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The Question of Gold Price Manipulation? - Craig Hemke (21/05/2019)

Image of 2 gold bars, one with a shining corner, in front of multiple graphs trending up and down

May 21, 2019

That this is even a question reveals the intellectual laziness of those who ask. However, since this is coming up with regularity again, here's another post on the subject.

First, a summary of recent admissions and convictions against The Banks:

LIBOR manipulation: https://en.wikipedia.org/wiki/Libor_scandal (Note the section where it's noted that LIBOR fixing operates as a "cartel".)

Forex manipulation: https://www.cnbc.com/2019/05/16/eu-regulators-fine... (Again, note the use of the term "cartel".)

Precious Metals manipulation : https://www.cnbc.com/2019/05/02/sentencing-of-ex-j... (The gold "Cartel".)

Mainstream commentary: https://www.forbes.com/sites/greatspeculations/2019/05/20/yes-gold-is-being-manipulated-but-to-what-extent/#1b303ff32865

Those who question the existence of precious metal price manipulation must acknowledge the convictions and fines for LIBOR and Forex manipulation. They also likely understand that quantitative easing and rate pegs are simply forms of bond market and interest rate manipulation. However, once the conversation then turns to the precious metals, it becomes "conspiracy theory". Hmmmm…

Most troublesome is the intellectual laziness of the stock market generalists who dispute gold price manipulation and claim that this historical fact is only an excuse trotted out by "gold bugs" to explain the price range since 2013. A simple perusal of the GATA archives can give anyone a basic understanding. Start here with this piece from 2009: http://www.gata.org/node/7997

But, if truly curious, one could also take a few days to read the great book by the late Ferdinand Lips titled " Gold Wars". This detailed history, first published in 2001, is a comprehensive study of central bank management of the gold price since World War Two.

But perhaps even that is too much work for the average Day-Trading Generalist and Manipulation Denier. So let's make this even easier. Three simple Google searches yield all the details one needs to understand the historical fact of gold price suppression and manipulation.

Late 1950s: U.S. gold reserves plummet by over 20% as dollar-creditor nations seek conversion of dollars to gold. This led to Congressional investigations and the creation of The London Gold Pool. https://mises.org/library/losing-battle-fix-gold-3...

The London Gold Pool: Having failed in its solo attempt to fix price through physical supply, the U.S. recruits seven other countries and forms The London Gold Pool. The purpose was again to supply physical gold into the market whenever price moved away from the $35 Bretton Woods peg. https://en.wikipedia.org/wiki/London_Gold_Pool

Creation of Gold Futures: Following the spectacular failure of The London Gold Pool in 1968 and the closing of the U.S. "gold window" in 1971, a market for gold futures derivatives was created in New York on the COMEX. These futures contracts began trading on January 1, 1975... the very same day that ownership of physical gold by U.S. citizens was once again allowed following a 41-year prohibition. https://en.wikipedia.org/wiki/London_Gold_Pool

Nevertheless, The Generalists persist. Here's a recent sample of a "newsletter" that was forwarded to me by a subscriber to TF Metals Report:

While this Generalist makes a few good points about the importance of real interest rates in driving demand for gold in all of its current forms, he or she once again proves that his/her attention is never diverted away from the computer screen and the next possible trade. In the paragraphs above, we've laid out a simple and concise set of easily-discoverable facts, yet this person clearly has no interest in facts. All that matters is the endless chasing of dots on a trading screen.

However, let's do address his/her statement that "this happens with all commodities". This is simply NOT the case, and anyone with an objective viewpoint can quickly discern this by reviewing the data regularly put out by the U.S. Commodity Futures Trading Commission (CFTC). See these links:

The Commitment of Traders Report is surveyed weekly: https://www.cftc.gov/MarketReports/CommitmentsofTr...

The Bank Participation Report is surveyed monthly: https://www.cftc.gov/MarketReports/BankParticipati...

Regarding the precious metals, anyone can find that the monopolistic concentration of positions in COMEX silver is like none other. Additionally, how about this chart? Can a Generalist explain this?

And one thing that NEVER changes is the net short position of the 24+ Banks surveyed in the monthly Bank Participation Report. These Banks are ALWAYS net short COMEX gold and silver to some degree—and platinum and palladium, too. Here's just the most recent report for May 2019. The left column is gross long, the right is gross short.

As you can see above, thirty-three Banks are included in the May 2019 Bank Participation Report, and their combined NET short position in COMEX gold is 83,132 contracts. While that may seem like a lot—and, at 8,313,200 ounces, it is!—that's a pretty small amount given their history. Click around on the link provided above and you'll find Bank NET short positions as high as 178,061 contracts in February of 2018 or 191,834 contracts in July of 2016. History will also show that a 26 Bank NET short position of 37,647 contracts in COMEX silver is about the historical average.

Now compare the COMEX metals to other commodity "markets". First, here's the meat complex:

The grains:

The softs, like cocoa and sugar:

Even treasuries:

About the only other "market" where The Banks are consistently NET short is the largest of all... WTI crude. See here:

And what's funny about that is the WTI chart over the last fifteen years or so. Does this look vaguely familiar when viewed through that lens? Is there an "Oil Cartel" other than OPEC?

 

In summary, what's plain is that governments, Central Banks and their client, primary dealer Banks have a long and sordid history of overt and covert gold price manipulation and suppression. An intellectually honest person can readily discover the truth of this historical fact. Any Money Manager, Newsletter Generalist, or System Apologist that persists in claiming "conspiracy theory" simply betrays his or her own intellectual laziness and dishonesty.

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Head shot of Craig Hemke

About the Author

Our Ask The Expert interviewer Craig Hemke began his career in financial services in 1990 but retired in 2008 to focus on family and entrepreneurial opportunities.

Since 2010, he has been the editor and publisher of the TF Metals Report found at TFMetalsReport.com, an online community for precious metal investors.

*The author is not affiliated with, endorsed or sponsored by Sprott Money Ltd. The views and opinions expressed in this material are those of the author or guest speaker, are subject to change and may not necessarily reflect the opinions of Sprott Money Ltd. Sprott Money does not guarantee the accuracy, completeness, timeliness and reliability of the information or any results from its use.

Comments

Linda Lapner
May 22, 2019 at 10:42 AM
I have no problem accepting your thesis. What I don't understand is how after more than 15 years of waiting, watching and hoping on my part, the gold price will ever free itself from this blatant manipulation!
Göran Löfstedt
May 22, 2019 at 11:18 AM
I don´t argue about manipulation, but there is also another element also to discourage investors and that´s volatility. There seems to be periods when they stop manipulation and then strike again like first half of 2016 when gold prices rose, then they stroke again after they had sucked in many speculators in at higher prices. They probably have to let prices rise sometimes, but it´s very hard for outsiders to know when and when they will strike again.
voluntaryist
May 23, 2019 at 3:49 PM
All our savings are in physical gold. How do I justify it to my wife when all other commodities keep going up, but not gold?