Share on Google Plus Share on Twitter Share on Facebook 1 Share on LinkedIn Share on PInterest Share on Fark! Share on Reddit Share on StumbleUpon 1 Tell A Friend 11 (13 Shares)  
Printer Friendly Page Save As Favorite View Favorites View Article Stats   24 comments

OpEdNews Op Eds

The Hows and Whys of Gold Price Manipulation

By (about the author)     Permalink       (Page 1 of 3 pages)
Related Topic(s): ; ; ; ; , Add Tags Add to My Group(s)

Must Read 7   Well Said 5   Supported 5  
View Ratings | Rate It

opednews.com Headlined to H2 1/17/14

Become a Fan
  (385 fans)

By Paul Craig Roberts and Dave Kranzler


Gold Price Conspiracy
(image by Therealconspiracyforum)


The deregulation of the financial system during the Clinton and George W. Bush regimes had the predictable result: financial concentration and reckless behavior. A handful of banks grew so large that financial authorities declared them "too big to fail." Removed from market discipline, the banks became wards of the government requiring massive creation of new money by the Federal Reserve in order to support through the policy of Quantitative Easing the prices of financial instruments on the banks' balance sheets and in order to finance at low interest rates trillion dollar federal budget deficits associated with the long recession caused by the financial crisis.

The Fed's policy of monetizing one trillion dollars of bonds annually put pressure on the US dollar, the value of which declined in terms of gold. When gold hit $1,900 per ounce in 2011, the Federal Reserve realized that $2,000 per ounce could have a psychological impact that would spread into the dollar's exchange rate with other currencies, resulting in a run on the dollar as both foreign and domestic holders sold dollars to avoid the fall in value. 

Once this realization hit, the manipulation of the gold price moved beyond central bank leasing of gold to bullion dealers in order to create an artificial market supply to absorb demand that otherwise would have pushed gold prices higher. The manipulation consists of the Fed using bullion banks as its agents to sell naked gold shorts in the New York Comex futures market. Short selling drives down the gold price, triggers stop-loss orders and margin calls, and scares participants out of the gold trusts. The bullion banks purchase the deserted shares and present them to the trusts for redemption in bullion. The bullion can then be sold in the London physical gold market, where the sales both ratify the lower price that short-selling achieved on the Comex floor and provide a supply of bullion to meet Asian demands for physical gold as opposed to paper claims on gold.

The evidence of gold price manipulation is clear. In this article we present evidence and describe the process. We conclude that ability to manipulate the gold price is disappearing as physical gold moves from New York and London to Asia, leaving the West with paper claims to gold that greatly exceed the available supply.

The primary venue of the Fed's manipulation activity is the New York Comex exchange, where the world trades gold futures. Each gold futures contract represents one gold 100 ounce bar. The Comex is referred to as a paper gold exchange because of the use of these futures contracts. Although several large global banks are trading members of the Comex, JP Morgan, HSBC and Bank Nova Scotia conduct the majority of the trading volume. Trading of gold (and silver) futures occurs in an auction-style market on the floor of the Comex daily from 8:20 a.m. to 1:30 p.m. New York time. Comex futures trading also occurs on what is known as Globex. Globex is a computerized trading system used for derivatives, currency and futures contracts. It operates continuously except on weekends. Anyone anywhere in the world with access to a computer-based futures trading platform has access to the Globex system.

In addition to the Comex, the Fed also engages in manipulating the price of gold on the far bigger -- in terms of total dollar value of trading -- London gold market. This market is called the LBMA (London Bullion Marketing Association) market. It is comprised of several large banks who are LMBA market makers known as "bullion banks" (Barclays, Credit Suisse, Deutsche Bank, Goldman Sachs, HSBC, JPMorganChase, Merrill Lynch/Bank of America, Mitsui, Societe Generale, Bank of Nova Scotia and UBS). Whereas the Comex is a "paper gold" exchange, the LBMA is the nexus of global physical gold trading and has been for centuries. When large buyers like Central Banks, big investment funds or wealthy private investors want to buy or sell a large amount of physical gold, they do this on the LBMA market.

The Fed's gold manipulation operation involves exerting forceful downward pressure on the price of gold by selling a massive amount of Comex gold futures, which are dropped like bombs either on the Comex floor during NY trading hours or via the Globex system. A recent example of this occurred on Monday, January 6, 2014. After rallying over $15 in the Asian and European markets, the price of gold suddenly plunged $35 at 10:14 a.m. In a space of less than 60 seconds, more than 12,000 contracts traded -- equal to more than 10% of the day's entire volume during the 23 hour trading period in which which gold futures trade. There was no apparent news or market event that would have triggered the sudden massive increase in Comex futures selling which caused the sudden steep drop in the price of gold. At the same time, no other securities market (other than silver) experienced any unusual price or volume movement. 12,000 contracts represents 1.2 million ounces of gold, an amount that exceeds by a factor of three the total amount of gold in Comex vaults that could be delivered to the buyers of these contracts.

This manipulation by the Fed involves the short-selling of uncovered Comex gold futures. "Uncovered" means that these are contracts that are sold without any underlying physical gold to deliver if the buyer on the other side decides to ask for delivery. This is also known as "naked short selling." The execution of the manipulative trading is conducted through one of the major gold futures trading banks, such as JPMorganChase, HSBC, and Bank of Nova Scotia. These banks do the actual selling on behalf of the Fed. The manner in which the Fed dumps a large quantity of futures contracts into the market differs from the way in which a bona fide trader looking to sell a big position would operate. The latter would try to work off his position carefully over an extended period of time with the goal of trying to disguise his selling and to disturb the price as little as possible in order to maximize profits or minimize losses. In contrast, the Fed"s sales telegraph the intent to drive the price lower with no regard for preserving profits or fear or incurring losses, because the goal is to inflict as much damage as possible on the price and intimidate potential buyers.

The Fed also actively manipulates gold via the Globex system. The Globex market is punctuated with periods of "quiet" time in which the trade volume is very low. It is during these periods that the Fed has its agent banks bombard the market with massive quantities of gold futures over a very brief period of time for the purpose of driving the price lower. The banks know that there are very few buyers around during these time periods to absorb the selling. This drives the price lower than if the selling operation occurred when the market is more active.

A primary example of this type of intervention occurred on December 18, 2013, immediately after the FOMC announced its decision to reduce bond purchases by $10 billion monthly beginning in January 2014. With the rest of the trading world closed, including the actual Comex floor trading, a massive amount of Comex gold futures were sold on the Globex computer trading system during one of its least active periods. This selling pushed the price of gold down $23 dollars in the space of two hours. The next wave of futures selling occurred in the overnight period starting at 2:30 a.m. NY time on December 19th. This time of day is one of the least active trading periods during any 23-hour trading day (there's one hour when gold futures stop trading altogether). Over 4,900 gold contracts representing 14.5 tonnes of gold were dumped into the Globex system in a two-minute period from 2:40-2:41 a.m, resulting in a $24 decline in the price of gold. This wasn't the end of the selling. Shortly after the Comex floor opened later that morning, another 1,654 contracts were sold followed shortly after by another 2,295 contracts. This represented another 12.2 tonnes of gold. Then at 10:00 a.m. EST, another 2,530 contracts were unloaded on the market followed by an additional 3,482 contracts just six minutes later. These sales represented another 18.7 tonnes of gold.

graphicillustration
(image by
Paul Craig Roberts)

All together, in six minutes during an eight-hour period, a total amount of 37.6 tonnes (a "tonne" is a metric ton -- about 10% more weight than a US "ton") of gold future contracts were sold. The contracts sold during these six minutes accounted for 10% of the total volume during that 23-hour period of time. Four-tenths of one percent of the trading day accounted for 10% of the total volume. The gold represented by the futures contracts that were sold during these six minutes was a multiple of the amount of physical gold available to Comex for delivery.

The purpose of driving the price of gold down was to prevent the announced reduction in bond purchases (the so-called tapering) from sending the dollar, stock and bond markets down. The markets understand that the liquidity that Quantitative Easing provides is the reason for the high bond and stock prices and understand also that the gains from the rising stock market discourage gold purchases. Previously when the Fed had mentioned that it might reduce bond purchases, the stock market fell and bonds sold off. To neutralize the market scare, the Fed manipulated both gold and stock markets. (See Pam Martens for explanation of the manipulation of the stock market).

While the manipulation of the gold market has been occurring since the start of the bull market in gold in late 2000, this pattern of rampant manipulative short-selling of futures contracts has been occurring on a more intense basis over the last two years, during gold's price decline from a high of $1900 in September 2011. The attack on gold's price typically will occur during one of several key points in time during the 23 hour Globex trading period. The most common is right at the open of Comex gold futures trading, which is 8:20 a.m. New York time. To set the tone of trading, the price of gold is usually knocked down when the Comex opens. Here are the other most common times when gold futures are sold during illiquid Globex system time periods:

- 6:00 p.m NY time weekdays, when the Globex system re-opens after closing for an hour;
- 6:00 p.m. Sunday evening NY time when Globex opens for the week;
- 2:30 a.m. NY time, when Shanghai Gold Exchange closes;
- 4:00 a.m. NY time, just after the morning gold "fix" on the London gold market (LBMA);
- 2:00 p.m. NY time any day but especially on Friday, after the Comex floor trading has closed -- it's an     illiquid Globex-only session and the rest of the world is still closed.

In addition to selling futures contracts on the Comex exchange in order to drive the price of gold lower, the Fed and its agent bullion banks also intermittently sell large quantities of physical gold in London's LBMA gold market. The process of buying and selling actual physical gold is more cumbersome and complicated than trading futures contracts. When a large supply of physical gold hits the London market all at once, it forces the market a lot lower than an equivalent amount of futures contracts would. As the availability of large amounts of physical gold is limited, these "physical gold drops" are used carefully and selectively and at times when the intended effect on the market will be most effective.

Next Page  1  |  2  |  3

 

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.

Share on Google Plus Submit to Twitter Add this Page to Facebook! Share on LinkedIn Pin It! Add this Page to Fark! Submit to Reddit Submit to Stumble Upon

The views expressed in this article are the sole responsibility of the author and do not necessarily reflect those of this website or its editors.

Writers Guidelines

Contact Author Contact Editor View Authors' Articles

Most Popular Articles by this Author:     (View All Most Popular Articles by this Author)

Libya - The DC/NATO Agenda And The Next Great War

The Road to Armageddon

American Job Loss Is Permanent

A Story...The Last Whistleblower

Pakistan TV Report Contradicts US Claim of Bin Laden's Death

Comments

The time limit for entering new comments on this article has expired.

This limit can be removed. Our paid membership program is designed to give you many benefits, such as removing this time limit. To learn more, please click here.

Comments: Expand   Shrink   Hide  
10 people are discussing this page, with 24 comments
To view all comments:
Expand Comments
(Or you can set your preferences to show all comments, always)

Over the course of the 13-year gold bull market, ... by Michael Dewey on Saturday, Jan 18, 2014 at 8:27:21 AM
Assuming that the facts are as here alleged, gold... by Eric Zuesse on Saturday, Jan 18, 2014 at 1:11:36 PM
What counts as "evidence"?  All these large g... by Derryl Hermanutz on Saturday, Jan 18, 2014 at 5:42:30 PM
"Evidence" is links to sources, and those must be... by Eric Zuesse on Monday, Jan 20, 2014 at 11:56:22 AM
Another big question mark is the allegation of Peg... by Josh Mitteldorf on Saturday, Jan 18, 2014 at 6:23:08 PM
That is possible. However, considering the hunger... by Paul Repstock on Sunday, Jan 19, 2014 at 12:05:14 AM
"When the Fed runs out of gold to borrow, to rehy... by Jim Miles on Saturday, Jan 18, 2014 at 6:48:25 PM
Jim; Nobody audits the Chinese vaults?? It is in... by Paul Repstock on Saturday, Jan 18, 2014 at 11:55:44 PM
Very true and they are playing this game.  Th... by Jim Miles on Sunday, Jan 19, 2014 at 1:22:56 PM
Money is what can be used to buy things. Histori... by Lance Brofman on Saturday, Jan 18, 2014 at 7:24:00 PM
There is little doubt that irate investors will be... by Peter Duveen on Saturday, Jan 18, 2014 at 11:37:42 PM
Gentlemen: I have a "Bad News Scenario" for y... by Paul Repstock on Saturday, Jan 18, 2014 at 11:40:20 PM
Yes the price of gold should be pretty much astro... by Jim Miles on Sunday, Jan 19, 2014 at 1:30:20 PM
What about China's stockpiling gold and purchasing... by Dennis Kaiser on Sunday, Jan 19, 2014 at 11:09:55 AM
Denis; I don't think they will. Why should they? ... by Paul Repstock on Sunday, Jan 19, 2014 at 5:57:56 PM
Interesting point.  I wonder, though...many c... by Jim Miles on Sunday, Jan 19, 2014 at 11:09:32 PM
It was the gold standard that allowed the U.S. to ... by Dennis Kaiser on Monday, Jan 20, 2014 at 7:06:43 AM
King Midas learned the true value of gold.  ... by Daniel Geery on Sunday, Jan 19, 2014 at 1:08:44 PM
You are right.  You cannot eat it, nor take ... by Jim Miles on Sunday, Jan 19, 2014 at 1:37:39 PM
Yes, you are right regarding the limitations of m... by Daniel Geery on Sunday, Jan 19, 2014 at 2:44:16 PM
Those are the points I was trying to insinuate. I... by Paul Repstock on Sunday, Jan 19, 2014 at 5:54:32 PM
This is why I have reread Sacred Economy several ... by Daniel Geery on Monday, Jan 20, 2014 at 12:23:45 PM
True, "you can't take it with you, but when you ap... by Peter Duveen on Monday, Jan 20, 2014 at 7:26:02 AM
Certainly true, near as I can tell. Please see my ... by Daniel Geery on Monday, Jan 20, 2014 at 12:25:11 PM