Paul Craig Roberts: The Fed Has No Integrity

Tyler Durden's picture

Submitted by Paul Craig Roberts via his blog,

As we documented in previous articles, the gold price is driven down in the paper futures market by naked short selling by the Fed’s dependent bullion banks. Some people have a hard time accepting this fact even though it is known that the big banks have manipulated the LIBOR (London Interbank Overnight Rate – London’s equivalent of the Fed Funds rate) interest rate and the twice-daily London gold price fix.

Almost every week it is possible to illustrate the appearance of a large number of contracts shorting gold at times of day when trading is thin. The short-selling triggers stop-loss orders and margin calls and hammers down the gold price.

The Fed has resorted to this practice in order to protect the value of the US dollar from Quantitative Easing.

In order for the Fed to effectively support the reserve status of the U.S. dollar by pushing it higher when it starts to drop, the Fed has also to prevent the price of gold from rising. Intervention in the gold market has been occurring for a long time. However, in the last several years the intervention has become blatant and desperate, as rising concerns about the dollar are causing countries such as China and Russia to accumulate fewer dollars and more gold.

During the month of March the Fed and the big banks implemented aggressive intervention against the rising price of gold and the plunging value of the U.S. dollar. Events in Ukraine may have stimulated demand for physical gold and selling of the U.S. dollar, but it was mainly further erosion of the U.S. economy, as reflected in more deterioration of economic data released during March, that pushed gold up and the dollar down.

The dollar index is a “basket” of currencies used to measure the relative value of the U.S. dollar. The largest components of this basket are the euro and the yen (it also includes the British pound, Canadian dollar, Swedish krona and Swiss franc). During February and March, the dollar started to decline in response to increasingly negative U.S. economic reports, continued Fed money printing (QE) and the Ukraine crisis.

On the last day of February, the dollar index dropped below 80. The 80 level is a key technical trading level and if the dollar were to stay below this benchmark for an extended period of time, large holders of dollars would start selling their dollar holdings out of fear that the dollar would be headed even lower. The Fed and the U.S. Treasury needed to do something in order to force the dollar index back over 80.

As part of its intervention in the currency market to get the dollar back over 80, the Fed also needed to stop gold from rising back over $1400, which it was on the verge of doing by the middle of March. Just like 80 is key level, below which technical selling of the dollar kicks in, $1425 is another key level for gold for which large buy and short-covering orders would be triggered. In other words, to support any manipulated move higher in the dollar, the Fed needed to intervene in the gold market to force the price of gold lower. The graphs below illustrate the key points of dollar/gold intervention during March.

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As we reported previously, the Fed, using its agent banks like JP Morgan and Goldman Sachs, intervenes in the gold market by “bombing” the market with a large quantity of Comex gold future contracts. This typically occurs at periods of time when the market is very quiet and trading is at a lull. These engineered market interventions are now commonly referred to as “mini-flash crashes.”

As the dollar was consolidating its trading range below 80 and the price of gold was headed toward $1400, flash crashes started occurring more frequently and with more intensity. During the first week of March, gold was getting ready to shoot through the $1350 level and the Fed used two distinct flash crashes to contain gold below $1350 (first two red circles on the graph).

During the week of March 10th, the price of gold started moving quickly higher toward the $1400 level, as the Ukraine crisis was front and center in the news and investors moved money into the safe-haven of gold. The Fed used several mini-flash crashes in an attempt to contain the move. The red circles on the gold graph show the points in time in which the Comex gold futures market was “bombed” with contracts in order to slow down the upward momentum that the price of gold was gaining in the first half of March.

Then early in the morning on March 17th, with the tension subsiding somewhat between the U.S. and Russia after Crimea voted to join Russia and war didn’t break out, the Fed and its agent banks went to work on manipulating the price of gold lower and forcing the U.S. dollar higher . The red arrows on the gold graph show where the Fed dropped gold future “bombs” on the gold market in order to force the price of gold lower. The huge bursts of sell-volume almost always occurred during periods of low trading activity.

On March 18th, the Federal Reserve Open Market Committee (FOMC) convened for a two-day meeting, with its policy statement to be released March 19th at 2 p.m. EST. A study of how gold performs during the week in which there is an FOMC meeting showed that, on average, gold drops $37 for that week. This compares to almost no change during the same week during months in which no meeting is held. As you can see, the mini-flash crashes were used to force the price of gold down $72 from top to bottom during the March FOMC meeting week. The dollar graph shows the big spike in the dollar, which took the dollar back over the 80 level right after the FOMC meeting was concluded.

The Fed’s aggressive engineering of the mini-flash crashes continued during the last week of March. The group of red arrows on the right side of the gold graph show points in time Monday (March 24) – Friday (March 28) when there were sudden bursts of high volume selling in the April gold contract. Monday’s flash crash to start the week involved 6,437 contracts dumped onto the Comex right as the Comex gold trading floor opened at 8:20 a.m. For comparison purposes, 855 contracts had traded the minute before the Comex opened. Recall from one of our previous articles that gold gets hit right at the open of the Comex flooor trading session at least 85% of the time. This serves to set a downward momentum for the day’s trading.

Remember, the purpose of Quantitative Easing is to support the balance sheets of a few over-sized banks and to finance the federal budget deficit at an artificially low rate of interest. In other words, QE supports failed banks and federal fiscal irresponsibility. In order to successfully carry off this blatant misuse of public policy, the price of gold, a measure of the dollar’s value, must be suppressed. The Federal Reserve’s lack of integrity speaks volumes about the corruption of the US government.

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cossack55's picture

No one. The Fed owns everyone.

fonzannoon's picture

So when gold was smashed down last year it was manipulation. But it's rise this year just shy of $1,400 was a true market....I don't buy this premise.

 

max2205's picture

Lol. In order to lose integrity you first must have had it.....they never had it

Dollarmedes's picture

"...but it was mainly further erosion of the U.S. economy, as reflected in more deterioration of economic data released during March, that pushed gold up and the dollar down."

I was wondering whether the USDCNY could be responsible for this via the unwind in "gold as uber-commodity," but the timing doesn't add up: the article states "On the last day of February, the dollar index dropped below 80." USDCNY didn't hit the red line of 6.20 until about 3/20.So the explanation given seems plausible.

nelsonmandella's picture

so gold will trade at $5000 plus buy the end of the year 

TheGardener's picture

Figure the gold "rescued from Ukraine" and the real physical
at such 1000 times leverage and a hundred dollar drop could have been viewed in in retrospect. My own wishful thinking got shorted at a 50 dollar drop so never ever short or relativize what you believe in. Stay put.

BandGap's picture

fonz - they cannot control all the forces all of the time, and in order for it to even look close to legitimate they can't be blatent. PS - the US took Ukraine's gold.

The Fed is now blatent and in the open. Like HFT being exposed someone will eventually make it on the major networks and expose this to the common trader. I wonder if the writing is on the wall some way with JPM getting out of the business. The Fed has to know that at some point this has to end.

DaveyJones's picture

I can't believe something comprised of large banks would share that quality

DoChenRollingBearing's picture

PCR sez the Fed is bad?

Bwa ha ha ha ha ha!!

, fishez!

WTFx10's picture

The same fuckers that created it in 1913. You know that Forbes list of the richest individuals in the world, they are suburbanites compared to the owners. The top Con men names are never revealed but they haven't changed since 1913.

yogibear's picture

Germany: Where's our gold?

buzzsaw99's picture

We got our dirty little fingers in everybody's pie...

fonzannoon's picture

These arguments about gold are all a bunch of shit. There are ten different theories out there at any given time about what is moving it. Yet everytime I call my place they have plenty in stock. Every month someone on here posts how JPM or whatever does not have enough in inventory to meet delivery and yet a few days later it's a distant memory.

I only read this because the Author has 3 names and anytime an author has 3 names you have to give it a glance.

DoChenRollingBearing's picture

fonz, yeah, almost all the times I call my LCS they have Au in stock.  Not always.  But, if I start to see a pattern of stock-outs, that might be the signal that we are on the final lap...

Maybe authors with three names are more important than other authors. 

:)  ~~~

fonzannoon's picture

I have seen my place tell me they have no silver, but never no gold, and when I pushed them they told me they had silver but just refused to part with it at that particular price. If I had been willing to pay an even more ridiculous premium than usual, they would have parted with it. That was around $25, so they probably should have just sold it to me.

Greenskeeper_Carl's picture

ha the place i used to go did the same thing at 25. it was one of those places that buy scrap gold/silver/diamonds. they also sold coins. at somewhere around 25, i went in there after not having been back in about a month, and the owner, who was usually there was gone, but the guy behind the counter informed me they were no longer selling any silver. He could have sold them to me, then replaced them for 20% less. When I started going there silver was around 31-32, and he sold me genric rounds/bars for .70 over spot, and eagles for 2.25 over spot. i go to a new place riht down the street from me now, but i sure do wish i could still get those premiums.

The Navigator's picture

Went last week to the LCS - was able to get a roll of 20 silver buffalos at $22.20 ($2 above spot) but they wanted $25 for junk silver dollars, which I was previously able to get at $1 or $2 above spot. Junk coins seem to be in higher demand than in the past - not sure what this portends.

TheGardener's picture

Out of stock is so much out of this world as in 2008/9.

My suppliers always had a fully hedged book for decades
to run, but of course them being reluctant to sell when prices dropped out of range but ever willing to trade.

TheGardener's picture

Fonz , we read those arguments about gold because we have it.
Stop shivering and get back to why you bought it in the first place.

I don`t believe into insurance like Hans Herman Hoppe
who would advocate to outsource the vital functions of criminal statehood to even more criminal private institutions.

But to insure ourselves in our self against the motion of money there is only this barbaric relict solution.

fonzannoon's picture

I bought it so when I am dead my grandkids can dress like Mr.T every halloween. So, to me, this is all just noise.

TheGardener's picture

I bought it to kiss money goodbye and lost it
at that lake where you could rudder across in a nutshell towards treasure island. Planed to dig it up there, on that ridge without reach and jurisdiction.

I hear your noise fonz, I kissed goodbye to it too.

Latitude25's picture

Here's some analysis to broaden your outlook.  Is there any gold left for central banks to buy?

http://www.bullionbullscanada.com/gold-commentary/26512-is-there-any-gol...

BandGap's picture

I have seen stock outs a number of times when trying to get silver.

 

 

bnbdnb's picture

The problem with government is the endless effort to NEVER define failure.

techstrategy's picture

All we have to do is raise 5% of our assets in physical cash outside the banking system and use AMZNopoly and other float scam money to buy gold (trillions on funny money) specifically the GLD whose legal short interest is limited to the underlying physical and the games end forever.  Spread the word.  This will make the London whale look like child's play.

ebworthen's picture

Abbreviation for corruption = .gov

Inthemix96's picture

PCR my friend, well played but you could have said, the FED is full of, corrupt, incompetant, money grubbing, immoral, useless, never done a days real graft in their over priviledged lives, cunts, nation destroying, making you the 'Serf' work two or three jobs for less money and a lower standard of living than you fucking had ten years ago, did I mention cunts?  Child molesting fucking chancers, thieving, bent as fuck yes men for the real bosses more than likely the bastard in-bred fucking rothchilds, cunts.

And never mind the Royals.

Could of saved a few words there fella.  Other than that, well played.

;-)

WTFx10's picture

Your reads are most enjoyable.

Rising Sun's picture

And Janet Yellen needs a cross check in the face - Eddy Shore old time hockey style.

 

fucking cunt!!!!!!!!!!!!

replaceme's picture

Yea, Eddie Shore, coach!

i_call_you_my_base's picture

This just in, liars cheat and steal.

ToNYC's picture

First it was, "Don't fight the Fed"

After 2008,

"The Fed will crush your ass"

Off the Fedreservation,

"Deflation is IP; think and it will feed you."

dumpster's picture

the gold flash crash has nothing  to do with inventory at the local coin shop for mr dumb guy..

 

it is sselling max contacts of paper in  seconds driving the market down  read the article and look at charts for your dumb ass conclusions

 

onzannoon

superflex's picture

He's just bitter for buying near the ATFH.

 

LooseLee's picture

Kinda like today's equity buyers will feel in about a month---ThisRideNeverEnds....out there fool?

Latitude25's picture

Tapering is a lie because the pipeline of 0% loans to the big banks is expanding even as QE winds down.  Money creation leads to suppression of the gold price.

http://www.bullionbullscanada.com/gold-commentary/26476-debunking-taperi...

kchrisc's picture

I've known since 1913 that the FedRes has no integrity.

"Printing" is theft.

 

"What do you say about a bankster's head in a basket? Next!"

Amish Hacker's picture

So let me see, the dollar index has to be kept above 80, the 10-year yield has to be kept below 3%, gold has to be kept below $1400/oz, S&P above 1850, oil below $100/bbl, Dow above 1600, silver below $21/oz, and LIBOR, FX, and QE must be managed above or below free market levels on a daily basis. Obviously, this doesn't leave the Fed a lot of time for integrity. 

olenumbersix's picture

I won't be popular for saying this, but I hope gold keeps right on falling.  I don't give a rats ass why. I've been a buyer of gold and silver for a loooooong time. I am not a seller not even a single gram of the stuff, so as a buyer I love it when the price drops. If the fed or china or your momma is pushing gold lower then I'd like to say thanks.  more for me!!

Bioscale's picture

I share your feelings.

The banksters have created a bubble in gold buying. It's the only bubble with falling prices. The more they drag it down, the more it's going to jump when they stop doing it.

chinoslims's picture

"In order for the Fed to effectively support the reserve status of the U.S. dollar by pushing it higher when it starts to drop, the Fed has also to prevent the price of gold from rising."

So the short term objective of the Fed is completely different from the long term objective.  The long term objective is to destroy the buying power of the American people and enrich the bank accounts of the 1%.  I am so confused with what the Fed does.

Flying Wombat's picture

This article should be credited to Dave Kranzler as well, ZH.  They co-wrote it.

Best,

Eric Dubin, Managing Editor, TheNewsDoctors.com

Bioscale's picture

Thanks for the link, btw the site loads very slow.

Fix It Again Timmy's picture

Inthemix96,

Yes, yes, yes!!! Your description rings true....I only wish more people had the same realizations...