Bankers and western governments hate gold

Bankers and western governments hate gold. By Chris Powell.

Gold is the old money. Everyone used it until 1913, after which it was gradually phased out of the official western system, until it was all gone by 1971.

It’s because gold is a powerful competitive international currency that, if allowed to function in a free market, will determine the value of other currencies, the level of interest rates, and the value of government bonds.

In a free market, … a rising gold price signifies the weakening of government currencies … So central banks fight gold to defend their currencies and bonds against competition. …

The first manipulation scheme failed in 1968. It was replaced by something more sophisticated, but more effective:

The London Gold Pool held the gold price at $35 per ounce, … until the pool collapsed in March 1968 under the rising demand that had drained the U.S. gold reserve from 25,000 tonnes down closer to the 8,133 tonnes officially reported today …

After the collapse of the gold pool the United States and its allies regrouped to decide how to rig the gold market surreptitiously, to do it behind the scenes — not just with dishoarding but also by what is called the leasing of gold; by the purchase and sale of gold derivatives, including futures and options contracts; and, more recently, by what is called high-frequency trading undertaken through investment banks that gladly serve as government agents in the gold market, providing camouflage for governments, since the investment banks can front-run government trades.

When the rigging is done surreptitiously, as it is mostly done now, much less central bank gold has to be dishoarded and the dishoarding that is done has a far more suppressive effect on the price. …

This market rigging by central banks and their agents explains the great disparagement of gold today…

Bankers and governments create vast amounts of imaginary gold, whose supply they control in order to influence its price:

Gold derivatives have created a vast imaginary supply of gold — a supply of paper certificates for gold that does not exist but for which delivery has not been demanded. That’s because most gold investors leave their gold purchases on deposit with the investment banks that sold them only promises of imaginary gold.

As a result the world now has a fractional-reserve gold banking system that is leveraged in the extreme.

Yes, all commodity futures markets have created paper promises of supply that cannot easily be covered by real product and would have to be settled in cash if delivery was ever demanded. But most commodity markets are for goods that eventually are delivered and consumed to a great extent, so you can’t falsify those markets too much.

Gold is different, for gold is not consumed but rather saved — hoarded — as a means of exchange, as money and savings, and as jewelry, even as most gold purchased in the futures markets is never delivered at all but rather left on deposit with the futures exchange or investment banks.

This system has produced a huge and elastic supply of imaginary gold, even as people buy gold precisely because they assume that its supply is not imaginary and elastic — that its supply is real and limited to total past production and annual mine production.

This assumption that the supply of gold in the financial system is real is a terrible mistake.

While the principle of most gold investment analysis is “You can’t print gold,” “paper gold” can be printed to infinity just like ordinary government currency — and indeed it has been printed practically to infinity.

You can get an idea of the vast imaginary supply of gold by reviewing the huge gold derivative positions attributed to U.S. investment banks in the reports of the U.S. Comptroller of the Currency. …

“The modern-day central banker trades with counterparties that are giant commercial banks with derivative books of disturbing scale and complexity. It seems impossible that these commercial exposures could be constructed and maintained without the knowledge and complicity of the official sector. For example, Deutsche Bank, already a defendant in a thousand lawsuits, claims derivative exposure that is 20 times the gross domestic product of Germany and five times that of the entire eurozone. …

Gold market consultant Jeffrey Christian of CPM Group testified to a hearing of the U.S. Commodity Futures Trading Commission on March 25, 2010, that the ratio of “paper gold” to real metal in the so-called London physical market may be as high as 100 to 1. That is, there are as many as a hundred claims on every actual ounce of metal traded or vaulted in the London market …

If the price of gold rises, the manufacturers of paper money are in big trouble:

In January 2012 former Federal Reserve Chairman Paul Volcker admitted to the German financial journalist Lars Schall that central banks need to suppress the gold price to stabilize exchange rates at what he called a “critical point” … Volcker already had written in his memoirs that in 1973 as a U.S. Treasury Department official he advocated gold price suppression …

In 2009 a remarkable 16-page memorandum was discovered in the archive of the late Federal Reserve Chairman William McChesney Martin. The memorandum is dated April 5, 1961, and is titled “U.S. Foreign Exchange Operations: Needs and Methods.” The memo is a detailed plan for secret intervention by the U.S. government to rig the currency and gold markets to support the U.S. dollar and to conceal, obscure, or even falsify U.S. government records and reports so that the rigging might not be discovered …

The government of China knows all about Western gold price suppression policy and isn’t afraid to talk about it.

For example, the Chinese newspaper World News Journal wrote: “The United States and Europe have always suppressed the rising price of gold. They intend to weaken gold’s function as an international reserve currency. They don’t want to see other countries turning to gold reserves instead of the U.S. dollar or euro. Therefore, suppressing the price of gold is very beneficial for the United States in maintaining the U.S. dollar’s role as the international reserve currency. China’s increased gold reserves will thus act as a model and lead other countries toward reserving more gold. Large gold reserves are also beneficial in promoting the internationalization of the renminbi.” …

Markets in several commodities have become significantly less free in the last two decades:

That central banks and governments are secretly trading all major futures markets in the United States signifies that central bank intervention in world markets is now likely comprehensive — that there really are no markets anymore, just interventions, that the main objective of central banking now is to prevent markets from happening at all, and that the market economy that has been the engine of progress and democracy around the world has already been greatly impaired if not destroyed. This is the financial news story of the century, but the mainstream financial news organizations won’t report it. It is too sensitive.

In recent months several major investment banks active in the gold market have confessed to their own manipulation of the gold and silver through fake trading orders called “spoofing.” They have paid substantial fines for this market rigging. The biggest confession came from the biggest bank in the United States, JPMorganChase & Co., which in September agreed to pay a fine of $920 million and cooperate with a criminal investigation of market rigging …

In May last year a study by the University of Sussex Business School in Britain concluded that the gold futures market is indeed heavily manipulated, seemingly contrary to regulations, but regulators are overlooking it.

The regulators, and particularly the U.S. Commodity Futures Trading Commission, are overlooking the manipulation of the gold futures market because such manipulation is perfectly legal, at least in the United States, when it is done by or at the direction of the U.S. government itself. That’s because a federal law, the Gold Reserve Act of 1934, expressly authorizes the U.S. Treasury Department to secretly intervene in and manipulate not just markets in the United States but markets anywhere in the world.

Every major organization in the world gets crucial money from banks (as loans) or government (as grants, tax breaks, special privileges, fees etc.). So none will rock the boat by spilling the beans.

While mainstream financial news organizations occasionally report about gold, their reporting is always superficial. If you follow that reporting for long, you will see that the first rule of mainstream financial journalism about gold is: Never put to a central bank a critical question about gold, or any question about gold.

Indeed, for some time I have thought that the greatest power of Western central banking is not its power to create and deploy infinite money but rather its ability to intimidate financial news organizations — or the innate cowardice of those organizations.

For the gold price suppression scheme cannot work without deception, surreptitiousness, and misunderstanding. If mainstream financial news organizations ever exposed the scheme, investors would not participate in the markets that were being rigged, like the gold futures market. In that case investors who wanted gold would purchase only real metal and remove it from the banking system. They would not purchase gold futures or gold supposedly held in trust for them by investment banks.

Why are financial news organizations so negligent about gold? Partly it is because central banks and governments generally are newsmakers and can shut off the flow of news to any news organization that offends them. And it is partly because the biggest advertisers for financial news organizations are the investment banks that themselves are agents of central banks in various markets, including the gold market. Any news organization that alienates the investment banks with critical reporting about market manipulation risks losing their advertising. …

The biggest export of the US is US dollars. The rest of the world sends real goods and services to the US, and gets US dollars in return. That’s why there is so much US currency outside the US. It means the US is richer and can afford a bigger military than otherwise. But it also means that US labor is priced higher, which has hollowed out US manufacturing.

If the United States did not issue the world reserve currency, it could not live beyond its means and consume so much more than the fruit of its own labor as it long has been doing. …

But the unearned wealth that accrues to the United States from its being the issuer of the world reserve currency is not entirely a benefit. For it has comprehensively corrupted my country — its markets, its politics, and its public morality. When you have so much unearned wealth you tend to do stupid, corrupt, and immoral things. You forget the value of honest labor. You exploit and lord it over others. And you make your money a god.

For these reasons America needs an end to gold price suppression and market rigging as much as the developing world does. The nations that rig the currency markets are operating a totalitarian and parasitic system. It is actually an old story, the latest manifestation of the everlasting war of the financial class against the producing class — only it is hidden well enough that the producing class hasn’t yet figured it out. The producing class is doomed until it does figure it out. …

As much as 90 percent of the world’s investment gold, supposedly being held in trust at investment banks, is, to put it politely, oversubscribed. That is, most of the investment gold people think they own may not exist. If there is ever such a widespread realization and if delivery of the imaginary gold is ever demanded, the price of the metal may rise to multiples of its current price even as the holders of “paper gold” discover that they have been irredeemably cheated.

All that sounds a bit obscure, I know, but this is the ancestor of all the narrative schemes and the anti-democratic trend to Elois and Morlocks. This is the one ring that rules them all.

Asset shufflers rule, because the rest of us haven’t figured out how they do it and taken the appropriate actions. Hardly anyone even knows where money comes from any more, and the media isn’t about to enlighten them. It’s not a secret, it’s just too complicated for most people to want to pursue.

Btw, gold is created in the Sun by fusion reactions, escaping from the Sun in the backwash as asteroids plunge into the Sun. Some of that ejected material rained down on Earth, particularly when the Earth was very young. Gold makes a good money because no one can print it. It enforces honesty. But bankers and governments have, with our consent, circumvented that with their schemes. Those schemes will fall apart in the next big banking crisis, which might not be far off now.