October 23, 2008

All That Glitters Is Not Gold: Our Government’s Lies and Manipulations in the Gold Market

By Julian Dunraven, J.D., M.P.A.

Honorable friends,

We have all heard the old adage that when the market is down, gold is up. Well, the market is most assuredly down . . . but so are gold prices. Yet, strangely, demand for gold and other precious metals is skyrocketing, while supply is so low that people are being told they may have to wait six months or more for delivery. Even stranger, on eBay, prices for gold and silver coins and bars are well above the price they are being traded at on the commodities exchange in New York. So what is going on? That is the question some of my clients wanted answered as they fretted about their hedge investments. To answer quite simply, our government is actively working to suppress the gold market, and defrauding investors in the process. Now I will tell you why and how.

In the 1930s, we abolished the gold standard. Instead, we now have a fiat currency where money has value only because we say so. This allows the Federal Reserve to adjust the money supply without regard to a set amount of gold. Unfortunately, the Fed abused its power. Thus, every time we faced an economic hurdle, rather than allowing for market corrections, the Fed simply cut interest rates, printed more money, and inflated the problem away. It worked as long as people had faith in the currency.

As this behavior repeated itself over time, the central bank managed to encourage the unrestrained spending and overleveraging that has caused the economic crisis we face today. This time, though, the problem is not going away.

We are facing the accumulation of years of bad policy. People are beginning to see that the nation is so deeply in debt that the only way out is massive inflation and devaluation of the dollar. In an effort to preserve their wealth and hedge against this inflation, they turn to gold. This causes problems for the Fed and the other central banks.

Although our money is no longer backed by gold, the Fed cannot ignore gold entirely. If the value of the dollar drops too fast against gold, people begin to lose faith in the system. They buy gold instead of treasury bonds and the Fed and other central banks would be forced to stop their meddling in the markets and allow the money supply to readjust to the level it should be at. Thus, the Fed and other central banks have coordinated their efforts to prevent this.

First, as gold begins to rise, they release some of their own gold reserves into the market. The flood of new supply pushes down prices and allows them to continue with their operations. Of course, there is a danger. If they do this too often or too openly, people begin to see the manipulation and lose faith in the system. In recent years, as the increasing activity of the central banks has required more extensive manipulation of gold, the central banks have kept their hands clean by turning to private bullion banks. They have actually started paying these banks to lease gold and then sell it short on the market to keep the price down. Naturally, as an attempt to manipulate the currency, this is illegal for private entities — yet it is happening every day at the expense of investors.

Obviously, even the central banks do not have unlimited supplies of gold and cannot keep this up forever. The U.S. government, though, keeps its gold reserves a closely guarded secret and Fort Knox has not been audited since Eisenhower’s time. Yet, given the long waits for delivery and the high price of physical gold on eBay, we know that physical supply is short. So how do they continue to keep the price of gold futures contracts down on COMEX? They use naked short selling.

Few people ever demand delivery while trading on COMEX. Thus, it is remarkably easy to sell off more paper contracts than there is gold to back it. As long as few people demand delivery, the deception works. This, too, is criminal, but the law has not been enforced. We may see that begin to shift soon though. The manipulations have become so extensive that the difference in price between paper trading on COMEX and physical trading on eBay is becoming severe. People are beginning to notice. As early as December, we may see people demanding delivery on their COMEX contracts. When delivery cannot be met, this house of cards the Fed and other central banks have created will crash down.

So the government has fed us gilded lies while poisoning our market and actively undermining our hedge protections against inflation they created. Angry? You should be. But it will continue until we demand that it stop. Do so. First educate yourself. There is no better place to start than with the people at GATA. Then vote with both your money and your ballot. When you buy gold or silver, demand delivery. When you cast your ballot, vote against candidates who have fostered these manipulations and promised more. Vote against candidates who have benefited from the corruption through huge donations from the perpetrators. Vote against Barack Obama.

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Anonymous Hal P. said...

Thanks for the article. I too think there is a bit of wrongful manipulation going on. With the dow crashing today I am surprised to find ExactPrice reporting that overnight it hit a low of 686.80. That's amazing to me. I think in part it is the "paper" gold problem which I sometime think does get the wink from banks and government.

You are right, GATA is a good source of info on the subject.

Fri Oct 24, 09:07:00 AM  
Blogger Julian Dunraven said...

Dear Hal P.,

Thanks for reading. I should add that the SEC, thanks to the efforts of Sen. Grassley (R-IA), is starting to enforce the rules on naked short selling. They started to enforce a list of only 19 companies, but it is better than nothing. Let us hope it continues.

Julian Dunraven

Wed Oct 29, 03:03:00 PM  

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