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Page 1 of 5 We at HardAssetsInvestor.com (HardAssetsInvestor.com) often hear the volume level rise precipitously in the conversation whenever the words "gold" and "manipulation" are strung together in the same sentence. So it was no surprise that the recent publication of "Has Gold Been Manipulated?" excited the chattering classes. The article questioned an assertion made by newsletter publisher Ted Butler, among others, that short gold and silver futures positions held by U.S. commercial banks are artificially depressing the metals markets. A subsequent interview ("Bill Murphy: Manipulation Of The Gold Market") with the chairman of the Gold Anti-Trust Action Committee (GATA) also lit up the discussion boards. The flurry of comments that followed these pieces, as well as the assertions of GATA's Mr. Murphy, plentiful though they were, still fell short of establishing the existence of a futures market manipulation. Murphy, and a lot of commenters, were quick to point to remarks made by then-Fed chairman Alan Greenspan to a 1998 House committee acknowledging central bank proclivities to lease gold in the face of rising prices. That, they aver, is evidence of government manipulation. Central banks have, indeed, leased gold in the past, and they're likely to continue leasing as a tool to manage their currencies. That, like it or not, is a central bank's mandate: to deploy its reserves - of foreign exchange and metal - to tweak and fiddle with the value of the legal tender. Our original article didn't weigh in on central bank gold leasing operations. The article's focus was, instead, the futures market. Ted Butler asserted that the precious metal sell-off of 2008 was, in fact, due to a criminal manipulation by "concentrated commercial shorts" on the COMEX division of the New York Mercantile Exchange. U.S. banks, according to Butler and Murphy, hold a smoking gun - a lopsided and persistent short interest in gold and silver futures. U.S. banks do, in fact, account for a substantial portion of COMEX open interest. That interest, too, has been pretty much entirely skewed to the short side since the Commodity Futures Trading Commission (CFTC) started reporting banks' market participation two years ago. But is the existence of a large short position prima facie evidence of a manipulation? For a prosecution of manipulation under the Commodity Exchange Act to succeed, monopoly or domination of the market on the part of the alleged manipulators must be proven. In addition, it must be demonstrated that the perpetrators' manipulative acts resulted in the creation of an artificial price.
Put simply, making a futures manipulation charge stick boils down to answering two questions: Would the current gold price be different if the alleged manipulation hadn't occurred? More importantly, do the banks have the actual ability to influence the price of metal? Bank Short Interest As a percentage of total open interest, U.S. banks' short interest has grown nearly 23% since June 2007. Over that same time, the COMEX spot price has risen almost 47%.
Figure 1: U.S. Bank Short Interest in Gold Futures Source: CFTC, NYMX Table 1: Bank Participation in COMEX Gold Futures (05-Jun-07 to 02-Jun-09) Mean Reporting Banks | Median Long Interest | Median Short Interest | Short Interest Correlation to COMEX Price | Lagged Short Interest Correlation to COMEX Price | 4 | 0.8% | 13.7% | 0.9% | 14.0% |
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Mr. Ziegler has an agenda. The the manipulation of gold has been going on a long time-and all unsuccessfully in the long run-take a look at the London gold pool, for example-or better still read TIME magazine:
Mr. Ziegler-it certainly appears Mr. Volker was selling gold out of Fort Knox and official parties were gravely concerned...I know-these conspiracy folks like Volker and Time magazine are tedious Mr. Zigler.
“Shrinking Role for US Money”
Oct. 15, 1979 (TIME Magazine)
“Frenzy in the gold and currency markets heightens an urgent issue.
“From the harried canyons of Wall Street to the outwardly calm boardrooms of Zurich, the world’s financial centers experienced a whiff of panic last week. In two days of frantic trading, the price of gold on the London exchange soared a breathtaking $50 per oz. to $447 at one point; then it plunged back down almost as steeply, closing the week at $385. Silver, platinum and copper also gyrated wildly. Said a New York bullion trader: ‘The market’s gone bananas.’
“The madness, as usual, was not over precious metals so much as money—specifically the battered US dollar. Once again greenbacks were being sold off heavily in world markets in exchange for more robust currencies. Struggling to keep the buck from plunging further, which would hurt West German exports, the Bundesbank spent $1.2 billion in deutsche marks to buy up unwanted dollars last week. By happenstance, as the buck was worrying down again, central bankers, finance ministers and some 6,000 other leading moneymen were gathering in Belgrade, Yugoslavia, for the annual meeting of the 138-nation International Monetary Fund. Treasury Secretary G. William Miller and Federal Reserve Chairman Paul Volcker had hardly arrived when they were besieged with calls for US action to stem the panic.”
(note:Twenty years before GATA and conspirational gold manipulation theories appeared, real live gold manipulation occurred out in the open, with Volcker in the lead)
More from TIME:
“Volcker promptly returned to Washington to draft plans for what could be the second massive dollar-rescue program the US has had to mount in eleven months. Among the steps under discussion:
“LARGER GOLD SALES. The 750,000 oz. of Fort Knox bullion the US now sells monthly might be doubled, in hopes that this might help drive prices down. Hinting at such a strategy, Under Secretary of the Treasury Anthony Solomon said last week that the gold boom was ‘extremely unhealthy for the world economy.’”
Perhaps, that is why Fort Knox has not been audited since Eisenhower, GLD has unlimited sub custodians that can never be audited? Credit Agricole-far higher rated in Europe than Goldman Sachs or JPM in research agreed in 20o7 that GATA was correct. Read there ad in the WSJ-all of what they say is in the public record-in particular look into Barrick's gold claiming to act on behalf of Central Banks-with a 15 year evergreen agreement-meaning they never have to return the gold, until they receive formal notice-and then...the 15 year clock strikes-it has been 10 years and no letter has been delivered-and the money keeps earning 5%-now that's an arms length transaction-by the people who brought you CDO's and derivatives-I suggest anyone do there own due diligence and take Mr. Ziegler's piece with a grain of salt until then.