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The Federal Reserve Has No Integrity

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Source: Paul Craig Roberts

From http://www.youtube.com/watch?v=wkXmrpM6R4Q: The Federal Reserve, may be one of the most mysterious entities in modern American government.
The Federal Reserve, may be one of the most mysterious entities in modern American government.
(image by YouTube)
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This article co-written with *Dave Kranzler 

As we documented in previous articles, the gold price is driven down in the paper futures market by naked short selling by the Fed's dependent bullion banks. Some people have a hard time accepting this fact even though it is known that the big banks have manipulated the LIBOR (London Interbank Overnight Rate -- London's equivalent of the Fed Funds rate) interest rate and the twice-daily London gold price fix.

Almost every week it is possible to illustrate the appearance of a large number of contracts shorting gold at times of day when trading is thin. The short-selling triggers stop-loss orders and margin calls and hammers down the gold price.

The Fed has resorted to this practice in order to protect the value of the US dollar from Quantitative Easing.

In order for the Fed to effectively support the reserve status of the U.S. dollar by pushing it higher when it starts to drop, the Fed has also to prevent the price of gold from rising. Intervention in the gold market has been occurring for a long time. However, in the last several years the intervention has become blatant and desperate, as rising concerns about the dollar are causing countries such as China and Russia to accumulate fewer dollars and more gold.

During the month of March the Fed and the big banks implemented aggressive intervention against the rising price of gold and the plunging value of the U.S. dollar. Events in Ukraine may have stimulated demand for physical gold and selling of the U.S. dollar, but it was mainly further erosion of the U.S. economy, as reflected in more deterioration of economic data released during March, that pushed gold up and the dollar down.

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The dollar index is a "basket" of currencies used to measure the relative value of the U.S. dollar. The largest components of this basket are the euro and the yen (it also includes the British pound, Canadian dollar, Swedish krona and Swiss franc). During February and March, the dollar started to decline in response to increasingly negative U.S. economic reports, continued Fed money printing (QE) and the Ukraine crisis.

On the last day of February, the dollar index dropped below 80. The 80 level is a key technical trading level and if the dollar were to stay below this benchmark for an extended period of time, large holders of dollars would start selling their dollar holdings out of fear that the dollar would be headed even lower. The Fed and the U.S. Treasury needed to do something in order to force the dollar index back over 80.

As part of its intervention in the currency market to get the dollar back over 80, the Fed also needed to stop gold from rising back over $1,400, which it was on the verge of doing by the middle of March. Just like 80 is key level, below which technical selling of the dollar kicks in, $1,425 is another key level for gold for which large buy and short-covering orders would be triggered. In other words, to support any manipulated move higher in the dollar, the Fed needed to intervene in the gold market to force the price of gold lower. The graphs below illustrate the key points of dollar/gold intervention during March.

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As we reported previously, the Fed, using its agent banks like JP Morgan and Goldman Sachs, intervenes in the gold market by "bombing" the market with a large quantity of Comex gold future contracts. This typically occurs at periods of time when the market is very quiet and trading is at a lull. These engineered market interventions are now commonly referred to as "mini-flash crashes."

As the dollar was consolidating its trading range below 80 and the price of gold was headed toward $1,400, flash crashes started occurring more frequently and with more intensity. During the first week of March, gold was getting ready to shoot through the $1,350 level and the Fed used two distinct flash crashes to contain gold below $1,350 (first two red circles on the graph).

During the week of March 10th, the price of gold started moving quickly higher toward the $1,400 level, as the Ukraine crisis was front and center in the news and investors moved money into the safe-haven of gold. The Fed used several mini-flash crashes in an attempt to contain the move. The red circles on the gold graph show the points in time in which the Comex gold futures market was "bombed" with contracts in order to slow down the upward momentum that the price of gold was gaining in the first half of March.

Then early in the morning on March 17th, with the tension subsiding somewhat between the U.S. and Russia after Crimea voted to join Russia and war didn't break out, the Fed and its agent banks went to work on manipulating the price of gold lower and forcing the U.S. dollar higher. The red arrows on the gold graph show where the Fed dropped gold future "bombs" on the gold market in order to force the price of gold lower. The huge bursts of sell-volume almost always occurred during periods of low trading activity.

On March 18th, the Federal Reserve Open Market Committee (FOMC) convened for a two-day meeting, with its policy statement to be released March 19th at 2 p.m. EST. A study of how gold performs during the week in which there is an FOMC meeting showed that, on average, gold drops $37 for that week. This compares to almost no change during the same week during months in which no meeting is held. As you can see, the mini-flash crashes were used to force the price of gold down $72 from top to bottom during the March FOMC meeting week. The dollar graph shows the big spike in the dollar, which took the dollar back over the 80 level right after the FOMC meeting was concluded.

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http://www.paulcraigroberts.org/

Dr. Roberts was Assistant Secretary of the US Treasury for Economic Policy in the Reagan Administration. He was associate editor and columnist with the Wall Street Journal, columnist for Business Week and the Scripps Howard News Service. He is a contributing editor to Gerald Celente's Trends Journal. He has had numerous university appointments. His book, The Failure of Laissez Faire Capitalism and Economic Dissolution of the West is available here. His latest book,  How America Was Lost, has just been released and can be ordered here.

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Well written, demonstrates a part of how the finan... by Jim Miles on Monday, Mar 31, 2014 at 11:10:36 PM
Of course the System was actually designed that w... by Lance Ciepiela on Tuesday, Apr 1, 2014 at 6:56:37 AM
Recent articles by PCR have been wonderfully clear... by Charles Roll on Tuesday, Apr 1, 2014 at 8:00:17 AM
Money is what can be used to buy things. Histori... by Lance Brofman on Tuesday, Apr 1, 2014 at 4:05:13 PM
This article is absolute balderdash aimed at sedu... by William Anderson. on Tuesday, Apr 1, 2014 at 4:15:42 PM
"The Federal Reserve does not have, and never wil... by Jim Miles on Tuesday, Apr 1, 2014 at 7:07:04 PM
I'm not sure what you're suggesting. The Federal ... by Adam Smith on Tuesday, Apr 1, 2014 at 9:27:41 PM
Your first para is delusional at best and motivate... by K V Ramani on Wednesday, Apr 2, 2014 at 11:07:11 AM