Pat Heller: How central banks might have smashed gold and silver down

11:17p ET Tuesday, September 27, 2011

Dear Friend of GATA and Gold:

With his new commentary at Numismaster, Patrick A. Heller of Liberty Coin Service in Michigan speculates on the possible mechanisms of central bank market manipulation that sent gold and silver prices plunging just as the eurozone was about to break down.

Heller writes:

"First, it is entirely possible that European central banks of nations in the eurozone could be liquidating some of their gold reserves as a desperate move to beef up their fiat currency reserves to stave off default on their debts. If this is happening to any degree, that could help explain the why short-term gold and silver lease rates have recently turned negative.

"Second, it is possible that the U.S. government may have informed the Chinese government in advance that is was preparing a major intervention to suppress gold and silver prices and asked the Chinese to refrain from jumping in to purchase physical metals until the market had been pushed near the bottom.

"Last week a longtime reliable source told me that there were massive quantities of Asian buy orders placed in the London market to execute if spot prices dropped to $1,760 all the way down to $1,715. I have every reason to believe that at least a sizable percentage of these buy orders may be have placed by the Chinese government as this would be consistent with their trading activity since 2003. If the Chinese were alerted that they could have the opportunity to purchase gold even cheaper than their standing buy orders, it would be reasonable for them to cooperate by putting their buy orders prices in the $1,700s.

"Third, it is possible that the U.S. government may have directly intervened in suppressing prices, through one or more agencies that are not drawing close scrutiny from Congress or the public. The prime suspect would be the Exchange Stabilization Fund, which was established in 1934. The ESF is an emergency reserve, not subject to congressional oversight, normally used to intervene (manipulate) in foreign exchange markets. In 1970 its mandate was changed by Congress to allow the secretary of the treasury, with the approval of the president, to use funds in the ESF to 'deal in gold, foreign exchange, and other instruments of credit and securities." Thus it would be possible and legal for the U.S. government to surreptitiously manipulate the gold market. The reason I consider this to be a plausible reason that gold and silver prices were suppressed is that the major beneficiaries of lower prices would be the U.S. government, its trading partners, and allies."

Heller's commentary is headlined "Buy Metals at Bargain Prices" and you can find it at Numismaster here:

http://www.numismaster.com/ta/numis/Article.jsp?ad=article&ArticleId=24149

CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.