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'Gold bugs' aren't the great concealers; central banks and financial journalists are

By: Chris Powell, Secretary/Treasurer, GATA

 -- Published: Monday, 12 October 2015 | Print  | Disqus 

Dear Friend of GATA and Gold:

MarketWatch columnist Brett Arends may win this year's award for the most disinformation in financial commentary about gold. His October 9 column, "Here's the Chart Gold Bugs Don't Want You to See" --

-- is misleading from top to bottom.

In the first place, while the gold business has its share of dishonorable people, the gold business is small and its dishonorable people are outnumbered a thousand to one by dishonorable people in government, central banking, and the stock, bond, and real estate businesses. And whatever a few "gold bugs" are hiding from the markets, it is trivial compared to what investment banks and central banks are hiding, about which Arends has yet to show any curiosity.

Arends displays a long-term chart of the price of silver in dollars to argue that silver has not done well since the U.S. government "stopped treating silver as money all the way back in 1873." That's incorrect. While the U.S. government ended free coinage of silver in 1873, it continued to issue silver certificates -- paper currency redeemable in silver -- until 1964 and to issue silver coins as general currency until 1965.

No one will dispute Arends' assertion that silver isn't worth as much today in real terms as it was in the days of free coinage, but here is something else in which Arends demonstrates no interest -- the U.S. government's determination to suppress silver's price since its demonetization by the Coinage Act of 1965. Signing the act, President Johnson himself proclaimed a policy of silver price suppression.

"If anybody has any idea of hoarding our silver coins," the president said, "let me say this. Treasury has a lot of silver on hand, and it can be and it will be used to keep the price of silver in line with its value in our present silver coin. There will be no profit in holding them out of circulation for the value of their silver content."

The president's statement is posted at the American Presidency Project pages of the Internet site of the University of California at Santa Barbara here:

The Treasury Department's silver stockpile is believed to have been exhausted since 1965 by dishoarding to suppress silver's price, but price suppression by dishoarding failed eventually. Contrary to Johnson's declaration, nearly all old U.S. silver coins were taken out of circulation by hoarders as silver's price rose far above the values imprinted on the coins.

As a policy of price suppression, dishoarding of silver seems to have been replaced by government-sponsored trading in monetary metal derivatives and high-frequency trading in the monetary metals futures markets.

That is, while Arends wants to track the silver price from 1873, he seems not to want his readers to judge the silver price since 1965, nor, more importantly, to inquire into the government's interference in the monetary metals markets in recent decades.

Arends acknowledges that the price of gold may not track the price of silver in the future.

He writes: "Today it is impossible to draw any serious conclusions about how gold 'will' perform during some future state of inflation, chaos, or disorder. That's because we have basically very little data about how gold will perform in a modern economic society in which it is not honored by the government as real money. ...

"Gold has little intrinsic value of its own. Jewelry -- that's about it. And so it's unclear why it should somehow still function as a store of value now that countries no longer accept it as money." He calls gold "completely useless."

Yet while central banks are prohibited by the rules of the International Monetary Fund to peg their currencies to a fixed value in gold, they continue to recognize gold as de-facto money. Major central banks still hold large gold reserves, and by their own reports central banks on the whole have become net purchasers of gold in recent years after years of being net sellers.

It's not really so strange that central banks do not reserve soybeans or pork bellies, just "completely useless" gold. For gold remains far more than jewelry; it still has the traditional characteristics of commodity money as well, characteristics the world saw as money's prerequisites for thousands of years before certain elites sought to change the rules for their own advantage a few decades ago: the characteristics of durability, portability, divisibility, and "intrinsic value" -- that is, value not just as jewelry but value independent of the value of other objects, or value without counterparty risk.

Arends continues: "This week it was considered news when the German Bundesbank apparently confounded its critics and threw open its vast holdings of gold bullion for all to see."

Of course the Bundesbank did no such thing. In fact, the Bundesbank refused to account for its purported gold holdings --

-- but Arends and other stooges for central banking predictably played along.

Arends concludes: "Without that completely useless yellow metal, the Germans would have nothing to fall back on but the productive power of their economy. Factories, engineers, scientists: What use are they? Lucky escape. Hmm. Or maybe the whole precious metal thing is just a load of nonsense."

"Nonsense"? Then why are the Bundesbank and other central banks holding so much gold and, more important, why are they so secretive about it?

Arends has no curiosity here either. All he can do is try to squash the powerless little "gold bugs." The real powers in the world, central banks, get a pass from him.

Actual journalism about gold would involve pursuing these questions:

-- Are central banks in the gold market surreptitiously or not?

-- If central banks are in the gold market surreptitiously, is it just for fun -- for example, to see which central bank's trading desk can make the most money by cheating the most investors -- or is it for policy purposes?

-- If central banks are in the gold market for policy purposes, are these the traditional purposes of defeating a potentially competitive world reserve currency, or have these purposes expanded?

-- If central banks, creators of infinite money, are surreptitiously trading a market, how can it be considered a market at all, and how can any country or the world ever enjoy a market economy again?

Documentation responsive to these questions can be found at GATA's Internet site here:

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

* * *

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