Jesse's Cafe Americain
yesterday posted an excellent analysis of the precious metals market
derivatives data reported by the the U.S. Office of
the Comptroller of the Currency for the second quarter this year. Jesse
"The leviathan JPMorganChase,
uber-bank of Rockefeller and Morgan, holds 80
percent of the gold derivatives in the world, with HSBC having the rest. HSBC
was founded in the British colony of Hong Kong and is now headquartered at
Canary Wharf London.
"At this sort of concentration you do not
have a size advantage; you are the market, with all that it implies in
terms of knowledge of positions, etc., at least concerning derivatives. In
the non-gold precious metals, JPM's derivatives are a more modest 69 percent.
"How important are derivatives to gold
and the metals? Not so much, unless you consider it important to know who is
hedging what positions and future supply. It also helps to manage some of the
largest non-derivatives positions, such as large exchange-traded funds.
"But some might conclude that between
them the Anglo-Americans have the gold market in hand."
Jesse's analysis of the OCC's report on
precious metals derivatives is headlined "The Anglo-American Precious
Metals Derivatives Duopoly: Quarterly OCC Report" and you can find it
Perhaps the first to figure out and publicize
how derivatives could be used to suppress commodity prices in an inflationary
environment was the British economist Peter Warburton, whose 2001 essay,
"The Debasement of World Currency: It Is Inflation But Not as We Know
It" (http://www.gata.org/node/8303), laid out what was under way and what was to come. Warburton wrote:
"What we see at present is a battle
between the central banks and the collapse of the financial system fought on
two fronts. On one front, the central banks preside over the creation of
additional liquidity for the financial system in order to hold back the tide
of debt defaults that would otherwise occur. On the other, they incite
investment banks and other willing parties to bet against a rise in the
prices of gold, oil, base metals, soft commodities, or anything else that
might be deemed an indicator of inherent value. Their objective is to deprive
the independent observer of any reliable benchmark against which to measure
the eroding value not only of the U.S. dollar but of all fiat currencies.
"Equally, their actions seek to deny the
investor the opportunity to hedge against the fragility of the financial
system by switching into a freely traded market for non-financial assets.
"The central banks have found the battle
on the second front much easier to fight than the first. Last November I
estimated the size of the gross stock of global debt instruments at $90
trillion for mid-2000. How much capital would it take to control the combined
gold, oil, and commodity markets? Probably no more than $200 billion, using
"Moreover, it is not necessary for the
central banks to fight the battle themselves, although central bank gold
sales and gold leasing have certainly contributed to the cause. Most of the
world's large investment banks have overtraded their capital so flagrantly
that if the central banks were to lose the fight on the first front, then
their stock would be worthless. Because their fate is intertwined with that
of the central banks, investment banks are willing participants in the battle
against rising gold, oil, and commodity prices."
Of course central banks long have had an
intimate connection with the gold market, from the beginning of the gold
standard continuing through the end of the gold standard to the present day,
for central banks recognize that gold is a primary determinant of the value
of their own currencies and interest rates. Even future U.S. Treasury
Secretary Lawrence Summers, as an economics professor at Harvard,
acknowledged as much in an academic study published in 1988. The study,
titled "Gibson's Paradox and the Gold Standard," implied that
governments could grasp their Holy Grail, control of interest rates and bond
prices, if only they could get control of the price of gold:
For 12 years now GATA has been compiling and
publicizing evidence of both open and surreptitious central bank manipulation
of precious metals prices and has amassed a vast file of documentation so
that discussion of the issue might concentrate on the public record rather
than on speculation and "conspiracy theory." This documentation
includes official minutes of central bank proceedings, testimony and other
statements by central bank officials, central bank and government memoranda
and letters, declassified U.S. Central Intelligence Agency documents, U.S.
State Department cables, federal lawsuit filings, statistical studies of the
precious metals markets, and much more:
But in many circles the many years' worth of
painstaking documentation simply cannot be acknowledged. Instead complaints
of gold market manipulation are peremptorily dismissed as "conspiracy
theory" no matter how much evidence is produced. Newsletter writer Toby
Connor resorted to this peremptoriness again the other day as he commented on
gold's recent plunge in an essay titled "Gold Isn't Being Manipulated,
It's in a Normal D-Wave Decline":
"A D-wave decline is a normal, regression
to the mean, profit-taking event that occurs when gold gets too stretched
above the mean. It is not a takedown by an anti-gold cartel. Anyone with a
modicum of common sense can look at the long-term chart of gold and tell that
this is not a manipulated market. This is just a normal secular bull market,
and it is acting exactly like a normal bull market acts.
"Folks, these conspiracy theories are now
bordering on the insane. I even heard the other day someone blame margin
increases for the drop in gold. I guess they completely forgot that we've
already had two margin increases in the last two months that had virtually no
effect on gold.
"Every bull market in history has its
share of con men and scam artists. Think Bernie Madoff, Enron, WorldCom, etc.
The gold manipulation nonsense is just one of the many scams that are going
to hitch a ride on this bull. Actually it's one of the oldest scams in the
book. You find a bull market, make a one-way bet on rising prices, tout these
'to the moon' prices to suck in subscribers lured by the reward of gigantic financial
gains, and then blame an invisible cartel every time a correction occurs that
you don't foresee. It's a great way of not having to take responsibility when
subscribers get caught in a normal corrective decline."
GATA can't answer for every letter writer in
the precious metals markets; GATA can answer only for itself. But as a
custodian of the market manipulation case, GATA will ask whether Connor can
answer for his own failure to examine and dispute the evidence before drawing
his conclusion. Can Connor really believe that, as governments and central
banks increasingly intervene openly and desperately in the currency, bond,
and even the equity markets, they're leaving only the gold market alone? Has
Connor ever tried putting a single question about gold to any central bank?
Or does he really think that his charts tell him everything he needs to know
about the gold market?
GATA has made a sort of career of questioning
central banks. We have even sued the Federal Reserve a couple of times. But
Connor writes as if he has been privy to all central bank documents, to all
communications among central banks, and to all communications between central
banks and bullion banks.
Contrary to Connor's assertion, the gold
cartel is hardly "invisible." It has been visible since before any
of us were born. But the visibility here is like that in the Hans Christian
Andersen fable "The Emperor's New Clothes," as it is bad business
to get in the way of powerful governments and financial institutions
generally, and bad business particularly for those who would make a living
applying traditional technical analysis to markets to admit that they may
have been dissecting mere holograms.
Gold price suppression is "conspiracy
theory" only to those who refuse to examine the documentation offered to
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
* * *
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