In response to the 3rd January blog post in which I pointed out the
straightforward fact that evidence of market manipulation is not necessarily
evidence of price suppression, a reader sent me a link to a year-old GATA article.
The GATA article was presented by the reader as a refutation of what I had
written.
It is certainly possible to construe the aforelinked GATA article as
having at least partly refuted what I wrote, but only if you take the
article’s headline (“State Dept. cable confirms gold futures market was
created for price suppression”) and conclusion (“…[the cable confirms] the
assertions by GATA and others in the gold-price suppression camp that futures
markets function largely as mechanisms of commodity price suppression and support
for government currencies”) at face value and give no further thought to what
is being presented and asserted.
However, if you take the time to read the excerpt from the 1974 State
Dept. cable included in the GATA article you will see that it does NOT say
that the gold futures market was created for price suppression; it says that
re-legalising private gold ownership in the US (it had been illegal since
1933) would result in the formation of a large and liquid futures market. In
effect, it says that the formation of a futures market would be a natural
consequence of the gold market becoming freer.
The State Dept. cable does express an opinion that large-volume futures
dealing would create a highly volatile market, and that the volatile price
movements would diminish the initial demand for physical holding and most
likely reduce the long-term hoarding of gold by U.S. citizens. This opinion
is certainly debatable, as a good argument can be made that futures markets
tend to bring about LESS long-term volatility in the price of a commodity. In
any case, it is just an opinion as to the price-related consequences of a
naturally-occurring futures market.
It is also worth mentioning that the cable is from an embassy bureaucrat
with no say in government policy.
So, in no way does the State Dept. cable do what the author of the GATA
article claims it does. Moreover, the assertion that “futures markets
function largely as mechanisms of commodity price suppression and support for
government currencies” is not only in no way backed-up by the evidence
presented, it is so illogical as to be laughable. There have been futures
markets for many widely-traded commodities for hundreds of years. These
markets were not created by and do not exist for the benefit of governments.
Sometimes, no specialised knowledge is needed to figure out that a
conclusion doesn’t follow from the information presented. For example,
detailed knowledge of the gold futures market is not needed to see that the
State Dept. cable cited in the GATA article does not come remotely close to
confirming GATA’s assertions. Sometimes, all that’s needed is a modicum of
logic.
