The internet is breathlessly ablaze over a story detailing UBS and its plan to settle allegations over details concerning its precious metals trading. It seems like Christmas has come early in the world of gold conspiracy world.
Yet, this has an eerie quality about it once more. Why do I say that? Simple - because the entire claim of the Gold is Always Manipulated All The Time crowd ( GIAMATT) is exactly as articulated in the Paul Craig Roberts's article which I refuted in a previous post earlier in the day today. And what is that?
In his own words. Mr. Roberts claims that the big banks ( whom he refers to as 'agents of the Fed' ) are guilty of illegal activity to suppress the price of gold and discredit it. They do this by selling unlimited amounts of paper gold contracts at the Comex ( the scene of the crime according to him and those who view his pronouncements as gospel). The reason they do this is very clearly laid out -
“Eric, it’s clear, this is the Federal Reserve protecting
the value of the dollar from quantitative easing and the massive increase in the
supply of dollars and dollar-denominated debt.
This is exactly the theme that the gold price suppression scheme advocates have been claiming for years now. Those of you who remember my writings from the earlier days when gold was actually in a bull market, know that I was once a proponent of this theory. At the time, the US Dollar was sinking into oblivion and was threatening a major collapse on the price charts. Gold is the Anti-Dollar so it made perfect sense to me to give support to this view. After all, the feds have stepped into the foreign exchange markets from time to time to address currency valuations as well as form a Treasury Exchange Stabilization Fund known more commonly as the Plunge Protection Team.
However, I parted ways with some of the my former 'friends' over this when the fundamentals behind gold's move higher began to deteriorate and the bull market ended and a new bear market began. There was no longer any reason whatsoever for the feds to try to suppress the rise in the price of gold ( something which they failed to do by the way when the price hit $1900 before finally topping out for good).
Here is a series of questions that none of the gold price suppression scheme advocates will deal with honestly? Why is the Dollar no longer falling against nearly every single currency in the world? Why is the price of nearly every single commodity falling? Why is the TIPs Spread falling? Why is the Velocity of Money falling? Why are the Central Banks desperately trying to fight off Deflationary pressures and longing for their target of 2% inflation and failing to meet it? Why can anyone expect gold to be moving higher in a deflationary environment in which the price of most commodities, especially energy prices, continue to fall?
Keep in mind that none other than Jim Sinclair had written quite elegantly many years earlier about what he correctly termed the FIVE PILLARS of a BULL MARKET in Gold.
Among those are two key pillars and I quote:
1.) RISING COMMODITY PRICES
2.) A FALLING US DOLLAR
Jim noted that these were present during the great bull market of the late 1970's. Guess what? they were also present during the bull phase of gold which lasted from 2001- 2012 ( it began faltering in 2011).
Ironically or perhaps "Conveniently" would be a better choice of words, both pillars have been conspicuously ABSENT since the Dollar began its strong bull market and the commodity sector began its powerful bear market. ( see my earlier post about the charts).
Yet, those who subscribe to the gold price suppression scheme along the lines as articulated by Paul Craig Roberts, assure us that in spite of the glaring absence of two of their five pillars, the feds are still having to attack the price of gold through their agents, certain banks which are not noted specifically in the Roberts article.
Does not the open-minded reader find this odd to say the least? And I have not even touched on the interest rate component of those Five Pillars.
In other words, the US Dollar has been embarking on a powerful bull market and has gone nearly vertical since July of this year and is currently trading near a FOUR YEAR HIGH and yet Mr. Robert assures at this "attack" on gold by these "agents of the Fed" is being done in order to "protect the value of the Dollar from QE".
Strange deduction from a set of stubborn facts is it not?
But allow me to get back to the key point I wish to make - the gold price suppression scheme proponents tell us that any "illegal" activity that occurs in the Comex gold market is big banks acting as agents of the Fed to discredit the metal and to protect the value of the Dollar.
Remember this story from May of this year dealing with a rogue trader from Barclay's. I well remember it and wrote extensively about it at that time. Please see my comments on this as they are just as apropos about today's UBS story as they were back then. I will stand by my view back then just as strongly as I will stand by my view today.
The point is very simple - that large speculative forces, in my mind, mainly hedge funds, can move markets or act to influence them is nothing new in our financial markets. Sadly for those of us who prefer open and honest markets, it has been going on for years and will continue into the foreseeable future. However, to jump from that fact, that there is corruption in our financial markets, to the strained conclusion that this is evidence that the big banks are working as agents of the Fed to suppress the price of gold, is an insult to those whose minds can properly attribute cause and effect. It is especially insulting when the Dollar is the strongest currency currently in the world and the price of commodities is falling out of bed, with inflation fears sinking along with it.
If gold were in a bull market, if the Dollar was in a bear market and threatening collapse, if the commodity indices were all sharply rising with hot money flows swamping hard assets as they did a few years ago, if the mining shares were soaring higher, if the Velocity of Money was suggesting serious and possibly out-of-control inflationary forces were present, if REAL interest rates were negative, then perhaps, we could give more credence to the idea that among some of their strategies to deal with those things, an effort to slow down any sharp surge in the price of gold would carry credence with me as it once did some many years ago. Until then, the UBS story just confirms the same thing that most of us who have to make a living in these financial markets know all too well - namely, that the little guy, who is honest and plays by the rules, end up oftentimes donating to the big guys unless he or she is very nimble and can learn to stay clear of the sharks.
"When misguided public opinion honors what is despicable and despises what is honorable, punishes virtue and rewards vice, encourages what is harmful and discourages what is useful, applauds falsehood and smothers truth under indifference or insult, a nation turns its back on progress and can be restored only by the terrible lessons of catastrophe." … Frederic Bastiat
Evil talks about tolerance only when it’s weak. When it gains the upper hand, its vanity always requires the destruction of the good and the innocent, because the example of good and innocent lives is an ongoing witness against it. So it always has been. So it always will be. And America has no special immunity to becoming an enemy of its own founding beliefs about human freedom, human dignity, the limited power of the state, and the sovereignty of God. – Archbishop Chaput
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