Gold Price Manipulation Explained

I may be winding down this site but i will still be publishing occasional articles here which i think will be of interest.  This one by Frank Holmes has appeared on the U.S. Global Investors website and covers one of the most contentious subjects for today’s gold investor

How to Unrig the Gold Market, According to GATA’s Chris Powell by Frank Holmes, CEO and Chief Investment Officer of U.S. Global Investors

In an earlier post, I gave you a sneak preview of my interview with Chris Powell, secretary/treasurer at Gold Anti-Trust Action Committee (GATA). For 20 years now, Chris and others at GATA have made it their mission to expose collusion by international financial institutions to control the price and supply of gold.

Below are highlights from the interview. I have to say that during much of our conversation, my jaw was on the floor. I don’t want to say much more than that! Read on, and remember to share widely.

Tell us about GATA’s background and what it does.

GATA was founded in 1999 to expose and litigate against the longstanding Western central bank policy of suppressing the price of gold. At first we weren’t even sure if it was Western banks that were doing it. But after a year or so of research and investigation, we concluded that the bullion banks were operating surreptitiously as brokers for governments, giving cover to their intervention in the gold market. At the time, we had a law firm advise us that this rigging was very likely authorized by the Gold Reserve Act of 1934, as amended since then, and as such, there may not be grounds to sue the government directly over gold price manipulation.

We went ahead and filed suit in 2001 anyway, in the U.S. District Court in Boston. We had a consultant, a Harvard-trained lawyer and gold investor, who brought a case against the Bank of International Settlements (BIS), the U.S. Treasury and various bullion banks.

One particular hearing I attended that year produced a remarkable admission from an assistant U.S. attorney. In short he said that, while the government was not admitting to the complaint, it nevertheless had the power and authority to do all the things the suit complained of—manipulating the price of gold, in other words. I made a record of this admission and put out a press release. The lawsuit was ultimately dismissed by the judge on technical jurisdictional grounds.

Having lost a little hope of suing the government directly, we determined that the best course of action going forward was to try to publicize our findings. We’re convinced that the Gold Reserve Act gives the U.S. government, particularly the Treasury Department and the Exchange Stabilization Fund (ESF), the unrestricted authority to intervene in and secretly rig any market in the world. Our work now is simply to expose this policy to as large an audience as possible.

On a practical level, how does manipulation like this occur on such a global scale?

It’s done largely in the futures markets. It’s also done in the London over-the-counter (OTC) market. The mechanisms are gold swaps and leases between central banks and bullion banks, and through the sale of futures contracts.

We’ve seen a number of flash crashes in the price of gold, but lately they’ve been happening every few weeks. Somebody will dump a billion dollars or more of gold futures contracts in New York. That can be achieved only by someone with infinite resources and money, who also has a powerful interest in suppressing the price of gold. Nobody interested in making good money would dump that much gold all at once. He would sell it gradually over a period of time. I think these flash crashes are irrefutable evidence of price suppression.

the gold futures flash crash of January 6, 2014
click to enlarge

Are there any public records that point to all of this?

Yes. There’s all sorts of material in the Treasury Department and Federal Reserve archives about gold price suppression being U.S. policy. Jelle Zijlstra—the former president of the Netherlands’ central bank, who simultaneously served as president of the BIS—wrote in his memoirs that the gold price has always been suppressed at the behest of the United States through international action. You can go back to the years of the London gold pool in the 1960s, where the control of the gold price through international action was a matter of public record, operating through the Bank of England (BoE).

A very remarkable transcript exists of a meeting in April 1974 between Secretary of State Henry Kissinger and Thomas Enders, the assistant under secretary of state for economic and business affairs. Enders explains to Kissinger that U.S. government policy is to drive gold out of the world’s financial system and prevent European governments from remonetizing the metal in any way. The purpose of this policy is to support the U.S. dollar as the world reserve currency, and if not the dollar, then the International Monetary Fund’s (IMF) special drawing rights (SDR).

The most compelling evidence, I believe, are letters sent by Representative Alex Mooney of West Virginia to the Federal Reserve, Treasury Department and U.S. Commodity Futures Trading Commission (CFTC). Mooney asked the Fed and Treasury to identify which markets they’re secretly trading in, and to explain the purposes of this trading. Fed Chair Jerome Powell essentially refused to answer the question, as did the Treasury. Mooney asked the CFTC to state whether manipulation trading in the futures markets undertaken by the U.S. government or its agents or brokers is subject to the CFTC’s jurisdiction, or whether such manipulation is actually legal or exempt from ordinary commodities law. The CFTC refused to answer the question.

I think these agencies’ refusal to answer Mooney’s questions is quite revealing. And notably, mainstream financial journalists don’t find any of this curious. They have a rule never to put a critical question to any central bank about anything. Theoretically, somebody could do it. It’s being attempted by alternate news agencies and research organizations, but you can’t get an answer. That’s a good indication, I believe, that central banks are doing things they don’t want the markets to know about.

My next question has to do with central banks and their consumption of gold. They’ve been net buyers since 2010. The United States continues to be the single largest holder of gold of any institution on the planet. How do we reconcile that? If they own all this gold, wouldn’t it go against their self-interest to suppress its price?

global central banks have been net buyers of gold since 2010
click to enlarge

That seemed to be a paradox to GATA some years ago, but we don’t believe it is any longer. To suppress the price of gold, you need a certain amount of inventory to knock the market down. You can’t do it entirely through the naked shorting that they do in the futures market. You always need to be bleeding a certain amount of the metal into the market to maintain the appearance of a gold market. You can’t just be trading paper all the time—it’s not enough.

The U.S. economists Paul Brodsky and Lee Quaintance wrote a paper a few years ago that floats a plausible hypothesis of what’s going on. The two hypothesized that the policy in recent years has been to redistribute world gold reserves among central banks so that those banks that have been overweight in U.S. dollars and Treasuries could hedge themselves in anticipation of an inevitable devaluation of the dollar and revaluation of gold. Central banks, the two allege, intervene together in the futures market to drive the nominal price down to facilitate easy acquisition of gold. They would prefer to keep the public out of acquiring the metal.

Full disclosure, I don’t have any particular evidence from government sources that confirms Brodsky and Quaintance’s hypothesis. But it certainly fits the facts as we understand them.

As you likely know, a JPMorgan trader is awaiting sentencing right now for his participation in gold price rigging. What’s your reaction to this?

His sentencing has been delayed twice now. It was delayed again the other day for another six months.

I’m not sure what to make of it, to be honest. There’s some confusion here because a few years ago, the chief executive of JPMorgan, Jamie Dimon, and the woman who was running its commodities desk at the time, Blythe Masters, both gave interviews saying that JPMorgan has no position of its own in the monetary metals markets. They were trading them only for clients. Of course, nobody in journalism followed up by asking Dimon or Masters who the clients were. I would have wondered if the bank was acting as the broker for the U.S. or Chinese government. That was certainly implied from the answers they gave.

Now this trader, John Edmonds, apparently had to admit that he was rigging the gold and silver markets while trading at JPMorgan. He was allegedly doing it with the knowledge and counsel of his superiors, and if it were done on behalf of the government, presumably it’s legal under the Gold Reserve Act. But as Charles Peters, former editor of the Washington Monthly, used to say: “The scandal is never what’s illegal. The scandal is what’s perfectly legal.”

So why is Edmonds being prosecuted? Because he was front-running government trades? Was he doing it just for himself? I can’t imagine the Justice Department would be prosecuting him if his trading was being conducted on behalf of the U.S. government.

Where do you think gold prices would be right now if not for this manipulation? What’s the true value of gold?

The true value of gold is whatever our free market wants it to be. Our attitude toward money is very libertarian. Let there be free markets and currencies, and if governments are intervening, they should be transparent about what they’re doing.

Having said that, the disparagement of gold for years is that its price has not kept up with inflation. Everything keeps up with inflation. That in itself is pretty powerful evidence of government intervention. It’s not keeping health insurance costs and medical care prices down. It’s not keeping college tuition down. It’s not keeping grocery prices down. How come gold is the only thing that doesn’t keep up with inflation? Silver, too? All of the traditional ratios of monetary metals values compared to stock market levels and other prices have been thrown off in recent years because of government intervention.

global central banks have been net buyers of gold since 2010
click to enlarge

So what would those prices be if the traditional ratios were enforced again? I can’t say for sure, but obviously they would be far, far higher than they are today. And the government knows this. If the government ever got out of the futures market and abandoned its manipulation scheme, metal prices would remonetize in as little as a week.

I’ll add that if you want the gold or silver price to go up, you’ve got to buy real physical metal. Take it out of the banking system and weaken the futures market, which is where the manipulation takes place.

If readers are interested in learning more, where should they go?

They can go to our site, GATA.org. In the upper right-hand side, visitors can subscribe to our daily newsletter, the “GATA Dispatch.” That’s absolutely free. On the left, in the “Articles” section, you’ll find a link to “The Basics” and “Documentation.” All of the documentation of gold price suppression and secret intervention in gold markets by governments is contained there. And if they’re searching for anything in particular, I’d be happy to help them or refer them to someone who can. They can just email me at cpowell@gata.org.

Thank you for your time, Chris! It was a pleasure.

The pleasure was all mine.

Advertisements

How and why central banks manipulate the gold price

I am indebted to Ed Steer for highlighting the following article which appeared in his five days a week newsletter  wherein he was interviewed by Dennis Miller on what is one of his favourite subjects – gold price manipulation – the why’s and wherefores.  A link to the full article is here: Are the Central Banks Manipulating the Price of Gold?

In the interview Ed sets out what he sees as the incontrovertible evidence that central banks, via their bullion bank allies, do indeed manipulate the gold price, and the reasons for so doing – it is hugely profitable and they will also tell you they are helping prevent the whole global house of cards fiat currency systems from collapsing.

The views expressed in the Q&A session are contentious – most mainstream commentators are in denial as to whether this is actually taking place, although increasingly non-believers are coming around to accepting that at least some of the points noted by Ed – and by organisations like GATA who have been ploughing this furrow for many years – could well be taking place. The views certainly lend an understanding of some of the strange seemingly-concerted efforts to suppress the gold price as and when it looks like suddenly taking off, or to coincide with government and U.S. Fed data announcements and expressed opinions, often kicking in in concert with them – even before their actual release on occasion.

Do read the linked article.  It is enlightening and certainly expresses a viewpoint which many see as key to where the gold price – and consequently other precious metals prices – are likely headed.

 

Gold price manipulation – The how and the why

Manipulation is a somewhat contentious word in financial markets, yet in truth virtually everything is manipulated by those who have the political need and/or the financial clout to do so.  The whole capitalist system is set up for this to take place – and arguably a socialist system even more so.  Governments manipulate statistics and financiers manipulate prices – all usually to their advantage, and sometimes the two work in concert with one another.  The manipulations don’t always work (think the Hunt Brothers attempt to corner the silver market several decades ago).  Occasional stock market crashes and counter moves in commodity prices can show the flaws in financial manipulations and in a democracy the defeat of a ruling political party demonstrates that their often deceptive data, supposedly indicating why one should continue voting for them, does not always work to their advantage either – usually through their successful opponents better putting across their own misleading data and policies which seldom in reality see the light of day once the hustings are behind them.  Virtually all political and financial spin and statistical manipulation is designed to influence public perception – and a gullible public invariably falls for it in going with whoever puts their dubious arguments forward in the most plausible manner, or perhaps promises to put the most money in their pockets.  We live in a world where advertising and spin are continually employed to try and influence people’s minds, not just for consumer goods and services but for financial and political gain.

Gold certainly is no stranger to the manipulation.  I would commend you to an article on this by Canadian lawyer/commentator Robert Appel published on the www.profitconfidential.com website titled Gold Prices: Here’s What the Federal Reserve Doesn’t Want You to Know which sets out both the reasons for, and the process of, gold price manipulation as he sees it and why gold is so important to many of the world’s central banks despite denials that this is the case.  As another commentator, Jim Rickards, points out, if gold is of no consequence why do nations (perhaps apart from Canada which has just liquidated virtually all of its gold holdings), continue to hold so much of it and why are mega powers Russia and China continuing to buy gold month in month out.

But back to the Appel article, he details some past admitted manipulations of the gold price and why central bankers hate gold so much.  “the central bankers and their crony politicians hate gold for the same reason tanning salons hate the sun. Because gold cannot be printed or destroyed, it exists in limited and quantifiable amounts, and therefore, unlike paper money, there is a limit, a tether, on the amount of incompetence and financial mismanagement our elected governments can get away with without being called to account” – that is from the days of the gold standard when the currency of the world’s leading economy, the USA, was tied to gold and thus it could not print unlimited amounts of money (the fiat currency world) in attempts to manage the economy.  If one studies economic history, all fiat currency systems have ended in financial disaster and tears – why should this time be any different?

Some will see government/central bank sponsored gold price manipulation as justified if that it may help even out potentially disastrous economic fluctuations, but the accompanying benefits to the financial sector which may play the system purely for financial gain, not so.

Appel sets out the whole manipulation process and why the financial sector colludes in this.  Firstly, the political and economic establishment, helped by a compliant media which often doesn’t understand the implications of the propaganda being fed to it, constantly puts out seemingly well-researched data all the time intended to suggest to the public just how useless gold and silver are.   This is backed by a price fixing component which he sees as especially ironic since the theoretical purpose of a price fix is, ostensibly, to avoid collusion!

But there’s much more – which Appel describes as ‘blunt-force movement of price whenever key technical inflection points are in proximity.’  He reckons that those wishing to do so will potentially be able to fully control any market providing a number of conditions are in place – namely:

  1. The market has a paper or derivative component in place so, in the case of gold vast paper trades, without any physical backing, can drive prices in a desired direction.
  2. Access to massive amounts of cash or credit.  He sees this as not a problem for government agencies and the financial institutions he describes as their ‘cronies’ given central banks can create endless amounts of money at will which can be filtered through to benefit the financial sector.
  3. Legal immunity from prosecution – not a problem for governments and their agencies – much of which comes under blanket legislation to protect national interest against economic meltdown and any form of ‘terrorism’ as they themselves define it.
  4. What he describes as ‘the implicit encouragement of third parties to join the party and play whack-a-mole with the precious metals’. This brings traders into the equation who will trade as desired as an easy way to make money – again ‘a trade that seems at first glance to be risky and irrational but is actually safe and protected because, no worries mate, we have your back!’

Anyone who studies the markets can easily see all the above factors in place.  Massive trades come in with paper gold, often at hours when markets are at their thinnest, whenever the precious metals look as though they might be breaking out sufficiently to threaten the big short positions built up by the bullion banks and commercial sector – see note 4 above.  I quote from Ed Steer’s daily newsletter of yesterday as an example of what appears to be happening on an almost day to day basis: ‘It was yet another day when the powers-that-be were quietly at battle stations—and it began the moment that the dollar index topped out in London during their lunch hour—and ended with the crushing of the price rallies in all four precious metals that began around 11:30 a.m. EDT—as the 84 basis point decline in the U.S. dollar index got halted by ‘gentle hands’ in New York at noon.’

Some (the manipulation deniers) just consider this standard financial practice as it is undertaken by the big money today – but that is why the rich, who can afford to employ vast financial resources to move markets in the way that benefits them, get richer, and the person in the street just doesn’t get a look-in.  If that’s not a form of market manipulation by the haves at the expense of the have-not’s then I don’t know what to call it.

Much of the mainstream media also seem to try to play down gold in particular at almost every opportunity, often with attention-grabbing headlines which emphasise the negative (even when there isn’t one), and interpretations of events and data which may not reflect the true position at all.

How long this can continue is anyone’s guess but it will go on until the manipulators find it impossible to counter market forces.  Gold (and silver) may then see a strong price surge, but at some stage the manipulators will return again when they feel the timing is right to do so.

But things could be changing.  This month should see the opening of a Shanghai Gold Exchange benchmarking (fixing) process relying totally on physical gold.  But the SGE is an integral unit of the Chinese Central Bank, the Peoples Bank of China – and if the SGE fix (in yuan) gains traction might we just be exchanging one set of manipulators for another?  Although admittedly with one which may have a totally different agenda!

Indeed, in his article, Appel sees the current month as something of a crunch one.  Gold shorts are at the strongest level ever, he says, and that would indicate there could be a major price crash ahead as the manipulators take the lead.  But that just does not seem to be happening at the moment.  Gold looks to be increasingly resilient at current levels.  Indeed yesterday, at the time of writing, gold was  moving up strongly and looked even test the key $1,250 level (although some put the upwards resistance at a slightly lower $1,244).  By the time you get to read this we may well know the answer to that!  (Yes, in the event gold was brought back down into the low $1,230s again.  It will be interesting to see where the next moves come in.  There certainly do seem to be specific moves in place to keep the gold chimera under some kind of  control.  (Some would say not a bad thing given that a rampaging gold price would raise all kinds of questions over the state of the global economy and a forerunner of financial collapse – gold bugs be careful what you wish for.)

If the manipulators lose this particular battle, no doubt the gold price war will continue and they will look for other levels to protect, but in this era of negative interest rates – which makes gold more attractive than bonds and overnight government deposits – the momentum could well be shifting in favour of precious metals.  Now maybe this is wishful thinking by someone who is basically a believer that gold is destined to move at least decently higher in the medium to long term, but the indicators are there.

Appel does see both sides of this picture and feels one should sit tight to see how things pan out – he puts a breach below $1,180 as the target for the bears – which could see gold move sharply lower still – and an upside of $1,400 (which still seems a long way off) as the very bullish target after which gold could move substantially higher.  But he also feels that, given the huge gold short positions in place at the beginning of this month, if gold can simply hold at its current levels that would be a major bull signal for the rest of the summer.

We say watch the gold ETFs and GLD in particular.  It has seen a resumption of inflows over the past couple of days and this is a good indicator of what the smart money is thinking.  If strong inflows continue then gold is probably headed upwards.  If increases begin to become the norm, rather than the exception as we have seen over the past few years, gold could well have a good northern summer – and summer is not a time of year which usually works out to be positive for the yellow metal – apart from the heady days of 2011 when gold rose strongly through the season before being brought down, starting immediately after Labor Day when the big money players returned from holidaying in the Hamptons and points further afield.  History does tend to repeat itself – be warned.

This article is a slightly edited version of one I posted yesterday on the Sharps Pixley website

Manipulation of gold and silver prices – How it is done

There is a continuing argument over whether the gold price is manipulated and we feel that it is – along with virtually every other market out there – by institutions with sufficient funds to exert a degree of control.  That seems to be an integral part of the modern-day investment sector, whether ethical or not.

But is gold a special case?  Or is silver?  Investors in these precious metals certainly believe so and we feel there is sufficient evidence out there to say definitely yes – at least from time to time when for the powers that be things start to be getting out of hand as they see it.  Why should gold in particular be a special case?

In many peoples’ eyes gold has been the ultimate form of money and indicator of wealth for centuries and since the world entered the total fiat currency era after President Nixon closed the gold window in 1971, before which the world’s global reserve currency was backed by gold, many still see gold as the ultimate bellwether as an indicator of the true strength of these currencies and of the dollar in particular.  Control the bellwether and you control the herd!

The Gold Anti Trust Action Committee (GATA) has preached gold price suppression, implemented by the major central banks (the U.S. Fed in particular) with government support allied with the monetary power of the bullion banks to do so and has been very successful in procuring various government documents, memos and emails which would support their case. This documentation recognises that at various points in time gold has most certainly been on the agenda and needs to be controlled with recognition by the financial elite that the gold price can pose a threat to their economic management and the overall picture they are tryuing to present to the people.  Couple this with ongoing media propaganda downplaying gold’s power as an investment and such intervention can probably be kept to a minimum with investors and markets doing much of their dirty work for them most of the time.

But not all of the time!  Every now and then the gold price threatens to get out of control and more drastic measures are needed to knock it back.  Hence the flash crashes when huge futures transactions, often when major markets are mostly closed, are implemented with the seemingly intended purpose to knock prices sufficiently to trigger stop-loss computer trading and thus drive the price down further.  these are a relatively recent phenomenon perhaps exemplified – one might say trialled – in the much smaller silver market back in April 2011 when the silver price was soaring up close to $50 an ounce.  While silver may no longer be truly a monetary metal it still has monetary correlations in the eyes of many and while the silver price tends to move broadly in concert with gold, but with greater extremes, there would have been the fear that in this case the tail could be wagging the dog and if the silver price was allowed to continue its upwards path it could drag gold along with it.

But while the silver price was successfully knocked back, gold managed to continue on its own upwards path for another 5 months and in August/September 2011 gold fever was in full swing and it too looked to be taking off out of control.  Cue another huge flash crash and the amount of capital at risk in the futures markets to implement this might be seen as exceptional with the theory that this was put in place by the bullion banks with central banks and government support.  True only circumstantial evidence here, but the numbers suggested something hugely more than any normal trading activity.

Once this was seen to be successful, so the theory goes, almost every time some piece of government data, or world news, seen as potentially strongly gold positive has been released there has been an almost instantaneous similar, but smaller, flash crash implemented through big futures transactions – always seemingly designed to take the price down to stop-loss selling levels.  Coupled with a Fed easing programme designed to boost the general stock markets these have turned investor sentiment away from gold very successfully and the price has been drifting downwards.

So what next for gold?  The gold investment fraternity will be hoping that the huge gold flows from West to East and the likely prospect of China eventually wresting control of gold benchmark price setting from London will reduce the power of COMEX futures market dominated price manipulation.  But China itself may then well set its own price manipulation process in place – it certainly has the financial power to do so -although the agenda and price direction may be different!  We shall see.

For more on this subject and more on what’s been happening in the silver market, readers should take a look at my other recent article on this subject on Mineweb – See: Gold price manipulation: Who really calls the tune?

Downwards price manipulation of gold to Asian buyers’ big advantage

Why should Asian gold buyers chase gold prices up when they can absorb all that is mined at bargain basement prices asks Julian Phillips.

This morning the dollar index remained almost unchanged at 97.55 despite the slightly weaker euro.  Gold is moving as an independent currency still.

Yesterday we mentioned that it will take a monetary event to move the gold price. Greece is looking more and more like this will be the first one of these to happen. It would be an easier political solution for Greece just to sit back and wait for a default. We expect the E.U. to then do all it can to keep Greece in the euro so as to keep the euro weak going forward. Once this event takes place volatility will return to the foreign exchanges and to the gold and silver markets.

It is felt by many that the gold markets are manipulated. The direction of this manipulation is downwards or just to hold the gold price at current levels.  Certainly it appears that the banking system in the developed world is getting a big advantage in this. On the other side we have a most extraordinary picture. Chinese and Indian demand alone has in the last two years exceeded newly mined gold supplies. That’s around 3,300 tonnes. And Asia is getting it all, at prices down 37.5% from its peak level. Doesn’t this strike you as odd?

Demand such there has never been seen before emanating out of Asia, is not driving up prices? Instead they are getting all this gold at a deep discount? Who’s really getting the big advantage? Why should Asia want to see higher prices? When you can get the entire available stock that comes to the market at these prices, why chase prices?

As it is, more and more mines in South Africa and elsewhere in the world are being taken over by the Chinese. The production of these mines goes straight to China and not through the London and New York markets. It means the physical volumes of gold going through London and New York are shrinking but still enough to allow these markets to keep prices low.

There were purchases of 3.282 of a tonnes of gold into the SPDR gold E.T.F. purchases of 0.50 of a tonne into the Gold Trust on Tuesday. The holdings of the SPDR gold ETF are at 742.347 tonnes and at 165.58 tonnes in the Gold Trust.

Julian D.W. Phillips for the Gold & Silver Forecasters – www.goldforecaster.com and www.silverforecaster.com