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Paul Craig Roberts: "A Rigged Gold Price Distorts Perception Of Economic Reality"
Authored by Paul Craig Roberts & Dave Kranzler,
The Federal Reserve and its bullion bank agents (JP Morgan, Scotia, and HSBC) have been using naked short-selling to drive down the price of gold since September 2011. The latest containment effort began in mid-July of this year, after gold had moved higher in price from the beginning of June and was threatening to take out key technical levels, which would have triggered a flood of buying from hedge funds.
The Fed and its agents rig the gold price in the New York Comex futures (paper gold) market. The bullion banks have the ability to print an unlimited supply of gold contracts which are sold in large volumes at times when Comex activity is light.
Generally, on the other side of the trade the buyers of contracts are large hedge funds and other speculators, who use the contracts to speculate on the direction of the gold price. The hedge funds and speculators have no interest in acquiring physical gold and settle their bets in cash, which makes it possible for the bullion banks to sell claims to gold that they cannot back with physical metal. Contracts sold without underlying gold to back them are called “uncovered contracts” or “naked shorts.” It is illegal to engage in naked shorting in the stock and bond markets, but it is permitted in the gold futures market.
The fact that the price of gold is determined in a futures market in which paper claims to gold are traded merely to speculate on price means that the Fed and its bank agents can suppress the price of gold even though demand for physical gold is rising. If there were strict requirements that gold shorts could not be naked and had to be backed by the seller’s possession of physical gold represented by the futures contract, the Federal Reserve and its agents would be unable to control the price of gold, and the gold price would be much higher than it is now.
Gold price manipulation is used when demand for delivery of gold bullion begins to put upward pressure on the price of gold and hedge funds speculate on the rising price of gold by purchasing large quantities of Comex futures contracts (paper gold). This speculation accelerates the upward move in the price of gold. The TF Metals Report provides a good description of this illegal manipulation of the gold market:
“Over a period of 10 weeks to begin the year, the Comex bullion banks were able to limit the rally to only 15% by supplying the “market” with 95,000 brand new naked short contracts. That’s 9.5MM ounces of make-believe paper gold or about 295 metric tonnes.
“Over a period of just 5 weeks in June and July, the Comex bullion banks were able to limit the rally to only 7% by supplying the “market” with 79,000 brand new naked short contracts. That’s 7.9MM ounces of make-believe paper gold or about 246 metric tonnes.” http://www.tfmetalsreport.com/comment/429940
In previous columns, we have documented the heavy short-selling into light trading periods.
See for example: http://www.paulcraigroberts.org/2014/07/16/insider-trading-financial-terrorism-comex/
The bullion banks do not have nearly enough gold in their possession to make deliveries to the buyers if the buyers decide to stand for delivery per the terms of the paper gold contract. The reason this scheme works is because the majority of the buyers of the contracts are speculators, not gold purchasers, and never demand delivery of the gold. Instead, they settle the contracts in cash. They are looking for short-term trading profits, not for a gold hedge against currency inflation. If a majority of the longs (the purchasers of the contracts) required delivery of the gold, the regulators would not tolerate the extent to which gold is shorted with uncovered contracts.
In our opinion, the manipulation is illegal, because it is insider trading. The bullion banks that short the gold market are clearing members of the Comex/NYMEX/CME. In that role, the bullion banks have access to the computer system used to clear and settle trades, which means that the bullion banks have access to all the trading positions, including those of the hedge funds. When the hedge funds are in the deepest, the bullion banks dump naked shorts on the Comex, driving down the futures price, which triggers selling from stop-loss orders and margin calls that drive the price down further. Then the bullion banks buy the contracts at a lower price than they sold and pocket the difference, simultaneously serving the Fed by protecting the dollar from the Fed’s loose monetary policy by lowering the gold price and preventing the concern that a rising gold price would bring to the dollar.
Since mid-July, nearly every night in the US the price of gold remains steady or drifts higher. This is when the eastern hemisphere markets are open and the market players are busy buying physical gold for which delivery is mandatory. But as regular as clockwork, following the close of the Asian markets, the London and New York paper gold markets open, and the price of gold is immediately taken lower as paper gold contracts flood into the market setting a negative tone for the day’s trading.
Gold serves as a warning for aware people that financial and economic trouble are brewing. For instance, from the period of time just before the tech bubble collapsed (January 2000) until just before the collapse of Bear Stearns triggered the Great Financial Crisis (March 2008), gold rose in value from $250 to $1020 per ounce, or just over 400%. Moreover, in the period since the Great Financial Collapse, gold has risen 61% despite claims that the financial system was repaired. It was up as much as 225% (September 2011) before the Fed began the systematic take-down and containment of gold in order to protect the dollar from the massive creation of new dollars required by Quantitative Easing.
The US economy and financial system are in worse condition than the Fed and Treasury claim and the financial media reports. Both public and private debt burdens are high. Corporations are borrowing from banks in order to buy back their own stocks. This leaves corporations with new debt but without income streams from new investments with which to service the debt. Retail stores are in trouble, including dollar store chains. The housing market is showing signs of renewed downturn. The September 16 release of the 2013 Income and Poverty report shows that real median household income has declined to the level in 1994 two decades ago and is actually lower than in the late 1960s and early 1970s. The combination of high debt and decline in real income means that there is no engine to drive the economy.
In the 21st century, US debt and money creation has not been matched by an increase in real goods and services. The implication of this mismatch is inflation. Without the price-rigging by the bullion banks, gold and silver would be reflecting these inflation expectations.
The dollar is also in trouble because its role as world reserve currency is threatened by the abuse of this role in order to gain financial hegemony over others and to punish with sanctions those countries that do not comply with the goals of US foreign policy. The Wolfowitz Doctrine, which is the basis of US foreign policy, says that it is imperative for Washington to prevent the rise of other countries, such as Russia and China, that can limit the exercise of US power.
Sanctions and the threat of sanctions encourage other countries to leave the dollar payments system and to abandon the petrodollar. The BRICS (Brazil, Russia, India, China, South Africa) have formed to do precisely that. Russia and China have arranged a massive long-term energy deal that avoids use of the US dollar. Both countries are settling their trade accounts with each other in their own currencies, and this practice is spreading. China is considering a gold-backed yuan, which would make the Chinese currency highly desirable as a reserve asset. It is possible that the Fed’s attack on gold is also aimed at making Chinese and Russian gold accumulation less supportive of their currencies. A currency linked to a falling gold price is not the same as a currency linked to a rising gold price.
It is unclear whether the new Chinese gold exchange in Shanghai will displace the London and New York futures markets. Naked short-selling is not permitted in the Chinese gold exchange. The world could end up with two gold futures markets: one based on assessments of reality, and the other based on gambling and price-rigging.
The future will also determine whether the role of reserve currency has been overtaken by time. The US dollar took that role in the aftermath of World War II, a time when the US had the only industrial economy that had not been destroyed in the war. A stable means of settling international accounts was needed. Today there are many economies that have tradable currencies, and accounts can be settled between countries in their own currencies. There is no longer a need for a single reserve currency. As this realization spreads, pressure on the dollar’s value will intensify.
For a period the Federal Reserve can support the dollar’s exchange value by pressuring Japan and the European Central Bank to print their currencies with which to support the dollar with purchases in the foreign exchange market. Other countries, such as Switzerland, will print their own currencies so as not to endanger their exports by a rise in the dollar price of their exports. But eventually the large US trade deficits produced by offshoring the production of goods and services sold into US markets and the collapse of the middle class and tax base caused by jobs offshoring will destroy the value of the US dollar.
When that day arrives, US living standards, already endangered, will plummet. American power will have been destroyed by corporate greed and the Fed’s policy of sacrificing the US economy in order to save four or five mega-banks, whose former executives control the Fed, the US Treasury, and the federal financial regulatory agencies.
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All your golds are belong to us.....
From my cold dead hands...
Keep stacking.
Beans, boolits, bullion.
He is saying in effect that Our Having A Military Republic that acts as a kind of soft empire or trading empire...
- Took us away from gold
- And is the cause of Expanding Federal Budget, Expanding FED Balance Sheet, a Love affair with Debt, Corruption of Official Government Statistics & Public Relations, and even corruption of big businesses & big Corporate Subsidies from the Federal Government
"The dollar is also in trouble because its role as world reserve currency is threatened by the abuse of this role in order to gain financial hegemony over others and to punish with sanctions those countries that do not comply with the goals of US foreign policy. "
In simpler terms....... the Joos!
We suspect The Rothschilds.
And we find it amazing that the richest Dynasty in Europe never makes the news, you don't know what they hold or invest in. You don't every hear about their new deals. You don't even see them on the social registers as far as I know.
This is highly Suspicious. Highly Suspicious.
King Makers. Makers of Wealthy Men. The Puppet Masters.
I love the smell of fiat gold in the morning.
Thanks Tyler ... It is good to see you giving this issue as much space as you have recently.
Our credit based money system is the foundation upon which ALL power of the establishment rests. The ability to create money out of nothing then lend it into existence with both a claim on the collateral property as well as an interest obligation is the source of all power and wealth the elite enjoy.
Do you think for one moment they would let gold threaten that scheme?
Dr. Paul Craig Roberts. During the Reagan administration he served as Assistant to Captain Obvious
PCR no longer appears in the MSM.
Like that other Paul who got knocked off his horse, PCR saw the light.
"The propagandized people in the West have no idea of the fate toward which their demented governments are driving them,” wrote Paul Craig Roberts recently.
The American Media Is The Enemy Of The American PeoplePCR has repeatedly stated we're headed for WW3.
Here's Joel Skousen's take on the end game.
Sounds plausible to me. I think most here can appreciate it.
Even the common man knows that when the price of gold is high, that economic fail is closely afoot
What no mention of the CME and their FUCKING UNHOLY relationship with central banks?
Well, it’s tradition. Long term tradition
PCR said in a recent video he had no idea why we hadn't had an Economic or Dollar Collapse.
Guess if you have:
Deceitful government statistics,
Control the media,
Punish whistle-blowers with the national security act or Patriot Act,
Flat out hide the total liabilities,
Never mention or Address in detail the full federal budget,
Change the Accounting Rules, Financial Rules
Have a Central Bank that takes away responsibility
It is easy!!
we have had the wool pulled over our eyes to benefit those that win in politics and who make a career in Washington DC or the Military.
Spot on. All governments are hiding the truth from their people, a day of reckoning is coming.
The UK revised its debt up $207bn dollars as reported yesterday in the Telegraph. Since the Tory's came into power they have doubled the national debt: Self serving Bastards.
http://www.telegraph.co.uk/finance/economics/11117335/Just-how-big-is-Britains-debt-mountain.html
I see things in the world as.much worse.now.than in 2011 when I fell in with the gold fever and bought a bunch.
I have a hard time even caring anymore....
Maybe it's not inflation but deflation coming
Yep. JPM emptied their vaults, or rather sold the vaults, last Fall. DX is soaring & not likely to top for a very long time.
Energy & Metals are signaling just that: deflation. Will take a while to really kick in, probably next Spring/Summer, but it is coming. End of the 80 year Credit Cycle. Game starts all over. Wicked deflation & tight credit for years/decades.
Deflation in financial assets (USD) with respect to real assets. It is the only semi stable path.
I'd like to have some deflation. Everything I buy keeps going up in price, so when will I see deflation in something besides PMs?
I guess this is what this string is about:
"Credit deflation
In modern credit-based economies, deflation may be caused by the central bank initiating higher interest rates (i.e., to 'control' inflation), thereby possibly popping an asset bubble. In a credit-based economy, a slow-down or fall in lending leads to less money in circulation, with a further sharp fall in money supply as confidence reduces and velocity weakens, with a consequent sharp fall-off in demand for employment or goods."
From Wikipedia.
I was going to say that money can't increase in value if it is not gold or silver... therefore USD would not cause Deflation.
USD Exchange rate on foreign markets can gain strength, but today all nations have huge debt and weaknesses. Switzerland seem the only outlier, but they hobbled their currency.
So I conclude that Interest Rates would have to go up to get US Deflation.
I get you. A US Reset to normal currency value after a collapse would be "Deflation".
I think Harry Dent uses demographics and states 80 years is the normal cycle.
People don't like accepting less money, there will be a lot of fights. But I can't see how we get there with our Fiat. Some say issue a 2nd currency or go to SDRs. Few of us have enough gold or silver to make the jump to gold or silver money, and that would halt the economy & credit. It would be austerity understanding that a lot of people want that to happen.
Has to be a Currency Collapse for Deflation, but I wonder if some modern mechanism will just take us into high inflation... and figure the Fed, TBTF, & Oligarchs probably only want inflation. (so they can keep control of us and the USA)
Spot on. The only thing you are missing is the role of options and the GLD. They use the GLD add their physical working capital and sell puts to accelerate the smackdown by painting the tape. All of our herd momentum traders help them do the work...
DO NOT BUY ANY GLD PUTS. Don't help them use the GLD as manipulation capital.
People have been so thoroughly trained to think of the price of gold in terms of dollars that they have no concept of gold as money. I see the price of gold in dollars as simply how much of this funny money does it take to purchase pm's from those who have no concept of money.
For 5000 years, most major civilizations have used pm's as money by mutual agreement because it is the the most convenient commodity to use in exchange for other commodities i.e. it is portable, divisible, in limited supply, etc. The correct way to think of pm's as money is to determine how much of another commodity it can purchase. That will vary somewhat depending on the available supply of commodities (wheat, beef, eggs, etc.).
Setting a price between pm's and other commodities has historically been dynamic based on the supply, and therefore the current value of desired or needed commodities. The free market has determined that "price".
I have been interested in determininig how those prices might be set after the great "fiat" experiment fails and whether the current price of gold is really undervalued. Finding information about the historical purchasing value of gold has been a challenge. The best information that I have found to date is the Cole Report. It is a monthly compilation of prices for numerous commodities in America from the late 1700's until 1861. During that time, gold was set at $20.75 (or close to that) per ounce and remained there until 1933. The Cole Report is in Excel format so I was able to do a quick average for a commodity such as bacon from 1800 to 1861 (some prices in the late 1700's were in pound sterling so I started in 1800). I found that an ounce of gold would purchase about 200 pounds of bacon. Today, an ounce of gold at $5.00/pound would purchase about 220 pounds of bacon. The same was true of other commodities.
This was a crude analysis but the point is that if/when pm's return as a standard of "money", the human race will need to recalibrate their thinking about how to value gold for trade. Not in terms of defunct fiat but in terms of value of gold in trade for other commodities. It will be a painful learning process.
I would be delighted if someone having a higher level of training would do this analysis in more detail.
This is what you are looking for: http://pricedingold.com/
Click on the chart links along the right side and you can see what all kinds of things cost over time as priced in gold!
What, no charts and graphs?
If they sell naked contracts, then they have to make sure that the price continues to decline, cuz if it drifted up they'd have to pay the difference. Hmm.
But isn't this also vulnerable to a big player simply buying up contracts and demanding delivery? Of course that would be something in the thousands of tons of silver, that's um how much, $640k/ton, so say two billion dollars in contracts should do it, probably something similar in gold, I'd say that's doable, not particularly for me by myself but maybe I can swing a loan at Wells Fargo ...
Delivery of commodities including gold is allowed to be made in equivalent fit not physical. This is true across the commodities complex as far as I know.
This guy P.C.R. has a penchant for stating the painfully obvious. Parrot.
Name one time he showed any originality in his thinking.
And what are your credentials? Janitor at Denny's? Get the fuck outta here.
If by originaility you mean spewing forth lies and propaganda, then you my dear sir are perfectly correct.
I am afraid the down voters don't understand English because my comment is actually supportive of PCR.
"We have now sunk to a depth at which restatement of the obvious is the first duty of intelligent men."
- George Orwell -
Change the target and your narcissistic post is hardly original... Paul is and has been doing his duty and was the first to call BS on Dubya and Company.
Yeah, but PCR certainly has given the most straightforward, easy to understand, and CONSISTENT explanation out there in blogdom.
Despite the warnings/opinions like Gartman or Martin Armstrong, it is really difficult to be swayed from Paul Craig Roberts.
It is incredible to me to think that some silly inert piece of metal could hold such significance, but even things like oil are consumed, or silicon PV wafers wear out, but as long as humans engage in trade, they need some form of real money as a store of value for the long term. Currencies come and go. There really isn't any other thing out there that is portable, can't be easily counterfeited, is relatively rare, easily assayed, universally recognized, has thousands of years of unbroken precedent as money, doesn't tarnish, and has relatively few other uses which could cause distortion in its value.
Gold is obsolote for trading in this day and age.
Bitcoin is transparent (a lot more than the gold market), cannot be counterfeited, debased and every single participant has to obey the rules of the protocol in the same way.
As opposed to the brillance and originality of Joe Tierney, former editor of the Wall Street Journal OpEd page and former Vice Chair of the Fed. Oh, wait, that was Paul Craig Roberts.
Banksters; the worst vermin God ever created.
Bankers are the devil's vomit. (Excluding my son in law).
Your son in law is one of those formless green chunks in the vomit that no one can identify...
A market with a rigged gold price is like a boiler room without a pressure gauge.
And without a relief valve
Just like airlines overbook flights, only with more extreme ratios and lifeboats. What plan might they have for an 'unwind'? Fallout shelters? Invisible islands in the sky? God may forgive them, but many people here on earth won't.
Went to my LCS this afternoon in Phoenix.
Lots of inventory. They lowered the premium on generic silver rounds. Clerk there told me 3-4 weeks ago, when silver was @ $20 an oz, that silver might fall to $18.
Bought some at historic date of 17.76 and look forward to either historic date of 16.06 or 18.65 soon. Hope for $50.50 but King World News not in my mindset.
Same LCS fellow said he would not be surprised if silver fell into the $16s. I will try to catch a falling knife all the way down - in small purchases - since my boat and pond is not that capacious.
Alex reporting from PHX
Alexcojones
Do you pay a sales tax (at any purchase or say not above 100 coins) on silver eagles? What mark-up above spot are you currently paying?
BTW, hat tip to Paul Craig for his reference to Turd Ferguson,
The brilliant chartist at TF Metals Report.
Gut feeling says TF and the Tylers will be correct about the rocket rise of PMs one day.
TF lost me when he started looking for profit from his words.
on the other side of the trade the buyers of contracts are large hedge funds and other speculators, who use the contracts to speculate on the direction of the gold price.
These parties must certainly be aware of the game, and know that the direction of the price is down, why would they knowingly risk money trying to fight the Fed and it's agents?
so explain to me how a rigged gold market can establish a price upon which a gold standard can be built? as sso s you set an official price, they game the system, manipulate the price and bankrupt your ass in a nano second. if you don't know how, you need to learn before repeating gold standard over and over like a broken record,
Gold bugs should acknowledge the fact that the gold standard is based on nothing more than a promise of a central authority, it is as flawed as the debt based fiat schemes.
A fairly accurate picture...
I would add that also energy markets are kept alive by wars and conflict, facing an unprecedent decrease in demand (the price is kept afloat by creating uncertainty on the supply side).
It doesn't look pretty for sure...
;-)
I guess this is where we soon find out who the true believers in PMs are if it breaks below $1180 and just keeps dropping.
The only real question on my mind is where are the stops?
Nothing would gives me more satification than to buy at or near a bottom but it's a tough call at the moment.
I suspect they will be looking to make a price statement for the year end.
US living standards and freedoms have declined so much Americans have accepted plastic bag bans.
At this point Americans will accept anything.
Actually, the gold market is acting exactly as EW has been suggesting it would. This July update is a couple months old but precisely predicted gold's future. Somewhere around the 960-1000 level gold will rebound for a few months. But, in the meantime, it will continue to decline, perceived manipulation or not.
http://www.globaldeflationnews.com/gold-elliott-wave-update-for-july-2014/
Some may be interested...
http://www.globaldeflationnews.com/never-before-offer-from-elliott-wave-...