The Coordinated Effort To Suppress The Gold Price | InvestmentWatch

Posted: 02 Dec 2013 04:16 AM PST

In this two part interview, financial journalist Lars Schall looks at some specific topcis from Dimitri Speck's book "The Gold Cartel." The book appeared in November of this year in English and is available at MacMillan andAmazon. "The Gold Cartel is a brisk, articulate and convincing read. Even so, it remains extremely sound. A miracle!" – Professor Heinz Christian Hafke, former German Bundesbank Director.

The major topic of the book is about the suppression of the gold price. Based on the research of Dimitri Speck, three distinct phases are visible.

Phase 1 ranges from 1993 to 1996. Central banks have kept the gold price below $400 by leasing gold from central banks to bullion banks. The result is that gold reached the market, having the same effect as gold selling in the market.

Phase 2 started in 1996 and lasted till 2001. In that period, the interest was mainly for bullion banks to benefit from falling gold prices

Phase 3 started in May 2001 and goes on till today. One of the drivers was Greenspan who decided that he could not keep the gold price at that low level, but, simultaneously, the gold price rise should be controlled. That is also what happened since then by central banks through COMEX price manipulation and "price shocks" mainly during the London PM fixing.

The following chart shows the reduced amount of lending of gold since 2001, an important driver of the gold price since 2001.

gold market lending 2001 2013 price

Motives

There are two motives to manipulate the gold price, according to Dimitri Speck. The first one is to reduce inflation expectations. In 1993, during an FOMC meeting, Alan Greenspan revealed his thoughts by saying that "gold is a thermometer," an indicator of danger of inflation. A rise in the price of gold would change the psychology of market participants. At that specific time (1993), an increase of interest rates would hurt the economy so a suppressed gold price was a psychological measure to lower inflation expectations.

The other motive is to lower long term yields of bonds by stimulating the demand for bonds. The rationale is that if gold does not rise, bonds would be favoured.

Other motives include a desire for a strong dollar, apart from an interest of central banks and the banking industry to keep the faith in their services.

The close of the "gold window"

1971 is mostly associated with the end of Bretton Woods, or the end of the gold standard and the start of pure credit money. Dimitri Speck notes that the gold standard only existed within the central banking system; normal citizens could not convert their dollars in gold.

In reality, however, the gold window closed already in 1967. The US was running deficits in the 60ies (because of wars). At the same time, several exporting countries (including Japan and Germany) had the choice to get paid in dollars or in gold. In 1967, the German Bundesbank confirmed by means of was later called the "blessing letter" that they would continue to accept dollars instead of gold. That was not only a blessing to the US, but also to the credit money system. The letter stated that if every central bank would apply their choice, the world could run endless deficits.

Gold's outlook

The reason why the long term outlook for gold is positive is based on our financial system. The stability of the system is at risk. Debt has exploded in the last decades. Gold is the direct competitor of debt. Savers are already losing money in real terms. That is the reason why gold should rise long term. Gold owners will stabilize the purchasing power of its owner in real terms.

Gold has a double face. Apart from the protection against negative real rates, it also offers protection against bank or government defaults. There is no credit money risk associated with gold in case a bank or government would go bankrupt; by contrast, gold offers protection. With the debt crisis raging across the world, this lack of government and banking counterparty risk should not be underestimated.

In terms of the "end game," Dimitri Speck says that the debt decrease is by default deflationary. He sees three possible scenarios playing out:

Although not very likely, there is a chance that governments will aim for asset price deflation for some years possible, comparable to what has happened in Japan in the last two decades. That is unlikely because of several reasons, both political and fiscal.
Another potential scenario, also unlikely, is one of high taxes, negative real rates, financial repression, like in Britain after World War II. The freedom of people would be considerably deprived, which makes it unlikely from a political point of view.
The most likely scenario is one comparable to the current Japan: suppress deflation, stimulate slight inflation while avoiding strong inflation. In this scenario, Dimitri Speck believes that the velocity of money will increase, savers will gradually step out of the banking system, and inflation will occur both in asset and consumer prices. Gold is the best hedge in such a scenario.

Dimitri Speck is a quantitative asset manager, trading system developer and gold market analyst from Munich, Germany. He specializes in pattern recognition of charts. As part of this activity he came across an anomaly in the gold price, and he was ultimately able to demonstrate systematic interventions in the gold market since August 1993. Speck is also a consultant to the US-based Gold Anti-Trust Action Committee, GATA.

Speck is responsible for the Stay-C commodity fund that won the Hedge Fund Journal's award as best European commodity fund. His two investment funds, a stock fund and a commodity fund, have considerably outperformed the market since its inception. Moreover, he is the founder and editor of the website "Seasonal Charts", where accurate daily seasonal charts are illustrated. He is a well-known expert on precious metals investment analysis, and he has been interviewed for a number of investment letters and websites and has spoken at industry events on the topic.

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Is the gold price pulling on a string and about to snap back like in ...

Posted: 01 Dec 2013 09:10 PM PST

Posted on 02 December 2013 with 2 comments from readers

This has been the first down year for gold in 13 years. Gold bugs are looking tired, drawn and poorer. What's gone wrong for the precious metal?

If you take the view from Mount Olympus then the gold price has suffered from a switch by global investors into the very old stock market rally and a big hike in gold taxes in India, the biggest market for physical gold. At the same time China has more than doubled its consumption of gold this year and will easily overtake India.

Gold oversold

Gold has become oversold. Sure it is always possible for the market to shift further to the downside before it bottoms out. But it won't stay down for long. Watch for the proverbial string pulling on a brick to fly back in your face. What is doing the pulling?

It's all that global money printing. Gold's problems are a temporary hiatus. There is nothing temporary about the problems of the global monetary system.

Yes the Fed might try to wind down money printing soon. Just as happened this summer it will have to back off pretty darn quickly when financial markets tank. Money printing is all that keeps the world economy afloat, albeit with very low or no growth.

Now if they insist on pulling on this string then the golden brick will eventually fly and gold prices hit the roof. It's not unlike the circumstances of the 27 per cent leap in gold prices in two weeks that occured in 1999, according to some traders familiar with that time.

Chinese wisdom

The Chinese and other global central banks that have been buying gold at low prices this year are the ones who are getting this right, not the late comers to the stock market party. Indians may be paying 10 per cent tax on their domestic gold purchases but they know how gold protected its holders from the devaluation of the rupee this year.

By accummulating huge gold reserves the Chinese are ensuring that gold resumes its role as the centre of the global monetary system when the fiat money system finally collapses. Trouble in the global bond markets as Grandma Yellen tries to wriggle out of QE will be the first tremors in this coming drama.

You won't want to own anything except gold and silver when that happens!

Posted on 02 December 2013 Categories: Gold & Silver

1 Comment for "The Coordinated Effort To Suppress The Gold Price | InvestmentWatch"

Unknown

3 December 2013 at 15:19

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