Are Gold Prices Being Manipulated?
It is my view that we will get the answer as to whether or not the gold market has really turned for the better this month. I think the action in April will set the tone for the days and weeks to come. This month, gold prices could soar like an eagle. Or drop like a stone.
The ongoing shenanigans in the gold pits are so strange and so bizarre, that one almost pines for the days of old when, for a few coins, you could engage the services of a local soothsayer—she would then kill a nearby fowl, examine the entrails, and tell you, with certainty, what was to come.
Well, those days are long gone.
Instead of entrails, we will have to make do, in this massively (and deliberately) opaque market, with whatever data we are able to glean.
Where We Have Been…
In my earlier essays, I covered the basics of the gold market over the last few decades. What, arguably, made my views stand out from the “politically correct” coverage that seems to permeate this sector is that I have never hesitated to use the “M” word (manipulation) where appropriate, and its usage has never been more appropriate than in the gold pits of today.
The irony is that those in denial about the true nature of the gold market are not merely delusional in their own right, but are also ignoring history.
The first Great Gold Smash was the London Gold Pool in the 1960s. This is not speculation, conjecture, or a conspiracy theory. This is fact. It even has its own Wikipedia entry!
The second Great Gold Smash was the entire decade of the ’90s, culminating in “Brown’s Bottom” (also a Wikipedia entry!). That’s when the U.K.’s former prime minister Gordon Brown (then chancellor of the exchequer) sold the bulk of U.K. gold reserves at the bountiful price of $250.00 per ounce (approximately) with great public fanfare, explaining to anyone who would listen that gold was a “useless asset” that “took up space” in their precious vaults. The bulk of those sales took place between 1999 and 2002. (Source: “Brown’s Bottom,” Wikipedia, last accessed April 4, 2016.)
Nor, I should hasten to add, is this sort of aberrant behavior unique. Newly-elected Canadian PM Justin Trudeau recently made headlines all over the world when, with equal fanfare and spectacle, he boasted of selling all the remaining Canadian gold, right down to the last coin and trinket.
Of course, shortly after Brown’s Bottom, gold soared to some $1,900 per ounce, a milestone reached in 2011. By no mere coincidence, 2011 has been identified by several writers, including this one, as the starting point of the third Great Gold Smash.
(As I have noted previously, up to 2011, the relationship between central bank money printing and the gold price had been linear. In 2011, that reliable co-relation stopped dead in its tracks, with no explanation. Central bank money printing continued unabated, but the gold price mysteriously withered and died.)
Sometimes readers will ask, “why do they hate gold so much?”
That one is easy—the central bankers and their crony politicians hate gold for the same reason tanning salons hate the sun. Because gold cannot be printed or destroyed, it exists in limited and quantifiable amounts, and therefore, unlike paper money, there is a limit, a tether, on the amount of incompetence and financial mismanagement our elected governments can get away with without being called to account.
On the other hand, the amount of paper (or digital) currency that a government can create (usually through the mechanism of its “agent,” or third-party central bank) is limited only by the amount of available ink and paper, the processing capacity of its computer systems, and the ignorance of its citizens. And all of these are now in plentiful supply, it would seem.
(In prior essays, I have talked in detail about a model called “financial repression,” a strategy deployed by governments when they get in very serious trouble and try to extricate themselves from the problem before the public can figure out exactly who did what to whom. One core element of this model is dubbed “capital controls”—limiting the option to switch to another currency and run for the hills—and one of the main planks of that specific modality is suppression of gold and silver, at any cost. Even in plain sight, if need be. See, for example, “Wikipedia — Financial Repression.”)
Again, I have covered much of this before. The current gold suppression scheme involves, firstly, a psyop (propaganda) component to constantly remind citizens just how useless gold and silver are. (For example, just off the top of my head, try to imagine a major western country selling all its gold and then boasting about it—sound familiar?)
Another component is collusion in the “fixing” of the price of that commodity. This is especially ironic since the theoretical purpose of a price fix is, ostensibly, to avoid collusion!
(Consider here the London Gold Fix, an institution so mysterious and opaque it makes the election of the Pope seem like a Broadway play in comparison. Consider also how the price of gold, regardless of any fundamental or technical factors, tends to shed exactly $10.00 during the London trading session some 85% of the time, as reliably as a Swiss watch, by my calculations.)
Another weapon used here is blunt-force movement of price whenever key technical inflection points are in proximity. I believe historians of the future, looking back at gold trading in the present era, will note how it was conclusively proven that you can indeed fully control any market if the following factors are met:
- Said market has a paper or derivative component. In other words, if you want to drive down the price of oranges by short selling more oranges than actually exist in our known physical universe, you need to be able to sell “paper” oranges that are connected to real oranges in name only.
- You must have a lot of cash and credit, since, even with leverage, short selling involves ponying up cash in advance. If you are a government agency or a central bank, this would not be much of a hindrance, since you can effectively create money at will. (If you are a crony of one of these, the process is almost as simple—the central banks lately have been distributing cash, or cashable assets, to their pals via a mechanism known as the “reverse repo” window. They mention this in their press statements but the mechanism is so complicated that no one really understands the implications. Except, of course, those at the receiving end of the largesse.)
- Since market manipulation is theoretically illegal, you also need legal immunity from prosecution. No problem here either. Just as the legislatures of Western governments have dutifully been making “bail-ins” legal so they are ready if and when needed—a topic for another essay—they have been equally scrupulous about exempting from prosecution most forms of market manipulation done by their own agents. (Much of this nonsense is done under the aegis of “national security”—it has been assumed for literally decades that any suppression of gold or silver is good for the native fiat currency, and therefore good for the nation at large. Just like war and inflation, presumably.)
- The implicit encouragement of third parties to join the party and play whack-a-mole with the PMs. This “twist of the knife” is not often covered by other writers, which is a pity, because as a strategy, it is bloody brilliant. The idea is to create a construct which not only suits your own interests but also sends a message to third parties that, hey, this is an easy way to make money, a trade that seems at first glance to be risky and irrational but is actually safe and protected because, no worries mate, we have your back!
It is for this reason, I believe, that the so-called “commercial” futures traders have come to believe that shorting gold (i.e. paper gold!) at will is not merely a reliable trade but is, in fact, “their” trade—a gift from the central planners to them, if you like—and why they get very annoyed whenever gold starts to gain ground and it appears the longs are taking this beloved trade away from them (more on this below).
Another way of looking at this? Well, it is bad enough to have the teachers (those in a position of trust) bullying the very students they are supposed to protect. It is even more hideous when the teachers pass around the word that, if the actual schoolyard bullies want to have a go, we will simply look the other way!
What Is so Special About April?
Simply put, for the first time since the current suppression scheme began in 2011, cracks are starting to appear. The gold longs are starting to sense weakness and, accordingly, are taking aggressive positions.
So far, the November 30, 2015 low in gold (coincidentally the same day China was admitted to the International Monetary Fund [IMF] special drawing rights basket) is holding. So far, gold has had its best first quarter in years. (Although much of that gain can, and probably should, be discounted in view of the fact that the bulk of the damage to gold from the $1,900 level was artificial and deliberate. So this is really more “damage recovery” than true bull action.)
And so far, the mining sector—driven to its lowest relative valuations ever, simply as “collateral damage” to the suppression activity—has also shown recent signs of damage recovery or bounceback.
The catchphrase “you can’t tell the players with a playbook” is attributed to Harry Stevens, an English hot dog vendor who, over a century ago, stumbled on the idea of making extra cash by selling playbooks to sports fans. Here is your “gold playbook” for April:
- Something has got to give. Technical strength in the PMs has been underscored by the (arguably insane) movement to negative rates in Japan and Europe. One of the key arguments against holding gold has always been that “it doesn’t pay interest.” Guess what? Interest doesn’t pay interest anymore, either.
- Waffling by the Fed (affectionately known by some as “The International House of Waffles”) has also been gold-positive.
- Many recognized gold gurus have identified $1,250 as a key technical inflection point. And as the gold price dances around this point, “tension on the tape” builds, suggesting a larger move is coming. (The current range to watch is $1,180 on the low end, $1,400 at the high end. A break above or below these numbers would be very determinative for the bears or bulls, respectively.)
- The mining industry is at a turning point. A higher trading range for gold is needed if, literally, the sector is to survive, especially the juniors.
- This is the month that, according to sources, China is supposed to launch its gold fix. For a nation concerned about saving face, it is very remarkable that it has twice reneged on the given launch dates (last April and last December). Experts agree that the new Chinese fix, based on physical trading only, no paper, would signal the beginning of the end of the paper gold nonsense in New York and London.
- Looking at the “total picture” going into April—with bases loaded and heading into the bottom of the 9th inning in the Gold Wars—we are not surprised to learn that the commercials on the Comex have taken their largest short position in the history of that institution: 207,900 contracts as of April first. Again, as explained in the discussion of “schoolyard bullies” above, these guys are not planning to sit quietly in the bleachers and watch the longs take over a market they have been milking for years like it was their own private cow. (Source: “Epic Battle Wages On,” 24hGold, April 2, 2016.)
For the last five years, G-O-L-D has been a four-letter world. The suppressors have used every trick they have to abuse it, insult it, and diminish it. If on the entire planet even one study existed, for example, to show gold caused cancer, rest assured they would have found that one by now, and used it too. (Ironically, there are studies that show, in some circumstances, gold can actually treat cancer…but I digress.)
Lately, however, gold has reappeared in the news with a positive bias, and reignited the interest of the longs. April is shaping up to be a very definitive month in the Gold Wars.
This month gold could drop like a stone. Or the bulls could overwhelm the shorts and the metal could soar.
Or, the third (and maybe the most interesting) possibility, gold could simply hold at its current levels. Understand that if gold held this month in spite of the largest commercial short position ever, that would be a major bull signal for the rest of the summer.
My advice? Take a seat and prepare for fireworks.