By Patrick A. Heller - Liberty Coin Service
Commentary on Precious Metals Prepared for CoinWeek.com
As I discussed in my last column, the US government’s suppression of gold prices in years past was done as secretly as possible. The manipulation of the price was more effective if the public could be tricked into thinking that falling prices were a free market phenomenon.
Almost certainly the most commonly used tactic was the leasing or selling central bank gold reserves without disclosing the source of the new supplies of physical gold. The central banks would continue to report the gold as still being in their vaults. In fact, for many years the International Monetary Fund (IMF) required that central banks report all gold they had out on lease as being in their vaults. At the same time, the IMF also required central banks that had in their vaults gold they had leased from another party to count this gold as part of their reported reserves. In this manner, gold reserves were often double reported.
Even the most conservative analysts (such as Jessica Cross) estimate that a minimum of 15% of central bank reported gold reserves are out on lease and no longer in the vaults. Other knowledgeable analysts (such as Frank Veneroso and James Turk) believe that somewhere between 25% to 50% of reported gold reserves are already gone from the central bank vaults.
A few years ago, when Russian leader Vladimir Putin investigated gold reserves in his own country, he learned that the central bank possessed only 124 tons out of the 500 tons of gold reserves that Russia reported to the IMF as being in the vaults.
With central bank supplies of physical gold reserves diminishing, it has become more difficult to regularly suppress gold prices through surreptitious sales and leases. In recent years, other tactics used to hold down the price of gold have been a bit more obvious.
Most of the gold price suppression occurs between the London AM and PM fixes. January’s results are a perfect example of this strategy. The last London fix in January was $169.50 higher than the last London fix in December. However, the net change in the price of gold between the AM and PM fixes each day was only fifty cents in January. Between the PM fixes and the following trading day’s the price of gold rose $169.00 for the month. This consistent pattern has been documented for the last twelve years by researcher Adrian Douglas. The statistical odds of this pattern occurring for this length of time by random chance are more remote than that the sun will not rise tomorrow.
A second fresh example occurred last week with respect to the release of the US Nonfarm Payroll report Friday morning. This jobs and unemployment report is a major indicator to the public of the strength of the US economy. If the news is poor, that would be a sign to investors that holding US dollars or US Treasury debt is riskier. Therefore, investors might be inclined to dump dollars and demand a higher interest rate for Treasury debt. So, the feds have a strong incentive to publish the best possible Nonfarm Payroll reports.
Almost every month for the past five years, gold and silver prices have been clobbered just before this report was released. Last week was no different. Last Thursday, the day before the release of the report, six- and twelve- month gold lease rates turned negative (one-, two- and three-month lease rates were already negative). Yes, that means that not only could gold be borrowed at zero cost, but the lessor would actually pay the borrower for leasing the gold! This tactic creates the image that there is much more physical gold available on the market than there really is. So, when the investing public perceives an excess of gold supplies, prices decline.
The jobs and unemployment report released last week appeared to report good news. Supposedly there were 243,000 net new jobs created in the month, plus another 60,000 added to the prior November and December statements plus the unemployment rate declined from 8.5% to 8.3%. However, these figures are all distorted by what is labeled “seasonally adjusted” and by hiding actual changes in the number of employed and unemployed people.
If you dig deeper in the reports, though, the news isn’t good at all. In the raw data that was not seasonally adjusted, there were almost 2.7 million fewer job holders in January 2012 than were reported for December 2011. The decline in the reported unemployment rate happened only because more than 1.l million people that were counted as unemployed in December and who did not get hired in January were completely removed from the count of the labor force for last week’s report.
There are many problems with the US government reporting other deceptive financial and economic statistics. The result of this disinformation is that the general public will make decisions that will adversely affect their personal finances compared to the choices they would make if they received honest data. The suppression of gold’s price by any means gives the US government more time to steal the wealth of its citizenry through inflation of the money supply.
For your own sake, do not blindly accept all the supposed good news coming from the US government. And make sure you establish your gold and silver positions sooner rather than later.
Patrick A. Heller owns Liberty Coin Service and Premier Coins & Collectibles in Lansing, Michigan and writes Liberty’s Outlook, a monthly newsletter on rare coins and precious metals subjects. Past newsletter issues can be viewed at http://www.libertycoinservice.com. Other commentaries are available at Numismaster (http://www.numismaster.com under “News & Articles). 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.