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The Gold Market Seen Through a Glass Darkly
Published : December 11th, 2012
1308 words - Reading time : 3 - 5 minutes
( 2 votes, 5/5 ) , 1 commentary Print article
 
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Gold is a leading indicator of monetary distress

 

No matter what confidence game is being run, confidence is the necessary pre-requisite. This is why confidence indicators are so closely monitored by central bankers. If consumers and businesses lack confidence, they will not partake of the central banker’s credit; a necessary step in the indebting of otherwise willing victims.

 

The credit trap is at the core of the bankersponzi-scheme of credit and debt; and although today’s markets are awash with liquidity, bankers are increasingly loath to lend and customers are increasingly reluctant to borrow.

 

 


 

Central bankers are well aware of the precarious health of their illicit franchise. Credit and debt-based economies must constantly expand to pay constantly compounding debts; but now, instead of expanding, economies around the world are slowing and contracting.

 

This is why central bankers are concerned with a rising price of gold. After gold exploded upwards in 1980 during a virulent episode of inflation, the price of gold was understood to be an indicator of monetary distress.

 

The more distressed the bankersprey

 

They’re far less likely to borrow today

 

After gold’s explosive ascent in 1980, central bankers began seriously ‘manage’ the price of gold. A lower price of gold would indicate not only an abatement of monetary problems but investors would be less inclined to trade their paper banknotes for the safety of gold when they could more profitably leverage their paper banknotes in the bankerspaper markets.

 

Since the early 1980s, supplies of newly mined gold have constantly fallen short of market demand for gold; but notwithstanding supply and demand fundamentals, gold prices nonetheless fell for 20 straight years. In 1980, the average price of gold was $615. By 2001, it was only $271. Clearly, the free market price of gold was being distorted by ‘outside’ forces.

 

This anomaly in the supply and demand dynamic that exists in free markets is explained by the research of Frank Veneroso, a little-known but very influential analyst. In my book, Time of the Vulture: How to Survive the Crisis and Prosper in the Process, I tell how Veneroso explained central banks’ collusion withbullion banks’ to suppress gold.

 

This highly profitable collusion incentivized bullion banks to borrow large amounts of central bank gold; then sell it on the market allowing the banks to invest the funds in the interim and profitably exit the trade when the gold price was lower because of the artificial depression caused by the additional supplies of gold.

 

This constant downward pressure on the gold price continued from 1981 until 2001. Indications that the profitable gold-carry trade was coming to an end happened in 1999 when the Bank of Englandinexplicablysold 415 tons of gold reserves at the then bottom of the market.

 

The sale of almost half, i.e. 40 %, of England’s gold reserves has been subsequently revealed to have been triggered by a large—probably American and probably Goldman Sachs—investment bank’s short position in the gold market.

 

The bank, expecting to profit from the continually falling price of gold, had made a large bet that gold prices would continue to fall; but, prices had stopped falling. This exposed the bank to losses so large that the bankersprevailed upon the Bank of England to sell 410 tons of its gold to force gold prices lower.

 


 

Cropped photo of Bank of England gold vault

 

The photo of the Bank of England’s gold reserves is intended to bolster the confidence of investors as to the supplies of gold held by central banks. In truth, the photo is cropped to make it appear that the bank’s gold supplies are larger than they actually are.

 


 

Photoshop version of perhaps the more likely size of Bank of England gold vault

 

The empty space to the left of the rows of gold bullion were once filled with rows of gold bars sold in 1999 to insure that bullion banks could exit their gold trades without taking massive losses. A photo of gold vaults at Fort Knox—and/or the New York Fed—would show an even greater erosion of gold stocks and similarly vacant storage space.

 

In 1949, US gold reserves totaled 21,775 tons. In 1971 when the US was forced to end the convertibility of US dollars to gold because of diminishing supplies, US gold reserves had declined to only 7,000 - 8,000 tons; the loss of America’s gold was due solely to the post-war US global military presence and to the overseas expansion of US corporations.

 

2001: GOLD BEGINS MOVING UP

 

Even the sale of 415 tons of England’s gold in 1999 was unable to contain the growing demand for gold. This demand was exacerbated by the collapse of the US dot.com bubble in 2000. In the next few years, central bankers responded by selling 1300 tons of gold owned by the Swiss National Bank to suppress the now rising price of gold but to no avail—gold continued to rise.

 


 

2012: GOLD ENCOUNTERS RESISTANCE AT $1800

 

Gold is a leading indicator of monetary distress

 

The price of gold has risen for 10 years as systemic monetary stress has increased. In July 2011, because of EU monetary disarray, the price of gold rose from $1500 to $1900 in only two months, an almost vertical 27% rise.

 

Since September 2011, however, gold has been in an extended trough. This is not due, however, to an abatement of systemic stress. It is due to measures central bankers put in place to prevent a wholesale flight to gold from developing at that time.

 


 

What happened in July and August 2011 is what central bankers had feared, an almost vertical ascent in the price of gold that could cause investors to exit the bankerspaper markets and turn to gold in a lemming-like rush for the safety of gold bullion.

 

This would be the death knell in the bankers’ confidence game. In my article, Gold: Stage Three Up Down Up Down Up (October 22, 2012), I explained how the bankers moved to prevent this feared event from coming true. It worked—for awhile

 

In December 2012, it is clear the bankers drew a ‘line in the sand’ in September 2011 to prevent another rapid ascent in the price of gold. To some, this ‘line in the sandpresents a major barrier to gold’s advance. But, in reality, the bankers’ line in the sand represents the bankersdesperate last ditch attempt to prevent the inevitable from happening.

 

The systemic distress that drove gold’s 27 % rise between July and September to $1900 has not abated although the lower price of gold would imply otherwise. The present price of gold below $1800 is due solely to central bank emergency measures to contain the price of gold and China’s reluctance to let gold rise too far too fast before China can buy as much gold as possible before the next economic crisis.

 

2013: GOLD WAITS FOR THE END OF THE BANKERS’ CONFIDENCE GAME

 

Speculation abounds as to the trigger event that will set off gold’s vertical ascent. It could be the collapse of the global derivatives market or a credit event such as Credit-Anstalt’s collapse in 1931, the Austrian bank owned by the Rothschilds or perhaps Japan’s inevitable descent into the deflationary conflagration it has resisted since 1990.

 

It could be any number of events or causes. It could be triggered by a black swan event, a geopolitical crisis or a natural disaster on the level of the earthquake that struck off the coast of Japan in March 2011. Whatever the trigger, in the end the banker’s 300 hundred year-old con game will collapse from a simple lack of confidence.

 

In my current youtube video, The Collapse and the Better World to Come, I explain why I’m so optimistic about what is about to happen.

 

Buy gold, buy silver, have faith.

 

 

Darryl Robert Schoon

 

www.survivethecrisis.com

 

www.drschoon.com

 

 

 

 

 

Data and Statistics for these countries : China | Japan | All
Gold and Silver Prices for these countries : China | Japan | All
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Mr Schoon - I'd just like to say how much I enjoy your articles, over the last few years you have had quite on effect on my opinions ! However I do think it's incorrect to give too much credence to the story about the BoE selling gold to bail out a ba  Read more
Purpose2012 - 12/12/2012 at 10:47 PM GMT
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Darryl Robert Schoon

In college, I majored in political science with a focus on East Asia (B.A. University of California at Davis, 1966). My in-depth study of economics did not occur until much later. In the 1990s, I became curious about the Great Depression and in the course of my study, I realized that most of my preconceptions about money and the economy were just that - preconceptions. I, like most others, did not really understand the nature of money and the economy. Now, I have some insights and answers about these critical matters. We are in the midst of a paradigm shift of extraordinary proportions. Financial markets will be stressed as well as other institutions. My writings deal with this challenge and our response to what is to come.
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Mr Schoon -

I'd just like to say how much I enjoy your articles, over the last few years you have had quite on effect on my opinions !

However I do think it's incorrect to give too much credence to the story about the BoE selling gold to bail out a bank with a heavy short position: I commented previously about this, on Bill Murphy's article "It Won’t Be Long Before The Gold/Silver Manipulation Scandal Goes Mainstream" - the original source claimed :

"One globally significant US bank in particular is understood to have been heavily short on two tonnes of gold, enough to call into question its solvency if redemption occurred at the prevailing price... Faced with the prospect of a global collapse in the banking system, the Chancellor took the decision to bail out the banks by dumping Britain's gold."

I can't claim to understand leverage, so maybe there is something I'm missing, but 2 tonnes = just 64,300 oz ; so at the early-1999 price of ~$300, surely that's a total value of only $19.3 million ? How could a loss of that amount really have caused the collapse of a single bank, let alone "a global collapse in the banking system" ? I have little doubt that there is a price-suppression occurring, but I don't see how that particular allegation makes sense.

Also, do you not think that the price spike in August 2011 (and the subsequent return to the 'trend line') has a lot to do with the previous 'fiscal cliff', where the US came within hours of either defaulting, or not being able to pay its federal employees ? (It will be interesting to see if history now repeats, or at least, rhymes...)

Of course, even if there's no price-suppression occurring, the price of gold (and the other PMs) will undoubtedly rocket at some point: I always bear in mind that only about 1.3 ounces of gold is mined annually for each *100* people on the planet - so even if just "The One-Per-Cent" (as opposed to "The 99%") finally follow their accountants' advice and start shifting just 10% of their portfolios into gold, they (currently) only need to spend $2500 each to exhaust the entire world's annual production of the yellow metal...

Wishing you (and everyone !) peace & prosperity over the coming times,

Jim
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