By Patrick A. Heller – Liberty Coin Service
A major trade last week has all the tell-tale signs of institutional gold price manipulation...
The suppression of gold and silver prices is virtually an all-day everyday experience. It is so flagrant and blatant that analysts like me actually grow weary of exposing the obvious manipulation of precious metals prices.
However, it is still worthwhile to occasionally mention a particularly egregious example, such as hit the COMEX gold market at 8:20 AM on Tuesday May 20.
Before I go into the details, let me review the basic tactics used to sell a large gold or silver position for the highest possible price.
• You must hide the size of the position you are looking to sell so you need to feed the position in smaller size transactions over time, sometimes over days or weeks.
• It is better to funnel the transactions through multiple brokers, so that none detect the scope of the entire position.
• It is also beneficial to sell in markets around the world so that it becomes much more difficult to detect what it occurring.
• If you must announce the sale, do not do so until after it is all sold.
These tactics were used by the Swiss National Bank late last century to unload a significant percentage of its gold reserves. Profit-seeking parties have automatic incentives to seek to realize the highest selling prices.
Alternatively, entities that have an incentive to suppress precious metals prices will avoid these trading practices. Such parties are interested in having gold and silver sell for the lowest possible prices.
An important question to ask is which entities might have a desire to liquidate their precious metals for the lowest possible price. There are actually several such parties, with the United States government being the most prominent.
The price of gold is effectively a report card on the US dollar and the US economy.
When gold’s price is on the rise, that signifies a weaker US dollar. If the value of the US dollar declines, the US government will be forced to pay a higher interest rate on its debt to persuade investors and central banks to be willing to hold it. Beyond that, if the dollar is falling in value, that makes foreign holders of US currency and Treasury debt less willing to continue holding what they already possess. The latest information that I have seen is that foreign parties now hold almost $12 trillion in dollars and Treasury debt. The US government could be bankrupted if a run of repatriations were to occur.
The US government has bureaucracies in place such as the Exchange Stabilization Fund and the Plunge Protection Team that have explicit authorization to secretly manipulate gold prices if, in the judgment of the politicians and bureaucrats, this needs to be done. These agencies are also authorized to take direct action or to do their work through outside parties such as other central banks, exchanges, clearinghouses, private banks, and brokerages.
On May 19, the European Central Bank and 19 other central banks announced the adoption of a fourth Central Bank Gold Agreement, to run for five years beginning September 27, 2014. In the statement of this agreement it states that “The signatories will continue to coordinate their gold transactions so as to avoid market disturbances.” The Federal Reserve did not sign the three previous agreements and is not a party included in this fourth treaty, but it has stated in the past that it would comply with the provisions of this document. Is there any clearer statement that the US government is currently at least a party to the manipulation of gold prices?
In sum, the US government has the motivation, the opportunities, and explicit direction to suppress gold and silver prices. Further, through the release of formerly classified information, it has been revealed that the US government has manipulated precious metals markets from the 1930s all the way up to early this century. Putting this all together, I can only conclude that the US government is still up to its bag of tricks—and quite possibly the ringleader.
Now let’s go back to what happened on May 20. In the overnight market from 6 PM May 19 to 8 AM May 20, the CME group, owner of the COMEX reported an average of 54 gold contracts traded per minute. Then at 8:20 AM a single party in one transaction sold 4,307 gold contracts (representing 430,700 ounces) for about $520 million. This single trade is the textbook example of a sale made for purposes of suppressing prices rather than maximizing revenues. The tactic temporarily worked as the spot price of gold instantly dropped $7 (0.54%).
There are not many parties who would have a position of this size to liquidate. The US government certainly could, but it doesn’t matter if the transaction was done directly by the federal government or one of its allies. This repeated pattern of such trades on almost a daily basis pretty much limits the culprits to just a few of the largest central banks and sovereign wealth funds (and maybe also the International Monetary Fund or Bank for International Settlements).
The huge increase in the prices of gold and silver since the beginning of the century indicate that even the US government does not have sufficient financial clout to totally suppress precious metals prices. However, the feds do have enough resources to draw out the gradual rise in prices over many years.
Or—the US government has had the means to restrain the rise in gold and silver prices thus far. It will continue to have the ability to do so for some unknown amount of time in the future—until it runs out of such resources. The magic question, to which no one— including me— has the answer, is when gold and silver price suppression will end.
Patrick A. Heller was honored with the American Numismatic Association’s 2012 Harry J. Forman Numismatic Dealer of the Year Award. He owns Liberty Coin Service in Lansing, Michigan and writes Liberty’s Outlook, a monthly newsletter on rare coins and precious metals subjects. His award-winning radio show “Things You ‘Know’ That Just Aren’t So, And Important News You Need To Know” can be heard at 8:45 AM Wednesday and Friday mornings on 1320-AM WILS in Lansing (which streams live and becomes part of the audio and text archives posted at http://www.1320wils.com). He is also the financier and executive producer of the movie "Alongside Night" which will be shown in the evening at a theater near the Central States Numismatic Society convention on April 24 (click here to watch the movie trailer, for details about this showing, and to purchase tickets).