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Intervention may best explain anomalies in the gold market

By: Chris Powell

 -- Published: Tuesday, 3 April 2018 | Print  | Disqus 

Dear Friend of GATA and Gold:

In an essay at the Monetary Metals blog headlined "Backwardation, the Bank of England, and Falling Prices" --

-- the firm's vice president of operations, Bron Suchecki, offers an explanation of one of the anomalies of the gold market, backwardation (when prices for immediate or spot delivery are higher than prices for future delivery) happening while prices generally are falling. For backwardation usually indicates supply shortages, difficulty meeting demand.

Suchecki writes: "However, in the case of gold, the fact that the stock of gold above ground is equal to over 60 years' worth of mine production means that gold is not a typical commodity and cannot really ever be in shortage."

Of course Suchecki is right that gold, unlike other commodities, like oil and wheat, is hoarded rather than consumed. But what if unbacked paper claims equal to a thousand years of gold production have been issued and demands for delivery of those unbacked claims suddenly increase?

Of the smash of the gold price in April 2013, Suchecki writes: "The falling forward (basis) rate indicated that it was futures prices which were falling faster than spot, closing the gap, until futures fell below spot, giving us negative Monetary Metals GOFO. The driver for this behavior is the leverage inherent in futures contracts: Futures traders are under more pressure to liquidate positions, once they move against them, than those holding fully paid physical (spot) gold."

But what if in April 2013 futures positions were not being liquidated by ordinary traders at all but, instead, governments and central banks were using their power of infinite money creation to dump many more unbacked paper claims on the gold market to frighten non-official-sector holders of gold into selling both their futures and physical positions, whereupon central banks could cover their short positions at a profit or at least knock down physical demand, thereby protecting their currencies and government bonds?

Central bank and government archives are full of official plans and speculation about selling gold to suppress prices or spook the market. Further, the records of the U.S. Securities and Exchange Commission and Commodity Futures Trading Commission and CME Group, operator of the major U.S. futures exchanges, show that in recent years central banks and governments have been secretly trading all commodity and financial futures contracts in the United States:

GATA long has argued these points:

1) Formulas and charts about monetary metals prices and indeed all commodity and financial futures prices are of limited value without knowledge of what central banks and governments are doing in the markets.

2) If central banks and governments, creators and allocators of infinite money, are secretly trading markets, there really are no markets at all, just interventions.

3) The gold market analysis business suffers an amazing lack of curiosity about what governments and central banks are doing in the market.

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

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Tuesday-Friday, April 3-6, 2017
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