In the five weeks from June 28 through August 3, the US Dollar Index fell 5.9%!
This Index reports the relative value of the dollar against a basket of other major currencies. Over that time, the dollar has fallen 7.2% against the Euro, 5.3% versus the British pound, 4.4% to the Swiss franc, 4.4% compared to the Australian dollar, 4% versus the Japanese yen, 3.9% against the South Africa rand, and 3.8% to the Chile peso.
The best result for the US dollar when compared to the 22 currencies I regularly track was no change to the India rupee. The dollar declined against the other 21, including 0.3% to the Chinese yuan, 1.1% to the Canadian dollar, and even 1.0% against the Mexican Peso.
In normal markets, when the value of the US dollar plummets so quickly, gold and silver prices take off.
Not this time.
In the same time period, the price of gold was down a significant 4.3% and silver fell 1.4%! This does not make sense. After all, other commodity wholesale prices have soared in US dollar prices during these five weeks:
Sources: The Wall Street Journal and London Metals Exchange
These are the commodities I track on a regular basis to warn me about changes in price levels. I find this information far more accurate then the Consumer Price Index published by the US Bureau of Labor Statistics which shows virtually no rising prices.
Why did the price of almost everything rise against the US dollar in the past month or so, except for gold and silver? I think I can explain.
Two months ago, after observing that the Federal Reserve was flooding world markets with US dollars, I predicted an imminent reaction of significantly higher gold and silver prices by the end of July. While it happened for other currencies (versus the dollar) and commodities, it specifically did not occur for gold and silver.
Gold and silver are special commodities. The price of gold effectively serves as a report card on the value of the US dollar, the US economy, and the US government. The US government has the largest budget of any nation. The US dollar pretty much serves as the world’s reserve currency. The US economy is the world’s largest—by far. Putting this all together indicates that the US government has a huge incentive to take actions to suppress the price of gold.
The US government also has the largest total of outstanding debt of any country. By holding down gold prices and lulling creditors with a false sense of security, the US government derives substantial financial benefits from paying a lower interest rate on that debt.
Silver generally trades in sympathy with gold. Therefore, in order to reinforce any manipulation of gold prices, the silver market would need similar attention.
In addition to motive and opportunity, you also have to consider that the US government has actively manipulated the price of gold going all the way back to the end of World War I in 1918. As more federal documents are declassified every year, more information about past price suppression activities are confirmed. The most recent admissions of manipulation have to do with trading in the London gold pool in the 1970s.
Kevin Warsh, a governor of the Federal Reserve Board, in a September 17, 2009 letter to the Gold Anti-Trust Action Committee, Inc. (GATA), admitted that the Fed has current gold swap arrangements with other central banks.
So, it is possible for the prices of gold and silver to be held down while the dollar is falling and other commodity prices are mostly soaring.
But gold and silver prices cannot be suppressed forever. In fact, it does not look like they can be held near current levels very much longer. With major trading partners of the US government, who almost certainly helped perpetrate the manipulations, now closing out their COMEX gold and silver short positions at a record pace, that indicates that those companies expect much higher prices soon. You can acquire your gold and silver today, or maybe have to pay a lot more for it in a month or two—if you will then be able to find any to buy!
Patrick A. Heller owns Liberty Coin Service in Lansing, Michigan and writes “Liberty’s Outlook,” a monthly newsletter covering rare coins and precious metals. Past issues can be found online at http://www.libertycoinservice.com/ Pat Heller is also the gold market commentator for Numismatic News. Past columns online at http://numismaster.com/ under “News & Articles”. His periodic radio interviews can be heard on WILS 1320 AM in Lansing, www.talkLansing.net, and on www.yourcontrarian.com