Friday, August 29, 2008

Price Manipulation Wars

I must say that I don't really agree with these guys, but this is an interesting article by Mike Shedlock (Mish) which includes a message from Jon Nadler of Kitco. At issue is all the recent talk about price manipulation in metals. There is a lot of hate between these "mainstreamist contrarians" and regular (or as I like to think, rational) contrarians like Ted Butler, Jim Sinclair, James Turk and GATA. And the hostility goes in both directions as is evident in this article.

The real truth of the matter is that physical gold possession is all that matters. Possession of your money is what will keep you whole and carry you through this gathering storm. And that is only on an individual level. It is hard for hedge funds to benefit by accumulating piles of physical gold. In fact, it's hard for any group of people or non-individual entity to secure itself through physical gold.

If you don't hold the physical gold yourself, you don't really own it. You own a promise. Trust is involved and trust can be broken. Only true personal possession qualifies as a final payment for your hard work. Anything else is one or more steps away from your final payment.

With those principles in mind, Mish's article makes some sense. In the world of hedge funds and pools of many people's money, often the paper markets for metals are considered the next best thing to owning physical, which is really a game for individuals. But the reality is that paper promises carry only the intrinsic value of the paper itself, which is zero. The additional, temporary value is based on a promise which requires trust.

And when you consider that all the paper promises of the COMEX add up to more gold than exists in the marketplace, trust becomes a rubber band stretched very thin, and the promises carry the ultimate promise of an eventual default. So who can blame the hedge funds for dumping their paper gold for any number of reasons. Perhaps they had margin calls on their other losses and needed to raise cash by selling the only thing they still had with value left in it. Perhaps they saw the dollar rally coming and wanted to make a quick profit in it. Or perhaps they are losing trust in the promise.

Whatever the reason, I'm sure it is perfectly logical, just like Mish and Nadler say it is. I do, however, believe that manipulation is occurring in these paper markets. It was going on before the Great Depression in a very open environment. And it goes on now within the current rules. And it doesn't require, as Mish and Nadler put it, a massive conspiracy.

In fact, in that article the word conspiracy appears ten times. And of those, it appears as "conspiracy theorist" three times. Other "endearing" terms that appear are "conspiracy quacks", "conspiracy fairy tales" and "drivel". And all this from people who are supposedly on the same side of the dollar/gold issue as us physical gold advocates. It makes you wonder, doesn't it?

There was also a great rebuttal of this article today from Chris Powell of GATA, the Gold Anti Trust Action Committee. If you read the first article, you must now read this one.

And for anyone reading this who is confused by the rising dollar right now, and the flagging price of gold, please watch this video. It is a documentary about the Great Depression. It was made in the mid-90's, so the parallels you see to right now are not intentional from the filmmakers, they are simply "baked into the story". In early spring of 1929 there was a crash, then months later a significant rally, then in October the final crash which left 10 years of misery in its wake. It is an amazing story, and it makes me want to sell all of my stocks right now, while I still can... and buy gold!

Addendum: Chris Powell just made this funny post on USAGold:

August 29, 2008
Chris Powell ( 29August2008; 19:18)
CNBC Europe manages to spell ‘gold manipulation’ right
9:10p ET Friday, August 28, 2008

Dear Friend of GATA and Gold:

Somehow the issue of manipulation of the gold market made its way onto CNBC Europe today as the business channel interviewed Evy Hambro, portfolio manager for BlackRock Investment Management in London, and Jill Leyland, an analyst for the World Gold Council.

The program was terribly clumsy with the facts, as the moderator announced that the U.S. Commodity Futures Trading Commission had issued a report suggesting that the gold market had been manipulated by certain banks. Actually, of course, the recent disclosures about the unprecedented concentration in short positions in gold and silver on the U.S. commodities exchanges came from GATA consultants Ted Butler and Rob Kirby, not from the CFTC, though Butler and Kirby might be glad to accept appointment to the commission. And another CNBC interviewer talked about world gold supplies of “500 million tonnes,” when the best estimate of all the gold ever mined is less than 170,000 tonnes. (The interviewer probably was thinking of the 500-tonne annual sales limit imposed on the parties to the Washington Agreement on Gold.)

But at least CNBC Europe managed to spell “gold manipulation” right, reported the shortage of U.S. gold eagle coins, and allowed Hambro to remark with British understatement that recent reversals in several markets, not just gold, were hard to explain. And Leyland’s curt assurance that nothing possibly could be wrong in the gold market might have struck impartial observers as a little smug and arrogant.

As it turned out, the manipulation issue was only raised on the program; the program did not cite a single piece of evidence, apart from the misattribution to the CFTC of the work of Butler and Kirby. But maybe the network was expecting everybody to have the wit to look for the evidence at

The CNBC Europe program is 7 1/2 minutes long and you can watch it at the CNBC site here:

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

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