Please Note: Blog posts are not selected, edited or screened by Seeking Alpha editors.

Gold Wars, Part II: The Empire Strikes Back

In Part I, I discussed how and why the manipulation of the gold (and silver) market occurred, and how the anti-gold cabal of Western bankers used the vast hoards of gold in Western central banks to ruthlessly dominate (and suppress) this market for decades. I pointed out that despite persuading several of the world's largest gold-miners to join this cabal (so that their gold in the ground could also be dumped onto the market) that the Manipulators have been rapidly expending their “ammunition”.

 

Indeed, as we approach the end of the second five-year gold sales-agreement among Western central banks, what was originally intended as a “ceiling” for annual gold sales by the Manipulators has become a quota – a target which the anti-gold cabal is trying and failing to meet. During this five-year term, the annual ceiling/quota is 500 tons per year. Yet, with only a month until the expiry of this agreement in September, Western central banks haven't even been able to scrounge-up 200 tons of gold to dump in this final year.

 

This brings us to the newest five-year agreement for gold sales by Western central banks (see “New Central Bank sales-agreement very gold-bullish”). In this recently announced deal, the new quota which the Manipulators will try to reach (and likely fail) is only 400 tons per year. Even more telling, this includes the pending sale of the IMF's 400 tons of gold – despite the fact that the IMF is obviously not a “European central bank”. Without being padded with IMF gold, the new sales agreement would represent a greater than 1/3 decline in sales by these central banks.

 

Clearly, the anti-gold cabal is not simply running low of gold, but as with all conspiracies which approach failure, the unity of this cabal is unraveling. You don't have to be a psychic to be able to guess at the conversations now taking place among these bankers.

 

We need to dump more gold to stop it from exploding above $1000.”

 

Agreed – so how about selling a few hundred tons of your gold?”

 

Well, I was actually thinking it was your turn to sell...”

 

No one really knows how much (or how little) gold still remains in the hands of the Manipulators. For example, the United States claims to have the world's largest stockpile of gold. The problem is that for over 50 years it has refused to allow any independent audit of these supposed reserves (see “GATA seeks an audit of MYTHICAL Fort Knox gold”).

 

A stockpile of gold is not like some secret, weapons facility, where simply allowing someone to see it could cause some sort of “threat to national security”. If the U.S. hoard of gold actually existed, it is in the nature of Americans to want to show it off to anyone and everyone in the world. The obvious conclusion is that only a tiny fraction of this gold remains (if any, at all).

 

In fact, the U.S. no longer even describes the supposed hoard of gold at Fort Knox as “gold reserves”, but instead it calls its holdings gold reserves and gold swaps. In other words, we have no idea of how much of this one-time hoard has been “loaned” to bullion-banks who cannot possibly replace that gold, and how much of the gold stored at Fort Knox officially belongs to other governments. All we know is that the truth would be extremely harmful to the Manipulators – which is why the actual amount of U.S. gold still held at Fort Knox which actually belongs to the U.S. is a closely-guarded state secret.

 

It is precisely at the time that Western sales of gold are rapidly falling toward zero that central banks in Asia, the Middle East, South America, and even Europe have suddenly started buying gold – while ridding themselves of their soon-to-be-worthless U.S. dollars, in the process.

 

However, among the governments buying gold, two governments stand out – for totally different reasons. As has been widely publicized, China's gold reserves have been rapidly increasing: the largest/fastest accumulation of gold by any government in many decades (see “China now has 5th largest gold reserves”). At least as stunning as this rapid accumulation is the fact that China has done this while buying very little gold on the open market.


 

Instead, China has been able to ramp-up its domestic production, while all the other major gold-producers in the world have seen their own production flat or declining. A decade ago, China did not even rank in the top-five among global producers, while today it is #1.

 

China's strategy is clear. As it continues to position its currency, the renminbi, to replace the U.S. dollar as the global “reserve currency”, it has decided that large reserves of gold are mandatory in executing its plan (a return to a “gold standard”?). Because China wants to accumulate as much gold as possible, restricting its purchases of gold to its own domestic production allows it to buy vast quantities of gold while exerting little upward pressure on the price.

 

This also explains why China (along with India) suggested that the IMF sell all its gold (amounting to thousands of tons) since that would allow China to buy a vast quantity of gold, without pushing the price higher (directly) – while simultaneously allowing it to rid itself of a significant amount of U.S. dollars.

 

However, as individual Chinese citizens have suddenly started buying vast quantities of gold (see “China replacing India as premier gold consumer”), the Chinese government is now beginning to face some domestic competition in accumulating gold – meaning that the gold-buying by the Chinese government will likely soon start to have a greater (positive) impact on the overall gold market.

 

The “reserve currency” status of the U.S. dollar leads to it being artificially valued far above its actual worth (as derived from the abysmal fundamentals of the U.S. economy), and also saves the U.S. government hundreds of billions of dollars per year – just on the interest payments on the massive U.S. debt. Thus, China's obvious-but-gradual campaign to replace the U.S. dollar is a significant (if indirect) threat to the U.S.

 

With China's accumulation of large stockpiles of gold being a precursor to designating the renminbi as the new, reserve currency, this means that China's rapid accumulation of gold is also an indirect threat to the U.S. government. However, as the driving force in suppressing the price of gold, the U.S. is making it much cheaper and easier for China to build-up a large gold reserve – essentially working for the Chinese government in its campaign to replace the U.S. dollar.

 

The other government which stands out for its notable purchases of gold has an agenda vastly different from that of China. Russia has also been buying-up large quantities of gold to bolster its reserves. While the Russian government talks about the Russian rouble being one of the currencies which would/could/should replace the U.S. dollar, it is highly unlikely that this is what is motivating Russian purchases of gold.

 

In July alone, the Russian government bought 600,000 ounces of gold – its largest one-month purchase in recent memory. Unlike China, Russia's purchases are being made on the open market, meaning that its behavior has a strong-and-direct impact on the price of gold. As I wrote in Part I, with gold currently in its weakest season of the year, and with a considerable amount of gold-bearish news hitting the markets, it strongly suggests that Russia has been the single greatest influence in allowing gold to hold its price – only 5% below a (nominal) record-high.

 

What has prompted the Russian government to become the U.S.'s chief antagonist in its campaign to suppress the price of gold?

 

Could it be the direct role played by the U.S. in the financial implosion and subsequent disintegration of the Soviet Union? Could it be the 20 years of excessive gloating by the U.S. government over the Soviet downfall?

 

Could it be the intense campaign by the U.S. to buy-off former Soviet Republics, turn them against Russia politically and militarily – and then load them up with U.S. missiles which are all pointed at Russia?


 

Could it be the ruthless take-down of commodities (including oil) by the Wall Street oligarchs and the U.S. government – as part of their economic “scorched-earth” strategy in the fall of 2008? The take-down of the crude oil market alone has cost the Russian government countless billions – not to mention the huge drop-off in revenues for numerous other raw materials as the world's single-largest commodity producer.

 

Suffice it to say that Russia is likely motivated by all of the above considerations, to such an extent that many commentators have suggested that we have already seen the start of a second, “Cold War”. However, while the first Cold War was characterized by a massive stockpile of “weapons of mass destruction” by the U.S. and Russia – as well as various “proxy wars” conducted by both these governments, a second Cold War would/will almost certainly be an economic contest.

 

Russia has already painfully learned the lesson that all the military might in the world is of little use, when it was supported by nothing but an economic “house of cards”. The U.S. (as demonstrated by its own actions) has obviously learned nothing from the Soviet meltdown – since it appears to be on the verge of duplicating the Soviet collapse.

 

With the U.S. being more vulnerable economically than at any time since its Civil War, Russia is quite happy to wage a new Cold War with gold and dollars rather than tanks and bombs. Becoming a large buyer of gold in international markets is totally a “win-win” scenario for Russia. All it needs to do is to react to the machinations of U.S. market-manipulators. When either the price of gold sags or the value of the U.S. dollar rises, this is Russia's signal to buy gold – with its own stockpile of U.S. dollars.

 

With every purchase of gold made by Russia with its hoard of U.S. dollars, this simultaneously puts downward pressure on the U.S. dollar and upward pressure on the price of gold – the exact opposite of what the U.S. government wants (and needs) to occur. Since gold and the U.S. dollar often move in opposite directions, this is a very easy game for the Russian government to play.

 

Perhaps more importantly, it is a game which the Russian government must win. With Russia having a much larger supply of U.S. dollars than the Manipulator's supply of bullion, their last ounce of gold will/would be gone long before Russia has spent all its dollars. In the meantime, Russia can engage in economic “attrition” against the U.S., much like the U.S. harmed the Soviet Union through military attrition, when the Russians were foolish enough to invade Afghanistan.

 

For many decades, gold has been a tool of economic “warfare” used by Western bankers (primarily Americans) to plunder all the wealth of their own citizens. However, as we near the end of the first decade of the new millenium, the “gold wars” have taken on an entirely new complexion.

 

Instead of imposing their will on precious metals markets through a position of overwhelming market-superiority, now it is the banksters who are on the defensive. It is the banksters whose supply of “ammunition” is woefully inadequate, and it is the banksters who are facing certain defeat.