Manipulation of the price of gold is real. In fact, there’s precedence of it happening in our recent history. Right now, we are seeing extraordinary amounts of price suppression in the COMEX, which some people subscribe to and others don’t. If you look even casually at the situation, it’s very clear that manipulation is rampant in our markets.
The true price discovery of precious metals is what we are all waiting for. We know that central banks have been colluding to defend currencies in favor of their own personal interests for many years.
Price Suppression in the 1960s
The London Gold Pool was the pooling of gold reserves by a group of eight central banks in the United States and seven European countries that agreed on November 1, 1961. When the tendency for governments and central banks are to print and spend, it’s hard to do that with a gold-backed currency that limits currency expansion. So to maintain the Bretton Woods System of fixed-rate convertible currencies and defending a gold price of $35 an ounce, interventions were made in the London Gold Market. It was a price suppression scheme to keep gold at $35, because the true value of gold was climbing.
The central banks coordinated gold sales to balance spikes in the market price of gold, as determined by the London morning gold fixing while buying gold on price weaknesses. The price controls were successful for six years, until the system imploded. The pegged price of gold was too low, and after runs on gold, the British pound, and the U.S. dollar occurred, France decided to withdraw from the pool. The London Gold Pool collapsed in March 1968.
The London Gold Pool controls were followed with the Nixon Shock, and resulted in an epic gold bull market, which saw the price of gold appreciate rapidly to $850 in 1980. The gold pool was a costly failure because on the final day of operation, pool participants lost 400 metric tons of gold.
You might ask the question, “Why would the central banks result to this sort of manipulation?” In the 1960s, the government was running deficits and spending was out of control, and the number of dollars circulating in the system was greatly expanding (sound familiar?). The $35 price peg was based on a certain number of dollars in circulation, however, with the supply of dollars ballooning in the system, the real value of gold was climbing higher than the $35 government price and people started demanding their gold at $35 from the governments, while selling their gold at a higher price in the market. This was depleting the actual physical supply that was held by governments, and price suppression was then implemented so people wouldn’t find value in owning gold and the government could continue spending/printing recklessly.
Today, we have a market to specifically trade metals such as gold, silver, copper, and aluminum, which is used to manipulate the price of gold in today’s world, referred to as the COMEX.
The most recent news shows that total registered gold at the COMEX has now dropped to a fresh record low. The COMEX now has roughly 150,000 ounces of gold, or just under 5 tons. The problem with this number is that there are a great deal of paper contracts that are promised to people without enough gold in the system to back up actual delivery. This number is so bad that the gold “coverage” ratio, or the amount of paper claims for every ounce of physical, has just hit a new all-time high of 293 ounces of paper per ounce of registered physical. So basically, for every 1 ounce of gold, there are 300 people who all think they own it.
See this chart, provided by ZeroHedge.com.
In the last year, this number has been going up exponentially, as the chart shows. What we do know is demand is skyrocketing for metals, but price isn’t rising.
How much longer can this exponential surge in the dilution ratio continue? History shows us that price suppression can definitely be broken, and a massive bull market in gold (and silver) could be very spectacular when price discovery of the physical ounces is truly found.
It’s fair to say that owning precious metals as a percentage of your portfolio is, at a minimum, prudent.