The Coordinated Effort To Suppress The Gold Price

by Gold Silver Worlds

In this two part interview, financial journalist Lars Schall looks at some specific topcis from Dimitri Speck’s book “The Gold Cartel.” The book appeared in November of this year in English and is available at MacMillan andAmazon. “The Gold Cartel is a brisk, articulate and convincing read. Even so, it remains extremely sound. A miracle!” – Professor Heinz Christian Hafke, former German Bundesbank Director.

The major topic of the book is about the suppression of the gold price. Based on the research of Dimitri Speck, three distinct phases are visible.

Phase 1 ranges from 1993 to 1996. Central banks have kept the gold price below $400 by leasing gold from central banks to bullion banks. The result is that gold reached the market, having the same effect as gold selling in the market.

Phase 2 started in 1996 and lasted till 2001. In that period, the interest was mainly for bullion banks to benefit from falling gold prices

Phase 3 started in May 2001 and goes on till today. One of the drivers was Greenspan who decided that he could not keep the gold price at that low level, but, simultaneously, the gold price rise should be controlled. That is also what happened since then by central banks through COMEX price manipulation and “price shocks” mainly during the London PM fixing.

The following chart shows the reduced amount of lending of gold since 2001, an important driver of the gold price since 2001.

 

Motives

There are two motives to manipulate the gold price, according to Dimitri Speck. The first one is to reduce inflation expectations. In 1993, during an FOMC meeting, Alan Greenspan revealed his thoughts by saying that “gold is a thermometer,” an indicator of danger of inflation. A rise in the price of gold would change the psychology of market participants. At that specific time (1993), an increase of interest rates would hurt the economy so a suppressed gold price was a psychological measure to lower inflation expectations.

The other motive is to lower long term yields of bonds by stimulating the demand for bonds. The rationale is that if gold does not rise, bonds would be favoured.

Other motives include a desire for a strong dollar, apart from an interest of central banks and the banking industry to keep the faith in their services.

The close of the “gold window”

1971 is mostly associated with the end of Bretton Woods, or the end of the gold standard and the start of pure credit money. Dimitri Speck notes that the gold standard only existed within the central banking system; normal citizens could not convert their dollars in gold.

In reality, however, the gold window closed already in 1967. The US was running deficits in the 60ies (because of wars). At the same time, several exporting countries (including Japan and Germany) had the choice to get paid in dollars or in gold. In 1967, the German Bundesbank confirmed by means of was later called the “blessing letter” that they would continue to accept dollars instead of gold. That was not only a blessing to the US, but also to the credit money system. The letter stated that if every central bank would apply their choice, the world could run endless deficits.

Gold’s outlook

The reason why the long term outlook for gold is positive is based on our financial system. The stability of the system is at risk. Debt has exploded in the last decades. Gold is the direct competitor of debt. Savers are already losing money in real terms. That is the reason why gold should rise long term. Gold owners will stabilize the purchasing power of its owner in real terms.

Gold has a double face. Apart from the protection against negative real rates, it also offers protection against bank or government defaults. There is no credit money risk associated with gold in case a bank or government would go bankrupt; by contrast, gold offers protection. With the debt crisis raging across the world, this lack of government and banking counterparty risk should not be underestimated.

In terms of the “end game,” Dimitri Speck says that the debt decrease is by default deflationary. He sees three possible scenarios playing out:

1. Although not very likely, there is a chance that governments will aim for asset price deflation for some years possible, comparable to what has happened in Japan in the last two decades. That is unlikely because of several reasons, both political and fiscal.
2. Another potential scenario, also unlikely, is one of high taxes, negative real rates, financial repression, like in Britain after World War II. The freedom of people would be considerably deprived, which makes it unlikely from a political point of view.
3. The most likely scenario is one comparable to the current Japan: suppress deflation, stimulate slight inflation while avoiding strong inflation. In this scenario, Dimitri Speck believes that the velocity of money will increase, savers will gradually step out of the banking system, and inflation will occur both in asset and consumer prices. Gold is the best hedge in such a scenario.

Dimitri Speck is a quantitative asset manager, trading system developer and gold market analyst from Munich, Germany. He specializes in pattern recognition of charts. As part of this activity he came across an anomaly in the gold price, and he was ultimately able to demonstrate systematic interventions in the gold market since August 1993. Speck is also a consultant to the US-based Gold Anti-Trust Action Committee, GATA.

Speck is responsible for the Stay-C commodity fund that won the Hedge Fund Journal’s award as best European commodity fund. His two investment funds, a stock fund and a commodity fund, have considerably outperformed the market since its inception. Moreover, he is the founder and editor of the website “Seasonal Charts”, where accurate daily seasonal charts are illustrated. He is a well-known expert on precious metals investment analysis, and he has been interviewed for a number of investment letters and websites and has spoken at industry events on the topic.

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