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Central Banks And Our Dysfunctional Gold Markets
Submitted by Marcia Christoff-Kurapova via The Mises Institute,
Many investors still view gold as a safe-haven investment, but there remains much confusion regarding the extent to which the gold market is vulnerable to manipulation through short-term rigged market trades, and long-arm central bank interventions. First, much of the gold that is being sold as shares, in certificates, or for physical hoarding in dubious "vaults" just isn't there. Second, paper gold can be printed into infinity just like regular currency. Third, new electronic gold pricing — replacing, as of this past February, the traditional five-bank phone-call of the London Gold Fix in place since 1919 — has not necessarily proved a more trustworthy model. Fourth, there looms the specter of the central bank, particularly in the form of volume trading discounts that commodity exchanges offer them.
The Complex World of Gold Investments
The question of rigging has been brought to media attention in the past few months when ten banks came under investigation by the US Commodity Futures Trading Commission (CFTC) and the US Department of Justice in price-manipulation probes. Also around that time, the Swiss regulator FINMA settled a currency manipulation case in which UBS was accused of trading ahead of silver-fix orders. Then, the UK Financial Conduct Authority, which regulates derivatives, ordered Barclays to pay close to $45 million in fines against a trader who artificially suppressed the price of gold in 2012 to avoid payouts to clients. Such manipulations are not limited to the precious-metals market: in November of last year, major banks had to pay several billion dollars in fines related to the rigging of foreign-exchange benchmarks, including LIBOR and other interest-rate benchmarks.
These cases followed on the heels of a set of lawsuits in May 2014 filed in New York City in which twenty-five plaintiffs consisting of hedge funds, private citizens, and public investors (such as pension funds) sued HSBC, Barclays, Deutsche Bank, Bank Scotia, and Société Génerale (the five traditional banks of the former London Gold Fix) on charges of rigging the precious-metals and foreign-exchange markets. "A lot of conspiracy theories have turned out to be conspiracy fact," said Kevin Maher, a former gold trader in New York who filed one of the lawsuits that May, told The New York Times.
Central Banks at the Center of Gold Markets
The lawsuits were given more prominence with the introduction of the London Bullion Market Association (LBMA) on February 20, 2015. The new price-fixing body was established with seven banks: Goldman Sachs, J.P. Morgan, UBS, HSBC, Barclays, Bank Scotia and Société Génerale. (On June 16, the Bank of China announced, after months of speculation, that it would join.)
While some economists have deemed the new electronic fix a good move in contrast to behind-closed-door, phoned-in price-fixing, others beg to differ. Last year, the commodities exchange CME Group came under scrutiny for allowing volume trading discounts to central banks, raising the question of how "open" electronic pricing really is. Then, too, the LBMA is itself not a commodities exchange but an Over-The-Counter (OTC) market, and does not publish — does not have to publish — comprehensive data as to the amount of metal that is traded in the London market.
According to Ms. Ruth Crowell, the chairman of LBMA, writing in a report to that group: "Post-trade reporting is the material barrier preventing greater transparency on the bullion market." In the same report, Crowell states: "It is worth noting that the role of the central banks in the bullion market may preclude 'total' transparency, at least at the public level." To its credit, the secretive London Gold Fix (1919–2015) featured on its website tracking data of the daily net volume of bars traded and the history of gold trades, unlike current available information from the LBMA as one may see here (please scroll down for charts).
The Problem with Paper Gold
There is further the problem of what is being sold as "paper" gold. At first glance, that option seems a good one. Gold exchange-traded funds (ETFs), registered with The New York Stock Exchange, have done very well over the past decade and many cite this as proof that paper gold, rather than bars in hand, is just as sure an investment. The dollar price of gold rose more than 15.4 percent a year between 1999 and December 2012 and during that time, gold ETFs generated an annual return of 14 percent (while equities registered a loss).
As paper claims on trusts that hold gold in bank vaults, ETFs are for many, preferable to physical gold. Gold coins, for instance, can be easily faked, will lose value when scratched, and dealers take high premiums on their sale. The assaying of gold bars, meanwhile, with transport and delivery costs, is easy for banking institutions to handle, but less so for individuals. Many see them as trustworthy: ETF Securities, for example, one of the largest operators of commodity ETFs with $21 billion in assets, stores their gold in Zurich, rather than in London or Toronto. These last two cities, according to one official from that company, "could not be trusted not to go along with a confiscation order like that by Roosevelt in 1933."
Furthermore, shares in these entities represent only an indirect claim on a pile of gold. "Unless you are a big brokerage firm," writes economist William Baldwin, "you cannot take shares to a teller and get metal in exchange." ETF custodians usually consist of the likes of J.P. Morgan and UBS who are players on the wholesale market, says Baldwin, thus implying a possible conflict of interest.
Government and Gold After 1944: A Love-Hate Relationship
Still more complicated is the love-hate relationship between governments and gold. As independent gold analyst Christopher Powell put it in an address to a symposium on that metal in Sydney, October 2013: "It is because gold is a competitive national currency that, if allowed to function in a free market, will determine the value of other currencies, the level of interest rates and the value of government bonds." He continued: "Hence, central banks fight gold to defend their currencies and their bonds."
It is a relationship that has had a turbulent history since the foundation of the Bretton Woods system in 1944 and up through August 1971, when President Nixon declared the convertibility of the dollar to gold suspended. During those intervening decades, gold lived a kind of strange dual existence as a half state-controlled, half free market-driven money-commodity, a situation that Nobel Prize economist Milton Friedman called a "real versus pseudo gold standard."
The origin of this cumbersome duality was the post-war two-tiered system of gold pricing. On the one hand, there was a new monetary system that fixed gold at $35 an ounce. On the other, there was still a free market for gold. The $35 official price was ridiculously low compared to its free market variant, resulting in a situation in which IMF rules against dealing in gold at "free" prices were circumvented by banks that surreptitiously purchased gold from the London market.
The artificial gold price held steady until the end of the sixties, when the metal's price started to "deny compliance" with the dollar. Still, monetary doctrine sought to keep the price fixed and, at the same time, to influence pricing on the free market. These attempts were failures. Finally, in March 1968, the US lost more than half its reserves, falling from 25,000 to 8,100 tons. The price of other precious metals was allowed to move freely.
Gold Retreats Into the Shadows
Meawhile, private hoarding of gold was underway. According to The Financial Times of May 21, 1966, gold production was rising, but it was not going to official gold stocks. This situation, in turn, fundamentally affected the gold clauses of the IMF concerning repayments in currency only in equal value to the gold value of such at the time of borrowing. This led to a rise in "paper gold planning" as a substitution for further increases in IMF quotas. (Please see "The Paper Gold Planners — Alchemists or Conjurers?" in The Financial Analysts Journal, Nov–Dec 1966.)
By the late 1960s, Vietnam, poverty, the rise in crime and inflation were piling high atop one another. The Fed got to work doing what it does best: "Since April [1969]," wrote lawyer and economist C. Austin Barker in a January 1969 article, "The US Money Crisis," "the Fed has continually created new money at an unusually rapid rate." Economists implored the IMF to allow for a free market for gold but also to set the official price to at least $70 an ounce. What was the upshot of this silly system? That by 1969 Americans were paying for both higher taxes and inflation. The rest, as they might say, is the history of the present.
Today, there is no “official” price for gold, nor any “gold-exchange standard” competing with a semi-underground free gold market. There is, however, a material legacy of “real versus pseudo” gold that remains a terrible menace. Buyer beware of the pivotal difference between the two.
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There isno such thing as paper gold. There is paper and there is gold. If you have paper, eventually there will be a day that your paper will not be exchanged for gold. Whether that be gold stocks, certificates, dollars or gold-backed currencies.
If you can't touch it, you don't own it. Just ask the countries that store their gold with the Fed.
with even gold-hostile media outlets admitting openly that the $2.5B dump was clearly designed to move the price rather than a genuine trade, what i wanna know is: why doesnt the 'Gold Fix' LBMA announce a +$20 offsetting corrective rise?
I mean, if youre gonna have a 'Fix' at all (which in itself erodes confidence in supply/demand transparency) failing to correct this manipulation just shows yer in the same boat as the manipulators.
Carn LBMA...... what are you waiting for? Prove your relevance.
I figure that the TBTF banks are going to collapse the price of gold and silver soon by dumping their last physical into the market at the same time as they write massive paper shorts to Soros and his Globalist friends.
Then they will suddenly implode the financial system and as the price for PM's subsequently skyrockets the banks unsecured creditors (the depositors) will get zero zilch nada while the secured creditors like Soros with their penny on the dollar derivative bets will walk away from the table with all of the $33 trillion dollars worth of system-wide unsecured deposits as winnings.
Then again I might just be getting delusional and crabby in my old age...
It's hard to know what they are planning, unless you are part of their club (bilderbergs, masons, illumaniti, or whoever is running the show).
We should resist their plans and try to live as freely as possible.
In fairness, I guess this Article was written for neophytes because for a better-informed crowd the "Content", such as it is, could have been summarised in one sentence?
When the world wide bond bubble pops, another asset will have to pick up the slack as the preferred safe asset.
http://www.msn.com/en-us/money/markets/lawsuit-accuses-22-banks-of-manip...
Shocking!
Does anyone else see the fallacy in this analysis that "paper gold" is a "manipulation?"
When you purchase a derivative or sell a derivative are you not notified in advance of the delivery date and that you may be called either to cough it up or swallow? How many of you close out before you belch or gasp?
Does not the contract, the "paper gold," derive its fungiblilty from the underlying commodity itself and not designate necessarily the trading of the source itself?
If one bets at the track on anywhere from 14 to 20 horses, do not all of the bets placed derive their fungibility from the horses?
How many of those betting actually will take delivery of a horse?
Does the limited number of horses determine how many bets are allowed to be made?
Is not the most dysfunctional thing related to derivative markets the analysis itself?
Does anyone else see the fallacy in this analysis that "paper gold" is a "manipulation?"
(And while we are on a Mises entry, can anyone at ZH answer if the introduction of new currency into the economy of productive work is responsible for the removal of goods and services from their natural place and re-placed into the hands of another, then how can this theft be any investment at all, let alone "bad"?)
My, my, my! Now don't dat look interestin'!
I will gladly sell you futures for 28,000 oz. of gold due on Tuesday for a hamburger today.
" will walk away from the table with all of the $33 trillion dollars"
If they do that I'm thinking more than a few people will deny their continued existance anywhere on THIS planet.
There's plenty of gold for all redemptions right at the end of this rainbow here See?
If you get lost, ask a unicorn.
Well actually there is such thing as paper gold, simply because people who hold those papers think that they own real gold.
Normally any gold bidder who comes to the market to buy some gold puts an upward pressure on gold price (demand) but if they end up having these gold papers ( when actually there is no real gold backing the paper claim)
than there is no pressure. So it really doesnt matter if it is real or illusion. If people think it is real, it is real, beacuse paper claims suck the value from the physical gold. Of course this is valid until a crisis. If confidence,trust,faith is lost than and only than you can say, if you dont hold it you dont own it.
double post.
I hope it goes to $200/oz. I will sell the house, wife and kids and load up. Maybe buy them back later.
"Life is short. Sell your kids."....?
Throw in the wife with the Farrah Fawcett hair and we can do a deal..
https://www.youtube.com/watch?v=mvZgwtpPmLY
planned parenthood will do it for you piece by piece.
few people know the genesis and history of Margeret Sanger and her evil enterprise.
We don't actually "own" our kids....we just lease them, with an option to buy. That way, when their lease is coming up, you can threaten to not renew it if their room isn't clean or if their grades are subpar....
Gold, however, we own that........
OK.. it’s late and OK to be imbibing massive quantities.. not driving aywhere..
Cocktail almost reached the screen on that one.
They aren't your kids. They are Elizabeth Warren (Mrs, New Harvard)'s kids. And she doesn't like them. She only likes the ones she can't have.
..maybe Yale would not have her because it's a boy's club.
Tell that to Hitlerbill.
They got into the club..
There is a ... solution.
,,just needs a bit of resolve.. but don't break wind.. :-D
https://www.youtube.com/watch?v=ETRp0GhvHsg
Yeah, it'll be $200/oz with a $2300 premium.
The NEW price-fixing body was established with 7 banks, Goldman Sachs, JPM, UBS . . . .
Well everything's A-OK NOW! FUCK-OFF
Here in Thailand the people are buying gold now with lower prices. NOT paper gold!
India and China the same. It's getting more popular in the west.
I LOVE THAILAND ! You're there, I'm jealous ! Thais buy a lot of gold, always, it's like its in their blood. I used to get these real thin film like pieces and stick it on LADY MOs statue. I miss that place, buy,buy,buy, Kop.
I LOVE THAILAND ! You're there, I'm jealous ! Thais buy a lot of gold, always, it's like its in their blood. I used to get these real thin film like pieces and stick it on LADY MOs statue. I miss that place, buy,buy,buy, Kop.
In the not too terribly far future..
Anybody with just one lousy ounce of AG will be a happy camper.
And I have said it before.. I have 2.7 oz of Swiss Ag precision chronometer on the wrist wrapped with camo tape… the in-laws are wondering WTF is wrong with me… :-D
Just a joke… kids but I do have the chronometer and camo tape.
The supply of physical will eventually dry up at the retail level while manipulated paper gold prices drive the market, because more and more people are beginning to understand. When the price of physical on the street diverges enough from the paper-driven spot, it will break the paper market. Then hang on to your hats.
Oh you mean like the mint selling out of silver eagles? Or local coin shops having zero silver for sale?
We are well on our way to a dried up precious metal supply (at least for silver). Not sure about gold, because I'm not really wealthy enough to get acrue much of it.
And let's not forget platinum. I know, I know it's an "industrial metal", but so what. It's rarer than gold and currently $100/oz cheaper. Try finding any at your local coin shops. I know I can't.
Gold, silver, platinum, palladium.
My kind of diversification...until the real estate bubble bursts that is. Then it's time to trade metal for land.
The four coin shops around me are all pretty much out. There are rare coins but that about it. They say premiums are now $5 per silver eagle, when they get them, if they do.
Today, there is no “official” price for gold, nor any “gold-exchange standard” competing with a semi-underground free gold market. There is, however, a material legacy of “real versus pseudo” gold that remains a terrible menace. Buyer beware of the pivotal difference between the two.
When Freegold gets here all will understand what it means to hold an ounce of gold...
"When Freegold gets here..."
reminds me of the Our Gang short where Old Cap was always mentioning his "back pension" coming in. It was a distant hope...a fairy tale...
But then the call came in...
https://www.youtube.com/watch?v=hIETERWnx0o
March 13, 1959, 9:05 a.m.
[Here follows a list of 31 persons present, including President Eisenhower, Vice President Nixon, Acting Secretary of State Herter, Secretary of the Treasury Anderson, Secretary of Defense Neil H. McElroy, Attorney General William P. Rogers, Postmaster General Arthur E. Summerfield, Secretary of the Interior Fred A. Seaton, Secretary of Agriculture Ezra Taft Benson, Secretary of Commerce Strauss, Under Secretary of Labor James T. O’Connell, and Secretary of Health, Education, and Welfare Arthur S. Flemming. The first item of discussion concerned an unrelated subject.]
Gold Movements—Sec. Anderson made a lengthy presentation on the history of the relationship of gold to American currency and presented charts showing the ups and downs of American gold holdings and also the outstanding potential claims of foreign nations on our holdings.1 After some $12 billion worth of gold is set aside for the 25% reserve required to back our currency, approximately $81/2 billion remains for meeting foreign claims which actually exceed this amount considerably. Mr. Anderson was not disturbed by this, however, for there is no reason for all of these claims to be presented simultaneously so long as confidence exists in the solidity of the US dollar.
With regard to recent trends of heavier conversions of dollars into gold, Mr. Anderson pointed out that foreign nations are maintaining their established levels of American dollar holdings and that the conversions represent their excess earnings of dollars in any given year.
Regarding agitation for raising the price of gold, Mr. Anderson explained that advocates of this have varying reasons—to make gold mining more profitable, or to provide indirectly (and probably unsuccessfully) a bar to excessive Congressional spending, or merely to provide a windfall to those who hold gold. Raising the price of gold, however, would be a boon to the Russians, would reduce the value of some $20 billion of our currency with only a very insignificant increase in the value of Government gold holdings, and seriously shake the world’s confidence in the US dollar.
Mr. Anderson warned repeatedly against even the slightest hint that the subject might ever be taken under consideration, for this would be sufficient to shake confidence and start a run on our gold holdings. He asked members of the Cabinet to be overly sensitive to this matter because questions on it keep cropping up in strange places.
Related to this whole question was the matter of US fiscal management policies which foreign governments watch closely to judge the strength of our dollar.
There was brief discussion of the mechanics of minting gold under the mark of various countries and of international transfers accomplished in New York banks.
The President recalled the attention he had given to this matter during the 1952 campaign and shortly thereafter prior to putting the question aside.
[Here follows discussion of the remaining items.]
LAM
Gold is money. Period !!! I Don't understand why it's so hard to figure out.
Propaganda, mis-information, blatant lies. That's why it's so hard for the average Joe to figure it out. TPTB know exactly what gold is, and it scares the shit out of them.
Get your hands on it, only.
Bill Murphy of GATA Speaks to CFTC
http://www.youtube.com/watch?v=9wIMpe9SjfQ (6:11)
Uploaded on Mar 25, 2010
Bill Murphy, Chairman of the Gold Anti-Trust Action Committee delivers his testimony about gold price suppression to the Commodity Futures Trading Commission on 3/25/10.
What I can't figure out is why the retarded gold mining companies are still selling at these prices. I know that they have to sell to cover expenses, but if it were me, I would sell just enough to cover the expenses and nothing more. Then, in a few weeks, cash in when the physical supply has completely dried up, and the paper shorts start shitting in their pants as the price goes through the roof.
Why can't the retarded gold mining companies sell to customers directly?
Straight from the 1889 book The Great Red Dragon:
The Money Power is Devouring our Gold and Silver MinesAs a rule, persons having gold or silver mines to develop always go to the Money Kings or their agents for the capital to develop them. And the Money Kings never put any money into a mine without having a majority of the stock given them, so as to secure to them its absolute control. They must have the lion's share in any enterprise before they will invest in it. They usually put in one of the original stockholders as their agent and manager; and generally the mine is so managed as to freeze out the other stockholders.
A shaft is sunk down upon the "lead;" if it proves to be rich, only the poorer levels nearer the surface are worked, till the outside stockholders become discouraged and sell out their stock cheap: then the mine is worked efficiently. But if, on the other hand, the mine proves to be a pocket, like the Emma Mine in Utah [or Bre-X], it is puffed in the papers until outsiders have bought the stock; then the true state of things is revealed. Having full control of the mine, they are able, with their agent, to manipulate it as they please; and finally they thus get control of all valuable mines.
The most elegant part of the system is that now with our fractional banking system, the money they "lend" to the mine developer is created out of thin air! They have no risk at all! What an elegant system to fleece the people.
All of which is made possible by the incestuous relationship within the new class of bankers, Government officials and managers.
Crony capitalism is not capitalism... it is oligarchy.
When will they run out of printers ink?
I always feel like I'm paying too much when I buy gold even though I can't get it cheaper.
You are. Wait for the $500 mark and $5 for silver. Once rates rise, the bottom will fall out. Although I might miss on the 500/5 prediction, it won't be by much.
ETF's are not shiney enough. Ask your wife to wear a memory stick as a pendant because it has your elctronic ETF's on it and she will tell you to fuck off. Women understand these basics because they don't accept shit substitutes.
Nor should anyone.
What happened to Maguire's physical exchange? He's gone quiet again, not that I would trust him as far as I could chuck him.
Wouldn't sell the children for all the Gold in China. However, that doesn't mean I'm not open to some lease arrangement. If you put them to work, costs more. If you want them to call you mom and dad, costs more. No pimping them for sex, etc.etc.etc. Oh, final decision is theirs !
GOLD IS COLD HARD CASH IN EVERY CURRENCY!!!!!!! It is NOT a commodity!!!!! WHO DO YOU TRUST????