If Precious Metals Prices Are Manipulated, Why Does the Price Rise at All?

We’ve written many times about the likely manipulation in precious metals markets. Sharing plenty of content from the tireless people at GATA over the years, such as their secretary Chris Powell. The idea of price management in the gold and silver markets was seen as tinfoil hat territory just a few years ago.

Today with more banks set to be fined for doing exactly that, the idea that gold and silver manipulation exists can’t be denied and has become almost common knowledge.

Below Chris Powell gives a great explanation to the question, “If Precious Metals Prices Are Manipulated, Why Does the Price Rise at All?”. We’d say the collapse of the London Gold Pool that he refers to shows that manipulation is always finite. Better to be a year or two early in being positioned rather than a day late. As when the manipulation ends, there may be even more upside in gold and silver than has been witnessed since 2000…

 

Gold’s Revaluation is ‘Just a Matter of Time,’ But Then So is Everything Else

By Chris Powell – First published at GATA.org

Dear Friend of GATA and Gold:

Our friend P.C. writes:

“As a long-time GATA follower, I fully subscribe to the understanding that markets generally, and particularly the precious metal markets, are controlled to keep international exchange and trade ‘stable’ and maintain ‘Western’ market wealth. But I have a question you may be able to answer.

“If the major players in the futures and paper markets are able to contain prices with impunity, who is on the buying side who can compete? Why is there such volatility and any upward movement in the gold price at all? The algorithms of the market controllers could simply keep the prices at an arbitrary constant. Or are these same players introducing volatility to simulate reality or shake out long players?

“Is there genuine large long interest that can push the futures market up? I disregard the Asian central bank buying of physical as not yet having impact on the internationally accepted price.
“If there are paper buyers who can match the muscle of the shorts, is this made up of many small unconnected entities or is it a cohesive group? Unless there is such a group, is there any hope of change unless and until the Western financial system is broken? That could be a dystopian outcome.

“I cannot foresee short- or even medium-term capitulation by the shorts, as control is not only the official remit of the manipulators and in their financial interest, but also a one-way alley that cannot be easily reversed out of.

“– P.C.”

* * *

Dear P.C.:

Thanks for your note.

The paper and physical markets are connected, if only thinly. Paper is convertible to metal, if with some difficulty. If there was no connection, the paper markets would have no credibility or relevance.

There is always some offtake from the physical market — ordinary jewelry, coin, and monetary bar demand — just as there is always mine production added to the physical market.

The longstanding challenge for central banks and governments is to discourage interest in gold’s return — silver’s too — as money competing with their own currencies. Hence the ever-increasing issuance of paper claims to metal that doesn’t exist, the fractional-reserve gold and silver banking system. As long as enough investors are content to own metal that is unallocated and only imaginary, metal that is only a claim against a bullion bank or a central bank, central banks and governments can keep real metal’s price under control.

But Asian central bank and investor interest is having an effect on the price, as signified by the premiums being paid in Shanghai over the prices quoted in London and New York. And a couple of times in the past physical demand has overwhelmed the Western central banks and governments that were suppressing the price of gold. That’s why the London Gold Pool was closed abruptly in 1968 —

https://en.wikipedia.org/wiki/London_Gold_Pool

— and why in 1971 President Nixon repudiated the U.S. dollar’s gold convertibility for foreign central banks:

https://en.wikipedia.org/wiki/Nixon_shock

That is, back then the United States was quickly running out of gold to use for dumping in the physical market to keep the gold price down and support the dollar.

Using futures and options — paper gold — since 1974, Western central banks and governments have been able to inject enough volatility in the gold price to scare the retail market out of much metal. The futures market seems to have been created precisely for the purpose of causing price volatility and scaring off ordinary investors:

http://www.gata.org/node/17081

I don’t have much faith that the retail market will ever wise up to the racket and simply buy real metal, remove it from the banking system, and put it away for the long term. Certainly the monetary metals mining industry is too frightened of its governments and banks to protest the price suppression.

But some governments are getting annoyed with U.S. dollar imperialism and are moving away from the dollar and toward gold’s return as the world reserve currency, a more impartial reserve currency. These governments have not shared their timetable with GATA but the movement is clear. Indeed, the United States and other Western countries well may be cooperating with it, if begrudgingly:

http://www.gata.org/node/11373

In any case a debt-based, fiat money system requires regular devaluation of currencies in favor of gold and other hard assets to prevent interest payments from consuming the economy:

http://www.gata.org/node/4843

So as some financial pundits say, it is “just a matter of time” before currencies are devalued against gold again and central banks move the gold price up to a level at which they more easily can sustain another half century of price suppression and control of the currency and bond markets.

But of course as is postulated by the Infinite Monkey Theorem —

https://en.wikipedia.org/wiki/Infinite_monkey_theorem

— everything is “just a matter of time,” including, for example, Earth’s destruction by an asteroid.

Will the next gold price revaluation happen before the next asteroid arrives? Will it happen even in the lifetime of most current gold investors?

I don’t know. I can only hope that the conclusion of the doomsday cult leader is correct here:

That is: “Same time tomorrow. We must get a winner one day.”

CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
CPowell@GATA.org

Like more help with timing when to buy gold and silver? See: When to Buy Gold or Silver: The Ultimate Guide