By Martin W. Hennecke
It is an open secret among precious metals analysts and traders that the gold and silver markets are being heavily manipulated, mostly to the downside; i.e. their prices are being suppressed by various Western financial entities in what should be a scandal much bigger than the Libor rigging scheme.
Not only did a senior commissioner at the Commodity Futures Trading Commission (CFTC), Bart Chilton, reiterate recently his original statements from 26th October 2010 that “there have been fraudulent efforts to persuade and deviously control the price of silver” adding this time that ” there have also been silver and gold market anomalies outside of the [current] silver investigation” , but we have also heard similar comments from former Assistant Secretary of the Treasury Paul Craig Roberts: “I suspect that the Federal Reserve is manipulating the gold and silver markets in order to prevent its low interest rate policy from undermining the value of the US dollar. It is easy to offset rising prices of bullion due to physical demand by selling shorts in the paper market.”
And then, of course, there is the famous, albeit much older, remark from the maestro Alan Greenspan himself, in his July 24, 1998 testimony to the Committee of Banking and Financial Services, U.S. House of Representatives that: “Central banks stand ready to lease gold in increasing quantities should the price rise”.
What seems to be still much less known to most of the investing public and even the better-informed metals analysts, however, is that this news also appears to have very much come to China’s attention of late, and the country actually seems to have decisively entered the game on the opposite side, by taking advantage of the artificially low/suppressed prices to accumulate gold.
A cable from the U.S. embassy in Beijing on April 28, 2009 , brought to light by wikileaks, stated the following in this regard: “According to China’s National Foreign Exchanges Administration China’s gold reserves have recently increased. The U.S. and Europe have always suppressed the rising price of gold. They intend to weaken gold’s function as an international reserve currency. They don’t want to see other countries turning to gold reserves instead of the U.S. dollar or euro. Therefore, suppressing the price of gold is very beneficial for the U.S. in maintaining the U.S. dollar’s role as the international reserve currency. China’s increased gold reserves will thus act as a model and lead other countries toward reserving more gold. Large gold reserves are also beneficial in promoting the internationalization of the RMB.
It should come as little surprise then that recently China has been buying gold like there is no tomorrow. Gold imports through Hong Kong in only the first eight months of this year (at 512 tons year-to-date 2012) already have surpassed the entire official European Central Bank gold reserves.
Meanwhile the wikileaks-quoted strategy of ‘ China’s increased gold reserves will thus act as a model and lead other countries toward reserving more gold’ also seems to be working. Central banks globally have turned into net buyers since 2010, following 20 years of net selling.
And, mind you (short speculators watch out!), given China’s huge foreign exchange reserves, there is yet a long way to go for the country if it was to bring up its gold holdings to similar percentage levels as those of most Western countries (that is, if those Western countries’ gold that is shown on their books is actually still physically there. That, of course, is an issue that many are concerned about, including, as of this week, the German ‘Federal Auditor’s Office’ that just asked the German Bundesbank to seek to inspect its gold reserves held with the New York Fed.