1:36p ET Saturday, October 1, 2011
Dear Friend of GATA and Gold:
Jesse's Cafe Americain yesterday posted an excellent analysis of the precious metals market derivatives data reported by the the U.S. Office of the Comptroller of the Currency for the second quarter this year. Jesse remarks:
"The leviathan JPMorganChase, uber-bank of Rockefeller and Morgan, holds 80 percent of the gold derivatives in the world, with HSBC having the rest. HSBC was founded in the British colony of Hong Kong and is now headquartered at Canary Wharf London.
"At this sort of concentration you do not have a size advantage; you are the market, with all that it implies in terms of knowledge of positions, etc., at least concerning derivatives. In the non-gold precious metals, JPM's derivatives are a more modest 69 percent.
"How important are derivatives to gold and the metals? Not so much, unless you consider it important to know who is hedging what positions and future supply. It also helps to manage some of the largest non-derivatives positions, such as large exchange-traded funds.
"But some might conclude that between them the Anglo-Americans have the gold market in hand."
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Jesse's analysis of the OCC's report on precious metals derivatives is headlined "The Anglo-American Precious Metals Derivatives Duopoly: Quarterly OCC Report" and you can find it here:
Perhaps the first to figure out and publicize how derivatives could be used to suppress commodity prices in an inflationary environment was the British economist Peter Warburton, whose 2001 essay, "The Debasement of World Currency: It Is Inflation But Not as We Know It" (http://www.gata.org/node/8303 ), laid out what was under way and what was to come. Warburton wrote:
"What we see at present is a battle between the central banks and the collapse of the financial system fought on two fronts. On one front, the central banks preside over the creation of additional liquidity for the financial system in order to hold back the tide of debt defaults that would otherwise occur. On the other, they incite investment banks and other willing parties to bet against a rise in the prices of gold, oil, base metals, soft commodities, or anything else that might be deemed an indicator of inherent value. Their objective is to deprive the independent observer of any reliable benchmark against which to measure the eroding value not only of the U.S. dollar but of all fiat currencies.
"Equally, their actions seek to deny the investor the opportunity to hedge against the fragility of the financial system by switching into a freely traded market for non-financial assets.
"The central banks have found the battle on the second front much easier to fight than the first. Last November I estimated the size of the gross stock of global debt instruments at $90 trillion for mid-2000. How much capital would it take to control the combined gold, oil, and commodity markets? Probably no more than $200 billion, using derivatives.
"Moreover, it is not necessary for the central banks to fight the battle themselves, although central bank gold sales and gold leasing have certainly contributed to the cause. Most of the world's large investment banks have overtraded their capital so flagrantly that if the central banks were to lose the fight on the first front, then their stock would be worthless. Because their fate is intertwined with that of the central banks, investment banks are willing participants in the battle against rising gold, oil, and commodity prices."
Of course central banks long have had an intimate connection with the gold market, from the beginning of the gold standard continuing through the end of the gold standard to the present day, for central banks recognize that gold is a primary determinant of the value of their own currencies and interest rates. Even future U.S. Treasury Secretary Lawrence Summers, as an economics professor at Harvard, acknowledged as much in an academic study published in 1988. The study, titled "Gibson's Paradox and the Gold Standard," implied that governments could grasp their Holy Grail, control of interest rates and bond prices, if only they could get control of the price of gold:
For 12 years now GATA has been compiling and publicizing evidence of both open and surreptitious central bank manipulation of precious metals prices and has amassed a vast file of documentation so that discussion of the issue might concentrate on the public record rather than on speculation and "conspiracy theory." This documentation includes official minutes of central bank proceedings, testimony and other statements by central bank officials, central bank and government memoranda and letters, declassified U.S. Central Intelligence Agency documents, U.S. State Department cables, federal lawsuit filings, statistical studies of the precious metals markets, and much more:
But in many circles the many years' worth of painstaking documentation simply cannot be acknowledged. Instead complaints of gold market manipulation are peremptorily dismissed as "conspiracy theory" no matter how much evidence is produced. Newsletter writer Toby Connor resorted to this peremptoriness again the other day as he commented on gold's recent plunge in an essay titled "Gold Isn't Being Manipulated, It's in a Normal D-Wave Decline":
"A D-wave decline is a normal, regression to the mean, profit-taking event that occurs when gold gets too stretched above the mean. It is not a takedown by an anti-gold cartel. Anyone with a modicum of common sense can look at the long-term chart of gold and tell that this is not a manipulated market. This is just a normal secular bull market, and it is acting exactly like a normal bull market acts.
"Folks, these conspiracy theories are now bordering on the insane. I even heard the other day someone blame margin increases for the drop in gold. I guess they completely forgot that we've already had two margin increases in the last two months that had virtually no effect on gold.
"Every bull market in history has its share of con men and scam artists. Think Bernie Madoff, Enron, WorldCom, etc. The gold manipulation nonsense is just one of the many scams that are going to hitch a ride on this bull. Actually it's one of the oldest scams in the book. You find a bull market, make a one-way bet on rising prices, tout these 'to the moon' prices to suck in subscribers lured by the reward of gigantic financial gains, and then blame an invisible cartel every time a correction occurs that you don't foresee. It's a great way of not having to take responsibility when subscribers get caught in a normal corrective decline."
GATA can't answer for every letter writer in the precious metals markets; GATA can answer only for itself. But as a custodian of the market manipulation case, GATA will ask whether Connor can answer for his own failure to examine and dispute the evidence before drawing his conclusion. Can Connor really believe that, as governments and central banks increasingly intervene openly and desperately in the currency, bond, and even the equity markets, they're leaving only the gold market alone? Has Connor ever tried putting a single question about gold to any central bank? Or does he really think that his charts tell him everything he needs to know about the gold market?
GATA has made a sort of career of questioning central banks. We have even sued the Federal Reserve a couple of times. But Connor writes as if he has been privy to all central bank documents, to all communications among central banks, and to all communications between central banks and bullion banks.
Contrary to Connor's assertion, the gold cartel is hardly "invisible." It has been visible since before any of us were born. But the visibility here is like that in the Hans Christian Andersen fable "The Emperor's New Clothes," as it is bad business to get in the way of powerful governments and financial institutions generally, and bad business particularly for those who would make a living applying traditional technical analysis to markets to admit that they may have been dissecting mere holograms.
Gold price suppression is "conspiracy theory" only to those who refuse to examine the documentation offered to them.
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
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Lewis E. Lehrman on How to Solve the U.S. Debt Problem
Lewis E. Lehrman, chairman of the Lehrman Institute, sponsor of The Gold Standard Now project, advises that to reduce the $1 1/2 trillion U.S. deficit, the Republican Party must initiate an investment program.
Working Americans are not saving, which enables the banks to lead the country into a cycle of debt, leverage, boom, panic, and bust.
Lehrman says: Eliminating the budget deficit of a trillion and a half dollars cannot be done overnight. The proposal by U.S. Rep. Paul Ryan was very dramatic -- one Republican called it radical -- but it was not happily received. The solution, of course, is to design an American program for prosperity, because you can solve these entitlement problems with a growing economy. We need a tremendous program of investment, and investment comes from savings. When you pay savers, middle-income professionals, and working people 0 percent at the bank, you are not going to encourage them to save. Then we are left with a bank cycle of debt, leverage, boom, panic, and bust."
To read more and to sign up for The Gold Standard Now's free, noncommercial, weekly report, "Prosperity through Gold," please visit: