More on Gold Manipulation 18 comments
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Real-time Monetary Inflation (per annum): 4.5%*
Earlier this month, Gold Anti-Trust Action Committee [GATA] secretary/treasurer Chris Powell commented on a feature article ("Gold Manipulation Redux") I authored dealing with allegations of gold market manipulation. Powell made a number of unwarranted assertions and assumptions about my views and opinions in his commentary.
Nonfiction authors should always be circumspect in their writings to ensure clarity of thought and firm grounding in the facts. Perhaps I wasn't clear enough in my article. To rectify matters, allow me to go point by point through Powell's commentary:
Dear Friend of GATA and Gold:
In [a recent] commentary, Brad Zigler, managing editor of the Hard Assets Investor Internet site, has done GATA the service of taking us seriously enough to answer us specifically in some respects. Zigler's commentary is headlined "Gold Manipulation Redux."
Zigler seems to accept that central banks intervene in the gold market, openly and surreptitiously. He seems interested mainly in asserting the integrity of the futures markets.
Counterpoint: Why, yes, I do accept the fact that central banks intervene in the gold market. In addition to outright sales, banks lease gold. That's precisely what I meant when I said:
"Central banks have, indeed, leased gold in the past and they're likely to continue leasing as a tool to manage their currencies. That, like it or not, is a central bank's mandate: to deploy its reserves - of foreign exchange and metal - to tweak and fiddle with the value of the legal tender."
Powell, however, misconstrues my acknowledgment of central bank lease activity as blanket acceptance of surreptitious machinations in the gold market. I've uttered no such tolerance in my writings.
He [Zigler] writes that since gold has been rising for quite a while now, any gold price suppression scheme could not be working. GATA argues that the scheme indeed is working by substantially slowing gold's rise.
Counterpoint: Among the elements required to establish manipulation under the Commodity Exchange Act is a showing that an artificial price was created by the alleged manipulator.
To posit an artificial price, a natural or unmanipulated price must necessarily be known. That triggers this question: "What would the current price of metal be if the alleged manipulation hadn't occurred? To what degree has the price supposedly been changed by bank action?"
I traced the history of the standardized basis of London cash gold and COMEX futures (the alleged venue for the manipulation) and found no appreciable skew in gold prices while bank short interest was growing. Where's the evidence, then, of a "slowing in gold's rise?"
Zigler acknowledges that a few U.S. banks have hugely disproportionate short positions in the futures markets in gold and silver but he does not consider these positions manipulative.
Counterpoint: That's right. Lopsided though these short positions may be in relation to the banks' long futures positions, so too is the metals exposure undertaken by the banks through swaps. That's reflected in the regulatory call reports. The long exposure in these derivatives necessitates short futures hedges to mitigate market risk.
Further, [Zigler] writes, "No tenable scenario has been offered to explain how these institutions would actually profit from the supposed suppression of gold prices. The banks' relationship to the Federal Reserve is often posited as evidence of a collusion of some sort, but the mechanics remained unspecified."
Zigler is entitled to his own definition of "tenable," but GATA has suggested many times that if central banks are implementing their gold suppression policy through bullion banks and mining companies that hedge, as Barrick Gold acknowledged central banks to be doing, even claiming to be an agent of the central banks itself -- then huge profits could be made by hedged miners, bullion banks, and their associated firms executing and front-running the trade orders of central banks.
Counterpoint: Barrick does not purport to be an agent of the central banks in the 2003 motion cited by Powell. The company merely admits hedging its production through bullion banks. It's The London Bullion Market Association market makers that deal directly with the central banks in leasing arrangements, though they themselves cannot properly be called agents of the central banks. As dealers or principals, they owe no fiduciary duty to the central banks. The market makers' motive is profit; they undertake the risk associated with borrowing and lending/selling metal in hopes of earning a spread.
Surely Zigler would acknowledge that there are constant private communications among the Treasury, Fed, and financial houses. Many of the latter are official U.S. government agents, primary dealers for government bond sales. Does Zigler really think that no information of trading value is ever conveyed in these communications? Maybe Zigler would not be offended by this favoritism, but others would be - and are.
Counterpoint: Financial houses are not agents of the federal government. By definition and operation, the fiscal agent for the U.S. Treasury is the Federal Reserve. The relationship between primary dealers and the Fed is not agency. The banks take into inventory government paper through auction and open market operations for their own account and risk.
I would not presume to know the nature of the messages conveyed between the financial houses and the central banks outside of my limited experience on a primary dealer's desk. I can only tell you that the communications between the Fed and the desk in open market operations was always curt, businesslike and never afforded my desk an opportunity to front-run anything. To assume "favoritism" is entirely speculative and conjectural.
Blanchard Coin & Bullion's federal antitrust lawsuit against Barrick, which elicited Barrick's confession to the gold price suppression scheme, maintained that Barrick had access to so much central bank gold obtained through its bullion bank, J.P. Morgan Chase & Co., that the mining company could run the gold price up or down at will. There would be a lot of profit in that.
Counterpoint: Barrick "confessed" to no such suppression in its motion. The language describing the alleged scheme, in fact, merely quoted Blanchard's (et al.) own complaint to lay the groundwork for the defendants' argument.
And GATA Chairman Bill Murphy has written and spoken often about how bullion banks could profit enormously by suddenly shorting gold in huge amounts, causing crashes, creating panic among investors, and covering short positions as the panic grows before allowing the price to rise again. Any firm with access to enough borrowed central bank gold could profitably manipulate not just the gold market with central bank approval but nearly every other market. And there's no denying that huge amounts of central bank gold have been leased and made available for just such purposes.
Counterpoint: Again, these are speculative and conjectural assertions lacking foundation.
GATA has been formally refused access to U.S. Treasury Department and Federal Reserve records about the U.S. gold reserve. Anyone who believes in the integrity of the futures markets should have some curiosity about this, for it is an indication that the gold reserve indeed has been put in play in ways similar to those suggested by GATA. How much does Zigler want to bet that there never have been and are no records of communications among the Treasury Department, the Fed, and Morgan Chase involving gold?
Counterpoint: You're kidding, right? You're asking me to wager on chatter between the Fed and a bank?
Zigler disputes silver market analyst Ted Butler's assertion that the U.S. bank short positions in silver are unprecedented. He says there are bigger bank short positions in Australian dollar futures. But Butler was talking about the U.S. commodity markets, not foreign currency markets.
Counterpoint: But the Aussie dollar positions illustrated in the article are U.S. futures. They're contracts traded on the Chicago Mercantile Exchange, not interbank forex transactions. As such, they, like the precious metal futures Butler cites, are subject to speculative position limits and hedge exemptions.
Zigler attributes the disproportionate U.S. bank short positions in gold and silver to legitimate hedging by producers and marketers rather than to manipulation by those banks. Since details of those short positions are kept confidential by the U.S. Commodity Futures Trading Commission, we can't yet know.
But GATA thinks that this information should be made public, perhaps with a modest delay to provide some protection to current trading positions.
Since hedging by precious metals miners has fallen dramatically, we do not think that most of the bank short positions in gold and silver is legitimate hedging. And while GATA argues for more transparency, Zigler, like the big shorts in the precious metals, seems to prefer continued concealment.
Counterpoint: Where in my argument do I express an appetite or desire for concealment? Powell attributes a posture to me that's wholly unjustified by the article's contentions.
Presumably Zigler trusts the CFTC to be doing its job - just as Bernie Madoff's investors trusted the Securities and Exchange Commission to be doing its job. GATA doesn't trust any of the regulatory agencies.
Counterpoint: In attempting to draw a parallel between Madoff's self-confessed fraud and an allegation of gold market manipulation, GATA's flexing its self-aggrandizement muscles as well as laying down the fear card.
Harry Markopolos, the fellow that started blowing the whistle on Madoff's Ponzi scheme a decade ago, relied upon forensic accounting and mathematical modeling. The case being built for gold's alleged manipulation, in contrast, is woefully short on numbers. The number-crunching, it seems, was instead, performed in the HAI article.
The Commodity Futures Trading Commission [CFTC] looked into allegations of manipulation in the precious metal futures markets in 2002, 2004 and in 2008, utilizing credible mathematical analysis. In that respect, the commission has done its job. The outcome of those investigations may not be what some market participants want, but that's another matter altogether.
But again let it be noted that, unlike most of GATA's critics, Zigler has had the courage to confront some of our specifics, and we're grateful for that and commend his commentary to you.
Well, thanks for that.
*Note: To provide a longer-term perspective, we've pushed back the base for our real-time monetary inflation indicator to May 2006. The base previously was January 2008. The indicator represents the average annual rate of monetary inflation over the period. The current 12-month inflation rate is -2.4%.
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news.yahoo.com/s/ap/20...
www.gata.org/node/7627
The previous link was in error.
bigeasy8: You said it well! Thanks.
I am also open-minded to the possibility of gold price manipulation by central banks. They openly manipulate the money supply as well as various credit instruments. And who knows what else. But I have yet to see compelling evidence or even a reason for manipulating the gold price. I'm not disputing the theory -- merely asking to be educated.
What does $1000 signify about diminishing trust in the monetary authorities that a move from $250 to $950 doesn't? If gold starts to hold over $1000, does that signify that the world is somehow different than it is today? Once gold holds over $1000, does that signify that the manipulation has failed? Does $1200 suddenly become the critical level? And then $1500?
Move along people, nothing to see here!
One would do well to forget trying to get 'justice' for the manipulators and put that energy and intelligence into spotting the manipulation early for your own financial benefit?
On Jul 28 12:10 PM Maxe Paul wrote:
> Usual droll and uninspiring conspiracy clap trap by those with vested
> interests.
>
> Move along people, nothing to see here!
On Jul 28 01:39 PM bowman711 wrote:
> Aren't all financial markets at least partially manipulated for the
> benefit of the super-insiders? I read the other day that as much
> as 20% of all stock market trading is done by Goldman Sachs . . for
> the ultimate benefit of a few insiders. [I have not idea if it is
> true or not.] Isn't there something know as the 'Plunge Protection'
> team? If so, wouldn't that also be manipulation of the markets?<br/>
>
> One would do well to forget trying to get 'justice' for the manipulators
> and put that energy and intelligence into spotting the manipulation
> early for your own financial benefit?
Folks,
Gold is being smacked down today + dollar up as the Chinese are here today + yesterday , Mon + Tues discussing the US $ + defecits .
Manipulation at it's finest . Goldman Sachs IS the PPT !
> For a reply to his essay, please visit:
>
> www.gata.org/node/7627
>
> The previous link was in error.
One of the paragraphs in that response sets the stage for a no-lose situation for Gata.
"2) Zigler seems to be saying that unless an unmanipulated price of gold can be specified, price manipulation cannot be alleged or proven. GATA disagrees. Indeed, we often have maintained that, because of the decades-long suppression of the price of gold undertaken by central banks, the world actually has no idea at all what a free-market price of gold would be."
In order for that last phrase to be true, manipulation is *assumed* true. But it has not been proven true and can *not* be proven untrue (can't prove a negative).
Therefore, whether it is untrue or not, in fact, "the world actually has no idea at all what a free-market price of gold would be" will hold and sets up a logical loop - we dont know the proper price of gold because it is manipulated and we know it is manipulated because we don't know the proper price of gold.
So much for credible argument. I won't even launch into the intangibles involved in determining the "proper" price of *anything*, since the counter-parties have differing standards by which they value a particular trade. Only historical price, combined with all possible considerations (an impossible task I think) gives even a *clue* to "proper" price.
Don't get me wrong, I believe it is manipulated.
Conspiracy? Gata needs to do a better job before I'm convinced. Much of the hard work they have done is valuable, but arguments like the above defeat their purpose.
HardToLove
Given big players' obvious willingness to act covertly in other markets, given the Fed's reticence about being audited, I think we can stipulate this as well.