Alarming Gold Market Manipulations Underway
Commodities / Gold and Silver 2015 Jan 13, 2015 - 03:08 PM GMTBy: Submissions
Mike Gleason writes: Well, the first full week of the New Year has brought a number of important headlines worthy of precious metals investors’ attention, so let’s get right to the latest developments.
On Monday, John Boehner took hold of the gavel as Speaker of the House for another two years. Boehner overcame opposition from a small minority of dissenting conservative lawmakers. But this small minority represents a majority of actual Republican voters who say they are dissatisfied with Speaker Boehner over his spending deals that have fully funded President Obama’s agenda and keep jacking up the national debt.
The national debt has risen by $4 trillion in the 4 years since Speaker Boehner cut his first spending deal with the White House. But the establishment wings of both parties are far more concerned about making sure the debt ceiling gets raised again later this year than they are about reining in deficit spending in any way whatsoever.
The debt limit will technically be hit on March 15th. But the Treasury Department’s now routine “extraordinary measures” will buy members of Congress a few more months before they have to go on record supporting another debt increase.
“I refuse to leave our children with a debt that they cannot repay. Understand, if we don't take meaningful steps to rein in our debt, it could damage our markets, increase the cost of borrowing, and jeopardize our recovery.”
“Because the average person thinks raising the debt ceiling must mean that we're running up our debt. It allows us to meet our obligations to future generations without leaving them a mountain of debt.”
Apologists for Big Government financing insist that raising the debt ceiling is the responsible thing to do. But with the national debt now roughly equal to 100% of our Gross Domestic Product, the consequences of adding more debt now could be horrific down the road when interest rates start to rise and buyers of Treasury bonds start to disappear. If the Federal Reserve is called upon to monetize trillions of dollars worth of government debt in order to avert a default, that will put us on the road to hyperinflation.
Speaking of the Fed, the “Audit the Fed” bill was reintroduced on Tuesday by Rep. Thomas Massie. The bill had passed the House overwhelmingly last year and should have no trouble doing the same this year. The test will be whether the bill to Audit the Fed can gain supermajority support in the Senate.
President Obama’s handpicked Fed chief Janet Yellen has vowed to vigorously oppose a congressionally mandated audit of the central bank’s books and market interventions. Some have also speculated that the Fed wants to keep a lid on its secret transactions in the gold market and its collusions with other central banks -- to the great concern of grassroots groups like the Sound Money Defense League and GATA.
It is interesting to note that a number of foreign central banks are now clamoring to get their gold back from storage in Federal Reserve vaults. The Dutch recently repatriated a whopping 122 tons of gold from the New York Fed. According to reports, the amount of gold held in the vaults of the New York Fed is now the lowest in decades.
On Wednesday, the release of minutes from the Federal Reserve’s latest policy meeting confirm the Fed’s intent to be “patient” in raising its target short-term interest rate. According to futures markets, there is now a 58% likelihood that the Fed will raise the federal funds rate to at least 0.5% by September.
For now, the foreign currency markets are exerting no pressure on the Yellen Fed to tighten. The U.S. Dollar Index rose for six consecutive months in the second half of 2014. The dollar is up another 2% versus a basket of foreign currencies so far this month.
In spite of dollar strength, though, gold and silver prices have managed to advance in the New Year. Early this week gold broke above $1,200 an ounce, with prices showing a weekly gain of 2.4% to trade at $1,220 an ounce as of Friday afternoon recording just before the market close. Silver shows a strong gain of 4% and now trades at $16.46. The intermediate-term picture shows both metals trading in a sideways range since last fall. Gold has crisscrossed the $1,200 per ounce level several times. Prices need to break above $1,250 for a meaningful rally to get going.
Turning to platinum and palladium, the price action has been fairly muted so far this year. Platinum prices are higher by 2.3% this week to $1,231 an ounce. Palladium is little changed and trades at $802.
And finally, before we move on to this week’s interview, I’d like to remind everyone who invests in precious metals of the importance of reducing counterparty risks. Governments across Europe from the Netherlands to Germany to Switzerland to France have either acted to repatriate their gold holdings or are considering doing so. This indicates that rock-solid trust between governments and central banks is eroding.
Never put your trust 100% in any single counter party. Always have a portion of your precious metals allocation immediately accessible to you. When storing via third-party vaults, make sure your holdings are in segregated storage, not pooled with the holdings of the firm or its clients.
Money Metals Exchange can offer you highly secure and lost cost storage options, including ones that are suitable for IRAs. Just give us a call at 1-800-800-1865.
And now, without further delay, let’s get right to our exclusive interview.
Chris Powell: Very glad to be here, Mike. Thanks for your interest.
Mike Gleason: Well, Chris, I want to start out by asking how GATA came about some 15 years ago, and give our listeners a bit of background on the organization's purpose and mission, if you will.
Chris Powell: It was a bit of an accident, Mike. I was beginning to follow the gold market, mainly out of contrarian curiosity, and I vaguely realized something was wrong when I bumped into our chairman Bill Murphy's internet site of commentary about the gold and silver markets. He was repeatedly describing, back in the fall of 1998, what seemed like manipulation of the gold and silver markets by the big New York investment and bullion banks, which seemed to intervene in the market to knock the price down at strategic price points.
I wrote him a note saying that if what he was writing about was correct, what he was observing was a violation of the Sherman Act and Clayton Act and 50 state antitrust acts, and instead of him just complaining about it every night, somebody ought to form a committee and hire some lawyers on a contingency basis and sue the bastards under antitrust law and collect triple damages. I told him that if somebody wanted to form such a committee, I'd donate, I don't know what it was, $500 to it. He thought that was a good idea, and that's really how GATA was formed. Excuse me.
Now, really after we incorporated and began to research the market more and got some help from certain experts in the market, we began to realize that the New York investment banks that Bill had spotted suppressing the gold price were really working as the agents of Western central banks and that Western central banks actually had been the big players in the nominally free gold market for decades. The central banks used to rig the gold market openly, back in the 1960s, through a mechanism called the London Gold Pool. Now they were doing it, we discovered, through their intermediaries, the New York and London bullion banks that were doing it through the leasing and swapping and secretive central bank gold reserves.
We've brought lawsuits about it twice. I think both of them have elicited some pretty critical disclosures, even though we did not stop the manipulation. We just tried to publicize the destruction of free markets, not only in gold and other financial instruments, but in commodities generally in the hope of restoring free markets and restoring some democracy and justice in the world, because probably the biggest victims of the gold price suppression scheme and the commodity price suppression scheme generally are poor, developing countries that rely on natural-resource exports to survive.
Mike Gleason: We've seen unprecedented US government and Federal Reserve intervention in virtually all asset markets in the past decade, and all of them are pretty much out in the open…whether it be buying bonds, buying stocks, bailing out industries, and so forth. The US government even buys oil in the open market to fill the Strategic Petroleum Reserve, something we could see happening again soon given the dramatic fall in oil prices recently and the negative impact on domestic producers. But while these other interventions are freely disclosed to the public, no one in government seems willing to admit to interventions in the gold and silver markets. Why the secrecy, and why don't the powers that be want to see a free gold market?
Chris Powell: Well, some of the interventions are acknowledged, Mike. I think the interventions go far beyond what has been acknowledged so far, but gold, I think, is most sensitive to the central banks because gold is itself a currency, an international currency with no central bank behind it, something that free people can resort to whenever they are dissatisfied with government currencies. It's a competitive currency whose valuation, in turn, sets the valuation of government currencies.
In fact, it has a huge influence on interest rates and the value of government bonds. There's a lot of academic literature about the causal connections between the gold price and interest rates and government bond prices, so I think central banks are most sensitive about the gold price because gold is a determinant to the value of their currencies, to the value of government bonds. That's probably why they are most reluctant to admit those interventions. Other interventions are not as sensitive to them.
Mike Gleason: This sort of thing has been going on for quite some time, hasn't it? This isn't just a recent phenomenon here the last couple years.
Chris Powell: Oh, sure. The gold standard itself was a market-rigging mechanism. It was a pretty clumsy one, but it did tie the price of gold to a particular unit of currency. When the world got away from the gold standard, the Western central banks undertook, in the 1960s, what was known as the London Gold Pool, which was a very public, candid scheme of just hoarding of Western central bank gold reserves to hold the gold price to $35 an ounce.
The London Gold Pool collapsed in March, 1968, as the gold offtake proved too much for the Western central banks that were rigging the gold price. That's really when the Western central banks withdrew for a while and regrouped and calculated that they could much better rig the gold market through derivatives, through futures and options trading, which is really what they do now, along with swaps and leases, in a scheme that gives the world the impression that there is much more investment-grade gold available than there really is.
Mike Gleason: Expanding on that thought a little bit, how specifically are they suppressing gold prices today? By what means are they doing that? Talk about how the central banks are working in concert with certain third-party representatives to pull this off.
Chris Powell: Well, I'd refer investors and researchers to the annual report of the Bank for International Settlements (BIS), which is the central bank of the central banks. The annual report of the BIS candidly acknowledges that it is the gold broker for central banks and is selling and buying not only gold, but gold futures and options and other derivatives on behalf of central banks. This is secret trading in the gold market by central banks in order to manage the price.
I'd refer investors and researchers also to the secret March, 1999, report to the board of the International Monetary Fund by the IMF staff, which reported that Western central banks were opposed to disclosing their gold swaps and leases because transparency with central-bank gold operations would impair central-bank interventions in the gold market and other markets. That is, these interventions are undertaken in secret precisely to deceive the markets and to rig the gold and currency markets. This is a matter of official documentation. The secret March, 1999, IMF staff report is on GATA's internet site ( gata.org). The annual report of the Bank for National Settlements is on our internet site.
There's recent documents. For example, the address of the Director of Market Operations of the French Central Bank, Alexandre Gautier, to the London Bullion Market Association conference in Rome in September, 2013, disclosed that central banks are trading gold through the Bank of France as their broker nearly every day, the Bank of France official said. The same official spoke to the LBMA meeting in Lima, Peru, a few weeks ago, and he said that the central banks had gotten far more aggressive in their gold trading lately.
The purpose here is to control the currency markets, to control interest rates, to control government-bond prices, and really to control all markets because a free gold market is compatible only with free markets everywhere. The gold price has a huge influence on all prices. If you rig the gold market, if you rig the gold price, you're basically rigging all prices because prices are denominated in currencies. Gold is really the denominator of currencies, so if you rig the gold market to rig currencies, you're rigging all markets.
The documentation of this, Mike, is overwhelming. All one has to do, if one is a financial journalist, is to call up a central bank and ask a few specific questions. Can the public see the record of your gold transactions? Can the public see the record of your gold swaps and leases with other central banks and with bullion banks? Are you trading in the gold market? What is the purpose of your trading in the gold market? Is your trading in the gold market just for fun, or are there policy purposes to your secret trading in the gold market?
This is elementary journalism. Really any first-year journalism student could do it, but the mainstream financial press refuses to do it, I think largely because it is so sensitive to governments. Governments don't want this done, but anybody can do it. You can get an idea of what's going on simply by putting your own questions to your own central bank, and if they are specific enough about gold, you will be told to drop dead if you get any answer at all. But the first rule of mainstream financial journalism in the West is that no central bank can ever be questioned critically and specifically about gold and really that no central bank could ever be questioned critically and specifically about anything it does.
If you follow reporting about central banks, you'll find that there simply are no serious, critical, specific questions put to the central banks about what they are doing in secret. That's really my real objection here. Central banks control the valuation of all capital, labor, goods, and services in the world, and yet they do it in secret. They do it even though they are not elected by anybody. They're appointed officials. They effectively control everything important in the world, and yet they do it in secret and without any accountability at all. To me, that's really a tyrannical system, and that's what I object to.
Mike Gleason: It'll be interesting to see if we get the "Audit the Fed" bill passed through the Senate. I guess it passed the House last fall and never even reached a vote in the Senate. Now that the Senate's changed hands, that might be the first step in getting some transparency there. Of course, they're going to go kicking and screaming. They don't want any of that information shown to the general public. As you mentioned, they like to operate in secret. That's sort of how they've been ever since they started a hundred years ago.
You've got a lot of great examples there of specific evidence of how they've been intervening in the gold markets, and I urge people to check out that information at gata.org. Great site there. All that documentation that Chris was alluding to is pretty much available on that site, but there's one in particular that I want to ask you about, and that's how the CME Group gives special preferences to central banks who trade in the futures markets. Talk about that because that just boggles my mind.
Chris Powell: Yeah. A few months ago, the founder of a market data research firm in Winnetka, Illinois ... the firm is Nanex, and its founder is Eric Scott Hunsader. He discovered some documents on the internet site of the US Commodity Futures Trading Commission and the US Securities and Exchange Commission. They were filings by CME Group, which is the operator of the major US futures exchanges. They showed that CME Group has been offering volume discounts for trading to central banks for trading all futures contracts offered on CME Group exchanges, and not just futures contracts for government bonds, but for all financial instruments for the monetary metals, gold and silver, and even for agricultural futures contracts.
The SEC document that Hunsader discovered is the 10-K statement filed by CME Group, which is the basic general corporate filing every public corporation has to make with the US government. The 10-K statement for 2014 for CME Group, on page 9, has a paragraph identifying the CME Group's customers. Among the customers that CME Group lists for trading futures on its exchanges are governments and central banks. Now, the governments and central banks are secretly trading the full range of financial and commodity futures contracts in the United States. It strikes me as a monumental news story. I have never seen this reported in the mainstream financial press.
The CME Group's letter to the CFTC justified this discount trading program for central banks as a matter of adding liquidity to the futures markets. I had to laugh at this, but liquidity is in the case of an ocean because central banks are empowered to create infinite money. Nobody can trade against the central bank in a futures market. A central bank trading in the futures market can take that market anywhere it wants to. It has infinite money. It can out-trade anybody, and yet the CME Group defended this secret trading by central banks as a matter of adding liquidity to the market. Actually, it was a mechanism for destroying every market.
Now, the CME Group's filing with the CFTC doesn't prove that any particular central bank is trading any particular market on any particular day, but it does say that there is this general discount program for central banks trading all major futures markets in the United States. To me, this means there are no markets anymore. There are only central bank interventions, and I think it's an enormous news story. These documents have been sent to most of the major mainstream financial news organizations in the United States and Europe, GATA has done that, and we simply cannot get them to touch this story. I mean, one or two journalists have told me, "Gee, this does seem very important." One journalist for a mainstream organization said that if people reported this, they'd be fired.
I was emailing yesterday with another news organization, who was really resisting getting into the issue, and their business editor was telling me that they simply assumed that there was nothing out of the ordinary going on here, but they hadn't even asked. So we keep clamoring about this, but I would ask anyone who has seen a mainstream financial news organization do any reporting at all about the secret trading in the US futures markets being done by central banks through the CME Group's volume discount program to let me know because I've missed it.
Mike Gleason: Is this a losing battle, Chris? I mean, the old saying, "You can't fight city hall." I mean, what's the end game here? Are they going to be able to just get away with this forever? What do you think happens, and how do we get some sort of traction in this issue?
Chris Powell: Well, I think the Fed audit legislation is one option. I think eventually this scheme will be publicized enough, where certain mainstream financial news organizations will have to pick it up. Probably most likely are two options. One, as in March, 1968, one of the commodities whose price is being suppressed will simply run out. In March, 1968, the gold that was available to central banks for price suppression simply got down too low, and the central banks and the London Gold Pool decided they couldn't expend anymore without exhausting their reserves, and the price suppression scheme was ended for a few years.
Or a foreign government may decide that it wants to pull the plug on the scheme. I mean, any government that has a reasonably comfortable foreign-exchange reserve could destroy the scheme simply by exchanging that reserve for gold. There isn't enough real metal available to exchange, I think, really even $10 billion of treasuries for gold. I think the problem here is that most central banks are probably aware of the gold price suppression scheme and they're probably participating in it, or at least colluding in it, because they don't want to destroy the value of their US dollar reserves. Those that want to hedge their US dollar reserves realize they've got to do it very gently, very delicately.
China particularly being so foolish to have amassed something like a $4 trillion foreign-exchange reserve mostly in US dollars, it can't unload those dollars very quickly. It certainly can't unload them quickly for gold. China very likely wants to hedge its dollar surplus with gold and other real assets, but it's decided it has to do that very, very gradually. It can't just do it all at once, so it will probably proceed for years of exchanging dollars for metal, exchanging dollars for real assets, until China has decided that it's adequately hedged and that it can let the dollar go and it will be offset in its losses on dollars by the price increase in the real assets it has maintained.
But foreign central banks could pull their plug on this. They could pull their plug on it as a matter of self-interest in their own portfolios. They could pull the plug on this as a matter of economic war against the West. There's lots of options here. I think the retail investor can participate in the battle in a very small way by purchasing gold and taking it out of the banking system where it can be shorted and re-hypothecated a million times, but I don't know exactly what will change the scheme here.
We are up against all the money and power in the world. They control not only governments. They have an enormous influence over the mainstream financial news organizations. Getting the word out when you're up against powers like this is a struggle. On the other hand, I think we've made a lot of progress over 15 years. I think most people who are seriously involved in the gold market know that central banks are active in it surreptitiously. It's just that it's very bad for business for people to talk about it.
Mike Gleason: Some may be listening to this and might be thinking that it doesn't really matter that much or what these governments and central banks are doing is somehow in the best interests of the people. The greater good is being served perhaps. But speak to that and discuss why it is in fact harmful, and then talk about who's getting hurt here by this gold suppression scheme. Basically, why should people care about what's going on here?
Chris Powell: Well, I'd say, in the developing world, people should care about it because it's basically a commodity price suppression scheme that is exploiting the developing countries, the countries that are dependent on natural-resource exports for their revenue. I mean, all countries develop by selling their natural resources. That's how the United States established itself back in colonial times. In early times the United States exported fish and lumber and pelts and raw materials, and then became a developed industrial country, and it got out of that business.
Now, the developing world is in the natural-resource business, and the West, operating through the gold price suppression scheme and the commodity price suppression scheme, generally is suppressing the price that the developing world gets for its resources and its labor.
But even people in the developed world are, I think, harmed because this scheme is largely a market-destruction scheme. If you believe, as GATA does, that free, transparent markets are the great engines of not only democracy and liberty, but economic progress, then anything that destroys markets and makes them less transparent is an impediment to human progress. So I think the great majority of people around the world have an interest in what GATA does.
Mike Gleason: Well, excellent stuff, Chris. I really want to thank you for your insights today and for the work you're doing there at GATA. Now, before we let you go here, give our listeners more info on how they can learn more about this and follow what you're doing there at GATA.
Chris Powell: Sure. Our internet site is gata.org. If you want some basics on GATA's research, there's a little line on the left side of the page, the headline "The Basics." You can go into that and get a summary of the gold price suppression scheme and links to really all the important, really important documents. There's another section on the left side of the page called "Documentation," which is a much more extensive collection of documentation of the gold price suppression scheme.
We are a 501c3 organization under the US Internal Revenue code, which means we're a non-profit, non-stock, tax-exempt corporation. We operate entirely on donations from people who are interested in reasserting the free markets. People can contribute to us by check or by Bitcoin or by credit card over the internet in the "How to Help" section of GATA's internet site.
So if anybody's inclined to help us, please go to gata.org and go to the "How to Help" section on the left side of the page, and you can see how to send us a check or make a credit-card contribution.
Mike Gleason: Well, we're big fans of your efforts there, and I would love to follow this unfolding story with you, so we hope we can visit with you again down the road. Thanks very much, Chris.
Chris Powell: No, thank you Mike.
Mike Gleason: Well, that will do it for this week. Thanks again to Chris Powell at the Gold Anti-Trust Action Committee. Again, check out gata.org for more information. They publish a lot of great stuff there at GATA, and we highly recommend everyone check that out and contribute, as well.
Well, that will do it for this week's Market Wrap Podcast. Check back next week and throughout the year as we look to bring more great content and more exclusive interviews. Until then, this has been Mike Gleason with Money Metals Exchange. Thanks for listening, and have a great weekend, everybody.
Mike Gleason is a Director with Money Metals Exchange, a national precious metals dealer with over 30,000 customers. A graduate of the University of Florida, Gleason has extensive experience in management, sales and logistics as well as precious metals investing. Gleason has hosted a weekly precious metals podcast since 2010, a program listened to by thousands each week.
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