For those of you who haven't been following
the latest shocking revelations in the gold market, here's a (not very) brief
synopsis.
The gold market has been manipulated for
years by large bullion banks borrowing gold from the Federal Reserve or ETFs
and selling it short. This is an
accepted fact in some circles, particularly in GATA, the Gold Anti-Trust Action
Committee.
For ten years now, GATA has been niggling
for a proper investigation by the Commodities Futures Trading Commission (CFTC)
into manipulation into gold and silver prices.
Eighteen months ago, the CFTC finally
agreed to investigate the markets and proceeded with typical bureaucratic
rigor. In other words, they've so far
discovered nothing at huge expense.
But just two weeks ago a whistle blower by
the name of Andrew Maguire, an experienced gold trader who decided he's made
enough money manipulating gold for ten years, contacted the CFTC with some
stunning revelations.
In a series
of emails, he sent the commissioner a blow-by-blow description of precisely
how the gold price would be manipulated on a particular day -- two days in advance.
The
CFTC somehow managed to control its excitement and exuberance when it responded
to the entire collection of emails with, "I have received and reviewed
your email communications. Thank you so
very much for your observations."
A few
days later when the CFTC held an open hearing into gold price manipulation, Andrew
Maguire wasn't invited -- nor were other troublesome people. Naturally, the CFTC listened politely and
said, "Thank you for your time.
We'll get back to you."
That
really pissed of Mr Maguire, so he went on King World News and told the world
what he'd told the CFTC.
So why King World News? Because these were the guys that helped Harry
Markopolos publicize the Madoff ponzi scheme after the Federal Reserve --
supposedly the responsible regulator -- basically ignored him.
In the interview,
Andrew Maguire not only confirmed that the gold price was being manipulated, he
also explained how he'd made his fortune front running the manipulation, shared
the emails he'd shared with the CFTC -- exposing them for the bureaucrats they
are (incompetent at best, but more likely corrupted) -- and then dropped an
absolute bombshell. The ratio of
physical gold to actual gold traded on the world's main gold market, the London
Bullion Exchange, is
One
Hundred to One
That's not the amount changing hands every
day. That's the outstanding short selling
contracts net of hedges and spreads.
Or, to put it simply, each ounce of
physical gold at the exchange has been sold 100 times over.
This is fractional reserve banking on
steroids. We saw what happened when THAT
house of cards collapsed. The treasury
had to borrow trillions of dollars to shore up the banks and the Fed went off
and printed another $1.7 trillion to prevent a shortage of money.
But with gold, it's somewhat more awkward
than that. For example, the US
government can't go and borrow gold so easily -- especially when it's already
lent its gold reserves to JP Morgan. And
the Fed, alas, can't create gold out of thin air like it can dollars.
Not that the Treasury and Fed aren't
completely aware of what's going on and cooperating closely -- unless they have
their collective heads in the sand.
Remember Bernie Madoff? Who was
head of the New York Fed -- Madoff's regulator -- while Bernie was ripping off
billions? Tim Geithner, the current
Treasury Secretary. He managed to get
out of the job on January 26, 2009 -- just four weeks after Madoff was arrested
and before the corruption and incompetence of the Fed was revealed.
So back to the story...
Having dropped this bombshell, backed up by
examples, emails, and ten years of bathroom conversations with JP Morgan's
brokers, both King World News and Andrew Maguire became very unpopular. Particularly in the finance-government-military-industrial
complex circles.
Having finished the interview, the shadowy
organizations that don't actually exist went to work James Bond style.
Andrew Maguire and his wife were hospitalized
in a hit
and run "accident" the following day, although in a very un-007
turn of events the perpetrator was caught after a multi-car and helicopter
chase. No word on him yet, or if he's
talked. But he'll be ignorant of who
hired him anyway.
As helicopters were chasing the cut-out
with their infra-red imaging systems, a team of hackers began with the King
World News website. Now hacking a
firewall protected news website can't be all that easy right? But within minutes of the text of the
interview being posted, the last third
was erased by hackers -- the third about the 100 to 1 ratio.
You
might say, "Come on, US government or quasi-government agencies wouldn't
do something like that." You'd be
wrong. And who would know better than
the Director of National Intelligence Dennis Blair, a retired four-star
United States Navy Admiral. In his testimony
before Congress, he stated pretty clearly that, “Being a U.S. citizen will
not spare an American from getting assassinated by military or intelligence
operatives … If we think that direct action will involve killing an American,
we get specific permission to do that.”
The obvious thing to do right now is to buy
physical gold or gold miners. That's for
you and me. But for funds it becomes
much harder.
Betting on gold by going long is all very
well for a small fund such as Greenlight Capital, which sold its holdings of
GLD and bought the physical metal.
However, for an investment bank or a large fund, it's betting against
the government. And governments (and the
Fed) don't like that:
Remember Bear Stearns? This was
the one major bank that had huge long positions on gold at the beginning of the
crisis -- betting against the government sponsored manipulation. JP Morgan et al -- with complicit help from
the US government -- drove the price of gold through the floor and bankrupted
the company. And then in the fallout
while Bear shareholders were crying foul, the Federal Reserve announced that it
would guarantee
all Bear assets if JP Morgan would kindly take it over at just $2 a share -- at
a time the stock was trading at over $20.
Oh, and this offer isn't available to anyone else AND we guarantee Bear
will go bankrupt if shareholders vote against the deal. Nice gift.
Thanks.
So, any big hedge fund that starts being
naughty and taking physical delivery of the stuff will be pretty firmly
discouraged by the regulators.
Not that hedge fund managers have any
illusion about the value and potential gains of gold: 90% of hedge fund
managers have been buying gold for their personal accounts, according to a
survey by London-based Moonraker Fund Management. But they'll keep their funds out of it.
This will postpone the inevitable for a
while. But... remember George Soros'
comment about gold
being the "ultimate bubble"?
This was misconstrued at the time by
mainstream press to say that gold was in a bubble, but later SEC filings showed
that Soros had actually been buying the stuff.
What he really meant -- and said -- was
that, "low interest rates lead to bubbles." With low interest rates and huge money
printing as far as the eye can see, the price of gold will head to a price that
balances supply and demand -- and then a whole lot more. THAT will be a bubble.
Last time this happened, gold soared from
$35 an ounce in 1971 to $800 an ounce in 1980 -- a 2,200% return in just nine
years, or 41% annualized.
So why did gold soar? "Joint
intervention in gold sales to prevent a steep rise in the price of gold... was
not undertaken. That was a mistake."
That's a quote from former Fed Chairman Paul
Volker, who by the way is an advisor to the Obama administration. Intervention may as well be public policy.
In 1980, gold was definitely in a
bubble. Nine years from now, gold may
well become a bubble again -- at $20,000 an ounce. I've been swapping out of paper gold into
physical gold, silver, and platinum over the past few months because, heck, I'm
willing to wait a few years for a 2,000% return!
Cheers,
Peter.
