just mentioned?”

Douglas: “It would take a lot of courage to do the things that I've said, because there are a lot of advisors who have vested interests in those things not being done. But I think the American people need to wake up and realize what is happening to their country. And I think if the American people are make enough noise, the perhaps president Obama might listen to the people instead of listening to some of his advisors who have another agenda.”

RT: “Thank you very much”

Douglas: “Thank you Marina.”