The “manipulation wars” have heated up again. On one side we have those saying that gold and silver prices are surely not manipulated and on the other side “we” say that it is obvious. The “no manipulation” crowd has in recent weeks gotten much louder. I have read that if there truly was manipulation that we would have heard about it from the inside by now. The CFTC “cleared” silver as another go to point of the “non manipulators.” I read this past week where Speculative Investor wrote that Eric Sprott is using “hopelessly flawed” supply and demand numbers as well as faulty logic. That supply and demand must always be equal and the price is the “arbiter” that moves up or down accordingly. Whether it is “paper” gold or “physical” gold makes no difference because the markets pit supply against demand and thus a “price” is discovered. They even said that total above ground supply of 150,000 tons (it is really at least 170,000) equals total demand…the price is the price and that’s that.
First, let me ask you if there is “motive” to manipulate the price of gold? The answer is that even Janet Yellen in her very first testimony admitted that demand for gold goes up during “bad times or when there is fear”…so if you wanted to portray that “all is well,” wouldn’t the banking system WANT a lower gold price? Wouldn’t they want to be able to point to a falling gold price and be able to say, “See, the price is dropping?” I think it is clear that as far as “motive” is concerned, the government and the banks do not want a high and rising price of gold.
Secondly, let me ask you if anything else “financial” is manipulated? Are interest rates “free market” or does the Fed try to set rates? Hasn’t the Fed “set” interest rates since its inception 100 years ago? Did Ronald Reagan not create “the presidents working group on financial markets” (plunge protection team) after the 1987 market crash to support the markets? Have presidents current and past either threatened to or actually released oil from the strategic petroleum reserve to lower price? Are there not subsidy laws passed by Congress for milk, grains and other commodities to influence price? Are tax laws passed that allowed more people to purchase homes and thus support prices? In reality, haven’t we gotten to a point where all markets globally are affected (manipulated) “for the greater good?” Are we to believe that gold and silver are THE ONLY markets that are not manipulated? Would it make any sense not to suppress the price of your currency’s main and direct competitor?
Next we have the argument that there is no difference between physical metal and paper contracts. Is this true of soybeans, gasoline or lumber? Can you really eat power or build anything with a contract? It doesn’t matter you say? Because whether real or contract, buying or selling is still a “vote” on price? Really? Just as no election ever, anywhere in the world has been rigged or defrauded? Let me explain this in simple terms. What would stop some “gazillionaire” that wanted the price of anything to drop…to just go out and sell contracts? If you have enough capital to meet (or even not) margin requirements, what would stop you from just going out and selling 6 months’ worth of global gold production in just a day or two? The answer is NOTHING stops you. Oh, but what if someone wants delivery…then what? Well, this question has already been answered. This is where leased gold comes in. This is where central bank gold comes in. This is why finally; vaulted inventories are showing drastic drops…because there is only so much real gold available for delivery, it is from these sources that “supply” is being taken from to meet the higher demand.
Next, I ask you why real physical gold trades at a premium in Asia. Why are the Indians now paying over a 20% premium to paper prices to get the real thing? Why have there been shortages throughout 2013? Why have sovereign mints shut down production several times this year and had such large backlogs of orders? If so much gold and silver were sold then why are they not plentiful? If metal is scarce then how is it possible for the price to be weak? Simple, the fractional reserve nature of the West’s “metals markets.” If I have enough money to put up margin…I can sell as much “gold” as I please even if I have never owned or even held 1 single real physical ounce in my hand EVER! With enough money, ANYONE can affect the price of ANYTHING through the use of futures.
The important aspect here is that Eric Sprott and the rest of us whacko conspiracy nuts actually care about where the gold is coming from to deliver into the fractional reserve paper markets. We think that it actually matters whether or not the real gold exists to make delivery. We think that it is more important to be able to get into a car and drive ourselves somewhere rather than having a “title” to a car that may or may not exist. This “question” of whether or not there is manipulation is a very important one. It is important because when the real and final answer comes out…the ramifications will affect everything, everywhere financial.
We will get an answer sooner or later. We could possibly get an answer in December as over 18 million ounces of gold are currently represented by contracts and less than 300,000 ounces are purportedly unencumbered and available for delivery in dealer vaults. If not December, we then will have February which has historically been a high delivery month. Sooner or later we will find out exactly who was right and who was wrong. The important thing to understand is that if “us” whack jobs who believe that only real physical gold “is gold” turn out to be correct, this is for all the marbles financially. In the past, “whoever had the gold made the rules.” I still believe that this holds true, maybe it does not, maybe I am wrong but I would not want to bet against it as history is on my side. If you do bet against this concept and either own no gold or have all of your holdings in paper receipts to gold that turns out not to be there…financially it will be game over.
I am merely using some common sense, street smarts and logic to arrive at my conclusions. There is motive, available method and plenty of proof that the metals prices are not “discovered” freely by unfettered market forces. The price of gold (and silver) has been manipulated by kings, dictators, banking cabals and central banks since the times of the Roman Empire…why would it be any different now?
I hope in the end that the manipulators get what they have coming to them (i.e., prison, total net worth wipe-out, caught by an angry mob that is out for blood, etc.)
In a nutshell Burns’ entire argument revolves around the equivalency of gold and money, and furthermore points out that if the Fed does not control this core relationship, it would “easily frustrate our efforts to control world liquidity” but also “dangerously prejudge the shape of the future monetary system.” Furthermore, the memo goes on to highlight the extensive level of gold price manipulation by central banks even after the gold standard has been formally abolished.