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• Gold Price Suppression: The Hidden Truth

Posted by Ron Robins on December 10, 2010

By Ron Robins. First published November 25, 2010, in his weekly economics and finance column at alrroya.com

The evidence of gold price suppression is compelling—and little known. Much of what is said below about gold applies to the silver market too, where “fraudulent efforts to persuade and deviously control that [silver] price” have been found. So said Bart Chilton, one of the five commissioners of the US government’s Commodity Futures Trading Commission (CFTC) which oversees US commodities trading, on October 26.

Though fraud in the silver markets is being acknowledged by a key regulator, no such admission has come concerning the gold markets—yet. And there are probably some extraordinary reasons for this.

The increasing recognition and prominence of gold as a currency makes any discussion of gold price suppression disconcerting to numerous financial elites.

However, there is a long history of gold price suppression. In 1961, the London Gold Pool was established to maintain the gold price at $35 an ounce. The participants supplying gold to the Pool were the central banks of the US and some European countries. In 1968, the Pool dissolved due to the tremendous demand for gold that was created as monetary and currency conditions deteriorated in the US and Britain.

However, since about 1993—just like in the 1960s—mounting evidence again implicates a central bank and bank cartel attempting to suppress gold prices. It particularly affects the London physical gold market where about 90 per cent of the world’s gold is traded, and the ‘paper’ gold futures market of the NY Comex.

In London, the gold price is ‘fixed’ twice daily at GMT 10:30 AM and 3:30 PM by five big international banks dealing in bullion. In recent years a number of researchers studying the London gold price fixing data and the NY Comex gold futures markets have come to the conclusion that gold price suppression has existed for many years. Perhaps the first to indicate this was Dimitri Speck from Germany.

After performing detailed statistical gold price research, Mr Speck found that gold price suppression seems to have begun on August 5, 1993, when, “America’s strong-dollar policy was first officially introduced… Since then [and until the end of his study September 2005], gold price manipulation has been characterised by a pattern of sharp drops in prices during the New York [Comex] trading session.” See his articles, “Price Anomalies in the Gold Market,” December 5, 2005, and “10 Years Gold Price Manipulation: A Retrospective Look and a Chart Update,” August 3, 2003.

Eric deCarbonnel, in studying the gold prices during 2009, found a similar pattern. In, “Excellent Opportunity to Buy Gold,” December 23, 2009, he says, “by looking at these charts of the 24-hour spot price of gold, [in] four out of five trading days over a one-year period the [NY] Comex closed lower than the London AM [gold price] Fix.”

The third piece of research showing a similar pattern, but more extensive and up-to-date, is by Adrian Douglas who published his findings in, “The Failure of the Second London Gold Pool,” on August 19. He stated, “that had a trader consistently bought gold on the London AM Fix and sold it the same day on the London PM Fix and repeated it every day from April 2001 through to today [August 14, 2010] the cumulative loss would be $500 per ounce. Yet gold has been in a bull market during that time and a ‘buy and hold’ strategy over the same time period would have returned a gain of $950 per ounce.”

Others who have found apparent malfeasance in the gold market include Reg Howe, James Turk, and Frank Veneroso. Mr Veneroso’s research suggests that actual, physical, global central bank gold holdings might be 30 to 50 per cent lower than reported.

Despite suppression efforts, the gold price has risen about five-fold since 2001, to over $1,300 today. According to the renowned gold trader Jim Sinclair and others, much of the reason for gold’s ongoing strength comes from physical gold buying in the Asian gold markets. Gold, incidentally, trades around the world on an almost 24-hour basis, Monday to Friday.

But who and why would anyone want to suppress gold prices today? In my article, Manipulated Markets Can Cause Ruin, I wrote, “gold is the ‘anti-dollar’ and barometer of confidence in the dollar.” Therefore—and noting Mr Speck’s observation that the most recent era of gold price suppression began with America’s declaration of a ‘strong dollar policy’—providing a possible clue as to who might be behind it. Also, such an entity would require incredible financial muscle.

The most likely candidate for leading a gold price suppression scheme is the US Treasury and various central banks who want to maintain the US dollar’s value. After all, US dollar denominated assets often form more than 60 per cent of most central bank assets and it is still the ‘global currency.’ Therefore they have powerful, strategic reasons to want a strong dollar.

Also, as recently as October 18, the US Treasury Secretary Tim Geithner reiterated the US strong dollar policy by saying, “we’re going to work very hard to make sure that we preserve confidence in the strong dollar.”

With the advent of investors and regulators acknowledging fraud in the silver markets, those behind the apparent gold price suppression must be incredibly worried as their scheming to suppress its price is no longer hidden.

Copyright alrroya.com

Posted in Economics, Finance & Investing, Gold & Precious Metals, Personal Finance | Tagged: , , , , , , , , , , , , , , | Leave a Comment »

• Manipulated Markets Can Cause Ruin

Posted by Ron Robins on December 10, 2010

By Ron Robins. First published October 9, 2010, in his weekly economics and finance column at alrroya.com

Market manipulations eventually led to Soviet economic collapse. Though not as overt as the Soviets, it is the manipulation of currencies and interest rates by major economic powers that has mostly led to massive misalignments in investment and consumption that pose extraordinary dangers to global economic health.

Ask anyone if they believe that the Chinese currency, the renminbi, is manipulated. Almost everyone agrees that it is. Are US interest rates manipulated? Again, everyone knows they are. (Not too long ago it was only the short term rates that were controlled. Now the US Federal Reserve [the Fed] is buying longer dated US treasury bonds to bring their rates down too.) Countries all over the world are manipulating their currencies lower to gain export advantages and maintaining near zero interest rates to spur domestic demand and cheap government borrowing.

It is basic economics that where markets are manipulated, supply and demand are distorted. And one distortion creates the need for a further distortion, and so on. The longer the distortions continue the greater the possibility of total market failure. We are near that point today with currencies and interest rates.

The Chinese have scored a major mercantile advantage by pegging their currency, the renminbi, at a relatively set and undervalued rate to the U.S. dollar. Not only have US exports suffered, but the exports of many other countries have suffered as well. Under US law, the Chinese should probably have been labelled a ‘currency manipulator.’ However, by bowing to Chinese demands that they not be labelled a currency manipulator, President Obama’s administration is losing credibility everywhere.

So, Americans are waking up to find that not only does China dictate U.S foreign exchange policy, but China indirectly influences its domestic economic agenda as well. Everything from employment policies (export expansion) to government funding needs (requiring Chinese funding) are all partly defined by the present exchange rate policies.

Increasingly, Americans realize that on the foreign exchange front they have been ‘checkmated’—as in the game of chess—by China. Should difficult economic times continue, or worsen, increasing American anger is likely at this arrangement. It could pass the breaking point and encourage America to act unilaterally against China. Currency turmoil might then embrace the globe.

However, one never discussed but possible reason why the US government has been afraid to label China (and Japan previously) as currency manipulators may be because the US itself may be acting covertly to manage the dollar exchange rate.

According to the US government’s own legislation, it can act secretly in currency exchange markets to affect the dollar’s exchange rate using the Treasury’s Exchange Stabilization Fund (ESF). The US Treasury says that the ESF, “with the approval of the President, may deal in gold, foreign exchange, and other instruments of credit and securities.” The ESF was established by the Gold Reserve Act of 1934 and then amended in the late 1970s.

Also, the Fed engages in opaque currency ‘swaps’ with other nations, and there is significant evidence of U.S Treasury and Fed engagement in gold price suppression. Gold is the ‘anti-dollar’ and barometer of confidence in the dollar. (See my August 24 column, “The Ethics of Gold,” at http://english.alrroya.com/node/54671 and gata.org)

Another manipulation of the Fed is its control of short term rates—and now possibly long term ones as well—to smooth out the booms and busts of the economy. However, we see the falsity of this argument. After almost two years at a near zero per cent federal funds rate the US economic quagmire continues—or worsens.

Induced low rates over the past ten years or so created a massive real estate boom and bust, discouraged savings, led to inordinate financial risk taking and moral hazard, unsustainable consumer debt, and now excessive, possibly uncontrollable government deficits and debt.

In their seminal work, “Growth in a Time of Debt,” published January 2010, Professors Carmen M. Reinhart and Kenneth S. Rogoff found that when government debt/GDP ratios exceed 90 per cent, economic growth rates fall considerably. According to the BIS, U.S. government debt/GDP will be 92 per cent by the end of 2010 and 100 per cent in 2011.

Furthermore, on September 1, the International Monetary Fund said, “general government debt in the G-20 advanced economies surged from 78 per cent of GDP in 2007 to 97 per cent of GDP in 2009 and is projected to rise to 115 per cent of GDP in 2015.”

Unfortunately, the present and future private deleveraging of debt in the U.S. and some other developed countries means potentially continued high—or higher—government deficits as economic growth is retarded or declines further. The Fed has said that to counter any renewed softness in US economic activity it will significantly expand its purchases of US government bonds and possibly other assets. This has the potential for fuelling a huge expansion of the money supply and creating high or even hyperinflation.

The U.S. and some other countries are following a path whereby every manipulation begets further manipulation, and which then begets even further manipulation. With China, perhaps Japan again soon, and other countries controlling their currency values, the U.S. may be forced overtly or covertly to counter their currency manipulations. And with continuing economic difficulties, with interest rate policy having created a debt nightmare and becoming increasingly ineffective, the Fed may institute money proliferation policies that have the possibility of leading to high or even hyperinflation.

If a vicious circle of manipulations by US authorities and other countries occurs, given time, it might rival some aspects of the Soviet command economy—and with a possibly similar tragic outcome. Hopefully, Americans and others will wake up before it is too late and realise that manipulated markets can eventually cause ruin.

Copyright alrroya.com

Posted in Economics, Monetary Policy, Unethical Statistics | Tagged: , , , , , , , , , , , , | Leave a Comment »

• Higher US Savings Is Economic Game Changer

Posted by Ron Robins on December 10, 2010

By Ron Robins. First published September 23, 2010, in his weekly economics and finance column at alrroya.com

There is one prayer of governments and businesses around the world: that Americans forgo higher savings, banish their job and retirement income worries, and go on a spending spree. However, this is not to be. Were the prayer to be fulfilled the global trade and other economic imbalances of the past and present would be unresolved, even magnified. But fortunately, the early stages of their resolution are at hand.

To help resolve these global imbalances, US savings rates must go up while its consumption of goods and services relative to GDP goes down. And this will be a generational game-changer for the US and for the world, causing economic difficulties everywhere for the years ahead.

Depending on how fast its savings rates rise, the US economy will be mired in recessionary or depressionary conditions for some years. But America has faced many daunting economic challenges before and each time it rebirths to greater prosperity. This is likely to be true again.

America once had high savings rates with much lower levels of personal consumption than now. Between, 1950 and 1975, its savings rates were generally in the 8 to12 per cent range of disposable income, and personal consumption relative to GDP averaged around 64 per cent. In the years between 1975 to 2000 savings rates declined significantly to under 5 per cent and then to 1 per cent by 2005 when personal consumption rose to a high of about 72 per cent of GDP.

Since 2006, America’s savings rates have been moving up—and most especially after the 2008 financial crisis. Today, they average about 6 per cent.

Furthermore, it is probable that US savings rates will move even higher to the 10 to 15 per cent range in the next few years as Americans worry about job security, home values, and retirement income. As this happens, US consumption rates will fall back to the 60 per cent region. This will have initially deleterious effects for the global economy and countries reliant on exports for income and jobs. Thus this is another game-changing situation.

No country or countries can presently replace the American consumer. For instance, the combined annual personal consumption of China and India is about $2 trillion, compared to America’s nearly $9 tln.

The big Asian exporters, as well as Germany, will have to find other markets for their products—or stimulate internal consumption to grow. Intra-regional Asian trade is growing rapidly but “is still mainly driven by supply-chain links involving intermediate goods rather than newly surging end-market demand in Asia,” says Stephen Roach, non-executive chairman for Asia at Morgan Stanley, in a Financial Times report.

So where will increased US savings go? As of now they are going mostly into bonds, especially US government bonds. Annual funding needs for the US government over the next few years will probably be close to $2 tln if economic growth stalls or declines. That sum is equal to about 13 per cent of US GDP. It will be increasingly financed from within the US by savers, banks and especially the Federal Reserve (the Fed).

The Fed will create new money to purchase US Treasury debt and probably other assets. This ‘money-printing’ will generate huge amounts of ‘excess’ dollars. The consequences of this action will produce a litany of global economic difficulties. These will include a slumping dollar, domestic inflation—and even possibly hyperinflation.

Upset at the dollar’s fall, other countries and regions from China to Japan to Europe, will attempt to devalue their currencies, leading to probable currency and trade wars. (I have written more on these subjects in previous columns.)

Of course a lower dollar and likely new US import restrictions will mean higher US import prices, or even unavailability of some products. This will give some American manufacturers the opportunity to recoup previously lost domestic markets and the servicing of new ones as well. US industrial production could be re-ignited and even induce foreign companies and manufacturers to buy or invest in US domestic manufacturers as well.

With US imports from oil and computers to foodstuffs, as well as domestically manufactured goods costing more, Americans will find their standard of living declining.

“The need to overcome the effects of reduced [American] individual buying power will lead to the invention of a new class of product which will be a major trend of 2010 and into the future: Technology for The Poor…,” says Gerald Celente, the renowned American trends forecaster and president of the Trends Institute. Continuing, he says that, “growing with the same speed as the Internet Revolution, the trend will be recognised, explored and exploited by legions of skilled but jobless geeks, innovators and inventors who will design and launch a new class of products and services affordable by millions of newly downscaled Western consumers… ”

Mr Celente further forecasts, “a ‘not made in China’ consumer crusade that will spread among developed nations, leading to trade wars and protectionism.”

Americans have little choice but to increase personal savings rates. The Fed will ‘hyperventilate’ to derail prolonged economic malaise and promulgate vast quantities of new dollars, causing the dollar to fall—or crash! A dollar fall will produce inflation; a crash could ignite hyperinflation in the US and elsewhere. Also unleashed could be ‘buy America’ strategies and policies within the US thus further inciting the risk of global currency and trade wars.

This sounds like dire news. However, a new, free America could be born as it rids itself of the shackles of debt. Americans, renowned for their outstanding drive, creativity and innovation, may create a new generation of ingenious products and services geared to the new economic reality. ‘Made in America’ products could again fill retail shelves. And Asia’s export-reliant countries will finally focus on enhancing domestic consumer demand to purchase their wares, thereby bringing much improved living standards to their populations.

Higher US savings will be an economic game-changer for the US and the world.

Copyright alrroya.com

Posted in Economics, Finance & Investing | Tagged: , , , , , , , , , , | Leave a Comment »

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