References – The Enigma Chronicle

Here are additional references to support the thinking layed out in the blog post:

Here is an … umm … “interesting” podcast from the TF Metals report. Jim Willie, an ascerbic expert on the precious metals market who runs the blog GoldenJackass.com, provides an enlightened commentary on the gold market, the US Fed QE, abandonment of the $US and a lot of other scary financial stuff. Listen to it on TFMR or listen to it here. Then think about it. Yikes.
AMRO ABN bank in the Netherlands unable to deliver contractually obligated gold to clients
Dutch Robobank takes sheet from AMRO ABN playbook and ceases delivery of physical gold and silver
Rigging the precious metals market
BRIC currency
Swiss banks refusing client requests for return of physical gold
Premiums over spot prices
Currency wars here and here
The disconnect between financial markets and mathematical reality. Thorough dissertation by Grant Williams. Gold discussion at 33:30.
Central bank gold accumulation
US delivery of 6,000 gold bars to China in 2009 said to be counterfeit
Why won’t the US Govt audit its gold holdings?
Collateral damage – our debt-driven financial system relies on collateral. But what if the collateral itself is bogus?
Longer term fundamentals of the gold market – the pervasive practice of rehypothecation of gold establishes a fractional gold reserve system. Not good.
Here is a very thorough explanation of the gold market, how gold is leased between central banks and bullion banks and paper gold created in a fractional gold deposit system, essentially the same mechanism as the fractional reserve system for fiat currency.
China rumoured to be weighing backing the yuan with gold.
Thesis: gold and oil hold their value against inflating fiat currencies. As fiat currencies are debased by uncontrolled CB printing (i.e. QE), gold and oil are increasing in price when priced in fiat currencies. This suggests that, accounting shenanigans aside, the flood of fiat currency on the market is having its intended inflationary effect. But the Fed won’t fess up, and insists inflation stubbornly sits at 1%, when inflation is actually running at 6-8%. Why is that?
A longwinded “summary” by Jim Willie (the Golden Jackass) on the contradictions in the gold/silver and currency markets.
Good discussion with Mike Maloney and Grant Williams on the mechanics of the gold market, and the depleting inventories at Comex.
A thorough “forensic” audit of the Bank of England (BoE) and Swiss National Bank (SNB) accounts, selling and leasing gold to manipulate the market and prop up some of the bullion banks following ill-fated bets. The link is to TFMetalsReport.com. It is well worth reading the comments as well as the featured article(s).
US Treasury is holding the gold price down to support the US dollar. The Gold Reserve Act of 1934 specifically allows the Treasury to trade in and rig any market in secret to manipulate the gold price. CFTC likely discovered bullion banks are trading on behalf of the US govt, which is why they continuously take no action for this manipulation. Amazing interview with Chris Powell.
More manipulation of the gold market under the shadow of US debt ceiling political theater. This appears to be an effort to shore up confidence in the $US (and USTs) as a safe haven and undermine gold as a high risk hedge. The piece includes reference to a rather sensational May 2011 article that speculates former IMF chief Dominique Strauss-Kahn was set up and taken down in the sex scandal after he challenged the US to have its gold reserves independently audited. hmm … wheels within wheels.
Gold trades as if it is a FOREX currency. In a rather complex argument, gold short positions appear able to leverage an interest rate differential, and are paid by the gold longs. Thus, the market incents gold paper shorts, keeping the price of gold down. This appears to be systematic manipulation by the longs, which are likely the central and bullion banks. The volume of gold trading on the FOREX is an astounding $240B / day, or 6% of all currency trading!
Bloomberg gets the bug, describes the mechanics of the London Fix, the benchmark rate used by mining companies, jewelers and central banks to buy, sell and value gold. It is published twice daily after a telephone call involving Barclays, Deutsche Bank, Bank of Nova Scotia, HSBC and Societe Generale. For a brief period after the price is set, those in the know can arbitrage between the current spot price of gold and the direction of the price set in the London fix. In today’s high-frequency trading, a brief arbitrage opportunity in the $20 trillion gold market can easily be $millions. Nice work if you can get it (Billie Holliday).
The Double Face of Gold – part 1 part 2 – an enlightening interview with Dmitri Speck, author of “The Gold Cartel: Government Intervention on Gold, the Mega Bubble in Paper, and What This Means for Your Future.” Clearly, gold and silver are being suppressed, largely because Central Banks want to keep the world in a banking system of fiat currency. If gold and silver are volatile, suppressed and do not guarantee their value, people will be discouraged from accumulating precious metals as a store of wealth. His conclusion is the huge global debt and prolific money printing is going to result in inflation and worse.
US State Department minutes confirm that whoever has the most gold makes the rules – in April 1974, then Secretary of State Henry Kissinger met with his assistant undersecretary of state for economic and business affairs, Thomas Enders. Enders concludes that whoever has the most gold can control its valuation, and implicitly the valuation of every currency. Since the US had less gold reserves than Western Europe, it had less control in setting its price, and thereby managing the value and amount of its currency, the US$. Per Enders: “This gives them the dominant position in world reserves and the dominant means of creating reserves. We’ve been trying to get away from that into a system in which we can control.” This meeting occurred after the U.S. government abandoned the gold standard in August 1971 and decoupled the value of the dollar from gold altogether, in November 1973.
Further evidence from declassified U.S. government documents from the ’70s that gold needed to be “demonized” in order to fully decouple it from the global monetary system, which the US wanted to control. The US plan included duping the Europeans and the IMF into liquidating their gold holdings and limiting their buying activities on the open market. There is no doubt that the US established and executed a strategy to systematically manipulate the gold market since the early ’70s, and must be continuing to do so today. The question I have is why the Europeans went along with it.
Further to the US$ decoupling from gold, in 1974 an agreement was reached with New York and London banking interests which established what became known as “petrodollar recycling.” That year the Saudi government secretly purchased $2.5 billion in U.S. Treasury bills with their surplus oil funds. A few years later Treasury Secretary Michael Blumenthal cut a secret deal with the Saudis to ensure that OPEC would continue to price oil in US dollars only. Since that time, the US$ was effectively backed by its use as the global currency for oil purchases, which lead to the US$ being used as a global currency for most trade. The bi-product of this is that oil importing countries needed to keep a reserve of US$ to buy oil, but did not want to hold the currency itself. As such, they purchased US treasury bills (UST), to at least collect interest on their reserves. This is why USTs play such a dominant role in the global economic system, as they are interest-bearing bonds and a fully liquid store of value — essentially US$ that pay interest. This very deep market for USTs also allowed the US to perpetually run deficits and finance them with cheap borrowing as a consequence of the petrodollar. The petrodollar link is well-worth reading, as it articulates the fascinating history of the petrodollar. It is impossible to overstate the importance of petrodollar hegemony to the US. If the petrodollar collapses, the US$ as a global reserve currency will end, with devastating consequence to the US economy. US adventurism in Iraq, Libya, and potentially Syria and Iran are tightly bound to aggressive US efforts to assure continuance of the petrodollar.
The Wikipedia entry for the history of the US dollar is a worthy read, to understand the role gold and silver had in backing the currency, until it was decoupled.
Alasdair Macleod writes about the history of gold and the recent (last 40 years) migration of gold from the west to the east and middle east. A couple key ideas that jump out at me: 1) “The ability to expand customer business in the gold market without having to acquire physical bullion is the chief characteristic of the LBMA to this day.” – i.e. the gold futures market is paper-based. Naked futures can be created without actually owning the gold (or whatever the commodity). This is the tool used by central banks (CB) to manipulate and suppress the gold market without actually transferring the physical gold. Through this mechanism, it is estimated there are now more than 90 potential claims on each bar of gold held by COMEX and LBMA. 2) Time is working against gold suppression. If you buy a gold future, you reserve the right to take delivery of the physical gold. Many (probably most) contracts are obviously settled in fiat currency. Others (China) demand the gold. As a result, western CBs have run down gold inventories to the point that their ability to continue to manipulate the market is probably getting close to collapsing. There is considerable evidence that sovereign gold held on account with the Fed (Germany, Venezuela) was leased out or rehypothecated to manage the gold market and settle contracts with physical gold when demanded. Germany’s effort to repatriate 674 tons of gold from the US has been stonewalled, with a mere 5 tons delivered one year after the original request. By now, it is pretty obvious that the gold is not there.
Keeping on the Alasdair Macleod theme, here is an interview with Max Keiser. Starts at 15:24. Lots of stuff, but the main topic is the changing geopolitics in Asia and the Middle East. The rift between Saudi Arabia and the US over Syria and Egypt (Saudi Arabia essentially bankrolled the removal of the Muslim Brotherhood from power in Egypt), and the US weaning itself off foreign oil has lead to an opening for China and Russia. As the Arab states find their interests lie more with Asia than with the US, it bodes badly for US political and economic influence. If the petrodollar gets dumped in favor of gold, Yuan or a gold-backed Asia-block currency, the trillions of US$ being held on reserve (primarily as UST) by Arab states and China would be repatriated back to the US with devastating consequences, likely hyperinflation.
Gold market manipulation hits the mainstream as Bloomberg offers an opinion on “How to Keep Banks From Rigging Gold Prices“. The gist of the opinion piece is that the manipulation is blatant and the suspects are all clearly beneficiaries. At this point, one can only conclude that markets are all rigged — FX, Libor, PM, …
TFMetalsreport tries to connect a lot of dots and loose ends in the gold market. One of the more intriguing ideas is that JPMorgan is an agent for the Chinese Govt acquisition of gold in global markets (primarily GLD and COMEX). This would explain JPM’s long gold position. Makes sense.
The US Government undoubtedly engages in systematic manipulation of financial markets to protect the dollar. This includes gold, of course. The organization tasked with this manipulation is the Exchange Stabilization Fund (ESF), a branch of the US Treasury created by an act of Congress in 1934 to defend the US dollar and maintain it as the world reserve currency. The Fed is subordinate to the ESF. Using a mix of derivatives (futures, swaps, forward rate agreements), it controls and sets the price of strategic goods in the market — capital, energy, precious metals, the level of equity markets — micromanaging financial and capital markets, effectively creating a price control grid. As of late, in light of QE easing, its mandate has been to stem the rise in interest rates, using interest rate swaps totaling some $12T to intervene in the market. The mechanism is to use the US Fed trading desk as broker, and the trading desks of JPMorgan, Goldman Sachs, and Morgan Stanley to execute the trades. The blatant manipulation of financial markets is a mind-boggling revelation to me. Here is an excerpt of a recent interview with Rob Kirby, of Kibry Analytics, which sheds some light on the topic (the full interview can be found here)
The ESF has acknowledged in released transcripts of its own meetings that it has intervened in the gold market using swaps. In fact, it perceives its own authority to intervene in capital markets very broad (or like the NSA even unlimited?). From January 1995: ” It’s pretty clear that these ESF operations are authorized. I don’t think there is a legal problem in terms of the authority. The [ESF] statute is very broadly worded in terms of words like ‘credit’ it has covered things like the gold swaps and it confers broad authority.” This is all the more curious, as the Fed has persistently stated that gold is irrelevant, when clearly it is not.
Here is an enlightened presentation about how gold continues to play a fundamental role in global financial system. If you believe the presentation, gold is *essential* to world finance, to the extent that global financial markets would seize up if gold is not available to mediate transactions. Key metrics to watch are the GOFO rate (persistent negative is a warning sign) and the spot price of gold at the Shanghai Gold Exchange (actual physical gold exchange rates).
The GOFO rate is curious — negative means not enough gold is available to mediate transactions, which raises the interest that must be paid to borrow it. Funny that physical gold has long been lent out (with interest) to satisfy contractual obligations for delivery, rather than closing the contract with owned gold. There is a fairly broad belief among goldbugs that most or all of the US gold has been lent out, as has the German gold being held by the US. Problem is that this gold that has been lent out never to return, as physical gold is flowing to the east and disappearing into gold vaults as reserves, not a tradable commodity. There is not enough physical gold on the market that can be repatriated back to the lenders. A day of reckoning is coming, and it will not be pretty.
Jan09: summary of opinions on gold for 2014. Obviously skewed for the goldbugs, but the interesting data point is the accumulation of gold by central banks, investment banks (Goldman, JPM) and analyst enthusiasm. All this against a backdrop of slammed prices. Things aren’t what they seem.
Jan17: Paul Craig Roberts describes in detail the mechanics of gold price manipulation by the Fed. By now, it is crystal clear about the hows and the whys of gold price manipulation. So much so that the issue has now drifted into the MSM. When does a conspiracy theory become a fact?
Paul Craig Roberts puts all the chips on the table — the US has no more physical gold (video).
Germany’s top financial regulator has been scrutinizing the precious metals market and concluded the manipulation of currency rates and prices for precious metals may be worse than the Libor-rigging. With the writing on the wall, the day following this announcement, Deutsch bank put its seat at the London Fix table up for sale (where gold prices are set twice daily). The implication is that Deutsch Bank is anxiously trying to steer well clear of the next price fixing/market manipulation scandal. Rumors also abound that Deutsch Bank is in financial difficulty and is set to announce a profit warning. They probably don’t need a market fixing scandal hanging over their necks as well.
Jesse’s Café Américain offers up a framework to contemplate the precious metals market (gold, really). Like so many, Jesse anticipates the manipulation is coming to an end, as physical gold emigrates to Asia depleting western gold supplies (COMEX and GLD). The article is a good read, as it brings together much of the news and speculation that has been hitting the gold market over the last year.
In a related story, the internet rumour mill is working overtime with chit chat that China is will soon announce its gold reserves are now at 5,000 tons. This is after a Jan17 report in the Shanghai Daily that China is going to announce reserves at 2,710 tons, up from 1,054 reported in 2009. If the 5k ton number is true, it will surely rattle the gold and currency markets, as holding gold will look much more desirable than holding US$.
The World Bank’s former chief economist wants to replace the US$ as a reserve currency with a global “super-currency”, suggesting it will create a more stable global financial system. According to Justin Yifu Lin, the dominance of the US$ is the root cause of global financial and economic crises. The solution is to replace the US$ with a global currency, which would comprise a basket of major currencies. Lin is an adviser to the Chinese government. As such, his comments, published in the China Daily, likely reflect the official position of the Chinese government.
Jan31: SilverDoctors.com weekly update, this week w Canadian Harvey Organ, discusses diminishing gold supply in the west, and the continuing precipitous decline of JPMorgan’s gold stash. More drumbeats about a pending gold default at COMEX or the GLD. Also on the list of topics is increasing German impatience with inability of the Fed to give the German gold back to the Bundesbank.
A translation of China’s official gold policy. Polar opposite of the western view, or at least the view stated by the government.
The Financial Times (FT) ran an article speculating that global gold prices may have been manipulated on 50 per cent of occasions between January 2010 and December 2013. The article was subsequently pulled from the FT site. Zerohedge has posted the original article.
MSM is really picking up on the manipulation of the gold market. Bloomberg covers a new study out of New York University which suggests unusual trading patterns at around 3 p.m. in London, when the so-called afternoon (London) fix is set on a private conference call between five of the biggest gold dealers. This is a sign of collusive behavior and should be investigated. “The structure of the benchmark is certainly conducive to collusion and manipulation, and the empirical data are consistent with price artificiality,” states the report, “it is likely that co-operation between participants may be occurring.”
Freegold – a monetary concept that re-establishes the value of free-floating individual currencies against physical gold, which is assumed to be stable. Very simply, nothing be used to represent it, replace it, expand it, denominated it to a fixed value or issue or redeem it as such. Freegold is total de-monetization of gold. In order for freegold to work, there must be a separation of physical gold from the paper gold market, i.e. there would be no legal market for paper gold transactions (i.e. any derivatives). The price of gold against individual currencies is determined through transactions continuously and only with physical gold. This is not a gold standard, because the fiat currencies are not tied to the price of gold, but float against it. The speculation is that a move to freegold would result in gold escalating to as much as $50k/oz. Proponents suggest that adopting freegold would bring much needed discipline to the present fractional-reserve, debt-backed fiat currency model we suffer under which is prone to such debasement and abuse (i.e. the out-of-control continuous expansion of the monetary base).
Following the coup in Ukraine, the US discretely transferred the 33 tonnes of Ukraine Govt gold to the US … and, its gone.
The power of gold. The Secret World of Gold. An intriguing documentary on gold … the good, the bad, the ugly, but mostly the secretive. Is there gold in Fort Knox? Without an audit, the public does not know. And Congress won’t allow such an audit. Curious, no? As they say, “gold goes where the wealth is being created.”
How the Fed works and whom it really serves? Always follow the money. The powerful Federal Reserve (“the Fed”) is run by the big banks, who are able to dictate US monetary policy to their benefit, read on the Sovereign Man blog or watch the video: The Federal Reserve System’s structure is composed of the presidentially appointed Board of Governors (or Federal Reserve Board), the Federal Open Market Committee (FOMC), twelve regional Federal Reserve Banks located in major cities throughout the nation, numerous privately owned U.S. member banks and various advisory councils. The FOMC is the committee responsible for setting monetary policy and consists of all seven members of the Board of Governors and the twelve regional bank presidents, though only five bank presidents vote at any given time (the president of the New York Fed and four others who rotate through one-year terms). The seven-member Board of Governors is a federal agency. Four governors are presidential appointments. The FOMC dictates monetary policy, i.e. it decides how much money to print, and whether or not to loan this money to commercial banks at 0% (current ZIRP). All 12 Fed bank presidents sit in those meetings, 5 are voting members. Each of the 12 Federal Reserve banks has a board of director, 9 directors at each bank. The board selects the bank president. The majority of the Fed directors are chosen by the commercial banks themselves — JP Morgan, Bank of America, Citigroup, et al. It is the BANKS who pick the directors who pick the presidents who dominate the committee which decides to loan money back to the banks at 0% interest. How is this not a MASSIVE conflict of interest?
A simple ratio between oil and gold suggests gold should be priced at more than $2,000, based on the historic relationship of 18 barrels of oil /1 oz of gold, for the period 1961-2000. The current ratio is close to 11/1. It does not even make sense that you can buy 35% less oil with your gold than you could before 2000.
The above ground gold stock: how there is and why it matters