US Fed Secrecy Under Scrutiny

As if a soaring gold price hasn’t been enough reason to smile, our hardcore gold bug readers must be extra pleased now that the long-maligned U. S. Federal Reserve System is coming under increasing pressure to reveal how it operates.

• U. S. Congressman Ron Paul’s bill to audit the Fed (The Federal Reserve Transparency Act, or HR 1207) now has 295 co-sponsors (including all Republicans), or about two-thirds of the House of Representatives, giving it a strong potential to pass the House. The bill, introduced in February 2009, proposes to amend Title 31 of the United States Code so that a reformed audit of the Federal Reserve System could be carried out before the end of next year.

Speaking in Congress upon its introduction, Paul commented that in its nearly 100-year history, the Fed has “presided over the near-complete destruction of the United States dollar. Since 1913, the dollar has lost over 95 per cent of its purchasing power, aided and abetted by the Federal Reserve’s loose monetary policy.”

He described the Fed as having always “operated in the shadows, without sufficient scrutiny or oversight” of its operations, being able to enter into agreements with foreign central banks and foreign governments, even as the General Accountability Office is prohibited from auditing or even seeing these agreements.

Asked Paul: “Why should a government-established agency, whose police force has federal law enforcement powers, and whose notes have legal tender status in this country, be allowed to enter into agreements with foreign powers and foreign banking institutions with no oversight?”

In late September, Representative Barney Frank’s Financial Services committee held a three-hour public hearing on HR 1207, bringing the issue of Fed secrecy further into the mainstream. Meanwhile, HR 1207’s companion bill in the Senate (The Federal Reserve Sunshine Act of 2009, or S 604) has attracted 28 co-sponsors.

• There was a ray of sunshine in Ecuador’s beleaguered mining sector, with Robert Washer’s Dynasty Metals & Mining celebrating the first gold pour at its Zaruma high-grade gold mine in the country’s south, where the Zaruma-Portovelo mining district has produced more than 5 million oz. gold over the years.

Zaruma is slated to produce some 100,000 oz. gold per year, making it the nation’s first-ever large-scale modern mine, despite the country’s centuries of extensive and bountiful artisanal gold mining.

• Petra Diamonds recovered a gorgeous 507.55-carat white rough diamond from its Cullinan mine in South Africa (see photo opposite). The spectacular find is likely a Type II diamond, and was accompanied in the same production run by three none-too-shabby stones weighing 168, 58.5 and 53.5 carats.

The Cullinan mine is already famous for having produced the largest gem diamond ever found — the 3,106-carat Cullinan door stopper — plus the Golden Jubilee (755 carats rough), Centenary (599 carats rough) and Taylor-Burton (69 carats polished).

Focused on Africa, London-listed Petra Diamonds describes itself as “one of the world’s largest independent diamond groups by resources, with a total resource base of 265 million carats, worth US$27.3 billion.”

• Summer lovin’ has quickly turned to fall feudin’ for Klondex Mines and Paramount Gold and Silver, with Klondex calling off its July merger proposal with Paramount.

Klondex asserts its due diligence “revealed that Paramount’s public disclosure record contained material misstatements and omissions regarding the inferred resource at Paramount Gold and Silver Corp.’s San Miguel project in Mexico.”

Paramount vehemently denies the allegation, calling Klondex’s statement “misleading and incorrect” and describing a variance in Paramount’s resource related to a property boundary issue as amounting to “no more than 5 per cent of the San Miguel resource.” Paramount says the boundaries for its San Miguel property are correctly and fully disclosed in two 2008 technical reports filed on SEDAR.

Klondex now claims it’s owed a US$2.85-million reverse break fee plus damages from Paramount, which in turn wants Klondex to pay it the break fee. It’ll be interesting to see how fast the two juniors can blow through US$2.85 million in lawyers’ fees.

It was only in July that Klondex fended off Silvercorp Metals’ hostile takeover attempt by announcing the friendly hookup with Paramount, which seemed like a good match at the time.