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The more markets are 'financialized,' the more central banks can rig them
9:30p ET Saturday, September 26, 2015
Dear Friend of GATA and Gold:
Perth Mint research director Bron Suchecki today elaborates on the Physical Gold Fund's interview with an unidentified Swiss gold refinery executive, which GATA called to your attention Wednesday --
-- and largely concurs with the executive, especially his assertion that the suppression of the gold price by the futures markets can go on forever if buyers don't actually take delivery. Suchecki also raises a couple of questions he wishes had been posed to the refinery executive.
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But Suchecki also notes that "markets are more financialized these days" and advises gold investors to "get over it." He adds: "I guess some people think that if only futures markets could be banned and everyone had to trade physical, the price would magically shoot up. They forget that if you ban all forms of paper gold, you ban paper longs. And in any case, any paper contract can be synthesized using physical and borrow/lend. They also seem unaware that the net position of paper trading is, by arbitrage, reflected into the physical market, and vice versa."
This misses something crucial: that the more that markets are "financialized," the more advantage passes to those with the greater access to financing. Since central banks are able to create infinite money and, as GATA has established with extensive documentation, certain central banks and their agents are the biggest shorts in the gold market and very possibly the biggest shorts in the commodity markets generally, and surreptitiously so --
-- whatever position central banks take in the futures markets will be nearly impossible to defeat excerpt perhaps by other central banks. For nobody else can create infinite money for futures trading purposes.
That's why Suchecki's mockery of so many "paper longs" in gold for not having the money to take delivery is irrelevant. If somehow futures trading in gold could be banned and only cash-on-the-barrelhead trading in gold allowed, the gold market indeed would be transformed, not by "magic" but by the evaporation of the "financializing" advantage of the primary shorts in the market, the central banks. And as the "financializing" advantage evaporated, so would the vast supply of "paper gold" that central banks have created or underwritten, which Suchecki himself acknowledges has a suppressive effect on the price of gold.
Suchecki's commentary is headlined "Refinery View of the State of the Gold Market" and it's posted at the Perth Mint's Internet site here:
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
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