Alasdair Macleod details the mechanics of gold price suppression

The International Monetary Fund's gold is likely to be held on a sight basis in its entirety. When the IMF disposed of 400 tonnes between 2009 and 2010, they turned down bids from the private sector, selling only to other central banks. I believe this gold was in sight accounts (that is, did not actually exist), so a condition of sale was that it could be transferred and held only between central banks and supra-national government organisations. This certainly seems likely, but the sale terms were never actually made public.

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London Bullion Market Association members strongly encourage clients to hold unallocated accounts by charging little or no fees for the privilege. They discourage clients from holding allocated accounts by charging high storage and custody fees. There are very good reasons why this is so. They are unable to make use of allocated gold, whereas every ounce of unallocated gold is used to back the LBMA members' dealings in the market. The disadvantage to the client is that he is exposed to counter-party risk.

Now if you have looked recently at the balance sheets of some of the European banks, you may not wish to take that risk. So while there has never been a bankruptcy in the market (though there have been some covert rescues -- for example, the one I mentioned earlier which [former Bank of England Governor] Eddie George talked about), implying that unallocated accounts are safe, for many clients this is not an assumption they are prepared to accept anymore.

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The money in the [gold] market is always unbalanced in favour of the commercial bullion banks. They have lots of money, even your money as a taxpayer if they are too big to fail, and can always bluff anyone not prepared to put up funds for delivery. This is because the non-commercials and speculators have geared positions, which will magnify their losses.

We see this happening time and time again. The big commercial bullies wait for the punters to build up their long positions and then they whack it hard. They know that by doing so they will trigger all those stop-losses. In an afternoon they can make $100 an ounce this way. They make lots more money trading this way than they lose from being continually short in a bull market. You have been warned!

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In the chart above I have derived from disaggregated data the net positions of the swap dealers. Two years ago they were short a net 120,000 contracts, which is the equivalent of 373 tonnes of gold. Since March 2011 they have reduced their net shorts from -110 thousand to zero give or take at the peak of the gold market last September. At the same time open interest fell from a peak 650,000 in November 2010 to the 420,000 level.

Why were the swaps short? The only logical reason has to be that the central banks were supplying the market with physical. It is that extra physical that was being hedged two years ago. And what is interesting is that at that time Portugal was rumoured to have given its gold up as collateral to the Bank for International Settlements. The amount that actually showed up in the BIS accounts was 349 tonnes, and the date was late 2009. Fits perfectly! Put another way, Portugal's entire gold stock appears to have been sold and absorbed into the market.

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