This theory is one way the gold market can be manipulated, but it’s far from the only way, and it’s not without problems. Here’s why…
Editor’s Note: This is just one theory on one single method of manipulation among the many ways to manipulate the prices of gold & silver. See our tags precious metals price suppression and market manipulation for more information on the many different ways to manipulate price.
Another subject, while implied below in the article but not explicitly mentioned, is the notion of the “Exchange Stabilization Fund” (ESF). It is clearly stated on the U.S. Treasury Department website the the ESF can basically manipulate any market, at any time, for any reason, and the ESF doesn’t even have to disclose what it is doing because it both coordinates interventions with foreign governments and categorizes its operations with opaqueness:
Exchange Stabilization Fund
The legal basis of the ESF is the Gold Reserve Act of 1934. As amended in the late 1970s, the Act provides in part that “the Department of the Treasury has a stabilization fund …Consistent with the obligations of the Government in the International Monetary Fund (IMF) on orderly exchange arrangements and an orderly system of exchange rates, the Secretary …, with the approval of the President, may deal in gold, foreign exchange, and other instruments of credit and securities.
Zero Hedge tonight calls attention to an interview done with Jeffrey Snider, chief investment strategist and head of global research at Alhambra Investment Partners in Palmetto Bay, Florida, by hedge fund manager Erik Townsend at his MacroVoices internet site. Snider acknowledges that central banks are active in the gold market through leases and swaps but argues that their primary objective is not to suppress the gold price in defense of government currencies but to provide emergency liquidity and collateral to investment and commercial banks at times of market stress.
“Gold pukes,” Snider says, are desperate grabs for dollar liquidity by the private-sector banks selling collateral that happens to be handy.
Of course Snider’s theory does not match the accounts provided by central bank records themselves, which emphasize currency defense as the objective of intervention in the gold market. Nor does Snider’s theory explain the suddenness of the “gold pukes,” since no one who was more interested in getting a decent price for gold than in driving gold’s price down would sell so much in a few minutes. He would spread his sales out over at least a full day.
Further, it seems highly unlikely that any investment or commercial bank ordinarily would have as much gold lying around, or as much gold credit, as has been disgorged in some of these “gold pukes” without the aggressive assistance of central banks.
Even so, Snider faults the surreptitiousness of central bank activity in the gold market and the dishonesty of central bank balance sheets in regard to gold. That’s more than readers will ever get from the Financial Times and Wall Street Journal.
A transcript of Townsend’s interview with Snider, as well as the podcast interview (which is also embedded below in its entirety), is posted at MacroVoices: