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Chris Powell: Gold market manipulation update
By Chris Powell, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
New Orleans Investment Conference
Hilton New Orleans Riverside Hotel
Wednesday, October 28, 2015
Everything about the financial markets today must begin with two documents.
The first is the 2013 10-k filing with the U.S. Securities and Exchange Commission by CME Group, operator of the major futures exchanges in the United States. In August 2014 Eric Scott Hunsader, founder of the market data firm Nanex in Winnetka, Illinois, called attention to a telling paragraph in the filing. The telling paragraph discloses that the customers of CME Group include "governments and central banks."
http://www.gata.org/node/14411
Also in August 2014 Hunsader called attention to another filing by CME Group, a letter sent in January 2014 to the U.S. Commodity Futures Trading Commission by CME Group's managing director and chief regulatory counsel, Christopher Bowen.
http://www.gata.org/node/14385
... Dispatch continues below ...
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The letter disclosed that CME Group futures exchanges offer volume trading discounts to central banks for all futures contracts, not just financial futures contracts but also futures contracts for the monetary metals and commodities, including agricultural products.
The CME Group letter to the CFTC justified secret futures market trading by central banks as a matter of providing the markets with "liquidity" that would benefit all traders.
But if governments and central banks, creators of infinite money, are secretly trading the markets, there ARE no markets anymore, just interventions, as a high school graduate told GATA's conference in Washington in 2008 and as the British economist Peter Warburton suspected in his incisive 2001 essay, "The Debasement of World Currency -- It Is Inflation, But Not as We Know It":
If governments and central banks are secretly trading the markets, no fundamental or technical analysis of markets is worth much. If governments and central banks are secretly trading the markets, the only market information worth much is information about government and central bank trading.
GATA has continued to document that central bank trading and related maneuvers since we met here in New Orleans a year ago. Let's review some of the new documentation.
-- On September 21 this year gold researcher Koos Jansen reported that the rules of the International Monetary Fund exempt imports and exports of monetary gold from reporting by national customs agencies. That is, the purchase and sale of monetary gold by governments and central banks across international borders can be withheld from customs reporting, thereby facilitating secret intervention in the gold market:
http://www.gata.org/node/15759
-- On September 16 this year gold researcher Ronan Manly disclosed that while the new daily London gold auction was established in the name of reducing the possibility of market manipulation, the auction's operator, the Inter-Continental Exchange, has reported to the United Kingdom's Financial Conduct Authority that spikes in Comex gold futures prices seem to have been undertaken to manipulate the afternoon gold auction in London:
http://www.gata.org/node/15743
-- On August 6 this year Manly disclosed a policy study by the Bank of England written in 1988 that concluded that gold is the best money because it has no counterparty risk but that buying it risks insulting the U.S. dollar and the U.S. government:
http://www.gata.org/node/15625
-- On June 9 this year Colorado securities lawyer Avery Goodman, who researches the gold market, called attention to the hugely disproportionate Comex futures contract gold deliveries being made by the investment bank JPMorganChase. The disproportion of the deliveries assigned to MorganChase, Goodman wrote, suggested strongly that the investment bank is administering the U.S. Federal Reserve's gold swapping and leasing operations and that at least for the time being the U.S. government and U.S. gold reserve are guaranteeing Comex gold futures contracts:
http://www.gata.org/node/15441
-- On May 3 this year gold researcher Manly called attention to the Internet site of the gold market consultancy started last year by the former Barclays Bank representative in the London Gold Market Fixing company, Jonathan Spall. Spall's new company is called G Cubed Metals:
http://www.gata.org/node/15310
The G. Cubed Metals Internet site says: "All connected with G Cubed Metals are well aware of the need for confidentiality in all financial markets as well as the additional sensitivity that comes from transacting in precious metals -- particularly when it involves the 'official sector' such as governments, central banks, and sovereign wealth funds."
Why do governments and central banks need such confidentiality in their gold market operations unless they mean to do something they don't want the market to know about?
-- On April 6 this year gold researcher Manly disclosed a letter written on January 30 by the chief executive of the London Bullion Market Association, Ruth Crowell, to the Bank of England's Fair and Effective Market Review Committee.
http://www.gata.org/node/15241
Crowell wrote: "The role of the central banks in the bullion market may preclude 'total' transparency, at least at public level."
While Crowell wrote that the LBMA welcomes more transparency in the London gold market, particularly through what she called "post-trade reporting," she also praised gold lending by central banks for providing "liquidity" to the market, asserting that "it is vital that the role of the liquidity provider is not diminished but in fact strengthened to make sure the markets remain fair and effective."
The Bank of England's review of the gold market, Crowell's letter said, "should prioritize liquidity, as greater liquidity results in markets which are less easily manipulated, and consequently regulators should afford market participants the tools with which to foster liquidity."
But if the foremost providers of "liquidity" in the gold market are central banks, their provision of "liquidity" is likely the primary mechanism of market manipulation, as central banks have not just access to effectively infinite financial resources but also the powerful motive to manipulate the markets in which their currencies and bonds trade.
Thus with its chief executive's letter to the Bank of England, the LBMA made the same bogus and self-serving claim that was made by futures exchange operator CME Group in support of the volume trading discounts it gives to central banks for secretly trading the U.S. futures markets CME Group operates -- the claim that secret trading by central banks deters market manipulation rather than constitutes it.
-- On March 1 this year a GATA supporter discovered a Ramparts magazine article from May 1968 written just after the collapse of the London Gold Pool. The article was written by Michael Hudson, who then was an analyst for Chase Manhattan Bank and lately has been professor of economics at the University of Missouri at Kansas City:
http://www.gata.org/node/15147
Hudson wrote:
"America's desire to see gold eliminated from the world's monetary system is understandable. It had used gold as a lever with which to exercise world power, not only to purchase foreign businesses but also to finance its overseas Cold War operations. Gold, America perceived, was power; as long as gold was the basis of the world monetary system, power followed it. Therefore, when its gold stockpile was depleted, America naturally wanted to transform the monetary system in such a way as to phase gold out, thereby preventing any other nation from using the power it provides -- especially in view of the fact that the major potential gold-bloc nations are the Soviet Union, South Africa, and France."
-- On February 28 this year gold researcher Manly located comments made by a high official of the Bank of England in a 2007 issue of the magazine Central Banking indicating that the Bank of England secretly traded gold in the 1980s to control its price and even made a profit doing so:
http://www.gata.org/node/15146
-- In January this year the chief of market operations for the Banque de France, Alexandre Gautier, replied to an e-mail inquiry from GATA's friend Fabrice Drouin Ristori, chief executive of Goldbroker.com in Malta. Gautier had told the London Bullion Market Association meeting in Rome in September 2013 that the Banque de France secretly trades gold "nearly every day" for its own account and for the accounts of other central banks:
http://www.gata.org/node/13373
Ristori asked Gautier to explain the purposes of the Banque de France's gold trading. Gautier replied that the French central bank never explains its operations in the gold market.
http://www.gata.org/node/14954
But the only purpose of such daily trading by central banks is market manipulation.
-- A week ago the executive director of Austria's central bank, Peter Mooslechner, was interviewed by Daniela Cambone of Kitco News on the sidelines of the London Bullion Market Association conference in Vienna. Mooslechner volunteered to Cambone that Asian central banks are intervening surreptitiously in the gold market:
http://www.gata.org/node/15878
Cambone had asked Mooslechner to explain the role of central bank gold reserves.
Mooslechner replied: "I think for small countries it's more or less this buffer role in the end. It's quite different, I think, for central banks in Asia, for example, where they are increasing their reserves a lot and they are much more active in using also their reserves in trading in the market and intervening into the market."
But Cambone seemed to fail to understand what she had just been told. She asked no follow-up questions about secret central bank interventions in the gold market.
GATA's friend the German financial journalist Lars Schall noticed Cambone's gross omission and understood its importance. So Schall sent his own follow-up questions to the Austrian central bank in the hope that Mooslechner would reply:
http://www.gata.org/node/15892
Schall asked Mooslechner the following questions:
-- Can you elaborate on the trading of gold by central banks and their use of gold for market intervention?
-- Exactly which central banks are doing this trading and intervention, what are its purposes, objectives, and results, and what markets are involved?
-- Are this trading and intervention public and announced or are they secret and surreptitious?
-- Are this trading and intervention undertaken directly by central banks or through intermediaries?
-- If this trading and intervention are undertaken through intermediaries, who are they?
-- Should markets and citizens generally have the right to know about this trading and intervention?
-- And how do you know about it, Herr Mooslechner?
Today Schall reported that the Austrian central bank’s press office had just replied to him as follows: “Sorry, we are not going to answer your questions. We never comment on our investment strategy and trading":
http://www.larsschall.com/2015/10/27/again-and-again-no-answers-from-cen...
But Schall had not asked about the Austrian central bank’s investment strategy and trading. He had asked about the Austrian central banker’s comment on Asian central bank trading and secret market intervention.
Even so, Mooslechner's lapse into candor about secret central bank intervention in the gold market was notable enough. Maybe Mooslechner is not available to answer Schall's questions because he is floating face-down in the Danube.
-- Of course Cambone's job at Kitco News is not to commit journalism; it's just to look pretty.
But a few days after Cambone flubbed her interview with the Austrian central banker, the star columnist of the Financial Times, Martin Wolf, did no better with his interview with former Fed Chairman Ben Bernanke over lunch at a restaurant in Chicago.
http://www.gata.org/node/15884
Amazingly, Wolf never asked Bernanke an inconvenient question. Wolf asked no questions about surreptitious interventions in the markets by the Fed, and no questions about the many documents involving market intervention that the Fed refuses to disclose.
For Wolf's job at the Financial Times is not to commit journalism either. It's just to shill for the government and ingratiate the newspaper with it.
* * *
The primary objective of these largely surreptitious interventions by central banks in the gold market has been to keep the gold price down and thereby destroy the natural inverse relationship of the gold price with interest rates and currency values -- to prevent gold from serving its traditional function as a hedge against government mismanagement of currencies and markets, to prevent people from escaping the central bank system.
By any traditional market standard it is absurd that gold should be priced below the cost of its production when, as now, real interest rates and even nominal interest rates are negative. Gold can be priced this way only because of massive intervention -- constant, daily, even hourly intervention by central banks using derivatives, high-frequency trading, and dishoarding from central bank gold reserves.
If you rig the risk-free rate of return, the price of money from the government, and rig the price of the traditional safe-haven money, gold, you rig all prices, rig the price of all capital, labor, goods, and services in the world, and thereby destroy the market economy. Even some central bankers have been calling this policy "financial repression."
In today's environment of "financial repression," any investment in gold and gold-mining companies is a bet on the restoration of a market economy -- or a bet that, eventually, yielding to market pressures, central banks will choose to devalue currencies and debt by resetting the gold price much higher and resuming their gold price suppression scheme at a more sustainable level, a level with less offtake from their gold reserves. This would be the sort of thing central banks have done before, as in 1933 and 1934, 1968, and 1971.
I have no insight into exactly what will happen or when. I think the best that advocates of free and transparent markets can hope for is to drag "financial repression" fully into the open so that even mainstream financial news organizations like the Financial Times are forced to acknowledge it. Then the world can plainly decide between totalitarianism and democracy.
Much more documentation of the rigging of the gold market by central banks is posted in the "Documentation" file at GATA's Internet site:
http://www.gata.org/taxonomy/term/21
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Thanks for your kind attention.
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