- Hedge fund, PhD statistician claims gold market is
“the most blatant case of manipulation”
- PhD: “Statistically impossible unless there’s
manipulation occurring”
- Gold serves as political chips on the world’s
financial stage.
- Price is being suppressed until China gets the gold
that they need
- Gold will go higher when all central banks ‘confront
the next global liquidity crisis’
- ‘When
that happens, physical gold may not be available at all.’
Jim
Rickards: The Golden Conspiracy
Is there
gold price manipulation going on? Absolutely. There’s no question about it.
That’s not just an opinion.
There is
statistical evidence piling up to make the case, in addition to anecdotal
evidence and forensic evidence. The evidence is very clear, in fact.
These are the
opening lines of Jim Rickards’ piece ‘The Golden
Conspiracy’, an op-ed that may surprise even the most seasoned followers
of gold markets.
Gold and silver
price manipulation is not a new topic to regular readers. For years the idea
that precious metals markets are subject to more than just free market forces
has been dismissed by the mainstream. Many have referred to gold and silver
manipulation as topic fodder for the conspiracy and deep web forums. This is
despite evidence to the contrary.
In the last
eighteen months or so what was dismissed as anecdotal tales of manipulation
has finally been recognised by the regulators and lawmakers as something very
real and serious. Fines have been doled out and regulators have been
slowly implementing
new rules.
But what if the
manipulation goes above institutions that can be called to account? Can they
be fined? Can it be somewhat controlled by the authorities? What if it is a
country doing the manipulation? Rickards believes it is.
‘…where is
the manipulation coming from? There are a number of suspects but you need
look no further than China.’
Role of
China
Previously we
have been excited about China’s role in the gold market. In April last year
they launched yuan denominated gold bullion trading. We not only expected
this to further boost its power in the global gold and forex markets but to
also lead to increased transparency and reduce price manipulation.
However the
country is not only keen to increase transparency in the market for their own
long-term gain, they have short-term goals as well - to increase their gold
reserves.
Rickards
explains:
China wants
to do what the U.S. has done, which is to remain on a paper currency standard
but make that currency important enough in world finance and trade to give
China leverage over the behavior of other countries.
The best way
to do that is to increase its voting power at the IMF and have the yuan
included in the IMF basket for determining the value of the special drawing
right (SDR).
China
accomplished that last September when the IMF added the yuan to its basket of
currencies.
The rules of
the game also say you need a lot of gold to play, but you don’t recognize the
gold or discuss it publicly. Above all, you do not treat gold as money, even
though gold has always been money.
The members
of the club keep their gold handy just in case, but otherwise, they publicly
disparage it and pretend it has no role in the international monetary system.
China is expected to do the same.
Right now,
China officially does not have enough gold to have a “seat at the table” with
other world leaders. Think of global politics as a game of Texas Hold’em.
What do want
in a poker game? You want a big pile of chips.
Gold serves
as political chips on the world’s financial stage. It doesn’t mean that you
automatically have a gold standard, but that the gold you have will give you
a voice among major national players sitting at the table.
For example,
Russia has one-eighth the gold of the United States. It sounds like they’re a
small gold power — but their economy’s only one-eighth as big. So, they have
about the right amount of gold for the size of their economy. And Russia has
ramped up its gold purchases recently.
The U.S.
gold reserve at the market rate is under 3% of GDP. That number varies
because the price of gold varies. For Russia, it’s about the same. For
Europe, it’s even higher — over 4%.
In China,
that number has been about 0.7% officially. Unofficially, if you give them
credit for having, let’s say, 4,000 tons, it raises them up to the U.S. and
Russian level. But they want to actually get higher than that because their
economy is still growing, even if it’s at a much lower rate than before.
Where is
the evidence for this?
As we have
explained previously, manipulation is often dismissed as a conspiracy and
anecdote driven theory. But Rickards has academic evidence:
I spoke to a
PhD statistician who works for one of the biggest hedge funds in the world. I
can’t mention the fund’s name but it’s a household name. You’ve probably
heard of it. He looked at COMEX (the primary market for gold) opening prices
and COMEX closing prices for a 10-year period. He was dumbfounded.
He said it was
is the most blatant case of manipulation he’d ever seen. He said if you went
into the aftermarket, bought after the close and sold before the opening
every day, you would make risk-free profits.
He said
statistically that’s impossible unless there’s manipulation occurring.
I also spoke
to Professor Rosa Abrantes-Metz at the New York University Stern School of
Business. She is the leading expert on globe price manipulation. She actually
testifies in gold manipulation cases that are going on.
She wrote a report
reaching the same conclusions. It’s not just an opinion, it’s not just a
deep, dark conspiracy theory. Here’s a PhD statistician and a prominent
market expert lawyer, expert witness in litigation qualified by the courts,
who independently reached the same conclusion.
Surely
they can be honest about it?
One would
perhaps think that given China’s resources and their growing power in the
physical gold market, the country would be able to just buy all that they
need. Without the need for cloak and dagger activities.
Rickards argues
this isn’t possible:
Here’s the
problem: If you took the lid off of gold, ended the price manipulation and
let gold find its level, China would be left in the dust. It wouldn’t have
enough gold relative to the other countries, and because the price of gold
would be skyrocketing, they could never acquire it fast enough. They could
never catch up. All the other countries would be on the bus while the Chinese
would be off.
When you
have this reset, and when everyone sits down around the table, China’s the
second largest economy in the world. They have to be on the bus. That’s why
the global effort has been to keep the lid on the price of gold through
manipulation. I tell people, if I were running the manipulation, I’d be
embarrassed because it’s so obvious at this point.
The price is
being suppressed until China gets the gold that they need. Once China gets
the right amount of gold, then the cap on gold’s price can come off. At that
point, it doesn’t matter where gold goes because all the major countries will
be in the same boat. As of right now, however, they’re not, so China has
though to catch-up.
I’ve
described some catastrophic scenarios where the world switches to SDRs or
goes to a gold scenario, but at least for the time being, the U.S. would like
to maintain a dollar standard. Meanwhile, China feels extremely vulnerable to
the dollar. If we devalue the dollar, that’s an enormous loss to them.
China has
recently sold a portion of its dollar reserves to prop up its own currency, which
has come under tremendous pressure. But it still holds a large store of
dollar reserves.
If China has
all paper and no gold, and we inflate the paper, they lose. But if they have
a mix of paper and gold, and we inflate the paper, they’ll make it up on the
gold. So they have to get to that hedged position.
China has
been saying, in effect, “We’re not comfortable holding all these dollars
unless we can have gold. But if we are transparent about the gold
acquisition, the price will go up too quickly. So we need the western powers
to keep the lid on the price and help us get the gold, until we reach a
hedged position. At that point, maybe we’ll still have a stable dollar.”
China
isn’t the only one
We know that the
banks like to play with the gold market, but China isn’t the only country
involved. Rickards says Russia has the same goals as the PRC. Together they
are not only critical to the physical gold market but also for the overall
structure:
Currently
the price of gold is set in two places. One is the London spot market,
controlled by six big banks including Goldman Sachs and JPMorgan. The other
is the New York gold futures market controlled by COMEX, which is governed by
its big clearing members, also including major western banks.
In effect,
the big western banks have a monopoly on gold prices even if they do not have
a monopoly on physical gold. But that could be about to change.
Russia and
China are not only building up physical reserves and exploring for more, they
are building trading systems that allow for price discovery and leveraged
trading in gold.
It may take
a year or so to attract liquidity, but once these new exchanges are fully
functional, the physical gold market will regain the upper hand as a price
maker.
Then gold
will commence its march to monetary status, and its implied non-deflationary
price of $10,000 per ounce.
How to
turn a problem into an opportunity
Manipulation
goes on across many markets, whether precious metals, interest rates or forex.
At no point is it victimless. Individuals and companies alike have
experienced losses on their investments, both as a direct and indirect result
of manipulation.
To hear this can
be depressing, many investors might just ask what the point is in investing
in assets such as gold and silver when they might be as manipulated as paper
markets. Sure they might go to $10,000, but what stops it being manipulated
even then?
Those who are
concerned should take a step back and look at the bigger picture which is
actually an opportunity rather than a problem. A suppressed price means great
opportunity for investors to accumulate more bullion. Ironically for those
looking to manipulate the price, this is good news for those who are keen to
stock up on both gold and silver.
In the
long-term Rickards is
convinced that we will see big changes in the gold price ‘when China reaches
its gold reserve target of 10,000 tons — surpassing the United States. At
that point, it will be in China’s interest to become more transparent and let
the price of gold soar, which is another way of saying the value of the
dollar is in free-fall.’
In the
short-term, gold investors and those considering diversifying their portfolio
with the yellow metal would be wise to consider the following, according
to Rickards:
- Private
gold holders continue to hold their gold
- There
is persistent excess of demand over supply
- Situations
in North Korea, Syria, Iran, the South China Sea, and Venezuela (to name
a few) show no signs of improving, in fact the opposite.
- Fed
policy tightening is normally a headwind for gold. But, the last two
times the Fed raised rates — December 14, 2016 and March 15, 2017 — gold
rallied as if on cue. Look for another Fed rate hike on June 14, and
another gold spike to go along with it.
Gold
manipulation aside, we are currently in a period of major market complacency.
Mainstream investors have seemingly been lured into thinking that years of
risky and unprecedented policy making will be without consequence. They
believe that elevated prices of stocks and bonds and reduced price volatility
in stock markets are completely normal. This cannot be.
At some point
the marketplace will realise all is not really as it seems. When this
happens, expect a serious backlash and ensure you are holding onto something
that is real and has shown its true value despite years of manipulation on
all fronts.
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