By Julian D. W. Phillips
Friday, January 8, 2010
Is the Gold Price really Managed or Suppressed? We have absolutely no doubt that the gold price has been and may well be, being either suppressed or managed.
Just look at the record of gold sales in the 70’s, 80’s 90’s and in this century so far. Gold was sold during these periods, first by the United States. It was done to discredit gold as money and to support the U.S. $ as the prime global reserve currency. President Nixon removed the convertibility to gold and faced a world that did not want to replace gold with the $. Tying it to oil payments made it a globally needed currency. But the gold price rose and in so doing cried ‘foul’ pointing to the fact that the $ was simply an American government promise to pay. By discrediting gold it was taken out as an alternative money and by describing it as a ‘barbarous relic’, implied that paper money was superior. In fact it allowed the development of the present banking system with U.S. bankers very much at the global money helm.
Considered on a global scale it became clear that ‘paper’ money allowed more scope for banking systems than gold [it governed the money system, bankers didn’t]. So gold was shunned to the distant background of the monetary system.
After the U.S. gold sales stopped [the demand was just too great], the I.M.F. tried it, but these too failed. Then the implied threat that central banks would sell gold deterred investors and the price steadily fell from a peak of $850 to $275. This fall was supported by central banks lending gold to gold producers to hedge forward for many years to maximize income and was repaid when the gold was produced, effectively ‘shorting’ the market.
In 1999, with the arrival of the €, the Eurozone banks made the “Washington Agreement”, limiting their gold sales and ensuring their remaining gold reserves were not devalued. This agreement, while supporting the arrival of the €, helped to ‘contain’ the gold price and discourage any flights to gold from the new and untried currency.
Now add to that far more evidence than we could gather, from GATA and other sources and we believe the evidence is irrefutable that the gold price has been suppressed and managed.
Who will end gold price suppression and management?
Take a look at today’s central banks responsible for gold price suppression and look at their present policies. The European Central Bank Gold Agreement promises not to increase of open new leasing or lending of gold. Britain is not in a position to do so, nor inclined to do so after its gold sales debacle. The U.S. could but at heart and with historical evidence will not sell gold [it seems they may have lent far more gold than they admit to? Don’t expect any new gold hedging again for there are insufficient gold mining executives who would want to place their careers in such a toilet, again.
The Third Central Bank Gold Agreement is a farce with less than a tonne sold since its inception. So count out significant future central bank gold sales in support of currencies.
Now look to the East and we see that central banks are now buyers, not just ‘net buyers’, but big buyers, having bought over 300 tonnes in 2009. And they are still buying persistently, quietly each weekday. We point to Russia and China specifically. But let’s not exclude India [200 tonnes of I.M.F. gold so far – they have indicated they will buy any leftovers too], and other smaller banks, following their lead.
Why are these countries and perhaps more in the future buying gold? Simply put, the trust that existed in the $ is diminishing. With $ reserves sprinting towards $3 billion in China, they are very worried that the fall in the value will tumble and they are right to feel that way, when one looks at the almost imperial attitude of the U.S. money Lords in Treasury and the Federal Reserves and their attitude to the international value of the U.S. $. Reality tells us that it is not a major concern to them. So if you were China, O.P.E.C. and other $ surplus holders wouldn’t you feel vulnerable? That’s why they want to reduce that vulnerability through gold and currency diversification.
Yes, $ surplus holders are in a cleft stick with little way to turn but to the $, at the moment. But with a potentially new petro-currency being formed and China soon to turn to a ‘basket of currencies’ in trade payments rather than just the $, the signs are there that the days of the $ in international trade are numbered. It may take some years but the fact that it is on the way makes all realize that major currency crises are on the way. With gold an important ‘counter to the swings of the $’ it is imperative that gold contents of foreign exchange reserves be increased in those countries whose reserves are growing, or suffer the damage a falling $ will bring.
So how will this end gold suppression and management?
It takes gold sales to hold down and manage of gold prices. Lending won’t do it now will hedging any more, because any large sales of gold will be snapped up without a really significant and semi permanent lowering of the gold price. When you find huge buyers in the market, whose only concern is not to drive the gold price higher on small purchases, you don’t sell gold to manage or suppress price.
Right now these central bank buyers want tonnage, large tonnages, but it is not there at the moment, so they content themselves with buying small amounts persistently as it comes onto the market. It’s a dealers dream to find a big seller and place it with a big buyer and not move the price. It’s a buyers dream to buy big quantities and neither move the price nor be noticed. And that’s where the market is now. Yes, short-term forays into the market may happen to even out moves, but not by central banks of note.
So any scheme from now on to suppress or manage the gold price will face central bank buyers who will take all gold on offer. Even large quantities could move with little price movement.