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What About Central Banks & Gold?

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Question: What about central banks manipulating gold?

Answer: The incentive of government to “suppress” gold is far more realistic than private trading banks that simply look to make a quick buck. Government can try to maintain an image. Paul Volcker when he became Fed Chairman was faced with gold going to $875 into January 21st, 1980. He openly stated to the press back then that he judged his success in fighting inflation by watching the price of gold.

The better question: “Are central bankers good at suppressing the price of gold?”

The answer to that question is NO. Britain sold the low in 1999 making the bottom at that time nearly at $250. Gold is not very important to them anymore. They too moved on to other things like manipulating the economic statistics. They figured out that since everything was indexed to inflation, just keep revising the CPI so it will not reflect reality and thereby you reduce government expenditure and that is more important. They do not include taxes because your tax burden is an obligation not your cost of living. They are watching gold for tax purposes for it represents an underground economy and that is far more concerning. Thus, they are burdening gold with tracking. Coins may be the only way to go rather than bars.

So is gold suppressed because of some giant conspiracy? No. Historically, all commodities including gold tend to make compressed sharp advances that rarely last longer than 3 years. They move in a pendulum fashion reaching over-bought and over-sold at each extreme. Gold has rallied begrudgingly because of the retail trade. It is not a “institutional” investment in bullion form UNLESS you are selling it forward to collect interest & carrying costs, but that is not a great trade today. Retirement funds etc, need steady income. Bullion offers no such pay out so pure capital gains does not cut it. They have to be traders earning short-term income or investors will sell out. Fund managers are rated by performance. What about the fabled huge short position of NY banks? They will not commit capital to some long-term scheme that has some fictional payoff decades down the road. Any such short position is a hedge against bullion positions. That is neutral. ALL commodities pay catch-up. This is simply normal historical trading patterns.

Moreover, to turn any market you need the majority to be ALWAYS WRONG! Why? That is the fuel to turn the market around. If the banks had such a short position perpetually that was naked short, that would be the very thing to make gold rally for they would become the biggest buyers. Likewise, a stock market crash investigation has always begun with this same idea that some huge short player forced the market down. Not since 1907 has any investigation EVER discovered this mythical short player. It is simply that something scares the longs, they panic and try to sell, but it is the LACK of short selling that causes the market to collapse. If there are shorts, they take profit providing support. When there are no shorts, you get the flash crash for there is no bid.

Gold is not being artificially suppressed. It is just not time yet. Commodities overall have lost their luster right now. It will be back. That is part of the cycle. The vast majority of people do not smell a rat. They are oblivious to the Sovereign Debt Crisis and drive back and forth from work without a clue that there is a ticking time bomb. Let the German elections kick Merkel out, or if Merkel remains, she is ignored by everyone else and now you start to change the dynamics. People have to BELIEVE that the system is imploding. Just because you may see it, does not mean the majority does. You will NOT convince them until the markets are ready. That is only a matter of time. But it is time that dictates everything. That is the real reason we are doing a Sovereign Debt Crisis Conference this weekend. It is all about time and when to expect it, act, and how the handle it from a statistical historical perspective. At least look objectively at what has happened before.