In
two recent articles we explained the hows and whys of gold price manipulation.
The manipulations are becoming more and more blatant. On February 6 the prices
of gold and stock market futures were simultaneously manipulated.
On
several recent occasions gold has attempted to push through the $1,270 per
ounce price. If the gold price rises beyond this level, it would trigger a
flood of short-covering by the hedge funds who are “piggy-backing” on the
bullion banks’ manipulation of gold. The purchases by the hedge funds in order
to cover their short positions would drive the gold price higher.
With
pressure being exerted by tight supplies of physical gold bars available for
delivery to China, the Fed is growing more desperate to keep a lid on the price
of gold. The recent large decline in the stock market threatened the Fed’s
policy of taking pressure off the dollar by cutting back bond purchases and
reducing the amount of debt monetization.
Thursday,
February 6, provided a clear picture of how the Fed protects its policy by
manipulating the gold and stock markets. Gold started to move higher the night
before as the Asian markets opened for trading. Gold rose steadily from $1254
up to a high of $1267 per ounce right after the Comex opened (8:20 a.m. NY
time). The spike up at the open of the Comex reflected a rush of
short-covering, and the stock market futures looked like they were about to
turn negative on the day. However, starting at 8:50 a.m., here’s what happened
with Comex futures and S&P 500 stock futures:
At
8:50 a.m. NY time (the graph time-scale is Denver time), 3,225 contracts hit
the Comex floor. During the course of the previous 14 hours and 50 minutes of
trading, about 76,000 total April contracts had traded (Globex computer system
+ Comex floor), less than an average of 85 contracts per minute. The 3,225
futures contracts sold in one minute caused a $15 dollar decline in the price
of gold. At the same time, the stock market futures mysteriously spiked higher:
As
you can see from the graphs, gold was forced lower while the stock market
futures were forced higher. There was no apparent news or market events that
would have triggered this type of reaction in either the gold or stock market.
If anything, the trade deficit report, which showed a higher than expected
trade deficit for December, should have been mildly bullish for gold and
bearish for the stock market. Furthermore, at the same time that gold was being
forced lower on the Comex, the U.S. dollar index experienced a sharp drop in
price and traded below the 81 level of support. The fall in the dollar is
normally bullish for gold.
The
economy is getting weaker. Fed policy is obviously failing despite recent
official pronouncements that the economy is improving and that Bernanke’s
monetary policies succeeded. A just published study by Jing Cynthia Wu and Fan
Dora Zia concludes that the positive impact of the Federal Reserve’s policy of
quantitative easing is so slight as to be insignificant. The multi-trillion
dollar expansion in the Federal Reserve’s balance sheet lowered the
unemployment rate by little more than two-tenths of one percent, raised the
industrial production index by 2 percent, and brought about a mere 34,000
housing starts. http://econweb.ucsd.edu/~faxia/pdfs/JMP.pdf
The
renewal of the battle over the debt ceiling limit is bullish for gold and
bearish for stocks. However, with the ongoing manipulation of the gold price
and stock averages via gold and stock market futures, the normal workings of
markets that establish true values are disrupted.
A
rising problem for the manipulators is that the West is running low on gold
available for delivery to China and other Asian buyers. In January, China took
delivery of a record amount of gold. China has been closed since last Friday in
observance of the Chinese New Year. As China resumes purchases, default on
delivery moves closer.
One
way for the Fed and bullion banks to hold off defaulting on Chinese purchases
is to coerce holders of gold futures contracts to settle in cash, not in
delivery of gold, by driving down the price during heavy Comex delivery
periods. This is what likely occurred on Feb. 6 in addition to the Fed’s
routine price maintenance of gold.
As
of Thursday’s (Feb. 6) Comex report for Wednesday’s (Feb. 5) close, there were
about 616,000 ounces of gold available to be delivered from Comex vaults for
February contracts totaling slightly more than 400,000 ounces, of which
delivery notices for 100,000 ounces were given last Wednesday night. If the
holders of the other 300,000 contracts opt to take delivery instead of cash
settlement, February contracts would absorb two-thirds of Comex gold available
for delivery.
The
Comex gold inventory has been a big source of gold shipments from the West to
the East, resulting in a decline of the Comex gold inventory by over 4 million
ounces–113 tonnes–during the course of 2013. We know from reports from Swiss
bar refiners that the 100 ounce Comex gold bars are being received by these
refiners and recast into the kilo bars that the Chinese prefer and shipped to
Hong Kong. With the amount of physical gold in Comex vaults rapidly being
removed, the Fed/bullion banks use market ambush tactics such as those we
describe above to augment and conserve the supply of gold available for
delivery.
Readers
have asked if gold can continue to be shorted on the Comex once no gold is left
for delivery. From what we have seen–the fixing of the LIBOR rate, the London
gold price, foreign exchange rates, the price of bonds and the manipulation of
gold and stock market futures prices–we don’t know what the limit is to the
ability of the Fed, the Treasury, the Plunge Protection Team, the Exchange
Stabilization Fund, and the banks to manipulate the markets.
Paul
Craig Roberts is a former Assistant Secretary of the US Treasury for Economic
Policy. Dave Kranzler traded high yield bonds for Bankers Trust for a decade.
As a co-founder and principal of Golden Returns Capital LLC, he manages the
Precious Metals Opportunity Fund.
http://www.paulcraigroberts.org/2014/02/07/market-manipulations-become-extreme-desperate/
Copyright
© Paul Craig Roberts 2014- Please contact us for information on syndication
rights.
This
site offers factual information and viewpoints that might be useful in arriving
at an understanding of the events of our time. We believe that the information
comes from reliable sources, but cannot guarantee the information to be free of
mistakes and incorrect interpretations. IPE has no official position on any
issue and does not necessarily endorse the statements of any contributor.
Disclaimer: This
article was posted with the permission of a third-party contributor
and the opinions contained therein do not necessarily reflect
those of Smallcappower. Smallcappower does not endorse any investment
advice provided by these third-party contributors. Please consult
your investment advisor before making any investment decisions.
Ubika
Corporation and its divisions Smallcappower, Ubika Communication and Ubika
Research are not registered with any financial or securities
regulatory authority in Ontario or Canada, and do not provide nor claims
to provide investment advice or recommendations to any visitor of this site or
readers of any content on this site. – See more at: http://www.smallcappower.com/posts/small-cap-power-disclosure#.UoJQkZEq_vw
