Why Fiat Currency Requires Gold Price Suppression Forever

When the gold that governments are prepared to lose in price suppression is nearly exhausted, they will…

by Chris Powell of the Gold Anti-Trust Action Committee (GATA)

Dear Friend of GATA and Gold:

Our friend C.W. wrote this week:

“After reading recent commentaries noting that the U.S. Justice Department and Commodity Futures Trading Commission are overlooking the long-term suppression of the gold price while indicting individual traders for spoofing the gold and silver futures markets, I wondered why the authors did not acknowledge a simple likely explanation.

“That is, one or two bullion banks may be trading on behalf of the U.S. government to suppress gold and silver prices, either at a profit or at the lowest possible loss. Such trading by or at the behest of the U.S. government appears to be legal, so the Justice Department and CFTC do not pursue it.

“The bullion banks executing the government’s trades may trade simultaneously for their own accounts and to some extent front-run the trading they do for the government, and this is where spoofing has gotten traders in trouble.”This explanation is of the Occam’s razor variety, and it accords with the claims of JPMorganChase that it trades the monetary metals only for clients.

“I noted David Stockman’s theory recently posted at King World News —


— that because gold at its current price is a tiny fraction of the trillions of investment assets worldwide, the price of gold will rise if investors reallocate any assets to physical gold. I suppose that’s true, but it shows why it is so important for governments to continue to suppress gold.

“Consider that the value of the entire U.S. gold reserve (assuming it is still intact) is equal only to about five months of the federal government deficit. In other words, the gold reserve is almost insignificant and irrelevant in the long term. So the real value of the gold reserve — and in fact its only point — is to be used to suppress the gold price, thereby maintaining faith in the fiat currency. The alternative — a rapidly increasing gold price — would destroy faith in the U.S. dollar and the resulting turmoil would end the dollar system.

“That’s why official suppression of the price of gold can never end. While the gold price must be allowed to rise to reflect the cost of production, so as not to put the miners out of business, which would cause the gold price to go parabolic, official policy otherwise must be to suppress the price and restrain gold investor sentiment at whatever level is possible, and by any means. It is hard to see why or how gold price suppression will end without Venezuelan-style hyperinflation.

“Investor demand may cause an increase in the gold price, but official suppression will continue at whatever price level is possible.”

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Your secretary/treasurer would reply:

Yes, I too have long thought that the real offense of the bullion bank traders now under indictment has been only to front-run the government trades being executed by their own banks. But I still am baffled by the prosecutions undertaken by the Justice Department, since the bullion bankers surely have just as much dirt on their government clients as the government has on them, and the bullion banks and their indicted traders could hurt the government badly by coming clean.

“And yes, whatever gold’s price, governments — and especially the United States government, issuer of the reserve currency — will have a strong interest in keeping gold out of the world financial system, though governments may revalue gold collectively from time to time to rebalance international trade, devalue excessive debt, and reliquefy themselves, as the economists Paul Brodsky, Lee Quaintance, and Peter Millar wrote years ago —



— or may revalue gold separately to gain political and economic advantage over each other.

My guess long has been that when the gold that governments are prepared to lose in price suppression is nearly exhausted, as it was upon the failure of the London Gold Pool in 1968, they will close the major gold exchanges, arrange another international currency revaluation that pegs gold much higher and devalues the world’s ravenous debt, buy back the gold they have lost through decades of sales and leases, and begin another half century of gold suppression at a more sustainable price.

When that happens it will require much of mainstream financial news organizations, market analysts, and gold mining companies to overlook what is really being done, but their obliviousness, cowardice, and venality have never failed them yet.

CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
[email protected]

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