Ahh, it is good to be back.
I had a nice relaxing, electronic device-free, vacation over the last two weeks. I used the time to unwind, reflect, and attempt to pull back from the day to day grind. I used some of that time to read the book Gold Wars, by Ferdinand Lips http://www.amazon.com/Gold-Wars-Battle-Against-Perspective/dp/0971038007, as well as the book Gold Cartel by Dimitri Speck, at least up to chapter 11. I hope to finish that book soon, but alas, work beckons . . . . http://www.amazon.com/The-Gold-Cartel-Government-Intervention/dp/1137286423
I have many questions, still, despite that effort and diligence.
First, let us all put things in perspective.
Jeffrey Christian is loathed as an anti-gold bug elitist shill mouthpiece for the banksters. And then there are those that simply hate him.
Let us also add to this discussion our former friend Trader Dan, who, formerly, penned useful articles, but has of late, taken on the mantra that gold is not manipulated.
In terms of perspective, I read another book that seemed to jump into my hands as I strolled past the book counter at LAX. Was it the bright orange cover? Perhaps. Anyhow, the latest book from the Freakonomics authors is called Think Like a Freak http://www.amazon.com/s/?ie=UTF8&keywords=think+like+a+freak&tag=googhydr-20&index=stripbooks&hvadid=29976595047&hvpos=1t1&hvexid=&hvnetw=g&hvrand=15587879328649781155&hvpone=&hvptwo=&hvqmt=e&hvdev=c&ref=pd_sl_6mbj4l4zjm_e
I mention all three of these books, because each of them sets out in order, extremely useful facts, analysis, and a spectacularly useful mindset.
It is with this overlay that I offer up today’s post.
Let us all be clear on use of language. Specifically, I am referring to the word “manipulation.” There are pages of definitions, just type “manipulation defined” into any search engine, and voila, there you have it.
From Merriam Webster, here, http://www.merriam-webster.com/dictionary/manipulate, which I decided to use as the reference source because this was the dictionary I used in junior high school, I find the word “manipulate” is defined in use as a verb as follows:
ma·nip·u·late verb \m?-'ni-py?-?lat\
: to move or control (something) with your hands or by using a machine
medical : to move (muscles and bones) with your hands as a form of treatment
: to use or change (numbers, information, etc.) in a skillful way or for a particular purpose.
Full Definition of MANIPULATE
1 : to treat or operate with or as if with the hands or by mechanical means especially in a skillful manner
2 a : to manage or utilize skillfully
b: to control or play upon by artful, unfair, or insidious means especially to one's own advantage
3 : to change by artful or unfair means so as to serve one's purpose : doctor
— ma·nip·u·lat·able adjective
— ma·nip·u·la·tion noun
— ma·nip·u·la·tive adjective
— ma·nip·u·la·tive·ly adverb
— ma·nip·u·la·tive·ness noun
— ma·nip·u·la·tor noun
— ma·nip·u·la·to·ry adjective
See manipulate defined for English-language learners »
See manipulate defined for kids »
Examples of MANIPULATE
The baby is learning to manipulate blocks.
The mechanical arms are manipulated by a computer.
The doctor manipulated my back.
The program was designed to organize and manipulate large amounts of data.
He's always been good at manipulating numbers in his head.
As part of the experiment, students manipulated light and temperature to see how it affected the plants.
She knows how to manipulate her parents to get what she wants.
He felt that he had been manipulated by the people he trusted most.
The editorial was a blatant attempt to manipulate public opinion.
He's accused of trying to manipulate the price of the stock.
Origin of MANIPULATE
back-formation from manipulation, from French, from manipuler to handle an apparatus in chemistry, ultimately from Latin manipulus
First Known Use: 1834
Related to MANIPULATE
exploit, play (upon)
engineer, finagle, jockey, maneuver; beguile, bluff, cozen, deceive, delude, dupe, fool, gull, hoax, hoodwink, kid, shanghai, snow, take in, trick; intrigue, machinate, plot, scheme; arrange, contrive, devise, finesse, mastermind; cheat, chisel, con, defraud, fleece, gyp, hustle, swindle
botch, bungle, foozle, fumble, goof (up), louse up, mess (up), mishandle, muff, scamp
Understand what a transitive verb means:
A transitive verb has two characteristics. First, it is an action verb, expressing a doable activity like kick, want, paint, write, eat, clean, etc. Second, it must have a direct object, something or someone who receives the action of the verb.
Here are some examples of transitive verbs:
Sylvia kicked Juan under the table.
Kicked = transitive verb; Juan = direct object.
Joshua wants a smile from Leodine, his beautiful but serious lab partner.
Wants = transitive verb; smile = direct object.
Cornelius painted the canvas in Jackson Pollock fashion, dribbling bright colors from a heavily soaked brush.
Painted = transitive verb; canvas = direct object.
Alicia wrote a love poem on a restaurant napkin.
Wrote = transitive verb; poem = direct object.
Antonio eats lima beans drenched in brown gravy.
Eats = transitive verb; lima beans = direct object.
Pinky the poodle cleans the dirty supper dishes with his tongue before Grandma loads the "prewashed" items into dishwasher.
Cleans, loads = transitive verbs; dishes, items = direct objects.
So, “manipulate” as used in a sentence about Comex Gold, for example, as a transitive verb, would be something like this:
The banksters manipulate the price of gold on the Comex.
Manipulate = transitive verb; price of gold on the Comex = direct object.
As defined, then, the banksters are said to be “us[ing] or chang[ing] (numbers, information, etc.) in a skillful way or for a particular purpose,” by painting the charts.
Or, it could be that the banksters are, as Lips and Dimitri say in their books, “us[ing] or chang[ing] (numbers, information, etc.) [e.g., central bank gold] in a skillful way or for a particular purpose,” by participating in a rational business model whereby central bank gold is leased into the market to bullion banks [too big to fail banks like JPMorgan, etc.], which bullion banks act as intermediaries to gold miners, which gold miners then sell the leased gold generating revenue used to acquire equipment, test, and perform mining operations, following which the gold actually mined by the miner is returned to the bullion bank which bullion bank then returns the physical gold back to the central bank(s) from where it originated. Follow all that? It took awhile for me to get it, but that is the summation.
Let’s dig in deep to really understand this concept because it is CRITICAL. Remember, the central banks have huge stocks of gold. Basically, all gold ever mined is held somewhere, as opposed to having been consumed. Hence, to analyze gold and price, one must understand the concept that there are huge above-ground gold stocks, and this is important relative to the amount of gold mined in the aggregate in terms of annual mining output. Smart readers, like Spartacus Rex, would ask me now: Why?
Here is why: estimates vary, and no real precise numbers are available, but the central bank gold in total is measured in terms of DOZENS of years of annual gold mine output. This means that any central bank that leased out gold for purposes of affecting price can do so with abandon, because the amounts needed to be leased to affect price are but a small fraction of that which is held in storage. It totally makes sense now.
Even if paper gold represents leverage of 100:1, the central banks say “so what?! We can back that leverage with above ground stocks and there will never be a big enough run to catch us without enough supply!”
So, understanding this concept leads to the next: the scheme whereby bullion banks lease out their stored gold at a paltry rate, near zero, or as Mr. TF has found and discussed, below zero, in hopes of both earning a small profit from the leased gold, as well as the specific intent to influence gold pricing on the international markets for purposes of propping up the western fiat system.
Right there in the mix, naturally, are the too big to fail banks, the bullion banks. See, from my little understanding, the central banks do not have relationships with mining companies, nor do they trade futures directly. That business is done by the bullion banks acting as intermediaries between the central banks and the miners and markets. So, it goes like this: the central banks offer to lease some portion of gold to the bullion banks. It is but a small fraction of the central bank hoard. (As a side note, even if, as I believe, there is no gold in Ft. Knox, the scheme still works because it is all based on trust and paper gold inside a closed loop system. To the extent any actual physical gold needs to physically find itself leaving that closed loop, well, it seems there are snags in the banksters ability to gather a sufficient quantity. Witness Venezuela, Germany, etc. Also witness Libya who had their gold stolen. But for now, understand that the whole insider system is based on some actual hoard of gold, that does exist, is spread around the western banking system, in a form of a massive shell game, and will not collapse until every single bank vault is emptied and audited at the same time. Will that ever happen? Probably not, so this gives the banksters cover to move gold around, both on paper and physically, to perpetuate the scheme.)
The bullion banks agree to pay a paltry rate to the central banks in order to acquire a huge supply of gold, or alternatively get paid with a negative leasing rate, and take the gold (or paper gold, it matters not for this analysis) from the central banks. In exchange, the bullion banks give the central banks a promise to return the gold (or paper gold) to the central banks after a set period of time. So for now, let us just use one central bank, and one bullion bank to make this point clear. Imagine that the FED leases two million ounces of gold to JPM.
Now, we have an important lesson to learn here, and it comes from the teachings of the Freakonomics authors: INCENTIVES. One must understand the INCENTIVES of the participants, or one’s analysis is not likely to be accurate.
So, let us also begin to layer into our analysis our understanding of the incentive structure on the gold leasing scheme. The FED (our example of a central bank) has have two incentives to lease gold: (1) generate a paper profit on the balance sheet, and (2) flood the markets with supply of gold in order to depress prices of gold in order to prop up confidence in the western fiat banking scheme. The FED has ZERO incentive to NOT lease some of their gold. It makes perfect sense. So we know that with these incentives, there is NO doubt at all that The FED in our example leases gold and that as a result, market supply dynamics are assuredly affected by this gold leasing on a regular basis, if not constant, unremitting basis.
Now we come to the definition of the word “manipulation.” Is The FED (or other central banks) manipulating the price of gold? YES, a resounding YES!
The FED is using its gold to affect supply on the worlds markets. The FED uses their stored gold “in a skillful way or for a particular purpose,” namely, by leasing their gold, to increase supply and depress the price of gold. THAT is why the insiders are shorting!! Why would they NOT? But, to make this point, we must keep going and understand the INCENTIVES.
The bullion banks, like JPM, etc., have incentives, obviously. Profiting from the spread on the gold leasing scheme, risk free, is one, as is keeping alive the western fiat currency scheme is another. Said differently, what incentives do JPM and the other bullion banks have to NOT accept the risk free gold carry scheme profits? None, that’s what!
Let us explore the mining company incentives. Miners have huge incentives to accept central bank gold, offered to the miners through use of the intermediary bullion banksters. Miners need financing to exist, in the form of equipment acquisition and operations at a bare minimum. The bullion banks take the leased central bank gold and sell it on the open market. Here is what happens, and explains the HUGE sales volumes.
Dimitri says it like this: “The [bullion] banks sell on behalf of the mines the borrowed gold in the market. Then the mines use the sales proceeds for investments . . . in new mining equipment. These investments in turn enable the mining companies to mine gold. This they use later to extinguish their gold debt with the central bank. The mines thus receive financing that is denominated in gold instead of in currency. They [the miners] must pay back gold, not dollars . . . On the one hand, this hedges them against a falling gold price, but, on the other, they don’t benefit from a rising gold price. Since there is no dependency on the gold price, the risk of default is more predictable, and it is therefore easier for mines to get gold loans.”
What a revelation! Using our example, The FED loans gold to JPM, who sells it en masse all at once, both generating money for the miner and depressing the price of gold on the futures market. JPM earns fees from the transaction, thus creating the spread between the fee income earned, and the leased gold rate payment back to The FED. Later, the miner produces gold, gives it to JPM, who gives it to The FED, and the cycle is completed. When the gold is mined and returned to JPM, then from JPM to The FED, note how NONE of this supply reaches the market, but is instead backdoored from the miner directly to the central banksters. See the incentive structure now?
In this scheme, WHO BENEFITS FROM A RISING PRICE OF GOLD? Spartacus Rex would correctly say: No one! But why? Easy. The FED wants to suppress price, thus instilling confidence in the colored bankster paper. The bullion banks like the risk free spread, and want to keep that game paying in perpetuity. The miners, who, on the surface to a novice, like me, seemingly have a strong incentive to want a higher price for gold, but the miners actually have zero incentive for either a higher or lower price. They care not at all! Ignorant of the gold carry scheme, I formerly thought that a miner wanted a higher price, so that it could sell it on the market for more than the costs to mine it, but no, it is not like that at all because all of the gold that ends up getting mined has already been sold at low prices by the bullion banks, and the miner only cares about returning the physical gold quantity back to the bullion bank to extinguish the loan!
What a concept!
Dimitri and Lips both talk of the effect of gold leasing and its effect upon miners in their books; for a historical perspective, start with Lips’ book, as he comes at it from the perspective of an old school Swiss banker, while Dimitri fills in the recent history and uses a clearer, modern style. Dimitri’s book came out in 2013, while Lips’s book came out in 2001 or so. Both are required reading for anyone who really wants to be informed, as opposed to just spouting off about parroted main stream media lies or equally meritless conspiracy theories. It is really not a conspiracy at all; rather, it is just a natural, intended effect of the fiat currency system, as it is rational in all respects and explains everything we see here all the time.
Incentives say it all. Us poor little retail consumers have no effect at all. We collectively do not amount to enough to upset the supply / demand balance in the aggregate, and our efforts to stack are long term hedges against the insidious theft by inflation. I hope to have a complete picture by finishing the Gold Cartel book soon enough, then I can finish this little incentive lesson.
So, looking at this scheme, is gold manipulated or not?
I do have some remaining questions, though, and I want to lay them out for consideration by all of the wise readers:
Nowhere in Lips’ book does he mention the petrodollar. Why not? His analysis is incomplete at best, or misleading at worst. Did he not know? No way. He was an insider who HAD to know. So, did he intentionally leave it out? Why? What incentive does he have to do so? Why would he NOT talk about it?
Remember, let’s contrast what Lips spent hundreds of pages talking about, from the perspective of a Swiss banker, with what Rickards says today, even as recently as a few weeks ago in a guest post right here on tfmr. Rickards IS an insider. Clearly, by his own admission. He knows. Or is he lying? Why would Rickards lie about that? If he is lying about that, what else is he lying about?
I know some here loathe Rickards, as a duplicitous bankster. I am in that camp, sometimes, then other times I am not. My gut feeling is that anyone that was invited to war game a currency war with the CIA and pentagon is definitely an insider, and is almost certainly spouting a narrative fed to him by the elites for purposes known only to the elites and designed to manage our perceptions, such as confidence in the fiat currency scheme, or perhaps a transition to a new currency scheme or otherwise. Who knows for sure?
What is sure is that Lips and Rickards say different things.
As for the gold carry scheme, it works because of the large stocks of central bank gold. But what about silver? There is no central bank horde of silver. There used to be, but it got sold off gradually, at least that is what I recall reading from some sources. Secondly, miners do not exclusively mine for silver; rather, their mining is for many commodities, which are all consumed, and which by products include silver. So, does there exist a silver carry trade? Not that I know of. So if there is no silver carry trade, then why do gold and silver reflect similar price moves? If gold is being sold in masse, depressing prices, what is the driver for silver falling in masse as well in lock step with gold? Should there not be a divergence?
Additionally, since silver is consumed, the stock to annual mine production ratio and analysis are also not the same as for gold. Silver, by all accounts, is consumed in great quantities far beyond annual production rates. That means silver stocks, to the extent they exist, are being depleted, thus leaving bullion banks (assuming they engage in the silver carry trade, borrowing silver from some source, selling it for the miners, who repay the silver from their production, extinguishing the loan) at risk should there be a massive run on silver. Again, the only way to know that would be a simultaneous raid and audit on every single existing silver vault in the world.
Finally, what effect on world precious metals prices, and the gold and silver carry trades, will this recent China warehousing scandal have? It is clear that Chinese metal warehouse issued more receipts for metal than existed. They issued fake paper, and the holders of those fake paper warehouse receipts are going to have to take losses. When and where will this arise in the markets as concerns price? If the Chinese merchants did this fake paper scheme for copper and aluminum, how could they not also have done it for other metals like gold and silver, especially in light of the Chinese buyout of the London Metals Exchange?
Too many questions, not enough answers.
Anyhow, prepare accordingly.