In an column posted on May 21, 2021 in the Gold AntiTrust Action Committee (GATA) newsletter (see http://www.gata.org; also posted in its entirety at the bottom of this article), GATA Secretary/Treasurer Chris Powell takes a deep look into whether forthcoming rules that will force a re-evaluation of gold’s roles in banking for European and British banks will finally end the artificial suppression of global gold prices – or not? This question is of utmost importance for the banks themselves, of course, but also for investors in gold, institutions that do NOT invest in gold, retirement savers, and anybody who buys and sells anything in U.S. dollars or participates in the global economy (that is, YOU!)
Why Should Most Of Us Care About The Price of Gold?
It’s no secret to gold investors, or to anybody who has studied the economy for any period of time, that the global financial system is in deep trouble. It is also no secret that, when times get scary, both professional investors and ordinary people alike forsake some of their paper cash and use it to purchase gold (and silver) to protect their hard earned wealth.
Accordingly, the prices of gold and silver rise and fall over they years as investors become worried or complacent about inflation and the state of the economy. This is a natural state of affairs, and it occurs occurs when markets are allowed to operate freely. Although it’s been shown that this pattern has, indeed, held generally true over the years and gold has indeed been slowly increasing in inflation-adjusted value since its fall to its inflation-adjusted low in 2001 from its inflation adjusted peak in 1980, its price really hasn’t kept pace with the erosion of the purchasing power of the dollar. In fact, currently, if measured against the increase in the money supply, gold is currently near an all time low price! Overall, but especially lately, the price for gold in dollars remains consistently far lower on average than it should be. As the prices of almost everything from corn to houses is rocketing skyward in an inflationary fit that Fed Chairman Jerome Powell and most stock market analysts brush off as “transitory” (though they fail to elaborate on how or when it might die back down), the price of gold should be rising, too – and quickly. But, it isn’t. Why? Are investors simply not willing to pay more to acquire gold because they’re not very concerned about inflation and the direction the economy is headed? Is there no reason to be concerned about debt and inflation because they’re actually signs that the economy is really getting better? Or is artificial gold price suppression hard at work?
All of the available evidence points to the latter as the main reason for gold’s only modest response to significant changes in our economy. Disappointed gold investors have long watched their precious metal investments lag behind the quickening pace of debt creation and inflation. Yes, gold reacts to economic deterioration, but for some reason it tends to lag a fair amount and it’s particularly behind the curve these days. Many blame the continual rise in the stock market for the modesty, then stalling, of gold’s price action over the past couple of years. Who wants to sit on gold when stocks are shooting up in value? Ditto for bonds. Even though the inflation-adjusted returns on most bonds (and even the REAL rates on many) are below zero, bonds still look more attractive to many than an asset that pays no interest, incurs costs or risk to store, and is not showing much price appreciation.
The important question here is why gold consistently underperforms until economic conditions begin to tip into crisis? Isn’t it odd that, whenever the price of gold begins to increase quickly or significantly, especially if no crisis appears to be imminent, it soon reverses (“corrects”), or at least stalls out? Is this really because investors, as a group, suddenly decide that it’s risen high enough, and all stop purchasing at about the same time? That’s not likely. As I’ve discussed in earlier posts, the repeated failure of gold (and silver) to keep rising in price even in the face of increasing demand and even to suddenly decline just when the market is demanding more of it, is no accident. Nor is it the result of normal market functioning. Instead, it’s primarily the result of a group of big banks and hedge funds, under the direction and approval of various governments (including ours), employing various tricks to bring the market price of gold and silver back down to where they, not the market, would like it to be. Why? Well, government don’t want precious metals to attract the attention of investors who might otherwise pump their dollars into stocks or bonds and keep those markets elevated. These markets are far larger than the gold and silver markets combined, and command much more public attention. Remember how President Trump, for example, bragged that his legacy would be built partially on the success of the stock market? This isn’t the only example of the importance of the stock and bond markets to the appearance of success of our economy, but it illustrates how much more important these markets are to the psychology of the nation. If the stock market rises, and, to a lesser extent, the bond market yields hefty returns, the average voter trusts that the economy must be OK. When the masses believe that prosperity is here, social stability is maintained and political volatility decreases. Everybody trusts in the future. But who cares about gold? More importantly, what would happen if the masses DID start to care about gold, and realized that suddenly rising or inappropriately falling of gold (and silver) prices were a sign that everything was actually NOT well in the economy? This would be a problem. Governments don’t want the public to see that gold has intrinsic value, start questioning the health of the dollars in their wallets, or using gold as a hedge against the falling value of the dollars they hold.
The Golden Trick and How Market Manipulators Pull It Off
One of the most effective methods for artificially suppressing the prices of precious metal involves creating the illusion that there is much more gold in the world than there really is and that far more people own gold than actually do. After all, if something is widely available and all of your neighbors and their brothers own it, how valuable can it be? How much would you want some and be willing to pay for it? In the process of creating the illusion of abundance, governments and the banks they operate through dampen enthusiasm and interest in owning gold. They make it seem much less scarce and desirable than it really is. However, in the process, they create a great deal of cumulative risk and instability in the banking system. The fraud could fall apart in various ways, unleashing unimaginable disaster in a global economy that is now well over a quadrillion dollars in debt if one counts personal debt, soverign debt, unfunded liabilities of many governments (including pension funds, welfare burdens and medical care), and the derivatives contracts traded among the world’s many banking institutions. Almost fifty years of failure to allow economic cycles to run their natural courses has resulted in the pile up of debt and systemic risk that is going to cause the mother of all conflagrations when regulators can no longer hold the system together. That day is no longer far off.
Paving the Road to Hell With Good Intentions (Or Maybe Bad Intentions)
Over the years, in a supposed bid to help keep the increasingly out-of-control global banking system from crashing and collapsing the global economy, the Bank of International Settlements – the Central Bank of Central Banks – has proposed and implemented a series of rules to curb the most dangerous banking behaviors, including curbing the price of gold by making it seem more abundant and easy to get than it really is. The rules, called Basel l, Basel ll, Basel lll and Basel lV, are named after theBIS’ headquarters town of Basel, Switzerland. Basel l and ll rules have already been implemented. Currently, the third in the series of rules, or Basel III, is on course to be implemented for European banks at the end of June and for the banks in London, where much of the world’s precious metals trade is conducted, on December 31.
Basel III is a very complex and lengthy set of rules. However, their basic purpose can be boiled down to supposedly to end the massive selling of unbacked paper promises of gold by banks and investment firms to investors. From implementation forward, Basel lll will supposedly make each investor claim to an ounce of gold be actually backed by an ounce of gold. Currently, for every ounce of gold actually held for investors in the massive “unallocated” gold accounts in the vaults of bullion banks, as many as 100 paper claims on that ounce may have been issued by those banks! This means that, if more than one person ever wishes to exercise their claim to “their” ounce, they might discover that somebody else has beaten them to it. Not that holders of unallocated (literally, NOT assigned to anybody) gold are always able to get their metal, anyway – in the two largest precious metal ETF’s – SLV and GLD – only twelve “authorized participants”, all big banks and hedge funds, are actually granted access to the gold they own. While all investors in Sprott-owned gold and silver ETF’s and most other ETF’s can turn in their paper for actual metal, there’s no way to be absolutely certain that all ETF’s have sufficient metal to fully back every paper claim. The ETF’s are supposed to make good on every claim with real metal. But if they can’t, or won’t, they legally don’t have to. Buried within the reams of fine print in investors’ contracts are clear (at least to lawyers) statements guaranteeing only that investors gain exposure to the price movements of the metal, NOT actual ownership of any metal. Only the twelve “authorized participants” are guaranteed to get actual metal back when they wish to redeem their holdings. So, if an ordinary, or non-“authorized”, investor wants to take possession of the gold that he or she thought they purchased and which they paid storage fees on, the issuing institutions are allowed to say “sorry, no”, and settle with them for the value of the metal in cash. The same thing holds for silver. Some system, huh?
But It Works! (For Who, Exactly?)
It’s a system that has worked well for decades. By “working well”, I mean that it has kept the global public demand for gold in line with existing supply since millions of investors who want gold are actually holding only paper claims to it, instead of actual metal. So, if there’s no metal to back their claims, no problem! Unless they all want it back more or less at once, in the style of an old-fashioned bank run. But as long as the vast majority of investors never know they’re being sold something that really doesn’t exist, no problem! Besides, many investors are larger and more sophisticated institutions that really don’t want to gold in their possession, anyway. They just want claim to it, and they make money by trading their claims back and forth, with hopes of making a profit on most of their trades. So it looks like the world is awash in gold! Enough for everybody who wants to to claim it to hold it until they want to sell or trade their claim (and supposedly thereby the physical gold that backs it up) to somebody else for a profit. Judging by this paper charade, there’s gold aplenty for anybody who wants it! So why should it be expensive to buy?
It’s not clear how many institutional investors really understand the ruse – or possibly care about it – but for Mom and Pop holding on to a few ounces for emergencies or retirement, the consequences of this trickery can be devastating. They don’t realize that that the amount of gold actually available for purchase or trade is limited while the amount of paper claims to gold are infinite, thus allowing the paper gold market to prevent gold from naturally rising in value as inflation erodes the purchasing power of the dollar. Mom and Pop’s golden nest egg thus never reaches the heights in value that they should have a right to expect it to. Nor would they ever become the wiser to the fakery that’s costing them dearly if not for pesky organizations like Gold Anti-Trust Action Committee that actually look into the situation.
The issuing of multiple paper claims on each ounce of gold, called hypothecation for the first time and rehypothecation thereafter, is key to keeping the price of gold suppressed below the value it would command in a free market. And why is price suppression so important? Because the illusion that gold is abundant and cheap is critical to maintaining the U.S. economy and the dollar’s role as the global reserve currency. The value of the dollar is ultimately measured by its value in gold, even though it is no longer backed by gold. Gold is the foundational measure of the value of all currencies. If there were no gold, there would be no way to value paper currency because gold possesses inherent value and paper does not. Cheap gold masks the reality that the dollar is losing value. When the dollar weakens, or loses value, the process is signaled by increases in price inflation and everything of value becomes more expensive. Investors naturally flock to gold and silver during times of inflation to protect their purchasing power. As the dollar loses purchasing power, it takes more dollars to buy an ounce of gold. Gold therefore becomes more expensive and retains its value when redeemed for dollars – or even used directly to pay for goods and services.
Because gold, along with silver, are sensitive barometers of the health of the dollar -and by extension of all other currencies because they’re all directly or indirectly tied to the dollar for value – governments as well as banks have a hugely vested interest in keeping the cost of gold and silver very low. Because free markets tend to drive the value of gold up when the currency sinks, governments and banks, usually acting in concert, will push the price of gold back down by whatever artificial means necessary. A valuable dollar supports the illusion that the economy is growing, and hides the fact that since 1971 when Richard Nixon severed the last link of the dollar to gold, all global growth has been sickly, false growth based not upon the natural increase in goods and services commensurate with the slow natural increase of the gold and silver supply, but upon the rapid and unconstrained explosion of debt.
To manage this problem and perpetuate the illusion that economic growth is based on growth in value and not debt, the U.S. government uses the authority granted to itself under the Exchange Stabilization Fund to intervene in every commodity market anywhere in the world and manipulate prices to its advantage. In this endeavor it is helped by various organizations, most importantly The Bank of International Settlements (BIS), the world’s most powerful, secretive and lawless bank. When it was formed after World War I, the BIS was granted the privilege by its founding governments of operating beyond the laws of any government or international body so it could do pretty much whatever it pleased. And while the BIS has made much noise in recent years of bringing stability to a banking system which is now in almost infinite debt and at great risk of collapsing from a variety of problems, there is much reason to question whether a totally unaccountable institution that sits at the apex of the global economy and puts its own growth and power at the top of its priorities, really has the best interest of the rest of the world at its heart. After all, a planet full of people who are poor, hungry, and continually distracted by war, racial tensions, despair and fear of being “cancelled” by governments that electronically monitor their money and their movements, is a great place to be for those who crave ultimate wealth and total control.
BASEL lll – Cure or More Snake Oil?
In the wake of anticipation that the BASEL lll banking rules for gold put forth by the BIS may finally end paper manipulation of the gold markets and thus allow gold to rise to the value that truly free markets would give it, Chris Powell of GATA puts forth an interesting perspective that this may NOT be the intent of the BIS and BASEL lll at all, In fact, he makes a plausible case that the Bank of International Settlements may be faking out gold analysts and the public by creating the illusion of free markets once again. Behind the scenes, though, it may be using its vast powers to actually protect the paper games under its nearly impenetrable cloak of secrecy. It this is the case – and it wouldn’t be inconsistent with the interests of either the U.S. government or the BIS itself – then gold investors are going to be in for a fresh and even deeper fight to free the gold market and expose the gold and paper money price frauds for what they truly are.
The practical consequences of allowing the gold price suppression scheme to continue include the continued erosion of the middle class; intensification of class, racial and intergenerational warfare; the unabated growth of both the welfare and warfare states, and the final, giant, shuddering, thundering collapse of the entire global economy when the charade can simply no longer be maintained. This collapse may be close to an extinction level event for humanity, and, if effectively mandated by BIS policy, is likely to overshoot the “prison planet” dreams of its leadership and bring down even the BIS itself. A deeply chilling thought, but I don’t expect the people of such cold arrogance as BIS bankers to consider that they could ever possibly fly too close to the sun.
With those thoughts in mind, I now turn to the GATA article authored by Chris Powell, for your consideration. Many thanks to Chris for thinking deeply about this issue, and giving us a heads up on what to watch out for as the Basel lll banking rules rush closer to taking effect. If you invest in gold (or silver) ETF’s, make sure to turn any unallocated positions you may hold into allocated positions, and demand delivery of the metal you paid for. As the old saying goes, ‘if you don’t hold it, you don’t own it”. And if you hold physical, reserve judgment as to what the pricing will be at any time in the future, but do not lose long term hope! Gold and silver are ultimately the only ways to keep your wealth outside of the banking system and the clutches of hungry and desperate governments. Also, the fight to free the precious metals markets has taken a dramatic upswing in just the last few months, with various groups including GATA, WallStreetSilver (follow them on Reddit or Twitter), and Arcadia Economics (www.arcadiaeconomics.com) converging to bring that fight to the sources. In the end, gold and silver are truth, and truth always wins. Just don’t be lulled into believing that the worlds’ most corrupt institutions have your best interests at heart, and prepare accordingly.
And with that, I present Chris Powell’s most interesting and thought-provoking column in its entirety here. I hope you enjoy and find his ideas worth considering.
Why Basel lll Might Not Bring and End To gold Price Suppression (authored by Chris Powell of GATA)
“Much hope has been engendered in the monetary metals sector by the “Basel 3” banking regulations being recommended to the world by the Bank for International Settlements, since the regulations might make prohibitively expensive the business of unallocated or “paper” gold — the business of creating vast supplies of imaginary gold for price suppression purposes. The regulations are said to be taking effect in Europe at the end of June and likely in the United Kingdom, the headquarters of bullion banking, at the end of the year.
The conclusion that the Basel 3 rules will smash the “paper” gold system is drawn not just by advocates of liberating the gold market from price suppression but also by the proprietors of the “paper” gold business themselves, the London Bullion Market Association and the World Gold Council, which the other day issued a panic-striken public protest:
But even if this interpretation of the Basel 3 rules is correct, Basel 3 might not necessarily stop gold price suppression by governments and central banks.
The LBMA banks create the “paper” gold for price suppression purposes and provide camouflage for central bank interventions. In exchange the LBMA banks have been essentially underwritten in their gold dealings by certain central banks that arrange gold swaps and leases for them. These interventions can’t work as well without such camouflage. For if central banks had to intervene directly and openly to control the gold price and protect their currencies, intervention would be visible and more easily defeated by the market.
That openness is what helped collapse of the London Gold Pool in March 1968 —
https://en.wikipedia.org/wiki/London_Gold_Pool
— and is why the secret March 1999 staff report of the International Monetary Fund warned against requiring central banks to disclose their gold swaps and leases — disclosure would expose their interventions, and their interventions wouldn’t work very long if they couldn’t deceive the markets:
https://www.gata.org/node/12016
But central banks probably could find mechanisms other than the LBMA for creating “paper” gold and imaginary supply. Indeed, even in the era of the gold standard governments didn’t back their currencies with gold at a 100 percent ratio. They managed with gold coverage of well less than 50 percent, trusting that responsible monetary and fiscal policy would suppress demand — and they were right. That is, the gold standard itself was a fractional-reserve gold banking system, though its coverage level was far higher than it is in today’s gold banking system, where there may be as many as 90 or 100 claims to every ounce of gold.
So central banks hoping to continue gold price suppression might exempt their banks or certain of their banks from the Basel 3 rules on gold. These exemptions might be kept secret, and such banks might get secret government guarantees. With such guarantees, these banks might function perfectly well while providing camouflage for interventions.
Of course this would be fraud, but the whole system is already a fraud, As early as 1961 Federal Reserve officials were secretly proposing falsifying U.S. government records to facilitate manipulation of the gold market:
https://www.gata.org/node/7096
Or, since the Basel 3 rules would choke the bullion bank business in “paper” gold by requiring those banks to hold enormous collateral against their “paper” gold obligations, perhaps central banks engaging in gold price manipulation could simply supply that collateral to the bullion banks via huge cash deposits, thereby relieving Basel 3’s increased costs to the banks. After all, central banks have no trouble creating money. They just “type it in” and wire it out and are perfectly able to deploy it in secret, even in nominally democratic countries like the United States.
This week GoldMoney’s outstanding analyst Alasdair Macleod wondered aloud if the BIS really knows what it’s doing to the gold market with Basel 3:,potentially destroying the fractional-reserve gold banking system:
https://www.gata.org/node/21170
If the BIS didn’t know when devising the new rules, it surely knows now because of the anguished protest from the LBMA and/ WGC. But it is hard to imagine that the BIS didn’t contemplate such an impact from the start. After all, as GATA consultant Robert Lambourne long has shown, the BIS is a key player in the gold market, a gold broker for central banks helping to manage their interventions every day, and a crucial part of their camouflage:
https://www.gata.org/node/21154
Besides, Basel 3’s rules for gold banking are entirely sensible for their recognizing that “paper” gold creates huge systemic risk for the international banking system. One big buyer of physical gold — a sovereign or even an ordinary billionaire, might crash the system by purchasing and taking delivery of enough real metal, since all the bullion banks are terribly short, are connected by their derivatives, and might be pulled down together. Averting such a systemic collapse by helping bullion banks cover their huge short positions as the gold market reversed upward seems to have been the purpose of the Bank of England’s strange gold-selling program in 1999:
https://en.wikipedia.org/wiki/Sale_of_UK_gold_reserves,_1999%E2%80%932002
The Bank of England lost a fortune for the United Kingdom by selling so much of its gold reserves at the bottom of the market, but it accomplished something considered much more important than the national interest: It saved the banks.
So Basel 3’s rules for gold banking prompt questions about the BIS’ underlying intent.
— Is BIS’ gold policy now being set by a majority of directors from countries that are sick of U.S. dollar imperialism, the increasing “weaponization” of the dollar, and want to weaken the world reserve currency to diminish U.S. power?
— Are the Basel 3 gold rules an attack by European Union members on London bullion banks in resentment of the United Kingdom’s withdrawal from the EU?
— Are the Basel 3 gold rules meant to precipitate the sort of resetting of the international financial system envisioned years ago by the U.S. economists Paul Brodsky and Lee Quaintance and the Scottish economist Peter Millar, a resetting in which currencies and debt are devalued but governments are reliquified against their debts by assigning much higher values to their gold reserves?:
https://www.gata.org/node/11373
https://www.gata.org/node/4843
Various interests are likely in play here. Since mainstream financia l news organizations don’t dare to do serious journalism about central banks and gold, outsiders can only speculate about what is happening in that snakepit.
It all may evoke the legend about the Congress of Vienna, which in 1814 aimed to redraw Europe’s borders after the Napoleonic wars. Understanably enough, the congress was rife with intrigue. Supposedly one day an aide visited the Austrian foreign minister, Klemens von Metternich, and reported: “My Lord, the Russian ambassador has died.”
Metternich supposedly answered: “Hmmm. … I wonder what his motive was.”
Since central banking is conducted in secret, at least we can be sure that nobody’s motives here are good.
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
CPowell@GATA.org
Economics Watchdog 