Gold Manipulation Afoot: A Routine Practice

Gold manipulation is happening, but who cares?

Bullion.Directory precious metals analysis 11 November, 2014
By Christopher Lemieux
Senior FX and Commodities Analyst at FX Analytics

Precious metals manipulation is well-known, and it fits an agenda. It is the equivalent of global central banks rigging the equity markets (cue the 1,100 point melt-up in the Nikkei). But, as long as Wall Street paints a picture of rosy economic health, nobody will dare to care.

Manipulation is prevalent is all markets: forex, LIBOR, etc; but, precious metals are an area of special importance.

Why? Because traders and investors have a psychological relationship with gold and silver as a hedge against disaster. When gold and silver hit four-year lows within a sketchy period of quasi-monetary policy, the agenda is to deem economic growth is on sound footing, even as growth forecasts continue to decline.

Bullion banks run the show. JP Morgan has manipulated nearly every market that can be manipulated, and a $10-plus billion dollar legal bill to boot. The bank has been a puppeteer, pulling strings on the silver and gold market in what has been speculated as an attempt to prop the US dollar up.

In the third quarter of 2013, JP Morgan held over 60 percent of the entire US gold derivative market on their balance sheet. In 2014, the bank has been linked to naked-shorting (shorting a product to which the seller does not own or in a proportionate amount) worth billions to quell any sign of a gold rally.

Barclays PLC, a member of the doomed London gold fixing, was fined £26 million by the Financial Conduct Authority (FCA) this year, due to a “rouge” trader manipulating gold prices, which adversely affected client portfolios. What was amazing is that this took place a single day after the bank was fined for their role manipulating the London interbank offer rate (LIBOR).

The Financial Times has previously brought to light the potential manipulation at UBS. The bank has not admitted guilt. Yet, this week the bank will be monetarily settling with numerous regulator agencies over unsavory practices in the forex and precious metals markets, which, at UBS, is closely integrated. Andre Flotron, former UBS head of their gold desk, has been on leave since January.

Manipulation is big business and a large generator of revenue for these banks. More times than not, the reward far outpaces any risks. Otherwise, banks would not be keen to such practices.

One of these practices is short contract flooding during non-peak hours were volatility is virtually non-existent. On November 4, over 13,000 gold short contracts were unloaded.

Dr. Paul Craig Roberts, former advisor to President Ronald Reagan and Asst. Secretary of the US Treasury, said this practice is almost routine.

Futures contacts are a cost-effective way offer trading massive quantities of gold, up to 40 tons at a time, according to Roberts. These short positions are executed over the electronic futures market in mere minutes. Because this, usually, happens during low-liquidity hours in or after the Asian trading session, there is nobody to buy up these contracts. In response, gold prices tank.

Needless to say, nobody particularly cares that paper prices are divergent of psychical sales of bullion.

The US Mint has had record sales since gold and silver’s collapse in 2013, evens selling out of the 2014 American eagle. Australia’s Perth Mint, second largest gold producer outside China, had to add additional shifts in order to keep up with demand. And, the Royal Canadian Mint has put its maple leaf coin on dealer ration due to high demand.

Even the financial media is misleading the public with their own version of manipulation.

Former Fed Chair Alan Greenspan has been very vocal in recent months, going against his former Fed cronies. Greenspan has publicly said quantitative easing from Ben Bernanke to Janet Yellen (following through Bernanke’s plan) has been a wash. The economy is “moderately OK,” he said on CNBC.

In late October, Greenspan was a speaker during an event for the Council of Foreign Relations. Greenspan said something I’m sure was shocking to most. Gillian Tett, US managing editor of the Financial Times, asked the former chair, “do you think gold is currently a good investment?” His response:

Yes, remember what we’re looking at. Gold is a currency. It is still, by all evidence, a premier currency. No fiat currency, including the dollar, can match it.

What is also alarming is the video and official transcript was edited to leave out some interesting information, and it was only added back in after it was brought to public attention.

Greenspan brought up a fascinating argument. If gold is so useless, why do central banks hold relatively large gold reserves?

What went missing:

GREENSPAN: …remember, we had that first tapering discussion, we got a very strong market response. And then we reassured everybody to have no — remember, tapering is still (audio gap) of an agreement that the central banks have made — European central banks, I believe — about allocating their gold sales which occurred when gold prices were falling down (audio gap) has been renewed this year with a statement that gold serves a very important place in monetary reserves.

And the question is, why do central banks put money into an asset which has no rate of return, but cost of storage and insurance and everything else like that, why are they doing that? If you look at the data with a very few exceptions, all of the developed countries have gold reserves. Why?

TETT: I imagine right now, it’s because of a question mark hanging over the value of fiat currency, the credibility going forward.

GREENSPAN: Well, that’s what I’m getting at. Every time you get some really serious questions, the 50 percent of the gold price determination begins to move.

TETT: Right.

GREENSPAN: And I think it is fascinating and — I don’t know, is Benn Steil in the audience?

TETT: Yes.

GREENSPAN: There he is, OK. Before you read my book, go read Benn’s book. The reason is, you’ll find it fascinating on exactly this issue, because here you have the ultimate test at the Mount Washington Hotel in 1944 of the real intellectual debate between the — those who wanted to an international fiat currency which was embodied in John Maynard Keynes’ construct of a banker, and he was there in 1944, holding forth with all of his prestige, but couldn’t counter the fact that the United States dollar was convertible into gold and that was the major draw. Everyone wanted America’s gold. And I think that Benn really described that in extraordinarily useful terms, as far as I can see. Anyway, thank you.

TETT: Right. Well, I’m sure with comments like that, that will be turning you into a rock star amongst the gold bug community.

Bernanke’s answer to why the Fed holds gold… tradition. Wait, what? That’s not even a serious answer, and his put-on-the-spot fumbling does not help to support it.

Main street and the financial elite are buying tangible assets, with bullion being top of the list. Heck, 12.5 kilogram gold bar sales are up 250 percent this year.

As long as the S&P 500 hits another daily new high, precious metals or the manipulation behind its rut will not be reported upon. History repeats itself, and nobody – including the Fed – had any idea 2007 was on the precipitous of utter financial calamity.

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