Few analysts are watching the evolution of the COMEX/LBMA markets as
closely as Jesse (Jesse's Café Américain). Both markets are where the gold
spot price is determined and a lot of paper gold contracts and physical gold
movement are involved. So it’s important to watch both markets waiting for a
potential default event that would start to free the determination of the
gold price from manipulation. In this interview with Jesse, we discuss the
issues at the very center of the gold market today : COMEX/LBMA manipulation,
default event and how investors should react to the long correction in
precious metals.
Fabrice Drouin Ristori (FDR): Reading your blog and
market comments, one can see you spend a lot of time analyzing
what’s going on in the COMEX and LBMA markets. Can you explain why you think
these two markets are key markets to analyse in order to understand gold ?
Jesse: Prices for gold globally are still
being set largely by the COMEX and the LBMA, despite the remarkable shift in
physical markets and bullion buying to the developing countries, especially
those in the Mideast and Asia.
This may not make sense, and I have noted this many times, as ‘the tail
wagging the dog.’ How can what are highly leveraged markets, paper markets I
call them, that are dominated by speculation and short term transactions and
wild price volatility, be setting the prices and thereby the resource
allocations for a global market which has to some extent grown beyond them.
This is the symptom of the changes which we have been seeing in the
evolution of the international monetary system. It has become outmoded to the
point of instability, as the forces of the old Anglo-American banking cartel
attempt to maintain the status quo in a system that no longer works.
As the physical exchanges continue to grow I am adding them into my
thoughts, very actively. I expect the changes in the monetary system, which I
have called the ‘currency war,’ to be driven by their countries and by them.
It is the old story of thesis and antithesis. The synthesis will be a new
monetary system globally. What that will be I cannot yet know, but I think we
can know where to look, and what to look for.
FDR: You are among the few gold analysts who have been
warning about a manipulation in the gold and silver markets for a long time
now. Can you explain how it operates specifically on the COMEX/LBMA ?
Jesse: Thank you for the compliment, but I am hardly the primary
one and certainly not the first. GATA and Ted Butler among others have
been doing quite a bit of the ‘heavy lifting’ in sounding the alarm about
irregularities in these markets. And I think that they are in a better
position to explain the mechanics of it, having examined the market
structures in great detail.
I first became interested in gold, and later in silver, around 1999 as a
result of an intense study of the international monetary system. I had always
enjoyed economics, and had managed a multi-billion dollar business unit that
spanned almost 100 countries, so I became much more aware of the
international currency markets and trade issues than most Americans
certainly.
It was in this study that I first became interested in gold because one
cannot understand money and international trade historically without understanding
gold. And in another intense study of financial crises and bubbles, prompted
by my own ringside seat at the tech bubble at the end of the twentieth
century, I became intrigued by the role of money and paper and their
interactions with real things and people.
Most manipulations of markets are control frauds by their nature, and
contain all the usual characteristics of fraud. There is opacity, because
frauds thrive in the dark, and on the asymmetric availability of information.
There are always a few and very powerful insiders who have the ability to
know more than others, to have access to privileged information, and to be
able to manipulate the rules and the market mechanisms for their own purposes
and advantage.
This is the heart of it. Everything else is detail, which you can surely
find out in any amount of depth you may wish. But anyone who is watching
these markets closely can no longer miss it unless they are naive or
willfully blind.
FDR: In view of this manipulation and the objective it
serves (protecting the current fiat monetary system), should long term
gold/silver investors be worried about the more than two year correction we
have been experiencing so far ?
Jesse: Corrections are all a part of a bull market. I would suggest
that people not hold over large positions or use leverage if they are
worrying. That is often a sign that they have not come to terms with what
they are doing, and have not taken a position that serves them and their
needs suitably. But to be direct, based on my own portfolio and positioning I
am not concerned. My investment horizon is very long term. I am playing the
turn of a page in history and these only have the appearance
FDR: Do you consider the bail-in risks (bank account
/pension funds seizure) as very likely to manifest in the coming months in
Western countries ?
Jesse: I cannot say how likely because that is contingent on human
decisions that have not been made. But it goes without saying that the risk
of ‘bail-ins’ is much greater now than it was even a few years ago. We have
the example of both Cyprus and even MF Global, and more broadly the entire
bailout process engaged in by the US and the EU in response to the financial
crisis. That was the beginning of the bail-ins of the public to support the
bankers.
FDR: A lot of investors only focus on gold as an
investment. Would you agree that investors know it’s the best way to protect
themselves against what’s coming (inflation, bail-in), but don’t fully
realize that, by investing in physical gold/silver, they are actually helping
a move back to a sounder monetary system, which benefits societies in general
? Would you consider gold as a « political » investment, a vote against a
corrupt monetary system, as confirmed by the recent scandals (LIBOR, exchange
rates manipulation) ?
Jesse: I can see where some might see it that way but I don’t,
and would prefer that it not become so. I liken gold to a refuge, a place
where an individual may seek to protect some of their wealth from the
uncertainty of uncertain times, which is what all times of major change
become as you know. I think the political battles will be conducted on the
world stage by very powerful players, and it would be better for the average
person to ‘keep their heads down and stay out of harms way.’
FDR: It’s hard to make any forecast in the precious
metals markets, but what are you looking at that would signal an end to the
manipulation in the gold and silver markets ?
Jesse: I think that the tension between the paper markets and the
physical bullion markets is growing little by little, almost daily now. And
it has reached levels that are noticeable.
A few saw the financial crisis of 2008 coming, but predicting when it
would arrive was quite a challenge. That is because imbalances can grow and
grow, seemingly without end, and make one wonder if they are real. But as
they grow, there comes some tipping point, that causes that imbalance to
topple.
How can one predict when that tipping point will occur ? Many try but I
believe it is not possible. As the imbalance grows, the power required to
enable a tipping point becomes less and less, until at times something almost
inconsequential can trigger the avalanche of consequences.
Sometimes it is the outbreak of war, sometimes it is the failure of a
single banking institution, sometimes it is a piece of news that flashes
across the public consciousness like lightning across the night sky.
What I can say is that we are now seeing some odd things happening in the
gold and silver markets, increasing volatility and concentrated actions
amongst a few powerful players. There is a struggle going on, and when
something will happen to cause this tension to slip cannot be predicted
precisely.
Those who claim to predict it follow roughly the same pattern, they
forecast the even over and over and over, and when it does happen they say
‘see I did predict it.’ And all other past incorrect predictions are
forgotten. People fool themselves this way in the market every day with their
‘systems.’
Watch for a break in the market, the failures to deliver. There will be
little ones, here and there, and the powerful will seek to ‘fix them’ like
plugging holes in a dike. Their supporters and representatives will actively
downplay them, and ridicule those who sound any concerns over it. And for a
while they will be in control, because the truth remains hidden and events
will be difficult to predict.
But at the end of the day, the truth will come out, and things will make
sense again, always. And then these same ones will say, ‘Who could have seen
this coming ?’ This is how it always is, if you look back over the history of
bubbles and crises.
FDR: I would like to thank Jesseagain for taking the
time for this interview.
Welcome to Jesse's Café Américain - These are personal observations
about the economy and the financial markets. In providing information, I hope
this allows you to make your own decisions in an informed manner, even if it
is from learning by my mistakes, which are many. My comments are intended to
be a reflection on general macro financial and economic events and trends.
Follow Jesse on Twitter : @JessesCafe
Fabrice Drouin Ristori - Founder/CEO Goldbroker.com (FDR
Capital)
ceo@goldbroker.com
Twitter : @FabriceDrouin
Goldbroker.com on Twitter and Facebook
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