Gold and Silver Price Manipulation--Who, How, and Why

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Precious metals Article by Investors Daily Edge

For many years, there have been those in the precious metals investment community who believe strongly that the price of gold and silver have been manipulated and purposely held down..

For just as many years, these arguments have been met with derision and scorn, no matter how well-reasoned the argument nor how strong the evidence may have been. Those who claimed this was happening have been labeled conspiracy theorists and lumped in with the tinfoil hat brigade..

Well, count me among them, then… though I prefer to think of myself as a conspiracy realist..

I expect the manipulation of the metals markets to transpire in a similar fashion to what has happened with “naked shorting” in the equity markets. First, the financial media and regulatory authorities said that it wasn’t really happening. Then, as it became impossible to deny, they suggested it was only happening on a small scale and was nothing to worry about..

Then, as Wall Street’s own financial institutions, as well as the government-sponsored enterprises Fannie Mae and Freddie Mac, were being shorted with non-existent (read counterfeit) shares, the regulators and mainstream media finally admitted a serious problem. But rather than addressing the underlying issue of phantom shares in the market, they selectively enforced a law that was already on the books, barring naked short sales of particular stocks..

To me, that is like the government stating that it is now illegal to rob Bank of America branches and they will be prosecuting those who do so.
Wait a second… isn’t it already illegal to rob a bank? Any bank? Then why the special provision for just one?

So, let’s get back to the manipulation of the precious metals markets. It is not my intent in this essay to prove that the metals markets are being manipulated. If you have your doubts, or if you’re looking for proof, there is plenty of information out there on the subject..

Instead, I will show succinctly that it is taking place… I will talk very briefly about who is doing it, why they are doing it and how they are doing it. And finally, I’ll show you what YOU need to do to ensure that your wealth is protected..

Is the Price of Gold Being Manipulated?

Many independent researchers, as well as organizations like the Gold Anti-Trust Action Committee (GATA) have compiled a wealth of evidence to show that the metals markets are manipulated..

But you don’t have to look to obscure charts and hidden footnotes in financial statements to know that it is happening. In fact, Alan Greenspan gave the game away in testimony before congress when he said that the “central banks stand ready to lease gold in increasing quantities should the price rise.”

In other words, he was telling Congress that the leasing of central bank gold was not for the officially stated purpose of earning some money on a dead asset, but rather to suppress the price of gold..

The central banks do this through the bullion banks that carry out their bidding. The bullion banks are investment houses that deal in the metals markets, including the brokerages such as Goldman, JPMorgan Chase and Citibank..

Why would the Banks Manipulate the Metals Markets?

At the highest level, the manipulation of the metals market is meant to conceal the mismanagement of the U.S. dollar so that it might retain its function as the world's reserve currency..

Richard Russell of the Dow Theory Letters summed it up well when he wrote:

“Rising gold is a red flag – if gold rises too rapidly, it attracts attention, it makes headlines, and then people ask questions. Rising gold might even give the whole plot away. You see, the fiat currency thesis is basically a fraud. It depends on a certain amount of systematic inflation (about 2 percent a year) in order to survive. Next question -- why do central bankers want the fiat money system to survive? Simple, it's their livelihood. It's what they live on. It's their ticket to power.”

You might ask why the bullion banks would play their part. The answer is virtually risk-free profits. The central banks lease the gold in their vaults at extremely low interest rates, often less than one percent. In addition to facilitating hedges for miners and jewelers, the bullion banks sell the gold they’ve leased at a very low interest rate and then invest those proceeds primarily in government bonds at a much higher rate. This is essentially a short sale, since they are selling something they have borrowed and the increasing supply on the market pressures gold to the downside..

The central bank makes a little something on their gold holdings. The bullion bank earns a spread. And the government bond market is supported, helping to strengthen the dollar. It all works out well… as long as the price of gold is flat or falling..

Now, can you see why the central banks and the bullion banks have a vested interest in suppressing the price of gold?

But this is not the extent of the issue…

For years, the central banks have been lying about their gold reserves by counting gold that they have loaned out or swapped as gold in the vault. GATA suggests that Western central banks have roughly 15,000 tons in their vaults, compared to the 30,000 tons they have on record. The difference is the amount of gold that has been clandestinely fed into the market to suppress price of gold and support the dollar..

Where is this heading?

This was all relatively opaque and easily hidden until recently. What we have seen in the past year, however, is a significant disconnect between the paper markets for metals and the physical markets..

If you were simply watching the futures markets and the spot price, you might assume that demand for precious metals has fallen through the floor, especially considering that gold has experienced the largest correction in the last 25 years. But that’s not the case at all..

Bullion dealers and mints worldwide have reported shortages of metal, exceedingly long delivery times, and more buying than they have witnessed in decades. Not exactly the backdrop you would expect, given such a significant correction..

I won’t go into all the reasons why gold will likely prove to be an extreme value under $850 an ounce and silver below $15, but if shortages already exist with this relatively low level of investor interest in the metals… then just imagine what will happen when the rush for lifeboats really begins..

There are a lot of ways to invest in precious metals… mining stocks, ETFs, exploration companies, futures. But your first resort and the foundation of your portfolio should be possession of the physical metal. Gold and silver that you can hold, touch and feel. Money that depends on no one else’s obligation… not a government, a bank or a brokerage firm..

Buyers in India are already paying a premium over the spot market price for gold. As are buyers of gold and silver bullion coins on auction sites like Ebay. I expect as the manipulation in the paper market becomes more apparent in the years ahead, the spot price of gold and silver will soar. So will the shortages of physical metal. If/when this happens, the premium people are willing to pay to get their hands on the real thing will jump sharply..