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Is the gold market rigged?
Posted By Mark Leibovit On 07/08/2012 @ 3:47 pm In Commentary,Front Page,Money | No Comments
In my VR Gold Letter, I have recently pointed out the “seasonal” tendency for a rally in July, even though there could also be risk of another sell-off into the fall before the traditional September-to-February bigger seasonal rally. Well, it appears we’re underway.
Interestingly, the confluence of potentially bullish regulatory/political events has helped confirm these positives, most notably the work of Ron Paul, the Barclays Libor scandal and the accusation that JP Morgan has been “manipulating” (suppressing) the silver market for several years. Bringing these events to light might now dramatically change the dynamics of the metals markets – allowing supply and demand, rather than illicit actions, to determine prices.
One of the biggest issues for the gold and silver markets has been the consistent interference on the part of world governments, especially the U.S. government, in the silver and gold futures markets. Gold is so important that Western central banks – particularly the U.S. Treasury and its Exchange Stabilization Fund, the Federal Reserve and allied central banks – rig the gold market every day, even hour by hour.
Why do they do this? Because gold is a powerful competitive currency that, if allowed to function in a free market, determines the value of other currencies and influences interest rates and the value of government bonds.
So, although “conspiracy theorists” have argued for decades that the gold and silver markets have been manipulated by central governments, it is not conspiracy. It is fact.
GATA to the forefront
The work of Bill Murphy and Chris Powell at the Gold Anti-Trust Action Committee, or GATA, has been invaluable in seeking out the truth. To obtain proof of its allegations, GATA has sued central banks and particularly the U.S. Federal Reserve, against which in 2011 it won a Freedom of Information Act lawsuit in U.S. District Court for the District of Columbia. The lawsuit produced a written admission by a member of the Federal Reserve Board of Governors, Kevin M. Warsh, that the Fed has secret gold-swap arrangements with foreign banks and that the Fed cannot ever permit these gold-swap arrangements to become public. Interestingly, last December, soon after resigning from the Fed’s Board of Governors, Warsh wrote a piece in the Wall Street Journal complaining about the new central bank policy called “financial repression.” He asserted that government policymakers now are “finding it tempting to pursue ‘financial repression’ – suppressing market prices that they don’t like.”
GATA also has proven gold-market manipulation by examining trading data, most notably in a study by its board member and market analyst Adrian Douglas showing that, as GATA says, “the gold price during trading in the London market has gone down steadily for 10 years even as the worldwide gold price has gone up steadily in that time. That is, anyone buying gold on the opening of the London market and selling it on the close every day over the last decade would have lost a huge amount of money even as the gold price rose steadily around the world.
According to GATA:
“… [R]igging the gold market is part of a general scheme by which a secretive and unelected elite in the United States controls the value of all capital, labor, goods, and services in the world – controls the value of everything.
But the mainstream financial news media in the West refuse to examine the documentation of this scheme and to put critical questions to central banks. Indeed, the first rule of financial journalism in the West is that central banks cannot and must not be questioned. This is now changing. As central banks intervene more and more to defeat markets, this rule makes most Western financial journalism simply irrelevant. But the purpose of all this market rigging is to suppress not only the prices of gold but to suppress commodity prices generally. How about crude oil or copper? It is just the latest manifestation of the everlasting war of the highest levels of the financial class against the producing class, only this time the producing class hasn’t yet figured out what’s going on. Most tragically, much of the gold-mining industry itself doesn’t understand what is being done to it – doesn’t understand that it’s not just digging metal out of the ground, but minting money and competing with all other issuers of money and that this competition is far more cutthroat than imagined.
Ron Paul to the rescue
Recently, the U.S. House Committee on Government Oversight and Reform unanimously passed Rep. Ron Paul’s “Audit the Fed” bill, H.R. 459, with all the important audit provisions intact. According to Ron Paul, this victory “clears the way for a House floor vote expected sometime in late July, and with a whopping 263 co-sponsors, the chances of it passing have never looked better! This is an unprecedented opportunity for transparency into how the currency of the United States is handled, and mishandled, by the Federal Reserve. It is more important than ever that my colleagues in the House and Senate understand what this legislation does and why it is so important.”
The passage of this bill would also bring us one step closer to bringing daylight to the rigging of the financial markets – including gold. As Ron Paul said, “H.R. 459 does not limit the focus of the audit, making a full audit finally possible. An entity that controls the value and purchasing power of the dollar should not be permitted to operate in the dark without oversight by Congress and accountability to the people.”
Barclays opened Pandora’s box
Barclays, the British banking giant, agreed to pay $450 million to U.S. and U.K. regulators as part of a settlement regarding its attempts to manipulate the Libor, or “London interbank offered rate.” The world’s most important interest-rate benchmark, Libor governs approximately $10 trillion in loans – including credit card rates, adjustable rate mortgages, student loans and auto loans, plus a monumental $350 trillion in derivatives.
As part of the settlement, Barclays will admit failings. If the $350 trillion Libor market is subject to manipulation, certainly the gold and silver markets could be as well. It’s actually a shocking thing when you think about it, but I like to relate it to the gold and silver markets. These people messed around with Libor, and there’s some suggestion that the Bank of England might have thought this was a good idea when things were looking particularly dark in late 2008. The rigging may now be coming to an end because the Bank of England, to save face, is turning its back on Barclays, the company that did its bidding. Barclays published documents indicating that some executives thought they were responding to an implied directive from the Britain’s central bank.
When Barclays bank manipulated key interest rates to bolster profits during the 2008 financial crisis, senior executives said they were following a common practice that regulators implicitly approved, according to documents released by the bank and authorities. Robert Diamond, Barclays’ chief executive (like Jaime Dimon at JP Morgan Chase) has now become the target for further scrutiny and, hopefully, revelation.
The Telegraph of London reported July 7 that “Barclays stepped up its efforts to rig interest rates after its chief executive personally spoke to the deputy governor of the Bank of England. The scandal has claimed its first scalp among the senior management of Barclays, as the bank confirmed on Sunday that Marcus Agius, its chairman, was set to resign.”
Barclays, in its defense, said it not only advised the Bank of England and other British authorities about interest rate discrepancies across Wall Street, but also the Federal Reserve Bank of New York and Wall Street firms weren’t told to stop the practice, Barclays said.
The back-and-forth illustrates the tangled web of relationships on Wall Street, where authorities and bankers maintain close ties. Despite the troubling acknowledgments from the bank, regulators didn’t put an immediate halt to the practice. Some executives said they thought regulators had been encouraging the actions.
JP Morgan’s dirty tricks?
As we know, JP Morgan Chase and its CEO, Jaime Dimon, are also under scrutiny for the recent $9 billion trading loss by an institution that is not supposed to be a hedge fund. But, were they doing the government’s bidding as well? I suspect yes! Back in May 2010, the New York Post exposed JP Morgan’s manipulation of the silver market when it reported an ongoing investigation by the Commodity Futures Trading Commission and the U.S. Department of Justice into JP Morgan’s silver trading.
If that’s not enough, Reuters reported July 3 that “U.S. energy regulators have subpoenaed JPMorgan Chase & Co. to produce 25 internal emails as part of an investigation into whether the bank manipulated electricity markets in California and the Midwest.”
Either JP Morgan Chase is behaving idiotically or it is working under the cover of government protection. I favor the later scenario. Short term it may be successful, but long-term government interference in the free marketplace invariably fails and blows up.
Ron Paul’s success in the House of Representatives opening up the Fed, the disclosures at Barclays implying government involvement and the scrutiny of JP Morgan Chase both for its recent loss and previous questionable activities in the silver and electricity markets all bring in the light of day. We know vampires do not like that light. If the banks freeze these illicit activities, markets may actually be able to trade freely, allowing gold and silver to rise to their proper – and higher – levels going forward.
(Editor’s note: Mark Leibovit is one of the world’s top-rated gold timers and helps investors anticipate and benefit from the ups and downs of the precious metals markets with his Leibovit VR Gold Letter, available at a huge discount through WND.)
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