market manipulationDriving down the price of gold assists the Fed in its efforts to support the dollar, and the Comex is running out of physical gold available to be delivered to those who decide to take delivery of gold instead of cash settlement.
Manipulation of the gold price is a foregone conclusion. The question is: why is the Fed tapering? The official reason is that the recovery is now strong enough not to need the stimulus. There are two problems with the official explanation. One is that the purpose of QE has always been to support the prices of the debt-related derivatives on the balance sheets of the banks too big to fail.
The liquidity that the Fed has created found its way into the stock and bond markets and into emerging economies. Curtailing the flow of liquidity crashes the markets, bringing on a new financial crisis.
The growth of US debt and money creation is causing the world to turn a jaundiced eye toward the US dollar and toward its role as world reserve currency.
The Fed knows that the ability of the US to pay its bills in its own currency is the reason it can stand its large trade imbalance and is the basis for US power. If the dollar loses the reserve currency role, the US becomes just another country with balance of payments and currency problems and an inability to sell its bonds in order to finance its budget deficits.
In other words, perhaps the Fed understands that a dollar crisis is a bigger crisis than a bank crisis and that its bailout of the banks is undermining the dollar. The question is: will the Fed let the banks go in order to save the dollar?

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By TND Guest Contributors:  Dr. Paul Craig Roberts and Dave Kranzler |

On January 17, 2014, we explained “The Hows and Whys of Gold Price Manipulation.” (click here)

In former times, the rise in the gold price was held down by central banks selling gold or leasing gold to bullion dealers who sold the gold. The supply added in this way to the market absorbed some of the demand, thus holding down the rise in the gold price.

As the supply of physical gold on hand diminished, increasingly recourse was taken to selling gold short in the paper futures market. We illustrated a recent episode in our article. Below we illustrate the uncovered short-selling that took the gold price down today (January 30, 2014).

When the Comex trading floor opened January 30 at 8:20AM NY time, the price of gold inexplicably plunged $17 over the next 30 minutes. The price plunge was triggered when sell orders flooded the Comex trading floor. Over the course of the previous 23 hours of trading, an average of 202 gold contracts per minute had traded. But starting at the 8:20AM Comex, there were four 1-minute windows of trading here’s what happened:

8:21AM: 1766 contracts sold
8:22AM: 5172 contracts sold
8:31AM: 3242 contracts sold
8:47AM: 3515 contracts sold

dave-gold

Over those four minutes of trading, an average of 3,424 contracts per minute traded, or 17 times the average per minute volume of the previous 23 hours, including yesterday’s Comex trading session.

The yellow arrow indicates when the Comex floor opened for gold futures trading. There was not any news events or related market events that would have triggered a sell-off like this in gold. If an entity holding many contracts wanted to sell down its position, it would accomplish this by slowly feeding its position to the market over the course of the entire trading day in order to avoid disturbing the price or “telegraphing” its intent to sell to the market.

Instead, today’s selling was designed to flood the Comex trading floor with a high volume of sell orders in rapid succession in order to drive the price of gold as low as possible before buyers stepped in.

The reason for this is two-fold: Driving down the price of gold assists the Fed in its efforts to support the dollar, and the Comex is running out of physical gold available to be delivered to those who decide to take delivery of gold instead of cash settlement.

The February gold contract is subject to delivery starting on January 31st. As of January 29th, 2 days before the delivery period starts, there were 2,223,000 ounces of gold futures open against 375,000 ounces of gold available to be delivered. The primary banks who trade Comex gold (JP Morgan, HSBC, Bank Nova Scotia) are the primary entities who are short those Comex contracts. Typically toward the end of a delivery month, these banks drive the price of gold lower for the purpose of coercing holders of the contracts to sell. This avoids the problem of having a shortage of gold available to deliver to the entities who decide to take delivery. With an enormous amount of physical gold moving from the western bank vaults to the large Asian buyers of gold, the Comex ultimately does not have enough gold to honor delivery obligations should the day arrive when a fifth or a fourth of the contracts are presented for delivery. Prior to a delivery period or due date on the contracts, manipulation is used to drive the Comex price of gold as low as possible in order to induce enough selling to avoid a possible default on gold delivery.

Following the taper announcement on January 29, the gold price rose $14 to $1270, and the Dow Jones Index dropped 100 points, closing down 74 points from its trading level at the time the tapering was announced. These reactions might have surprised the Fed, leading to the stock market support and gold price suppression on January 30.

Manipulation of the gold price is a foregone conclusion. The question is: why is the Fed tapering? The official reason is that the recovery is now strong enough not to need the stimulus. There are two problems with the official explanation. One is that the purpose of QE has always been to support the prices of the debt-related derivatives on the balance sheets of the banks too big to fail. The other is that the Fed has enough economists and statisticians to know that the recovery is a statistical artifact of deflating GDP with an understated measure of inflation. No other indicator–employment, labor force participation, real median family income, real retail sales, or new construction–indicates economic recovery. Moreover, if in fact the economy has been in recovery since June 2009, after 4.5 years of recovery it is time for a new recession.

One possible explanation for the tapering is that the Fed has created enough new dollars with which to purchase the worst part of the banks’ balance sheet problems and transfer them to the Fed’s balance sheet, while in other ways enhancing the banks’ profits. With the job done, the Fed can slowly back off.

The problem with this explanation is that the liquidity that the Fed has created found its way into the stock and bond markets and into emerging economies. Curtailing the flow of liquidity crashes the markets, bringing on a new financial crisis.

We offer two explanations for the tapering. One is technical, and one is strategic.

First the technical explanation. The Fed’s bond purchases and the banks’ interest rate swap derivatives have made a dent in the supply of Treasuries. With income tax payments starting to flow in, fewer Treasuries are being issued to put pressure on interest rates. This permits the Fed to make a show of doing the right thing and reduce bond purchases. As a weakening economy becomes apparent as the year progresses, calls for the Fed to support the economy will permit the Fed to broaden the array of instruments that it purchases.

A strategic explanation for tapering is that the growth of US debt and money creation is causing the world to turn a jaundiced eye toward the US dollar and toward its role as world reserve currency.

Currently the Russian Duma is discussing legislation that would eliminate the dollar’s use and presence in Russia. Other countries are moving away from the dollar. Recently the Nigerian central bank reduced its dollar reserves and increased its holdings of Chinese yuan. Zimbabwe, which was using the US dollar as its own currency, switched to Chinese yuan. The former chief economist of the World Bank recently called for terminating the use of the dollar as world reserve currency. He said that “the dominance of the greenback is the root cause of global financial and economic crises.” Moreover, the Federal Reserve is very much aware of the flight away from the dollar into gold, because it is this flight that causes the Fed to manipulate the gold price in order to hold it down and in order to be able to free up gold for delivery.

The Fed knows that the ability of the US to pay its bills in its own currency is the reason it can stand its large trade imbalance and is the basis for US power. If the dollar loses the reserve currency role, the US becomes just another country with balance of payments and currency problems and an inability to sell its bonds in order to finance its budget deficits.

In other words, perhaps the Fed understands that a dollar crisis is a bigger crisis than a bank crisis and that its bailout of the banks is undermining the dollar. The question is: will the Fed let the banks go in order to save the dollar?

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About Dave Kranzler

I spent many years working in various analytic jobs and trading on Wall Street. For nine of those years, I traded junk bonds for Bankers Trust. I have an MBA from the University of Chicago, with a concentration in accounting and finance. My goal is to help people understand and analyze what is really going on in our financial system and economy. You can follow my work and contact me via my blog, “The Golden Truth” and Seeking Alpha.

As a co-founder and principal of Golden Returns Capital, LLC Mr. Kranzler co-manages the Precious Metals Opportunity Fund, a metals and mining stock investment fund.

# # # #

Paul_Craig_Roberts_withkitties_150_120
About Dr. Paul Craig Roberts

Paul Craig Roberts was Assistant Secretary of the Treasury for Economic Policy and associate editor of the Wall Street Journal. He was columnist for Business Week, Scripps Howard News Service, and Creators Syndicate. He has had many university appointments. His internet columns have attracted a worldwide following. His latest book, The Failure of Laissez Faire Capitalism and Economic Dissolution of the West is now available. His latest e-book, How the Economy was Lost, is available at Counter Punch. Click here and scroll down to order. Dr. Roberts discusses this book in an article published at CounterPunch.org; click here to read the article. To support The Institute For Political Economy, a non-profit organization that supports research, writing and books and Dr. Roberts’ continued effort to educate and inform, click here to donate.

    • We who?  You got a mouse in your pocket, Ranger?  Just because YOU and I know something does not mean that everyone else does too.  The stacker community is growing, so we have fresh blood coming in who may not know this stuff.  But they are here to learn it and that’s a VERY good thing.  Not every article here appeals to every member or visitor.  Just take what works for you and leave the rest for others.  :-)

  1. “The question is: will the Fed let the banks go in order to save the dollar?”
    I believe the answer to this question is: No. I believe they will destroy both. Both the Banks and the dollar will go down in an epic collapse. I believe the people that ultimately gain positions of power are Socialpaths. You kind of have to be. You have to be ruthless and cunning. Willing to sell their own mother for bragging rights. Some join fancy clubs like the Skull and Bones, Bildeberg or CFR. Some become President of the USA or Chairman of the Federal Reserve. They sometimes work alone. These people only have one thing going through their minds and thats to maintain power and Wealth. They have no Empathy gene/ or Soul. They only think about one person. And thats Numero Uno. Themselves. Bigger Socialpaths play a grandier world view playing Socialpaths against each other. Like the Rothschild and Rockefeller families.
    The Socialpaths on Wall St want to maintain their wealth. The Socialpaths in Washington want to maintain power. Neither will subside. Untill eventually finally. The House of Cards comes crashing down when one back stabs the other. The Socialpaths in China and Russia want to gain power also so they will help undermine the US System as well. I envision a scenario where the Wall St Socialpaths will see the end is near run up the market and pull out before everyone else does. The Washington Socialpaths will wait to their terms are nearly complete. 2016/17. This stuff happens all the time in history. Look at the greatest Stock market collapses in US history all came either during an election year or immediately after.

  2. Also the Federal Reserve is controlled by 12 other regional banks. Why would these banks decide to save the dollar at their own expense? To them this would be like Parachuting out of a plane that is about to crash and landing inside an active Volcano. Aint happening. My guess is the Share holders of these banks have already insulated themselves from a dollar collapse and its business as usual for them. They aint going to kill there goose that lays golden eggs.

    • “My guess is the Share holders of these banks have already insulated themselves from a dollar collapse and its business as usual for them.”
       
      Yep… and some wonder where all the gold went.

  3. The one and ONLY answer to the debt problem is to declare it null and void because of FRAUD!  It is fraud because it is mathematically impossible to repay !   It can not be repaid because the interest is never created on the loan and that is fraud !   And fraud voids all !   If we don’t void all out of thin air debt the bankers will own almost EVERYTHING !    And we will be homeless slaves !  They have a license to counterfeit !   Can I counterfeit the money to repay the loan ?  Why not ?   If we even attempt to repay a impossible debt (the national debt) all we do is show our ignorance !   The way to fix this mess is so simple a 3rd grader can figure it out !   We void the fraudulent debt!  and everyone keeps ALL the items they have so called debt on !   And then we start to use a debt free currency and / or gold and silver !  And then we will have a robust economy like never before — OR WE LET THE BANKERS STEAL EVERYTHING !
      I was in about the third grade when the news was talking about the national debt and I asked my dad who do we owe money to and who could possibly be richer than the United States?  and where did they get the money?  And then my dad took a gulp off his beer and said we owe it to our self !   I said that’s the dumbest thing I ever heard of !  that’s like me borrowing from my right pocket and setting fire to the interest and putting the rest in my left pocket !  This was about 1972 !  But Dad was wrong!  We owe it to international Bankers running the biggest Ponzi scheme on earth called The Federal reserve system!  And yes it really is this simple  !  The bankers have a shoe in on ALL loans they make !  All they have to do is stop lending and then start foreclosing on ALL debts!-meaning they now own everything that has a debt by having a license to counterfeit !  So we 1 keep getting fleeced by continuing to pay this fraudulent scheme !  OR 2 we declare ALL out of thin air debt NULL AND VOID because of FRAUD !   And we ALL keep everything we have so called debt on!   MOST people don’t get this part Every car, boat, house, machine, tool, farm,ect.  has already been paid for by the fraudulent paper!   So no one looses !   WE sure as hell cant give it to the banksters!   (let them steal it)   AND IT DOESENT MATTER IF YOU WANT TO  REDUCE THE DEBT 90% ITS STILL UNPAYABLE!  So when we void the FRAUD This will be the ultimate FRESH start for everyone !   Share this if you want THE solution to the WORLDS problems!   If not everything will continue to get worse until we have HONEST DEBT FREE MONEY /and GOLD AND SILVER !  And there is plenty of gold and silver!  just Divide the paper money (FRN) by the gold /silver and you have the value of them!  NO MATTER WHAT IT COMES TO per OZ ! Then we would be happy to work for SAY A ONE OZ. SILVER COIN A day ! Because NOW REAL MONEY will buy what  $100 did before the reset!   THINK ABOUT IT!   This is what Scripture calls the jubilee !

    • The slate will eventually get wiped because, as you mentioned, the mathematically improbability. We are about 50 years too late to even reconsider going back to a PM back currency at this juncture. Our deflationary death spiral is held together by toothpicks and bubblegum and gold based currencies are deflationary. Eventually gold will have its day but not tomorrow.
       
      Some would have you believe a gold based currency is ideal but it has its problems as well. The stackers here don’t believe in statistical gold reserves, COMEX standings or the concept of paper gold. How shall we do international business? Constant gold shipments across the ocean? The general public doesn’t even know what to do with gold and silver in regards to using it a legal tender nowadays.
       
      “The other is that the Fed has enough economists and statisticians to know that the recovery is a statistical artifact of deflating GDP with an understated measure of inflation. No other indicator–employment, labor force participation, real median family income, real retail sales, or new construction–indicates economic recovery. Moreover, if in fact the economy has been in recovery since June 2009, after 4.5 years of recovery it is time for a new recession.”
       
       
      This sounds like he is defining a stagflation scenario. True inflation needs to be evident in all sectors and obviously, given the state of commodities right nowand big money not hedging, we don’t have true inflation yet. The dollar happens to be in the fortunate position that all other major currencies are equally worthless. 

  4. “If the dollar loses the reserve currency role”

    Which is not going to happen, what will replace the dollar? The BRIC’S, how has that been working out lately? As all of those currencies are getting killed relative to the US dollar. The Euro? No way.

    If the Fed was the only central bank to use QE, then yes the Dollar would have major issues, but China, Euro zone, UK, and Japan are all doing the SAME policy, so at the end of the day, the Dollar is the best of the worst.

    The world is not rejecting the US dollar or US T-Bonds, Roberts has been consistently wrong about this issue.

    • …at the end of the day he has the most gold wins. In the end the US will be forced to eat economic $#!+ or go to war…war my friend is so not an option…all the big boys got the same toys…no winner there…and first place is the same as last. We dont have all the facts therefore reaching any conclusions is tantamount to wishful thinking. So heres what we do know. China is buying gold like its goin outta style ( not really outta style just buying all they can get their little yellow mits on ) Germany was told to wait 7 years for 300 tons and the US gave them ONLY 5 tons last year to start that ball rolling uphill. No QE… no market. ask the guys on the Nikkei and the DOW how things are goin since late December and we aint seen nothin yet. We got bankers doin triple lindseys no pike or just “dying”. and contracts are coming due this month and next. If i were to place a wager on when the proverbial *** hits the fan Id say it already has just hang on till the heat catches up to the rest of the room.  

    • Sure, the dollar will Always be the reserve currency. Like the pound and the peseta before it. Or the sexterce that still is the reserve currency, right?
      It will not matter that a quadrillion dollars are printed per second, 7 billion stupids will still hang on to the US paper promise.

  5. forgot to add that China is now in the aircraft carrier business…the word is that they plan to have three of the largest carriers everbuilt with all the state of the art bells and whistles by 2016…that would be one helluva fireworks show.the US mint has drastically curtaialled SE production to the tune of HALf of what it was last January. ( wait, i know, no one wants Eagles thats why they dont make em ) the 5 largest banking and investment institutions are carrying the majority of derrivative debt…denominated in … wait for it… DOLLARS…and you want to know why precious metals are capped ??!! Metals go up Dollar falls, interest rates rise, debt payments ballon, bankers commit suicide en masse…ok maybe this works out after all  LOL 

  6. This is my last post until that Jesus Shekel is removed from my view as it offends me too much . @Doc sorry I know you have to make a living but I have to take a stand, sorry. When you get through using that picture then let m know as you have my information.

    • @Jccjktj
      @stackerx
       
      this is not an appointment as a commissioner, this is as a member of an advisory committee specifically in regards to swaps.  There are many of these, for example the Ag advisory committee to cftc.  These are typically filled with a cross sections of industry members who use the regulated exchanges.  we can debate the pick but in my experience it does not seem to matter as CFTC just tends to do what they believe is right.

      Put another way, do you think that in order to influence the cftc that JP Morgan would need a member to speak in an open committee mtg?

    • “as CFTC just tends to do what they believe is right.”
      100% incorrect. The CFTC has done nothing to stop ongoing crimes and market manipulation, and never has. That is why Brooksley Born resigned in 1999. They are a totally captured regulator and are completely toothless in any enforcement capacity.

    • you proved my point and didn’t even realize it, however probably should have been more specific, the purpose of these committees is generally around proposed rulemaking and how it will impact players in the market. I can’t recall a single instance where enforcement was discussed at a committee meeting.

    • Good catch Jcc.  There’s a banker who could do with some flying lessons. She must have stones the size of coconuts and some really high level protectors.  Of course, this is to be expected.  As KLUMMAC said, ‘there’s not s smidgen of corruption in the IRS’  and “Bengazi was just some guys out for a walk at night who decded to attack our embassy”  Business as usual, boys and girls.

    • @jccjktj
      @AGXIIK

      Posted above as well but think the clarification is important. this is not an appointment as a commissioner, this is as a member of an advisory committee specifically in regards to swaps. There are many of these, for example the Ag advisory committee to cftc. These are typically filled with a cross sections of industry members who use the regulated exchanges. we can debate the pick but in my experience it does not seem to matter as CFTC just tends to do what they believe is right.

      Put another way, do you think that in order to influence the cftc that JP Morgan would need a member to speak in an open committee mtg?

  7. mikeyj60 
    Having a person of her low nature, a person at the center of manipulation of energy markets that cost JPM $500,000,000 in fines and clearly a liar par-excellence, as a person on an ADVISORY POSITION is a person with just enough culpable deniability to be outside the largest part of criticism in how any investigation is handled. And the CFTC is not known for any actions that rattled the powers that be for 5 years.
      The problem with this appointment is like Cleopatra’s Wife,  There cannot be even a slightest stain of scandal.  Advidors can direct, influence and educate people who will accept their input on faith and they pursue their important work.  Placing faith in Blythe Masters is faith misplaced.  She is not to be trusted and is a clear and present danger to any organization charged with the responsibility of uncovering fraud and manipulation. 
    Her suggestions could easily be taken as gospel, leading investigators in the wrong direction.  She is a carefully placed mole who can provide information as to the directions of investigations that allow her to covertly inform cronies as to progress of reviews and investigations.
    This is a very clear situation to anyone who knows how investigative bureaucracies operate when they have little willingness and ability to find the truth. After 5 year Bart Chilton concluded that there was no manipulation in the silver market. And the person largely responsible for the mechanisms of that rigging is now an advisor to the CFTC. I have no liking for Chilton. He was a well compensated dupe who knew that his options to find and prosecute real fraud were limited.
    Now that he is gone, Masters is free to work from the inside. I would not be surprised to see Corzine appointed to a position like this in coming months: On the recommendation of Blythe Masters.
    I would not be surprises to see Jamie Dimon offer the same position.
    I’ll even make the prediction that one or both will see their opportunity to be part of the CFTC within 6 months.
    Masters will see to it that truth is never discovered.

    • Ag2k
       
      The advisory committee meets are open forum, often webcast live.  The members of these committees are not compensated nor are they “a part” of cftc as you mention.  I agree we can debate the choice of the person, but really have no desire to.  My point is simply this… Do you think jp needs to be on a committee of multiple people in an open forum with press invited and webcast for the world to see in order to influence? BoP made a point that was well taken, the purposes of the committee meetings are generally to discuss proposed rulemaking and what industry sees as challenges. I cannot recall a single instance where a committee meeting discussed enforcement.
       
      She is not a member or a part of cftc, the position is largely ceremonial (that is not the right word but can’t pull the right one).  My company has had reps on similar committees, they get together, hear what cftc is thinking, voice their opinions, go away, cftc does what they think is right.
       
      As far as chilton and silver, i am a bit suprised no real data has been released.  Globex has ability to reach in and pull out every trade and order that hits their system, surely cftc had access and requested this, yet we did not hear anything about specific players, specific orders, or specific timing.  

  8. mikeyj60  copy that. 
    my concern is that if you take a barrel of fresh water and add on drop of poison, the entire barrel is poisoned.
    The CFTC is anything but a barrel of pure water.  Masters is pure poison.
     Transparency may be a quality of pure water . Transparency may be a quality of open mike meetings.  What is said behind the scenes is another matter.  
    There is where transparency stops. 
    I trust not one single element of this government or investigatory agencies under the aegis of this administration.  Not that the prior ones particularly trustworthy but this one in something beyond the pale. 

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