In Part 1 I wrote about the economic conditions presently improving that are causing a stronger dollar cyclical trend, but warned this is only a temporary phenomena. As the dollar gets stronger, the U.S. Dollar Price of gold will struggle to maintain its current strength, but the long term secular gold bull market is still the trend to follow.
This article will explain a different view on the gold bull market. It is a view I have not mentioned in past articles, but for good reason. I didn’t want any speculation, whether true or not, to interfere with the reason to be holding gold as part of a well diversified portfolio. However, recent events have caused me to analyze this speculation further.
Second School of Thought
The second school of thought on current gold price action explains the speculation put out by GATA as to the manipulation by certain players in the gold market.
For many years I have been reading the daily dispatches from GATA, the Gold Anti-Trust Action Committee. GATA was established in 1999 to “to advocate and undertake litigation against illegal collusion to control the price and supply of gold and related financial securities.”
Before delving into GATA’s speculations, it is important to understand the various entities and terms involved.
The Commodity Futures Trading Commission (CFTC) is “an independent agency with the mandate to regulate commodity futures and option markets in the United States. The CFTC’s mission is to protect market users and the public from fraud, manipulation, and abusive practices related to the sale of commodity and financial futures and options, and to foster open, competitive, and financially sound futures and option markets.”
Commitment of Traders
The CFTC produces the Commitments of Traders (COT) reports which “provides a breakdown of each Tuesday’s open interest for markets in which 20 or more traders hold positions equal to or above the reporting levels established by the CFTC. The weekly reports for Futures-Only Commitments of Traders and for Futures-and-Options-Combined Commitments of Traders are released every Friday at 3:30 p.m. Eastern time.”
The Commitment of Traders report “shows the number of long and short positions held by traders in the U.S. commodities markets. Traders look at the report for signals about whether the market is likely to move higher or lower.” Here is the latest report, March 30th for gold and silver. The report presently shows a net short position by the Commercial Traders.
Commercial Traders are “those who use futures or option contracts in a given commodity for hedging purposes, as defined in CFTC regulations. Commercial traders hold positions in both the underlying commodity and in the futures (or options) contracts on that commodity. By contrast, non-commercial traders do not own the underlying asset or its financial equivalent; they hold only positions in futures (or options) contracts.”
Many good traders use the net positions by the Commercials as a leading indicator of market direction. It is definitely something to keep an eye on if you are trading gold.
GATA’s primary beef is centered around the lack of any auditing of the gold reserves held by the United States, and Central Bank manipulation of the gold market along with various major players like J.P. Morgan and Goldman Sachs. In fact, GATA spent just over $264,000 in a Wall Street Journal ad, January 31st, 2008, claiming “proof that gold reserves and those of other Western nations are being used for the surreptitious manipulation of the international currency, commodity, equity, and bond markets. When it is widely understood how central banks have been suppressing gold, its price may rise to $3,000 or $5,000 or more.”
No real action by congress or anyone else really came from the ad, but it was the first wake up call to the industry as gold did break it’s all-time high by March of that year with the U.S. Dollar Index sinking to it’s all-time low.
The Government Hates Competition
Of course if one takes the perspective of the corporate financial media, Congress or the Central Banks, including the Federal Reserve, it’s natural to come to the conclusion they don’t want any competition to the U.S. Dollar. There is a reason why gold is taxed as a commodity much higher than any stock investment. The government hates competition.
With the ability to print Federal Reserve Notes (FRN’s) out of thin air, in any amount deemed necessary to keep their game of spending going, along with their ability to wage undeclared wars, it’s no wonder most of America has no clue what gold truly represents. They don’t want the truth about gold to be known. If they could, they wouldn’t have “In God We Trust” on the money, but “In FRN’s We Trust” because as long as the People believe those pieces of paper possess purchasing power, their game can continue.
The truth of the matter however, is those FRN’s depreciate in value over time while gold does not.
GATA Alone Seeks the Truth About Gold Market Manipulation
So GATA alone is out to seek the truth. GATA alone is the David that is taking on the banking Goliath.
In the past I have been hesitant to write about GATA’s undertaking of slinging the rock at Golitath’s forehead. I wanted the reason for people to be investing in gold to solely be based on the fact that it is a good hedge against the U.S. Dollar holdings of one’s portfolio. This is the primary reason you own gold.
I had been waiting for the smoking gun to appear. GATA can write article after article about gold market manipulation but without any real current proof, they have been mostly dismissed by the media and lumped into the category of conspiracy theorists, simply discounted as the “Boy who cried wolf.”
One of the first stories that broke about possible gold price manipulation was the fraud case brought against Morgan Stanley in 2005. Investors in gold and silver were charged storage fees for purchase of gold and silver that never occurred. Of course Morgan Stanley denied all allegations, but chose not to fight the case instead agreeing to a settlement in 2007, paying the defendants $4.4 million stating “While we deny the allegations, we settled the case to avoid the cost and distraction of continued litigation.” Better to pay the fine than admit any guilt.
This was a significant event in that it showed that a well respected financial firm would stoop to such a low level in their own quest for profit, and at the expense of their own clients.
The Boy Who Cried Wolf Is Right and So Is GATA
As the story unfolds, the boy who cried wolf, was eventually proven right. Could GATA be proven right too?
The Gold Manipulation Smoking Gun
Recent events have shed more light on GATA’s quest to expose collusion in controlling the price of gold.
The CFTC recently held a hearing on metals to “look into the activities of large banks in the metals market.” But one individual was left off the list of those who were to testify. This individual, 40 year veteran London metals trader Andrew Maguire, has turned whistleblower and the New York Post has picked up the story up.
Biggest Fraud In History?
Before the New York Post story, you had to listen to alternative news media to get any information like King World News who interviewed Maguire on March 30th. You can see how the mainstream media is so quick with this news….or should I say, how hard they try and keep the news from you. Thirteen days and mainstream media silence on what King World News is calling, “the biggest fraud in history.” You would think this story might make the B section of the Wall Street Journal at least, but nothing.
Andrew Maguire, tried warning the CFTC via email as to JPMorgan Chase and HSBC plans prior to trading on Feb. 5th, 2010.
The prices of gold and silver have been allegedly suppressed by JPMorgan Chase and HSBC, according to a London whistleblower.
Andrew Maguire, who laid out the banks’ plan in e-mails to the CFTC prior to trading on the Comex on Feb. 5.
So what we have is a trader who tried to warn the CFTC what would occur by the banks and subsequently at the CFTC hearing to look into the banks activities, the CFTC deciding they don’t want to hear from the trader as to their activity.
Straight From the Horses Mouth
But what the CFTC or the banks didn’t count on was Jeffrey Christian’s testimony at the hearing. Christian was a former saffer at the Commodities Research Group in the Goldman Sachs Investment Research Department and now founder of the CPM Group. I personally have had an email conversation with Mr. Christian as I was asking permission to utilize some of what the CPM Group had written on the silver industry in their Silver Yearbook for my book on investing in silver, Buy Silver Safely. He was kind enough to grant me permission.
According to Adrian Douglas, Director of GATA here is what Jeffrey Christian confirmed:
Yet Christian confirms that the gold market is basically a ponzi: “in the “physical market” as the market uses that term, there is much more metal than that…there is a hundred times what there is.” And there you have it: as Douglas eloquently summarizes: “the giant Ponzi trading of gold ledger entries can be sustained only if there is never a liquidity crisis in the REAL physical market. If someone asks for gold and there isn’t any the default would trigger the biggest “bank run” and default in history.
There you have it folks. This is what GATA has been trying to expose for over a decade. Now they have a whistleblower and a credible, yet possibly unknowing ally in Jeffrey Christian to collaborate gold (and silver) price manipulation.
What Does This Latest News Mean For Gold?
For me, this news really doesn’t matter too much but things like this could snowball quickly. The reason you invest in gold (and silver) however is to insure your U.S. Dollar holdings, not on events that may or may not pan out to be much bigger.
So while the jury is still out on manipulation of the metals, despite probable cause and known intentions by the Federal Reserve, Congress, the Treasury, Geithner, Goldman Sachs, J.P. Morgan aka, the Usual Suspects, you hold gold as insurance.
Current Gold Price Movement
Could the current gold price movement higher be the result of the truth finally getting out there about gold price manipulation? Sure.
Could you trade off of this type of news? Sure. I’d go so far as to say the risk versus reward is on the side of the trader.
But watch the Commitment of Traders reports (they’re still short), read the charts not tea leaves, watch the U.S. Dollar Index (it’s in a cyclical up trend), pay attention to China and Japan, keep an eye on interest rates, look at what our Congress is up to in constraining spending, read what GATA has to say, watch the debt clock, keep your eyes and ears open to alternative news sources and pay attention to details.
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
Commodity Futures Trading Commission Futures and Options trading has large potential rewards, but also large potential risk. You must be aware of the risks and be willing to accept them in order to invest in the futures and options markets. Don’t trade with capital you can’t afford to lose. This is neither a solicitation nor an offer to Purchase/Sell futures or options. No representation is being made that any account will or is likely to achieve gains or losses similar to those discussed in this outlook. The past track record of any trading system or methodology is not necessarily indicative of future results.
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