Falling Gold and Silver Prices Being Driven By Market Makers and Traders Not Fundamentals Part 3

Continued from Part 2

Banking System Similarities

Just look at the banks that lend out multiples of their deposits. Once the 2008 financial crisis hit (actually well before this), the bad loans started to hit the banks. The banks don’t have enough cash on hand to cover the write-down on the assets, so they got the Financial Accounting Standards Board (FASB) to give them permission to mark to fantasy (2006/2007) values the real estate they have on the books instead of marking the properties to market price (today’s values). The FASB is an independent, private sector organization that sets accounting and reporting standards for both public entities (which issue securities that trade in public markets) and nonpublic entities (which include private companies and not-for-profit organizations). How can anyone take the FASB seriously when they allow the banks to get away with this?

This blessing of the FASB bestowed on the nations troubled banks would help improve the banks reserve ratios and keep the FDIC from knocking on their doors. Today, banks still don’t mark to market their assets, the FDIC is $8 billion in the hole and the FASB is complicit in the scheme. But who will come to the rescue of those who bet wrong on the gold and silver trades? Who exactly is trading heavily in this market? Look no further than the nations top banks. Look no further than the banks that play the derivatives markets. Look no further than the banks that are custodians to the gold and silver held by the major gold and silver ETFs. I will be writing more on this connection in a forthcoming article.

Making Connections

You never see me mention anything on the Buy Gold and Silver Safely site about price manipulation until today. While there are others who do write about it, I haven’t seen the correlation to banks not marking to market their assets with the full blessing of the FASB. I haven’t seen the connection to what market makers do every day with the stocks traded on the NYSE.

But it is easy for one to draw a conclusion about price manipulation. They need look no further than the example above of the thinly traded stock where the “Ax” gets involved when they see someone messing with their stock (buying or shorting it). Market Makers don’t like to be messed with. If a player comes in and tries to take money from their pockets, you can bet they will try and punish them by moving the market away from their trade. While it is illegal for these firms to conspire and talk to each other about the way they want to move a stock (or in the case of big banks manipulate the price of gold or silver), they can jump on the same bandwagon in figuring out what the other is up to. This isn’t rocket science. But it is a game that the little guy, especially if they are on margin, can get creamed. That’s why the best way to invest in gold and silver is to buy the physical metal and just sit tight and wait for things to implode. Dollar cost averaging into a position and practicing a little patience is what I preach. This is the tortoise vs. the hare and because of this potential for manipulation, you don’t want to get caught jumping in too soon with all your allocation to gold or silver. Patience will be rewarded along with good money management where you actually are ok with the price of gold and silver falling.

Today, with the likes of J.P. Morgan and Goldman Sachs becoming holding banks, and the already well connected banks who play the gold and silver markets, there is an opportunity for these traders to try and manipulate the gold and silver markets, as well as other markets. Whether or not the Fed is actually involved behind the scenes with some of these companies is pure speculation. But there is the new Fed mandate of regulating systemic risk and preserving financial stability. This gives the Fed even more power thanks to both sides of Congress who gave them this power. Heck, Congress is complicit even further in this financially rigged game as they even gave money to the IMF to help bailout other countries.  Don’t think for a second the Fed doesn’t want to see falling gold and silver prices. And since the Fed is never audited, except for the one time audit brought about by the Financial Reform Act of 2010, which didn’t go far enough in auditing the Fed, one will never really know what they’re up to.

Keep one thing in mind. Do you really think the same group of intellectuals that got us into this mess can magically keep the cracks in this Humpty Dumpty economy from getting bigger before things get worse?

Along with the deteriorating fundamentals I constantly mention in my articles, it will eventually all come down to the banking system as I mentioned in Chapter 4 of my book, Buy Gold and Silver Safely. This is the chapter that provides the road map of what’s to come. What happened recently with MF Global is only a small sample of what occurs when bets go against you. The nations top 5 banks are on shaky grounds with similar type games they are playing.

The Humpty Dumpty Banks

The U.S. banks sat on a wall,
The U.S. banks had a great fall.
All the Fed’s horses,
And all the Fed’s men
Couldn’t put the U.S. banks together again!

Stay tuned for more…and just know…falling gold and silver prices should be welcomed as more investors are able to buy gold and silver at lower prices. Congress, the Fed and the decisions made by the banking industry will see to the future appreciation of the precious metals.

About Doug Eberhardt

Doug Eberhardt is a 28 year financial services veteran and precious metals broker selling gold and silver at 1% over wholesale cost. Doug has written a book to help investors understand how gold and silver fit into a diversified portfolio, how to buy gold and silver, and what metals to buy. The book; “Buy Gold and Silver Safely” is available by clicking here Contact phone number for Buy Gold and Silver Safely is 888-604-6534