Will commodities exchanges 'fail up' or 'fail down' with gold?

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Noon Tuesday, August 14, 2007

Dear Friend of GATA and Gold:

A friend at the wonderful Internet forum maintained by Centennial Precious Metals in Denver (http://www.usagold.com/cpmforum/) asked yesterday whether the commodities exchanges would "fail up" or "fail down" with gold if the central banks lost control of the markets. That is, whether the gold price on the commodities exchanges would explode as supply failed or would crash as traders realized that the exchanges would default.

For whatever it's worth, I replied as follows.

I imagine that as long as the Comex continues to deliver gold to those who want to claim it, it will continue to be considered a primary market. I don't expect it to fail until the central banks cease dishoarding their gold.

I don't expect the central banks to cease dishoarding at current price levels. With gold they seem to be managing a controlled retreat, bleeding out the dishoarding of their reserves as carefully as they can, manipulating or "smoothing" the gold market much as they do with the currency and bond markets. (That my betters in this sector cannot acknowledge that there is a scheme behind the central bank intervention in the gold market even as the central bank interventions in the currency and bond markets are fully PROCLAIMED to be part of a market-regulation scheme is, of course, awfully aggravating to me. But my betters are not always idiots; many of them just know who butters their bread, and it's not me.)

I do not think that recovering any of the great volumes of leased central bank gold is a problem -- because the central banks DON'T WANT any leased gold back. That is, I think, what all the central bank gold "sales" of recent years have been about -- cash settlement of gold loans that cannot be repaid without exploding the gold market and crashing the bond markets.

We are already long into cash settlement.

In short, the gold price question is a question for the central banks -- just a question of how much gold they are willing to dishoard at what pace, knowing that a higher gold price will be needed to encourage the production necessary to prevent the exhaustion of central bank reserves and thus the termination of a big part of central bank power to manipulate markets.

I don't think that what is called the gold market is going to "fail" unless a major central bank defects from the gold-price suppression scheme (which is also the dollar-support scheme) or investors around the world suddenly awaken more or less at once to the fraud and imperialist monster the fiat system has become.

China well may pull the plug on the gold-price suppression and dollar-support scheme when it has fully hedged its dollar holdings, an endeavor well under way but almost certainly requiring another decade or so.

As for awakening investors around the world, some of us are working on that. Public awareness CAN hasten the day and, I think, already HAS hastened it. For gold would still be under $400 if the central banks were as omnipotent as they would like us to think.

CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.

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