Over time, I have explained how various activities in the gold and silver markets are not the signs of normal free market trading. Invariably, these abnormal trading tactics result in suppressing gold and silver prices.
For instance, a multi-year analysis released by Adrian Douglas last year showed that, even though the price of gold had quadrupled over the past decade, its prices from the London AM to PM fixes on the same day were consistently lower. The chances of such a consistent pattern for ten years are extremely remote (as in a 1 in 2.6 times 10 to the 32nd power chance of occurring at random).
The tactics over the past few months have been blatant and obvious. For instance, it is pretty consistent that gold and silver prices are knocked down when the London markets open at 3 AM Eastern in the US, between the London AM and PM fixes, and about a half hour after the US COMEX markets close. Professional traders seeking to sell for the maximum price would see this pattern and avoid selling at those times. So, the conclusion is that the sellers at those times have a purpose other than commercial trading.
The US government has about twenty trading partners to execute its financial operations. These include many of the largest banks and brokerages around the world. As long as these companies follow directions from the US government, they will continue to be allowed to earn substantial fees from executing these trades.
The price of gold effectively serves as a report card on the US dollar, the US government, and the US economy. If the US dollar were to fall relative to gold, meaning that the price of gold in US dollars rises, that would indicate a lack of confidence in the future value of the dollar. To offset the heightened risk of a further decline in the dollar, creditors would demand a higher interest rate on US government debt. Therefore, the US government has a huge incentive to hold down gold and silver prices.
However, suppression of gold and silver prices is not sufficient to meet the overall goal of supporting the value of the US dollar. There are at least two other key market indicators that also need to be managed (i.e. manipulated).
US dollar weakness would be evident if the interest rates on US government debt were to rise. Although the interest rate on 10-year US Treasury debt has increased about 15% since October, there is an obvious effort to keep the rate from going higher than 3.5%. The Federal Reserve steps in to purchase enough 10-year Treasury debt as part of the current round of quantitative easing to hold down this key indicator.
Further, investors need to be lulled into complacency so that they don’t pull their funds out of paper assets denominated in US dollars like stocks and bonds and maybe use the proceeds to buy other assets like gold and silver. To accomplish this end, it is necessary both to make gold and silver look less attractive by holding down their prices and to prop up US stock market prices so that investors will maintain such investments.
This seems to be happening. Over a year ago, one of the “experts” on a cable financial news show was challenged to find out who was buying US stocks that seemed to be invariably rising in prices day by day, without regard as to whether there was poor financial news, no news, or good news.
For a year this so-called expert tried to identify just who was purchasing, for instance, the stocks in the Dow Jones Industrial Average. He found that private investors in the US were either mostly avoiding stocks altogether or else were usually purchasing foreign stocks! He also came to suspect that the major brokerages were misusing their super fast computers to bump up prices. In the split second of time after another brokerage enters a buy order for a stock, these ultra fast computers can automatically detect that order, arrange to buy the stock before the original order is filled, then sell the stock to the original purchaser at a price that was at least a few cents higher to the buyer than if the computer had never intervened. Compound this activity by thousands of trades per second all day long every day and you can understand how these brokerages have increased their reported profits despite lower volume from private investors. A side benefit to the US government is that this activity also tends to drive stock prices higher no matter what the state of the economy.
The US government and its trading partners will admit to intervening in almost every market except for gold and silver. It does not make sense that so much manipulation would occur but somehow the line is drawn against tampering with prices of those two metals. As the American public gradually becomes aware of just how artificial the US financial market prices are, I expect more investors will leave those markets and increase demand for physical gold and silver. I’m not sure exactly how long it will take, but I expect far higher precious metals prices than we see today.
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 bimonthly columns on collectibles can also be read at http://www.lansingbusinessmonthly.com under “Articles” and “Department Columns.”His radio show “Things You ‘Know’ That Just Aren’t So, And Important News You Need To Know” can be heard at 8:45 AM Wednesday mornings on 1320-AM WILS in Lansing (which streams live and becomes part of the audio and text archives posted at http://www.1320wils.com.
Joe says
January 26, 2011 at 12:28 pmIf everyone knows the markets are being manipulated, then it seems like the gig would be up. The cost of manipulation HAS TO hit the bottom line somewhere. The only institution big enough to get away with such manipulation and not have to disclose their loses has to be a government (ours or someone else).
Joe says
January 26, 2011 at 12:34 pmUpon further reflection of my previous comment, the amount of gold (and silver) in the world is perhaps in the billions somewhere. However, several governments (including ours) toss billions of dollars around like it was nothing. Heck, we can’t even account for tens of billions of dollars spent in these stimulus packages AND NOBODY EVEN CARES OR QUESTIONS IT!
Perhaps it IS possible to spend billions to manipulate markets and get away with it since our populace is too stupid or lazy to care what our government is doing.
Deception everywhere..who benefits? says
January 26, 2011 at 12:59 pmIf I recall they have a few stores in the US
Wal-Mart Fined In China For Deceptive Price Practices To Mask Inflation
First, Wal Mart’s primary gimmick for masking inflation was confined to using smaller packages sold at the same price. Now, it has devolved to outright fraud and misrepresentation. Top global discount stores Wal-Mart and Carrefour have both been fined in China for “misleading pricing at some of their stores in the nation, as the government works to rein in rising prices for consumer goods.” Presumably outright lies (and being caught) are the last bastion before even such ultra low price point retailers are finally forced to hike their prices. Bloomberg explains further: “Authorities in cities including Shanghai, Chongqing, and Kunming discovered incidents at local Wal-Mart and Carrefour outlets that included labeling on products with prices that didn’t match what shoppers were charged at payment, exaggeration of discounts and labeling that led to confusion about how much a product cost.
The stores may be fined five times the revenue they earned using such methods, the National Development and Reform Commission said today on its website.” Our only advice on this news: get a channel checker for rice prices in China…
http://www.zerohedge.com/article/wal-mart-fined-china-deceptive-price-practices-mask-inflation
TK says
January 28, 2011 at 7:31 amTake advantage of the minipulation. It can’t last forever. I buy at any price. I hope whoever or whatever takes precious metals all the way down. I will be there to buy.
John says
January 28, 2011 at 3:01 pmDoug said.. Gold is not a crisis hedge, diversification is.
Probably that is why gold prices got a boost this morning. Gold may be a cris/inflation/deflation or whatever edge. But it is a safe haven unlike fiat money.
Joe says
January 30, 2011 at 10:42 pmHmmm….the Middle East is in crisis and gold is flat. Only some serious manipulation can do that!
George says
March 3, 2011 at 1:46 pmWas wondering about what happens to silver and gold prices since they are valued in the market by the US Dollar when you sell them, if you even ever again sell them?
In other words, people talk about how the PM’s will skyrocket in price once the curtain is pulled back, so to speak.
Let’s say silver goes to $1,000. Would a person just say so what I’m holding on to it because if I sell it I’d receive Federal Reserve Notes for it, back to zero value.
Even if they institute a new currency, we all know they’ll value the metals at a value that gives the people a certain price, and then after they have the metal they’ll raise the bar. Just like the “1934 turn in gold for $20.00, and then they moved the gold offshore and raised the price to $35.00.
As for me, I’m keeping mine until I can buy a building downtown with a roll of American Eagles.
I’m new at this, but I have Silver American Eagles, Silver Bars, and Silver Rounds.
As soon as I make a check, I buy 75% of that check in silver.
I have a pension, so any extra goes to PM’s.
I have no use for Federal Reserve Debt Notes.
paul says
January 4, 2012 at 9:09 pmHow can one think the metals market is not being manipulated by the feds, when in fact the money masters have the presses running at light speed counterfeiting our money and diluting its value? How can the two be addressed separably? The world is busily engaged in trading paper for precious metals. The thing is, some people are side lined in paper metal which is leveraged in some cases 100 to 1. This keeps the price artificially low so the robber barons can buy the real deal at a advantage. Where else but physical metals can you park your assets and not have them stolen from you by the institutions one pays to house it, or robbed by various taxes?