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Gold and Silver Market Manipulation?

Commodities / Gold and Silver 2012 May 17, 2012 - 12:52 PM GMT

By: Casey_Research

Commodities

Best Financial Markets Analysis ArticleDoug Casey, Casey Research writes: For many years now, a meme has been floating around that the prices of gold and silver are being manipulated, which is to say suppressed, by various powers of darkness. This is not an unreasonable assertion. After all, the last thing the monetary powers-that-be want is to see is the price of gold skyrocketing. That would serve as an alarm bell, possibly panicking people all over the world, telling them to get out of the dollar. It's assumed, by those who believe in the theory, that the US Treasury is behind the suppression scheme, in complicity with a half-dozen or so large bullion banks that regularly trade in the metals.


The assertion is bolstered by the fact that governments in general, and the US in particular, are always intervening in all kinds of markets. They try to control the price of wheat and corn with various USDA programs. They manifestly manipulate the price of credit (interest rates), now keeping it as low as possible to stave off financial collapse. And they may well be active, through the so-called Plunge Protection Team, in propping up the stock market. They were largely responsible for the boom in property, through numerous programs and parastatals like Fannie Mae and Freddie Mac. Why, therefore, shouldn't they also be involved in the monetary metals? Central banks regularly intervene in (i.e., manipulate) each others' currencies. So it's not unreasonable to imagine they'd try to manipulate gold as well.

In fact, the US and other governments did try to suppress the gold price from 1961 to 1968 through what was known as the London Gold Pool. The US alone persisted in trying to do so until Nixon devalued the dollar and closed the gold window in 1971.

But if it was ever doable, that was the time. Although nobody knows exactly how much gold there is above ground, a reasonable guess might be six billion ounces. There was a possibility of controlling the price, in the days of the London Gold Pool, when there were only three billion ounces in existence and when all the gold in the world was worth only $105 billion ($35 x 3 billion = $105 billion).

Today, however, the value of the world's gold is around $10 trillion ($1,650 x 6 billion = $10 trillion), nearly 100 times as much. And governments own about a billion ounces, only 16% of it, whereas the last time they tried to control the price they owned about 1.1 billion ounces, which was about 35% of the world supply. And the governments, their central banks and almost all large commercial banks are bankrupt; they have vastly less financial power than they did in the days of the London Gold Pool. Why would they try to do something that's so obviously a losing game?

I'm not at all disinclined to believe tales of manipulation of markets by the state; I expect it, and as a speculator I relish it. But I like to see evidence for everything. And extraordinary claims demand extraordinary evidence. I've read the stuff these guys have written for years and have seen nothing but strident assertions and accusations. I'm completely willing to believe central bankers are capable of any kind of nefarious foolishness, but I'd like to see proof. I'm constantly reading assertions of how "the boys" come along at "precisely" 1p.m. or 2 p.m. or perhaps "precisely" 11:37 a.m. or 12:16 p.m. and, on a purely not-for-profit basis, decide to "smack down" the market for gold or silver or both. Meanwhile the market has been hitting new highs for a dozen years.

As you might imagine, I know most of the believers in the precious metals manipulation theories personally and am only a phone call or email away from those I don't know. And I'm curious. So I ask questions of these folks, who are generally intelligent, well informed and sophisticated. But I don't get answers that I find make sense. There have been readily identifiable reasons for other government manipulations in the past. It's obvious why a government wants low interest rates. It's obvious why they want high real estate and stock markets. But why – in today's world – would they really want to spend billions keeping gold (or especially silver) down? You'd think they might have tried to control the price of uranium when it ran to $140 a few years ago. Or perhaps the price of sugar when it ran to 28 cents last year; everybody uses sugar.

Despite the fact that gold can act as an alarm bell, few Americans – or anyone, for that matter – among the hoi polloi care or even know the stuff exists except as an academic matter. Suppressing the gold price is not only vastly harder but much less important than it was during the last market.

Here are some questions I'd like answered:

Q: Why do these banks (JPMorgan, etc.) even give a damn, in the first place, what the price of the metals might be?

The only reason that makes any sense is that they are acting as proxies for the US Treasury; the Treasury doesn't go into the markets itself. But does it direct a commercial bank to act for it to buy or sell gold? It might. But there's zero proof of any sort it's doing that.

These banks have no dog in the fight; they couldn't care less what the metals prices are and have no reason to try manipulating the market.

Q: Why has there been zero word from their traders about how stupid their bosses are for fighting a gigantic 10-year bull market? These guys all know each other, and they gossip with the same delight as teenage girls.

It's hard to keep a long-term illegal collusion a secret. Two parties might possibly be able to keep a secret. But six or eight commercial banks acting in broad daylight? It's said that three individuals can keep a secret, but only if two of them are dead. But for a half-dozen trading operations to do so? Wall Street is the world's greatest rumor mill. But there's never been a rumor (outside of those created in conspiracy circles, who offer no sources) that the bullion banks are acting, in concert or individually, as agents of Timmy Geithner.

Q: If, as alleged, these banks have been short gold from the bottom of the gold bear market at $255 in 2001 and the silver bear market at $4.25, also in 2001, how can they possibly absorb tens or hundreds of billions of losses? Did they expect to take the metals to a fraction of their 1971 lows?

Trading desks make mistakes. But they don't stay short in one of history's great bull markets – it's not the way traders earn bonuses. How stupid are the supposed "not for profit" sellers of gold supposed to be?

Q: Exactly where and how do they supposedly get the capital to cover these losses? Haven't they ever heard the old saw, "He who sells what isn't his'n must give it back or go to prison"? No bank can tie up billions in capital fighting the market for a decade.

Q: Exactly who originated this idea of trying to suppress prices using the futures markets?

Here a well-known writer on this subject suggested the following to me, via an email, when I asked: "The big commercials, starting some 25 years ago, discovered they could dominate the market and force technical traders in and out of the market when they wished at great profits to the commercials. But they miscalculated and stayed in too long, and now they are trapped."

I don't buy that explanation for several reasons. Of course the big guys, like commercials, are always bullying small speculators. The small guys use technical trading systems, which make it easy to figure out where they're buying and selling. Small traders are always minutes behind the market. And small traders usually use way too much margin, so they're prone to being squeezed and panicked. This has always been true, not just for the last 25 years. It's part of why small traders are notorious for losing. The commercials are typically on the other side of the trade.

But one thing is for certain: nobody (certainly not commercials) allows himself to get in so deep he's trapped for 12 years in one of history's greatest bull markets.

Q: Why fight the market, and get trapped, in just gold and silver? Why aren't they trying to suppress copper, platinum and palladium as well? For that matter, every commodity?

I don't credit the people who run central banks or national treasuries with a great deal of financial acumen; they're basically just political hacks, flunkies that went to "good" schools, dress well and like feeling important in a safe niche in the bureaucracy. But they don't want to lose their jobs by being that wrong for that long.

Q: Why would the US Treasury (if it's behind a gold suppression scheme) make things easier for the Chinese, the Russians, the Indians and numerous other developing countries by suppressing the gold price? They simply take advantage of the lower price to buy more.

The arguments for suppression of gold make very little sense when you examine them. The arguments for silver make absolutely no sense at all; it's a tiny market that nobody cares about except for silver fanatics, who treat it like a religious icon. That said, I'm at least as bullish on silver as gold – but a discussion of that will have to wait.

If anyone could answer these questions, I'd appreciate it. I advise readers to buy gold – even at current levels – but I'd like to see them do it for the right reasons. And it seems to me the arguments about gold manipulation are more redolent of religious belief than economic reasoning.

[For much more economic straight talk, from Doug Casey and 30 other great minds, including Rick Rule, John Mauldin, and David Stockman, you'll want to get the audio collection from Casey Research's recently held Recovery Reality Check Summit. Every presentation, every chart, and every actionable piece of advice – including specific stock recommendations – are included, making this set very likely to pay for itself and then some in short order. Order your set today – it's available as instantly downloadable MP3 files or on CDs.]

© 2012 Copyright Casey Research - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Comments

Jon
22 May 12, 22:37
You are forgetting one HUGE FACTOR

Namely, that the FEDERAL RESERVE, can print out money out of thin air, and GIVE IT to those banks, unaccountably with no records, who THEN can go on to suppress gold and silver in line with the fed's goals.

And if they WORK together to suppress it, it's quite profitable (they cause reverse panics that ONLY they profit from as roughly 95% of individual speculators BUY gold/silver).

The federal reserve printed $12 trillion and gave it to EUROPEAN banks at almost 0% interest. I personally believe the purpose is so they can suppress gold and silver in Europe where stability is a bigger issue.

You have to ask yourself, for example, why did gold and silver drop 2% today, when roughly 95% of the small to medium sized speculators were buying it, there are rumors of a QE3, etc.

It's common sense. And to do battle with them you'd need a trillion literally. I've started to devise a relatively profitable "rely on them to suppress it" strategy. Whenever it comes up, I expect them to smack it down and I so far have never been wrong.

When I think their "veil" has been broken by the market and I confidently invest in an underpriced commodity, I am always proven wrong as they smack it back down.

They only allow it to go up for a few days at a time because they want to also destroy the highly leveraged shorts (small fries).


Jon
22 May 12, 23:02
Also

It's also a win-win for banks to manipulate the metals, as they profit shorting it (and destroying the hopes and dreams of little folks is probably a bonus to them), and to top it all off, that $12 trillion the fed gave to them retains it's value.

If you have trillions of dollars, you don't want silver/gold to double in price and your trillions to be devalued by 50% for example. You'd lose trillions of dollars.

So it makes financial sense to use a TINY portion of what the fed prints, say, a trillion, to manipulate the market and thus retain the value of what they just printed.

It's almost like to the powers that recognize the futures market as their biggest threat to a financial stranglehold on the people, and hope to force people to stay within the ever devaluing paper money. Even if their nominal value of their stocks or bank accounts goes up, the REAL value goes down. Like a hamster on a wheel not realizing he isn't going anywhere.

I don't find it a coincidence that recently they started trying to ban leveraging commodities more than 10x. After all, if a flamboyant billionaire decided to put billions down on a super high leverage across numerous accounts, he could break through their resistance and with 95% of speculators BUYING the metals (only 5% shorting), he'd be propelled ever upwards like bursting open a water main where the pressure is 95% upwards after all.


B.
26 May 12, 03:16
Money "Printing" and Money "Giving" by the Fed.

Jon: You seem confused by basic money-and-credit 101 as it now works. The Fed can indeed "print" money, but it does not "give it away". If you are a bank or any one else, you need to surrender an asset to the Fed in order to get the reserves/base money. You don't get the money for nothing. If the Fed printed money and took in no financial claim or asset, then that would indeed be a case of debasement.


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