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:
https://www.youtube.com/watch?v=-hJQ18S6aag&t=1s
That is: "Same time tomorrow. We must get a winner one
day."
