Book Review: Dimitri Speck's The Gold Cartel

by: Ben Kramer-Miller


Dimitri Speck's The Gold Cartel provides readers with an in-depth analysis of the gold market and the thesis that it is manipulated.

Speck provides conclusive statistical evidence of this manipulation with a qualitative explanation as to why it is taking place.

Investors interested in the gold market looking for a very strong case supporting market intervention are urged to read this book--especially the first part.

Dimitri Speck published The Gold Cartel: Government Intervention On Gold, the Mega Bubble in Paper, and What this Means for Your Future in October of last year. The book is a must read for anybody interested in learning about the gold market as it details gold's role in the monetary system, how its re-emergence poses a threat to the current monetary order, and the steps that governments are taking in order to preserve this order including gold market interventions.

As the subtitle suggests the book deals with three topics:

  • Government intervention in the gold market.
  • The paper bubble, which this intervention is meant to preserve.
  • The future economic and monetary order.

Government Intervention in the Gold Market

As the main part of the title--"The Gold Cartel"--suggests the bulk of this book deals with the topic of gold market intervention. Speck provides a detailed analysis of what has long been pronounced by analysts in gold circles, namely that the gold market is heavily manipulated.

Speck briefly discusses past instances of manipulation such as the London Gold Pool (a topic I discuss extensively here) although he is most interested in the modern-day suppression--which he argues begins August 5th, 1993 at 8:27 AM EST--which is far more covert although fairly apparent to anybody who studies the issue.

Speck discusses the topic in depth although there are two issues that are worth mentioning.

Statistical Anomalies In the Gold Market

The first is the statistical analysis of the daily price action that Speck provides. One of the most compelling pieces of evidence of ongoing (at least through the book's publication) gold price intervention is that there is a distinctive pattern whereby the gold price spikes downward as the London PM fix is set. We can see this on the following chart (image 7.2 in the book), which averages out the daily price action in the gold market over the past 20 years.

Click to enlarge

As we can see, there is a distinct point of volatility that thousands of pieces of data should smooth over. The fact that this doesn't take place is a statistical anomaly that leads Speck and others to the conclusion that this can't be a coincidence.

Speck compares this to the intraday trading activity in the years leading up to the intervention starting in 1986.

Click to enlarge

(Image 7.1)

We still see weakness in early trade but there is no short-lived downward spike that would stand out as a statistical anomaly. Furthermore general weakness in morning trade can be explained in that mining companies would mine gold and sell it in London (keep in mind that this was when South Africa was still a major gold mining nation) or in New York as the market opened.

It is the sharp downward spike that is of interest because it is indicative of a seller operating in the market in order to push prices down as opposed to slowly unloading supply as to maximize profits.

While the explanation is speculative, the idea is that this intervention generates a bearish tone just as gold begins trading in New York, which is the biggest market in the world. As traders see lower prices they will be less likely to buy gold and they may even take on speculative short positions.

Gold Leasing, The Gold Carry Trade, and Paper Gold

The second issue is the issue of paper gold. Speck details how central banks, in concert with bullion banks, employ strategies that increase the apparent supply of gold on the market. As the apparent supply increases, the price comes down. This can generate further selling as speculators don't want to be buying a market where there is so much apparent supply.

Speck details how central banks will lease out gold in order to create the appearance of additional supply. Central banks will not differentiate between "gold" and "gold receivables" on their balance sheets, meaning that if a central bank has, say 1,000 tonnes of gold in its vaults it may be reporting that it has substantially more than this.

Since we can't see gold vs. gold receivables differentiated on central bank balance sheets it is difficult to prove that this is going on. However, he does note that this is central bank policy citing a famous Greenspan quotation in gold circles:

The vast majority of privately negotiated OTC contracts are settled in cash rather than through delivery. Cash settlement typically is based on a rate or price in a highly liquid market with a very large or virtually unlimited deliverable supply, for example, LIBOR or the spot dollar-yen exchange rate. To be sure, there are a limited number of OTC derivative contracts that apply to nonfinancial underlying assets. There is a significant business in oil-based derivatives, for example. But unlike farm crops, especially near the end of a crop season, private counterparties in oil contracts have virtually no ability to restrict the worldwide supply of this commodity. (Even OPEC has been less than successful over the years.) Nor can private counterparties restrict supplies of gold, another commodity whose derivatives are often traded over-the-counter, where central banks stand ready to lease gold in increasing quantities should the price rise.

(Source: Greenspan's July, 24th 1998 testimony before the committee on banking and financial services)

Central banks lease gold by selling it to bullion banks in exchange for a promissory note that generates a tiny rate of return known as the gold lease rate. As you can see on this chart, the rate is exceptionally low.

Click to enlarge

(Source: Kitco)

This low interest rate fuels a gold carry trade whereby it makes sense for bullion banks to sell this gold and use the proceeds to buy a higher yielding asset and this trade is wildly successful so long as the gold price is not rising, especially given banks' access to credit (meaning they can leverage this trade).

The Paper Bubble and the Future of the Monetary System

The last two topics are secondary with respect to the gold market intervention thesis. If we were in a court of law, these topics would constitute the motive part of the prosecutor's argument whereas the first part is the theory of the crime with forensics and testimony.

In this section Speck points out something that is apparent to pretty much anybody who would be interested in reading this book, namely that there is a massive amount of debt outstanding that almost certainly cannot possibly be paid back.

Speck provides several pieces of data although the most overarching is his chart of global debt to global GDP (34.5).

Click to enlarge

Central banks have responded to this growing debt load by reducing interest rates to record low levels given that the economy can support more debt if the cost of servicing this debt is low. But this hasn't been enough and so central banks have resorted to buying up trillions of dollars worth of debt.

Gold market interventions are designed to mask the severity of this problem. If the gold price isn't rising then people have faith in the value of currencies and of debt instruments despite the fact that their supply is spiraling out of control.

Speck ultimately argues what we already know--that this is unsustainable unless there is a revolutionary development in the economy that catapults economic growth to a point where this debt can be serviced at higher interest rates. But so long as the gold price is "low" (and I use the term loosely because it is 5-times higher than it was back in 1999 when the bull market began) this unsustainability isn't immediately apparent and the system can go on functioning as it is.

But ultimately Speck, like many others, anticipates that we will see a change in the system that places less emphasis on the dollar and more emphasis on gold and perhaps on other currencies.


The first part of this book is worth reading and re-reading. It was extremely informative as it takes a sober approach to a topic that has been a very emotional one for proponents of the gold price suppression thesis. It uses hard data to support a claim that is very difficult to prove, and while the proof isn't air-tight in a mathematical sense it is proof beyond a reasonable doubt.

The second part, in my mind, was largely unnecessary and way too long. If you aren't familiar with the current global economic problems then it is worth reading, but for Speck's intended audience (given the level of sophistication of the first part) it should have been much shorter, and I think there are better sources for this information (c.f. The Big Reset: War on Gold and the Financial Endgame by Willem Middlekoop).

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.