Chris Powell says, “Better to expose, challenge, and try to defeat the manipulation, creating good conditions for the gold business and restoring…”
Dear Friend of GATA and Gold:
These days there aren’t many denials of gold market manipulation by governments and central banks.
As the documentation has piled up, most of the former deniers have fallen silent or struck the pose of 321Gold’s Bob Moriarty, who these days writes that all markets are manipulated and everyone should just get over it, as if the identity of the manipulators, their capacity for manipulation, and the degree of their manipulation are of no practical or moral concern.
But Keith Weiner of Monetary Metals in Scottsdale, Arizona —
— still asserts that there’s nothing objectionable going on in the gold market. In his new commentary, “Super-Duper-Irrational Exuberance,” posted at GoldSeek here —
— and at 24hGold here —
— Weiner practically constructs a fantasy world of gold finance.
Weiner writes: “When you buy a gold future, the market maker is buying physical, selling you the future, and carrying the gold for the duration. During this time the market maker may or may not lease the metal. It cannot be overemphasized, or stated too often. Please tell your conspiracy-believing friends. Futures do not take demand away from physical metal. They pass the demand right through.”
But to assert this Weiner would need to know the details of every gold-related transactions by central banks, those made directly and those made through intermediaries. Further, anyone — central bank or market maker — leasing gold is not really “carrying” the gold for the duration. He is carrying the liability. The gold being leased well may be recorded as being in two or more places at the same time.
That’s what the secret March 1999 staff report of the International Monetary Fund acknowledged: that central bank reports fail to distinguish central bank gold in the vault from gold swapped and leased, because accurate reporting would reveal the true level of gold reserves, data that explode the gold and currency markets and interfere with surreptitious interventions by central banks:
Asserting that every futures contract trade is physically backed, Weiner is denying that there is any “unallocated” gold in the market, that there are no mere gold claims and credits extended by financial institutions that don’t actually have the relevant metal on hand.
Weiner continues: “Beyond merely siphoning demand, some go farther and call futures a simple fraud to get away with selling each bar of gold a hundred times over. This is a hypothesis that, if it were true, would cause certain effects in the world.”
Of course this has had certain effects. It has caused creation of far more claims on a product traded in a futures market than there is product to deliver. Futures markets are leveraged. Buyers and sellers need not deposit the full cost or full amount of the product they are trading — or any amount of the product at all. They trade on margin. The gold and silver futures markets particularly trade volumes far exceeding world mine production. If sellers had to deposit with the futures exchange the full amount of product they were purporting to sell, yes, prices would be much different.
The U.S. government figured this out in 1974 and enthusiastically welcomed the prospect of selling product that didn’t exist. A cable from the U.S. Embassy in London to the State Department in Washington in December that year described the embassy’s extensive consultations with London bullion dealers about the imminent re-legalization of gold ownership in the United States and possible substantial gold purchases by oil-exporting Arab nations:
The cable read: “The major impact of private U.S. ownership, according to the dealers’ expectations, will be the formation of a sizable gold futures market. Each of the dealers expressed the belief that the futures market would be of significant proportion and physical trading would be minuscule by comparison. Also expressed was the expectation that large-volume futures dealing would create a highly volatile market. In turn, the volatile price movements would diminish the initial demand for physical holding and most likely negate long-term hoarding by U.S. citizens.”
Weiner continues that those who complain about gold market manipulation have “asserted that the central banks have to suppress the price of gold. … They need to prop up the value of their currencies. We want to note the absolute irony of this.
“Who in the world measures the value of the dollar (or any currency) in gold terms?! Other than Monetary Metals — we say the dollar is currently 23.6 milligrams of gold — who else thinks like this? The central bankers, their academic enablers, and their most harsh critics alike all agree to measure the dollar either in terms of its so-called purchasing power or in terms of its derivatives euro, pound, yen, etc.
“Either the dollar is 1/P (where P is consumer prices) or it is the dollar index, a basket of currencies. Aside from this, central bankers do not think about gold.”
This may be Weiner’s most counter-factual claim. For the documents GATA has collected and published over the years show that central banks think about gold all the time,though of course they prefer to do it in secret.
If central bankers do not think about gold, why is their agent, the Bank for International Settlements, constantly swapping and leasing gold and trading gold derivatives, according to its monthly reports, and refusing to explain the purpose of these activities?:
Why does the director of market operations for the Banque de France acknowledge that his central bank is trading gold for itself and other central banks nearly every day?:
Why does the president of Venezuela’s central bank admit that all central banks swap gold?:
Why does the executive director of Austria’s central bank admit that Asia central banks “are increasing their reserves a lot and they are much more active in using also their reserves in trading in the market and intervening into the market”?:
Why does the U.S. Federal Reserve admit begrudgingly that it has gold swap arrangements with foreign banks but steadfastly refuse to disclose them?:
Why did U.S. Secretary of State Henry Kissinger’s deputy tell him in 1974 that control of the gold price was crucial to U.S. government policy because it conveys control of all world currency values and even control of the world financial system?:
Why in recent years have Asian central banks been buying gold even as Western central banks have been selling, swapping, and leasing it?
Have central bankers been undertaking all these activities thoughtlessly, in their sleep, so that Weiner can assert (along with Franco-Nevada’s Pierre Lassonde) that central bankers never think about gold?
Weiner is in the gold arbitrage business and complaints of manipulation of the gold market by governments and central banks may be bad for that business, just as such complaints may be bad for the gold mining business. For such complaints caution gold investors about what they are up against. But such complaints may be bad for business only because the manipulation itself is worse for business.
Better to expose, challenge, and try to defeat the manipulation, creating good conditions for the gold business and restoring free and transparent markets everywhere, than to pretend that nothing is wrong.
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.