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Precious Metals and Rigged Markets
Written by Jeff NielsonFriday, 19 March 2010 11:47
The manipulation of the global, gold and silver markets is fact, not merely “suspicion” or the delusions of “conspiracy nuts”. Confirmation of this reality comes in many forms. There is theobvious sham of the world's two, largest “bullion-ETF's”: GLD and SLV. It is most apparent in the silver market, where “official” inventories have tripled, but with 100% of this supposed, “new inventory” being the privately-owned bullion held by SLV. In other words, the more silver which is boughtby SLV-holders, the larger that the “official” inventories get (i.e. the amount of silver for sale).
How exactly does that work? I know that when I buy my own, “Silver Maples” that no one can sell that silver out from under me – to the first person who is willing to ante-up the current “spot” price.
Then there are the massive, “short” positions of the bullion banks – the largest such concentrations in the history of commodities trading. Not only does the size of these positions preclude there being any rational justification for them (other than to deliberately depress precious metals prices), but the trading of these positions doesn't even follow basic, profit-maximizing behavior. In other words, at times where gold and/or silver have already been pushed well into “over-sold” territory (and into strong “support” areas), the shorts typically try to continue to push bullion prices lower (and into this strength) through increasing the size of their positions – rather than taking profits (the expected behavior of shorts sitting on big profits), or waiting for other shorts to stick their necks out to push prices through resistance.
The only explanation which covers both the size of these positions and the trading-patterns is that these traders – a handful of “bullion banks”, led by JP Morgan and Barclay's – are engaging in this activity purely to suppress the price of gold and silver.
This is reinforced by the words of Alan Greenspan – both in his younger days and during his tenure as Chairman of the Federal Reserve (see “Young Greenspan and Gold”). Young Greenspan eloquently proclaimed that gold was the only “protection” against the “confiscation of wealth” by the bankers, through the permanent “inflation” which was an inherent part of the bankers' paper/debt empires. He warned that the bankers' “tirades against gold” were specifically because without gold “there is no way to protect savings from confiscation through inflation”.
It should be no surprise that the older Greenspan – who served as the bankers' tool as Fed Chairman – seemed to 'forget' everything he knew about gold. Instead, all the older Greenspan was interested in talking about was how the Fed could manipulate the price of gold, in order to maintain “confidence” in the bogus, banker-paper which they erroneously call “money”. Either through senility (or all the zero's he added to his “net worth”), older Greenspan no longer saw any need for people to “protect” themselves from bankers.
Accepting (purely for the sake of argument) that the precious metals market is heavily-manipulated, gold-skeptics will reply “why risk investing in a rigged market?”
The obvious answer to that question is to simply point out two facts. It is a basic aspect of economics (and arithmetic) that any “good” which is under-priced will be over-consumed. This is the same thing as simply saying that when something is “cheap” that people will buy more of it. The effect of this basic principle is that all “price-fixing” must fail – since greater and greater imbalances are created as buyers want to purchase more and more but sellers want to sell less and less.
How has this translated in the gold market? During the first two decades of gold and silver price-fixing, prices were kept flat or falling. However, during the last decade of precious metals manipulation, gold and silver prices have quadrupled. Clearly, the anti-gold cabal has lost their “choke-hold” on this market.
An equally effective way of illustrating how price-fixing leads to greater imbalances in the market is to look at the behavior of central banks – who for nearly thirty years have been the principal suppliers of the gold which has been dumped onto the market to suppress the price. Despite the fact that the price of gold has quadruped, last year, for the first year since 1988, central banks went from being (huge) net-sellers of gold to huge net-buyers.
The same banks which only ten years earlier were lining-up top dump gold at less than $300/ounce are now lining-up to buy it at $1100/oz. In just one year, central banks went from dumping around 200 tons of gold (on a net basis) to adding over 400 tons (more than the total amount of gold being sold by the IMF). The amount of gold purchased by central banks in 2009 was the most since 1964 – nearly 50 years.
For those who subscribe to the absurd propaganda of a “gold bubble”, think again. To begin with, no one is in a better position to know how badly our purchasing-power is being ravaged by inflation (or about to beravaged) then these central bankers – whose reckless monetary policies create all this inflation. To suggest that the world's central banks are (as a group) all going on a gold-buying binge on merely a whim is absurd. They are buying gold today because they know the correction in the price of gold back to its fair market value has just begun.
Many have heard that in inflation-adjusted dollars that gold would have to rise to over $2,000/oz, just to equal the previous high in 1980 (when the global economy was relatively healthy). However, that comparison relies upon the phony, inflation statistics produced by the U.S. government.
Regular readers will be familiar with my preference for the numbers of John Williams (Shadowstats.com): who calculates U.S. statistics the same way they were calculated in 1980 – before an infinite number of statistical gimmicks were added to 'doctor' the numbers. Using Williams' inflation numbers for the last thirty years, the price of gold would have to rise to $7,494/oz, just to equal the 1980 high.
The “case” for silver is much, much more bullish. Because vast amounts of silver are literally “consumed” in its myriad, industrial applications, roughly 90% of global, silver stockpiles have disappeared over the last 50 years. And, unless you fall for the ETF-sham, silver inventories (the amount of silver supposedly available for purchase today) have plummeted by 90% in less than 20 years. Thus, thirty years of price-fixing have set-up the silver market for the “Mother of All Supply-Squeezes”.
That is one reason why you should not be afraid of the “rigged” markets for gold and silver. However, thanks to the miscreants of Wall Street, there is now a second, equally-good reason for North American investors to prefer the rigged, precious metals markets: because our other markets are “rigged” even more.
This is especially apparent in the U.S. To begin with, the wealthiest 1% of the U.S. population – the ultra-rich – own 56% of all U.S. stock. The top-20% own 87% of all stock...and a handful of Wall Street banks directly (or indirectly) control the vast majority of that money. It no longer even matters how much isdirectly controlled – thanks to the abomination known as “trading algorithms”.
As the ones who created these trading-algorithms, Wall Street's market-manipulators now only need to get the U.S. propaganda-machine to spin the appropriate message each day in order to know in advanceprecisely how the army of traders (who allow these programs to think for them) will deploy their money.
Wall Street's “Pied Pipers” lead around these traders by the nose because they are now essentially brain-dead, allowing their money (and their clients' money) to be used by Wall Street to pump-up markets – and allowing the banksters to make their billions in “trading profits”. Given how completely Wall Street now controls trading in American markets, the Plunge Protection Team no longer even needs to spend much time manipulating U.S. markets. Instead, they can devote their time/efforts to sabotaging other markets – in order to make the U.S. appear to be the least-worst option for investors.
This brings us to the key dynamic which separates the precious metals market from the other rigged-markets in which we are forced to trade (or simply not “invest”, at all). In the precious metals market, prices have been held down – and suppressed for so many years that a powerful correction upward is now underway.
Conversely, in U.S. equity markets, we have stocks which have been pumped-up to outrageous levels – in what has literally been the largest/fastest “rally” in U.S. history. Just as manipulating prices lower must, ultimately fail, so too will the upward manipulation of U.S. equities also give way. Indeed, afterexperiencing the largest rally in history, one would have to be a complete idiot not to expect a brutal correction in those over-valued markets.
This presents investors with a very, clear choice. They can invest in pumped-up U.S. markets which mustgo down or they can invest in precious metals markets which must go up. When I say this, do not mistake this for a “short-term prediction”. Even before our markets became the corrupt 'casinos' which they are today, there were words of warning for investors: “the market can remain irrational longer than you can remain solvent.”
In other words: never use “margin”. Invest for the long term (or at least the “medium term”). Engaging in short-term trading in rigged-markets is pure gambling. The “technical analysis” which these short-term gamblers rely upon is based upon a long list of assumptions, all of which must be true, or the “T/A” is completely invalid. Sadly , virtually none of the people who use “T/A” every day have enough of a mathematical background to even know what those assumptions are (let alone whether any of them are true). At the top of the list of these assumptions is “free and open markets”.
For those who don't want to “gamble” with their money, precious metals are (as Alan Greenspan professed) the “only protection” in existence which can shield investors from the multitude of malevolent economic forces which threaten their wealth. The fact that this market has been manipulated for so long is the only reason why investors can still purchase gold and silver at near-giveaway prices. The fact that this manipulation is clearly failing also dictates that we will not be able to buy gold and silver at current, cheap prices much longer.
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