By Jim Rickards and Daily Bell
The Fix is In: Why Gold Price Manipulation is Now a Global Effort … A lot of people think about gold as a percentage of total reserves. So countries have reserves. What percentage of your reserves consist of gold? For example, a lot of people are surprised to learn that the United States has 70 percent of its reserves in gold. China has about 1 percent of its reserves in gold. So people look at that and think that’s the imbalance. But that’s not a very meaningful figure in my view … So the price is being suppressed until China gets the gold that they need. Once China gets the right amount of gold, then you can take the cap off. If it doesn’t matter where gold is because all the countries will be in the same boat. But, right now, they’re not, so Chinese has this catch-up. – Jim Rickards/Daily Reckoning
Dominant Social Theme: Gold is not manipulated and is increasingly irrelevant.
Free-Market Analysis: Jim Rickards’s column, excerpted above, has created a stir among alternative media commentators. GATA’s Chris Powell posted a column of his own, commenting on it favorably. Of course, GATA has devoted many years to exposing gold (and silver) manipulation, so Rickards’s column at Daily Reckoning supports GATA’s thesis.
In the column, Rickards to a degree is reprising a larger theme that his 2014 book, The Death of Money, relates. We would tend to agree with this theme, which is that the world’s monetary economy has become so unstable that some sort of global “reset” is necessary.
Here’s more from the column:
Gold never went away. It was officially demonetized by the IMF in 1975. The U.S. ended the convertibility of gold in 1971. So gold disappeared officially in stages in the mid-1970s. But the gold never went away.
The US has about 8,000 tons. We haven’t sold a significant amount of gold since 1980. We dumped a lot of gold in the late ’70s to suppress the price, but none after that. We’ve held onto the gold. So one of my questions for central bankers is, if it’s such a ridiculous thing to have, why are we hanging onto it? But that’s a separate question.
So the point is, China does not have enough gold to have a seat at the table right now. Think of it as a game of Texas Hold’em. What do want in a poker game? You want a big pile of chips. Gold are gonna be your chips. It doesn’t mean that you automatically have a gold standard, but the gold that you have will kind of give you your voice at the table.
For example, Russia has one-eighth the gold of the United States. It sounds like they’re a small gold power, but their economy’s only one-eighth as big. So they have about the right amount of gold. The U.S. gold reserve at the market is about 2.7 percent of GDP. That number varies because the price of gold varies, but it’s about 2.7 percent. For Russia, it’s about 2.7 percent. But Europe, it’s even higher. It’s over 4 percent. That’s one of the reasons I’ve been very bullish on the euro and continue to be.
China, that number’s 0.7 percent officially. Unofficially, if you give them credit for having, let’s say, 4,000 tons, it gets it up to the US-Russia level, but they want to actually get higher than that because their economy is growing.
So here’s the problem: If you took the lid off and ended the gold price manipulation and let gold find its level, China would be left in the dust.
All of this is quite specific – and such specificity provides more room for misdiagnoses. Of course, we’re attracted to Rickards’s larger set of ideas because we see the same signs he does.
There is reportedly something like a thousand trillion dollars in derivatives in force now and we’re supposed to believe that these instruments are impermeable to a “meltdown.” But the history of modern finance – of any finance – shows us this simply isn’t true.
There is no financial instrument in the world that has not disappeared over time (with the exception of gold and silver) and usually catastrophically. This massive derivatives market receives little coverage in the mainstream media, mostly because the absurd number of notional derivatives, if considered seriously, would lead one to conclude that the current system is finished.
And Rickards accepts that, as GATA does – along with many others – and has come up with a theory as to how this catastrophe is going to occur and why gold will once again be the dominant form of money.
Many would argue that gold is the dominant form of money anyway. But in the 20th and 21st centuries, the larger banking establishment has preferred to promote a free-floating fiat standard that gives bankers a good deal more monetary latitude.
Rickards and many others see this regime as coming to an end. It has been marked by extreme profligacy and the ascent of the US dollar. But as this latest fiat standard subsides, it is Rickards’s contention (not alone) that the dollar will fail as well.
In its place some sort of gold standard may return. We’ve speculated similarly; however, we simply don’t believe that a global currency will necessarily be restricted to gold. The most likely or at least reasonable alternative seems to be a basket of fiat currencies that may include gold.
We’re sympathetic to Rickards’s larger hypothesis in the most general sense because we have also come to the conclusion that the world’s financial officials at the topmost levels are more apt to work together than not.
The Bank for International Settlements supervises all the major central banks from what we can tell, and the idea behind the BIS is that monetary policy ought to be coordinated. It is not therefore rash to conclude that monetary policy IS coordinated among the world’s largest central banks.
And this means that some sort of plan is in force. One doesn’t coordinate without a plan.
But just like the derivatives markets, people can’t seem to conceive that the world’s financial markets are subject to planning. But according to quite widely disseminated literature from the BIS and elsewhere, they are …
We’re not sure if gold is being divvied up deliberately according to some preconceived agreement that has never been reported on. But we’ve noted in the past that BRICs economies have done considerably better in the past decade than Western economies.
We’ve questioned ourselves if that is a coincidence or if the world’s nation-states are in a sense being “leveled out” industrially so that closer and closer global cooperation can be achieved.
None of this seems farfetched to us given the manipulation (overt and covert) of financial markets and instruments in the modern era, especially after World War II.
We’re not prepared to comment on the accuracy of Rickards’s analysis or predictions except to say that like him we see gold (and silver) as being abiding factors in any future economic plan or design.
From a monetary standpoint, gold and silver have never gone away, as Rickards himself points out. Their value reoccurs even as other forms of money diminish and disappear. We would therefore expect rationally that any future monetary system would make allowances for gold and silver, especially gold.
One way or another, precious metals will continue to be factors in the global economy. As for the rest of it, we’re not clearer about the timing than you are, dear reader. In fact, this is why we’ve paid special attention to the Wall Street Party that could diminish this year, or continue onward and upwards for several years more.
As always, the timing is difficult to analyze, but the larger pattern seems clear.
Gold price manipulation is now a global effort to appease China
By Jim Rickards
Gold price manipulation is now a global effort to appease China
Submitted by cpowell on 12:03PM ET Tuesday, January 20, 2015. Section: Daily Dispatches 3:28p ET Tuesday, January 20, 2015
In May 2006 the economist R. Peter W. Millar of Value-Trac Research in Scotland published a study, “The Relevance and Importance of Gold in the World Monetary System,” arguing that central banks would need to revalue gold upward by from seven to 20 times “to raise the monetary value of the world monetary base and hence reduce the burden of debt” and avert a deflationary depression. GATA published that study here:
In May 2012 the U.S. economists and fund managers Paul Brodsky and Lee Quaintance postulated that central banks were suppressing the gold price while surreptitiously redistributing the world’s gold among themselves in preparation for a resetting of the world financial system and a substantial upward revaluation of the monetary metal.
Brodsky and Quaintance wrote: “The key to a successful transition is a credible monetary reset. Gold is the default collateral for money because it has a long and established precedent in this role.
“All that would be needed would be a fairly equitable distribution of gold among global monetary authorities (taking place now?), and an agreed-upon exchange rate vis-a-vis baseless paper. It would have to be an exchange rate at which central banks could successfully monetize assets by tendering for physical gold with newly manufactured paper money, an exchange rate high enough to attract enough gold to cover unreserved credit held in the banking system. It’s a high figure.
“The relative cost of holding physical gold today is minimal (above-ground bullion or in-ground bullion through mining shares), against the negative real returns offered by the preponderance of financial assets in float.
“We suggest that one keep identities straight; invest with central banks, not against them; and consider as a gift the hollow rhetoric of the establishment that may temporarily suppress gold’s paper price. They are working for physical gold holders, not against them.”
GATA published the Brodsky-Quaintance study here:
In November 2013 your secretary/treasurer speculated that China and the United States were probably working together to control the gold price so China could gradually hedge its insane U.S. dollar surplus against the dollar’s inevitable devaluation, and that China was almost certainly complicit in the gold price smash of April 2013:
Now investment banker and geopolitical strategist James G. Rickards, writing for the Daily Reckoning, comes to a similar conclusion as he promotes his new financial letter, “Strategic Intelligence.”
Rickards writes: “If you took the lid off and ended the gold price manipulation and let gold find its level, China would be left in the dust. It wouldn’t have enough gold relative to the other countries, and because their economy is growing faster and because the price of gold would be skyrocketing, they could never acquire it fast enough. They could never catch up. All the other countries would be on the bus. The Chinese would be off the bus. …
“So the global effort is to keep the lid on the price through manipulation, which is very obvious. I tell people, if I were running the manipulation, I’d be embarrassed because it’s so obvious at this point.
“So the price is being suppressed until China gets the gold they need. Once China gets the right amount of gold, then you can take the cap off. It doesn’t matter where gold is because all the countries will be in the same boat. But right now they’re not, so China has this catch-up.”
Rickards’ commentary is headlined “Gold Price Manipulation Is Now a Global Effort” and it’s posted at the Daily Reckoning here:
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.