In an era when the general consensus is that ALL markets are manipulated in some way or another – and usually by the financial elite who have the monetary and political backing to be able to do so with virtual impunity – it seems unlikely that gold should be immune, despite denials by some who should perhaps know better, or maybe have their own agenda in muddying the waters. Indeed this kind of manipulation does not only apply to markets, with government issued statistics massaged, and goalposts moved, to present them in the best possible light. This era of state and financial misrepresentations, once the preserve of totalitarian states and their elites, but now seemingly prevalent across all political and financial spectra, may convince some (perhaps the majority) of the people most of the time that everything in the world is coming up roses. But it is an inherently dishonest concept imposed on the general populace by the global elite and in truth there seems to be little one can do to prevent it. Even honest politicians (if that is not a contradiction of terms) eventually get sucked in and have to make major compromises if they want to try and put their own agendas across.
But back to gold. Former Reagan era ex U.S. Treasury Assistant Secretary, Paul Craig Roberts, has just published an interesting article on his website which not only states categorically that the gold price is indeed manipulated by the U.S. Fed and its bullion banking allies, but how the price control is achieved, together with illustrative charts. Now Roberts may have his own agenda to push, but as a former U.S. Treasury insider – even if of a different era – he should indeed know what he is talking about and his words should be taken seriously by gold bull and bear alike as his views are relevant to those in all gold-related camps. To read his article – The Federal Reserve has no integrity – click here.
In brief, Roberts, and his associate Dave Kranzler, assert that The Fed has had to resort to this practice in order to protect the value of the US dollar from its effective reduction in value through its Quantitative Easing policy. In order for the Fed to effectively support the reserve status of the U.S. dollar by pushing it higher when it starts to drop, it has also to prevent the price of gold from rising as this is seen globally as something of a bellwether for the dollar. If the gold price rises the dollar is seen as getting weaker and vice versa.
Roberts and Kranzler avow that intervention in the gold market has been occurring for a long time, but that in the past several years this intervention has become more and more blatant and desperate through the fear that rising concerns about the dollar are causing countries like China and Russia, and others, to accumulate fewer dollars and more gold. The natural progression of this would see the dollar eventually lose its place as the global reserve currency and thus forfeit the huge trade advantages which come with this position.
The authors point to gold’s movement in February/March this year as being the latest instance of overt involvement in gold price manipulation. With the onset of the Ukraine crisis, and some weak economic figures showing up in U.S. statistics, the dollar index dropped below 80 as gold seemed to be moving inexorably back towards $1400 an ounce. A dollar index below 80 is seen as a breach of a key technical trading level and if the dollar were to stay below this benchmark for an extended period of time, the Fed’s view is that large holders of dollars would start selling their holdings out of fear that the dollar would be headed even lower.
As a result, Roberts and Kranzler suggest that the Fed, with its banking allies, needed to intervene to successfully bring the dollar index back over 80 – which they achieved successfully. And forcing the gold price down is seen as a key element in this.
So how did the Fed achieve this? Roberts and Kranzler say that the Fed accomplishes it through its banking allies – said to be JPMorgan and Goldman Sachs and others – implementing a series of gold price flash crashes by short selling huge amounts of gold futures into the COMEX market usually at times when trading is thin. These gold futures short sales trigger not only a sharp gold price decline directly, but also leads to stop-loss orders and margin calls comin in which hammer the price down further. The authors illustrate the timings of these flash crashes in graphical format showing just how this was achieved during the month of March, and which brought the gold price down by around $80 an ounce.
That the gold price has not so far been brought down even further is perhaps because there has been a big change in the physical market over the past year. Significant sales out of the big gold ETFs have virtually ceased (although the flash crashes are partly designed to try and convince the remaining ETF holders that perhaps they might be wise to sell their holdings) and Asian demand in particular for physical gold remains at record levels, somewhat countering the adverse impact of the flash crashes and the almost uniformly negative predictions on the gold price from the major bank analysts.
Roberts and Kranzler also reckon that statements following successive FOMC meetings may also be designed to impact negatively on the gold price. They comment that a study of gold’s performance in the week after an FOMC statement sees gold drop $37 on average, while there is usually virtually no change in the same week of a month in which there is no FOMC meeting.
In a fairly bitter – and a perhaps partially politically-motivated summing up of this situation, Roberts and Kranzler comment that Quantitative Easing “serves to support the balance sheets of a few over-sized banks and to finance the federal budget deficit at an artificially low rate of interest. In other words, QE supports failed banks and federal fiscal irresponsibility. In order to successfully carry off this blatant misuse of public policy, the price of gold, a measure of the dollar’s value, must be suppressed. The Federal Reserve’s lack of integrity speaks volumes about the corruption of the US government.”
Both gold bears and gold bulls may each draw comfort from the Roberts/Kranzler article; the former feeling that Fed action may thus put a cap on any likely gold price mega rise thus curtailing upside risk, while the latter may draw a positive in that despite these apparent Fed machinations the gold price appears to be holding up reasonably well at around current levels and so far shows few signs of a decline to the $1050 level suggested by Goldman Sachs analysts – and indeed by those from some other banks too. But the gold fight, as Roberts obviously sees it goes on. Maybe the Fed and its allies are winning the battle at the moment, but there is a feeling that ultimately they may lose the war, but it could yet take some time.