Guess Who is Pushing Gold Lower?|
June 23, 2009
What is reported in the mainstream financial headlines is often contradicted by the details behind the headlines.
For instance, there is no sensible reason why anyone would want to lease precious metals at a negative rate. That is, in addition to the risk of not getting back any metal at all, the lessor gets back less metal than they originally loaned out!
Yet, the one-month lease rates for gold and silver have been negative since June 2. I find it hard to believe that a profit-seeking owner of gold or silver would enter into a contract that guarantees a loss. After all, the owner would simply stay even if he did not lease the metal at all.
The only sensible explanation for such an action is that there is something else going on behind the scenes to compensate the gold and silver lessors for their losses at dumping physical metals on the market at a negative rate of return.
As I have explained in past columns, the U.S. government has a lot to gain from suppressing the prices of gold and silver - such as propping up the value of the U.S. dollar - and appears to have long subsidized the dumping of physical precious metals on the market.
So, right now physical gold and silver is being dumped on the market unrelated to supply or demand factors. It seems obvious to me that the only reason for the temporary bump in supply (leases have to be eventually paid back) is to suppress precious metals prices.
Trading in the gold and silver markets is frequently opaque, meaning that much of the activity occurs without being public knowledge. As a result, inside knowledge can often be used profitably by short-term traders who detect which way the market is headed before it actually goes there. The most profitable information tends to be the kind that cannot be easily double-checked because, by the time it can be verified, so many other parties are in on the story and have already placed their trades.
In consequence, traders learn which unverifiable sources tend to be accurate over the long haul. Bill Murphy, the chairman of the Gold Anti-Trust Action Committee (GATA) is a veteran commodity trader who receives all kinds of inside tips as to what is really happening. He has enough experience that he can sort out the real from the imaginary stories with a high degree of accuracy. When Bill Murphy has something to say, I pay attention.
In his daily subscription commentary last Wednesday, he revealed, "Early this morning I received a phone call from someone in the gold industry whom I have met previously. He has a friend at the Chicago Mercantile Exchange, which is affiliated with the Comex. This 'friend' has been at the Merc for 35 years and is a pro's pro, having been around the trading block a few times."
"He told my source on Friday [June 12] that the U.S. government told Goldman Sachs on Thursday afternoon to take the price of gold down. Note the Thursday evening MIDAS (Murphy's) comments after gold closed at $960.70 during the Comex trading hours ...
"All of that AND THE GOLD CARTEL HAS THE AUDACITY TO TAKE GOLD DOWN $6 ON NOTHING in the Access Market. If you want to appreciate just how important GOLD is, please take in the above comments. Gold SHOULD HAVE upticked $4 in the Access Market, not downticked ...
"The takedown in the Access Market was a prelude for Friday when Goldman orchestrated a further hit to $939.50, or down $21.40 from the Thursday Comex close, with more selling to come on Monday."
The headlines that were reported referred to the U.S. dollar getting stronger and to oil prices falling, and that was why the prices of gold and silver declined. Well, from the time that gold touched $990 two weeks ago, the value of the U.S. dollar index has increased from 79.5 to 80.5. During the past two weeks, through Monday's Comex close, the price of gold has fallen about 7 percent, entirely out of proportion to being a response to a stronger dollar. At the same time, through Monday's Comex close, silver had fallen more than 15 percent from its peak two weeks earlier.
Actually the current headlines crediting a strong dollar causing the price of gold to decline are contradicted by recent history. When the price of gold topped $1,000 in February, the U.S. dollar index was 87.5. As the dollar index is now lower than 87.5, that theory would indicate that the price of gold should be even higher over $1,000 today.
It has become more obvious that the prices of gold and silver do not trade either in conjunction with or opposite to changes in the stock market indices, U.S. dollar index, the price of oil, long-term U.S. Treasury debt interest rates, or other financial statistics. Rather, for more than the past decade, the most important factor has been whether there was active price suppression activity.
Since 2002, the threat of an International Monetary Fund gold sale of about 400 tons has been trotted out repeatedly, but it seemed that it was only brought up when the price of gold threatened to make a major move upwards. Finally, a few weeks ago, it was reported that the U.S. Congress was on the verge of approving this sale (for such a sale to take place it must have support from 85 percent of the voting membership, with the U.S. holding a 16.9 percent vote).
Last week, a war funding bill passed Congress and was sent to President Obama for signature. This bill contained the approval for the IMF gold sale. Although the bill received significant news coverage for other provisions, the approval of the IMF gold sale did not get the major headlines that previous discussion of such a possible step garnered. It was almost as if the impact from the actual event was no longer relevant to the gold market. Perhaps someone in the U.S. government was so upset that the price of gold didn't fall in conjunction with this bill passing that he or she ordered gold and silver to be knocked down this Monday just to make a point.
Perhaps the most intriguing recent story is that of the two men with Japanese passports who were stopped at the Italian border on a trip to Switzerland. The false bottom in one of their briefcases hid $134 billion of supposed U.S. government bearer bonds. As best I can learn (the story has almost a total news blackout in the U.S.). Most of the bonds were of the $500 million value plus a few $1 billion bonds. Apparently the bonds looked good enough to seem genuine except that the $500 million bonds were dated 1934, before the U.S. government ever issued bonds of that large a denomination.
There has been any number of conspiracy theories about the source of these counterfeit bonds. One attributes them to the Italian mafia. Another has the Italian mafia and the Venezuelan government working together (the Venezuelan government has denied any involvement, which they would do even if they were involved). Another theory considered the bonds to be genuine and represented an attempt by the Japanese government to try to secretly unload some of their U.S. dollar-denominated debt.
Perhaps the most interesting theory points out that the bonds were of such high quality that they could have passed inspection except for the flaw of the 1934 date. The means of smuggling them virtually guaranteed that the couriers would be caught carrying them and the counterfeit bonds discovered. It is possible that one or more parties is signaling that it has the capability of producing counterfeit U.S. bearer bonds of such high quality that they cannot be detected. However, rather than produce actual counterfeits, this party wants to advertise that it is risky to accept any U.S. government bonds as being genuine. If this was the intention of whoever made these fakes, that could easily hurt the value of the U.S. dollar as investors become afraid to purchase such bonds.
While gold and silver prices have declined from two weeks ago, they are still up significantly from the beginning of the year. The reasons for the recent lower prices seem to come more from artificial manipulations rather than free market trading activity. As such, I consider it more of a sign that we are getting ever closer to the day when precious metals prices will rise by leaps and bounds. The more people know about the real news stories, and not just the headlines, the sooner that gold and silver price suppression schemes will completely fail.
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