Why The Rigging Of The Gold Market Matters

Tyler Durden's picture

Submitted by Alasdair Macleod via The Cobden Centre,

In a radio interview recently I was asked a question to which I could not easily give a satisfactory reply: if the gold market is rigged, why does it matter?

I have no problem delivering a comprehensive answer based on a sound aprioristic analysis of how rigging markets distorts the basis of economic calculation and why a properly functioning gold market is central to all other financial prices. The difficulty is in answering the question in terms the listeners understand, bearing in mind I was told to assume they have very little comprehension of finance or economics.

I did not as they say, want to go there. But it behoves those of us who argue the economics of sound money to try to make the answer as intelligible as possible without sounding like a committed capitalist and a conspiracy theorist to boot, so here goes.

Manipulating the price of gold ultimately destabilises the financial system because it is the highest form of money. This is why nearly all central banks retain a holding. The fact we don’t use it as money in our daily business does not invalidate its status. Rather, gold is subject to Gresham’s Law, which famously states bad money drives out the good. We would rather pay for things in government-issue paper currency and hang on to gold for a rainy day.

As money, it is on the other side of all asset prices. In other words stocks, bonds and property prices can be expected to rise measured in gold when the gold price falls and vice-versa. This relationship is often muddled by other factors, the most obvious one being changing levels of confidence in paper currencies against which gold is normally priced. However, with bond yields today at record lows and equities at record highs this relationship is apparent today.

Another way to describe this relationship is in terms of risk. Banks which dominate asset markets become complacent about risk because they are greedy for profit. This leads to banks competing with one another until they end up ignoring risk entirely. It happened very obviously with the American banking crisis six years ago until house prices suddenly collapsed, threatening to take the whole financial system down. In common with all financial bubbles everyone ignored risk. History provides many other examples.

Therefore, gold is unlike other assets because a rising gold price reflects an increasing perception of general financial risk, ensuring downward pressure on other financial asset prices. So while the big banks are making easy money ignoring risks in equity and bond markets, they will not want their party spoiled by warning signs from a rising gold price.

This is a long way from proof that the gold market is manipulated. But the big banks, and we must include central banks which are obviously keen to maintain financial confidence, have the motive and the means. And if they have these they can be expected to take the opportunity.

So why does it matter if the gold price is rigged? A freely-determined gold price is central to ensuring that reality and not financial bubbles guides us in our financial and economic activities. Suppressing the gold price is rather like turning off a fire alarm because you can’t stand the noise.

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Arius's picture

It doesnt matter really ... after the hyperinflation in Germany real estate was used NOT gold as basis for the new currency and it worked fine.  All it matters how much is in circulation of anything ... who knows how much gold is out there ... it all depends on the people who control the markets how much they put out there and at what price ... all else doesnt matter.

Pinto Currency's picture

 

 

Gibson's Paradox shows, based on centuries of data, that rising gold prices cause rising interest rates.

Rigging gold allows artificially low interest rate policy which is what has happened for a couple of decades now.

It is the central issue to the current landscape of bubbles everywhere and $200 trillion in global credit market debt.

J S Bach's picture

Excellent article... terse and to the point.

One doesn't need "proof" of the manipulation of the gold and silver prices anymore than one needs proof that the sky is blue on a clear day.  One can see it if their eyes are open.

Take away the Rothschild's power of "price setting" and let the free markets decide its true worth (in inflating dollars).   That day is coming.

RaceToTheBottom's picture

Why is that day coming?

Not trying to be trite, sarcastic, or whatever, by why?

The US FED has printed 15TRILLION Dollars and is bragging about how little inflation it has caused.  That and the fractional lending multiplier allows for a lot of financial power. 

Using even a little percentage of that amount in the derivatives markets can and has kept the PM prices Monkeyhammered to the levels that they want.  PMs are viewed as a investment Joke not a store of value.  They have achieved what they wanted.

Why is that going to change?

I ask that question owning a huge amount of PMs, paper and physical.

BaBaBouy's picture

R-R-R-Rigged-R-US ...

Why Look At OUR Great Paper Fiat Asset... So Much Better Than

That BARBAROUS RELIC That Consistenly Never Can Rally Against OUR SOLID HardDrive Currency...

kliguy38's picture

You're being given a gift to buy physical....keep stackin'

BaBaBouy's picture

PS... Just Ask Yourselves...

IF  GOLD Is Such A Bad Asset, Why Can't The GERMANS Get Their Demanded PHYSICAL GOLD Back ???
Where Is It Now?
Who Owns It?
WHY Do They Own It?

And More Importantly, WHY Did The GERMAN Politicos Shut Up About It, Whats The BIG Secret ???

strannick's picture

Traditionally, rising interest rates and a rising gold price are the harbingers of too much govt debt and mismanagement. The financial system is far too unstable now to ever allow these two manipulations to be ceased. The system will be catastrophically collapsed and reset before rates and gold rise. Just ask Volker "my biggest mistake was letting the gold price rise" and Greenspan "central banks stand ready to lease gold in ever increasing quantities".

Golds price is suppressed by illiquid hour dumping of futures contracts,; interest rates are suppressed with bullion banks taking the variable side of rate swaps in a derivative market worth trillions.

There are no more markets, only interventions -Chris Powell, GATA

SoilMyselfRotten's picture

We will soon find if Harvey Organ is correct in his prediction of a huge move by December. He thinks the Sept. 22 opening of the Shanghai Gold exchange will be the start of a more true price discovery for gold, and silver is in a much stronger place than gold. He thinks the markets  are so constrained of physical that there will be defaults by December.

Manthong's picture

The rigging of the gold market matters because,,

Hell, don’t ask me, ask Larry Summers and Chris Powell.

http://www.gata.org/node/11507

 

EnslavethechildrenforBen's picture

Of course they're printing themselves gazillions in GLD... Wouldn't you?.. Of course Russia and China know they can't go back to a Gold Standard until they bomb Wall St... And end the counterfeiters party... Question is will that happen in our lifetime?

balanced's picture

"Question is will that happen in our lifetime?"

It all comes down to this - when? It's like watching a skyscraper being built. You along with a very small portion of people involved can see that it is actually made of scaffolding and duct tape - it's going to collapse. But the vast majority of people ignore the warning signs, and continue to buy units as the building continues to defy the odds, and grows higher and higher each year along with the value of those units. The value of all other real estate eventually plummets, as people continue to put everything toward owning a piece of the doomed skyscraper. This means that the few who saw the fragility of this new building, and as a result invested in other real estate, end up losing their shirts due to the falling prices. You just keep staring at the skyscaper, the top now obscured by clouds, thinking, "How the fuck is it still standing? Will it ever fall?"


nope-1004's picture

Good analogy.  The "will it ever fall" imapatience is because the association with money and wealth demands a return QUICKLY.  We've been taught to get in and get out, flip a house, buy and IPO and dump it first week, on and on.  The crowd loves this Get-in-Get-out quickly bullshit, because it works while it works.

But once this fake economy finally does start to crack under its own debt load, which it surely will, we'll all be too late to save what we have in paper and digital instruments.

"When" will it fall?  Idk, and Idc because I'm prepared and, judging by the actions of other global nations, they too are aware of what will come to pass.  I know that my neighbor simply can't support his debts if rates go to 6%, and I know .gov can't either.  So a reset is guaranteed.

 

 

EnslavethechildrenforBen's picture

The only thing connecting the price of GLD to the price of Gold is people's belief that GLD... is... Gold. Once that belief is gone, no amount of paper will buy even one oz of Gold... Or anything else for that matter...

Squid-puppets a-go-go's picture

The value of gold is deep in our culture. But as its a barbaric relic, perhaps Yellen should conduct a campaign to get the olympics to swap 'gold medals' for paper. And re-educate children to use the phrase 'good as paper'.  or, 'killed the goose that laid the paper egg'.  Theres a lot of work to be done 

EnslavethechildrenforBen's picture

I'm going to need a much larger safe when we enter the "paper age" of enlightenment

MalteseFalcon's picture

There are two markets for gold.

The market for central banks and players reflect the real market value.

The market for everyone else is rigged.

You'll never see the real market value much less receive it.

Four chan's picture

propaganda can only exist in a vacuum. the lie created

by the controllers of gold is that, federal reserve notes can

still stand with gold as a true store of value, fact they are

worthless and devalued daily along with the savings of anyone who

has traded the highest value FOR them, their time of life.

that gold is unstable at best and worthless at worst is the

bankers lie the vacuum they create, to steal our lives.

 

it is an evil force that created the creature from jekyll island,

are we the people strong enough to slay this evil?

Elvis the Pelvis's picture

I don't believe a word of this article.  The FED keeps printing and printing and printing, and it still can't hit it's inflation targets.  We are in for a deflationary abyss--similar to what is happening in Japan.  Gold has peaked.  Just put deflaiton in your pipes and smoke it.

GetZeeGold's picture

 

 

 

Oh really?

 

Then give Germany it's gold back is it's so damn cheap.....pull it out of your ass and deliver it.

forexskin's picture

perhaps read a little of

http://fofoa.blogspot.com/

and relieve youself of that transparent ignorance.

EnslavethechildrenforBen's picture

Out of all the structures than man builds, sky scrapers are the weakest. That, however does not mean that they are going to fail. Some will eventually simply be buried in silt or settled dust over the centuries. Others will fall immediately if you excavate adjacent to their footings. Investing in assets valued in dollars benefits only an elite few, not because their investments will outpace inflation, but because they are simply using money that the printed instead of earned. All others will lose due to devalued fiat purchasing power when they try to cash out of the game. The winners are counting on their stupidity and greed.

duo's picture

most likely they will become "mines" for steel and glass when the iron ore is gone, or humans forget how to make iron into steel.  The Roman columns were knocked down for the steel pins during the dark ages.  No one know how to mine iron ore or to make iron.

fockewulf190's picture

The analogy I like goes like this:  https://www.youtube.com/watch?v=VNtsVP42bOE

Your fiscal black swan event happens out of the blue (asteroid hits the Earth).  It blows the derivatives all to hell (tidal wave).  Markets are taken out (oil rigs destroyed).  99% of the sheeple get wiped out (wave wipes out sheep...whole cities)  The stackers have what is needed and stand a chance at survival (two kids boogie up a hilll using their dirt bike and avoid the wave).

401K of Dooom's picture

I thought that was "Urban Renewal?"

savagegoose's picture

we had a building like  that in the city i live. I worked next door. for years no one was ever allowed to tennant it, i mean  over a decade!  then around 2004 someone got a loan and fixed it up. or welll wrapped    a loan into riskelss bags.

 

Al Huxley's picture

Harvey Organ's been predicting the imminent (eg 'next month' or 'next big delivery month') demise of the Comex for many years now.  I think it's safe to say his predictions and analysis are of limited value and limited credibility.  There will be a big problem someday, but that day will be when the general public, or at least the FIs, lose confidence in the current system and in the reliability of paper and electronic assets to act as valid forms of currency.  Until then the Comex will most likely continue as a fully unregulated paper gold exchange, regardless of 'inventory issues'.

explosivo's picture

Yes, I agree. I think about this in terms of the price of milk. It used to be $1.99 for a half gallon and now it's up to $2.89 over the last 9 months. I think it can go to 10 dollars before people start behaving as though the dollar is toxic. Even then as long as the EBT cards work many people won't care. It looks to me like the system has a good two years or so left. 

RockyRacoon's picture

Pretty much got it there.  If one is not paying the bill, nobody cares about the cost.  I give you the prime example:  health care.

LostandFound's picture

I watched the same interview and felt his analysis was based on a gut feeling rather than anything concrete. One thing for sure though is there is no way China / India / Russia or the rest of the eastern world are going to settle in paper GLD.

The idea of the Shanghai Exchange was to have a larger role in determining the price of these precious metals (knowing the the cartel is suppressing these in the west)

What this means, we dont know yet, safe to say i dont think the paper and physical can keep in the same pricing market for much longer.

The9thDoctor's picture

Harvey Organ, Sprott, King World News, and all of these "legendary newsletter writers" have been crying wolf for the last six years on PMs.

If anyone is going to "back up the truck" on anything, it should be on Magpul PMAGs.

With Klinton 2016, you know that Billy Bobs around the country will run up their payday loans to go out and buy standard capacity magazines to antcipate a new AWB.

I don't see firearms and accessories getting any cheaper than they are currently when priced in FRNs.

Bindar Dundat's picture

"Suppressing the gold price is rather like turning off a fire alarm because you can’t stand the noise."

 

Best line in ZH for three  years!

eddiebe's picture

The big secret is that since the Euro is also fiat, and Germany is still an occupied country and the German leadership is also manipulated by the thugs in power. If Merkel or one of the Bundesbanks heavies start making demands, they just have an oh so unfortunate accident. 

McCormick No. 9's picture

Gold matter because...

Uh, when it's ground into a fine, monatomic powder, it can be suspended in the upper atmosphere of Nibiru, and thus keep out the annoying cosmic rays that fuck with the minds of the Annunaki?

Otherwise, I can't really see a good use for the stuff.

StupidEarthlings's picture

Are you saying that alone aint a good enough reason?..

Keep stackin.

:)

ParkAveFlasher's picture

There are tens of thousands of American big secrets stationed permanently on German soil. They are not there for Oktoberfest.

Bangalore Equity Trader's picture

Listen. Neither your "GOLD" or "SILVER" will hold up to the long term prospects of digital currency.

Wake up stackers!

Xibalba's picture

hahahahahaha.  Thanks for the laugh.  

Bangalore Equity Trader's picture

Listen. The price suppression will only increase on your 'SHINY' metals while investments in the digitals will soar!

I personally don't really care but WTF. Why not make a few extra "INVESTMENT SUCCESSES".

SilverIsKing's picture

What happens when there is no more physical metal to be traded at current prices?

Herd Redirection Committee's picture

Fake it, till you make it.  Paper and tungsten, baby.  And rehypothecation.

I compare rigging the gold price to shaking a crying baby.  "Stop crying!  Stop it!"

 

Bangalore Equity Trader's picture

Listen. You are one sick abusive redirectionalist.

You cannot shake Bitcoins.

indygo55's picture

"You cannot shake Bitcoins"

I think thery are taliking about the store of value and you keep wanting to talk about transactional currency. Big difference. What happens if the power goes out? What happens if the block chain gets hacked? Even a credit card is safer then Bitcoin. 

Bangalore Equity Trader's picture

Listen! What happens if the tooth "FAIRY" leaves $1000 Federal Reserve Notes under your pillow?

Wet "DREAMS" for all!

IrritableBowels's picture

Actually, there is. Supposedly, there are also $5K and $10K bills out there somewhere.

AE911Truth's picture

The Acting General Counsel for the International Bank for Reconstruction and Development says the Banksters owe the people of the world many thousands of trillions of Gold redeemable Dollars like these $100,000.00 notes. Neil Keenan agrees.

https://www.dropbox.com/s/5f8h2pylovwq961/_%2520JP_Morgan_Gold_Certifica...

Www.neilkeenan.com
Www.khudes.net

The Banksters are trying real hard to not pay, which is why we got 911.
https://www.dropbox.com/sh/gpe8e197ccurpdx/AAD0SHevpuAf3fwaGS03bPpaa?dl=0

McCormick No. 9's picture

If the power goe out and stays out, the price of gold will PLUMMET to about 1 oz/per pound of bread. Have fun eating your gold! To be fair, if the power goes out, bitcoin will be less than worthless.