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Edited by Alfred Adask
Friday, December 28th, A.D. 2012

Between Friday, December 21st and Friday, December 28th, the bid prices for:

Gold fell 0.0 % from $1,657.00 to $1,656.30
Silver rose 0.2 % from $29.96 to $30.03
Platinum fell 0.9 % from $1,535 to $1,521
Palladium rose 2.7 % from $677 to $695
DJIA fell 1.9 % from 13,190.84 to 12,938.11
NASDAQ fell 2.0 % from 3,021.01 to 2,960.31
NYSE fell 1.5 % from 8,443.15 to 8,316.17
US Dollar Index rose 0.1 % from 79.57 to 79.67
Crude Oil rose 2.0 % from $88.92 to $90.69

"Only buy something that you'd be perfectly happy to hold
if the market shut down for 10 years."—Warren Buffett

“What investment would you dare to hold
for 10 years—other than gold?”—Alfred Adask

“Market manipulation” meets Basel III

by Alfred Adask

The manipulation of markets in the hope of manipulating people's perspectives simply will not work to prevent further drops into the negative spiral . . . .  Manipulation is the sign of madness amongst governments suffering from egomania during a downward spiral. . . .” Jim Sinclair

If you follow the price of gold, you’ve almost certainly seen daily price charts that occasionally include a “waterfall event” where the price of gold suddenly plummets in a vertical fall that is both dramatic and hard to believe. 

If there’d only been one of these waterfall events, it would be a remarkable and inexplicable phenomenon (somewhat like a “flash crash”).  But we’ve seen several such “waterfalls” in the last year and, by their mere frequency, we know they are not “inexplicable” but are instead the result of overt manipulation of prices in the gold market. 

For most of the past decade, the Gold Anti-Trust Action Committee has warned that the gold market prices were being manipulated and intentionally suppressed.  At first, their warnings were hard to prove and almost impossible to believe.  Today, however, the manipulation is so blatant (as seen in “waterfall events”), that there’s no doubt:  the price of gold is being manipulated and suppressed by the Powers That Be.

We know that they’re manipulating. 

They know that we know that they’re manipulating. 

But, astonishingly, they don’t care that we know and go right on manipulating.  Manipulation that was once subtle, secretive and hard to prove has become obvious and undeniable.

•  Blatant market manipulation raises a big question:  Is blatant manipulation evidence of the growing power of The Powers That Be—or is it evidence of their growing desperation—or could it be evidence of something else? 

Have the “Powers” grown so powerful that they need not concern themselves with public awareness of their “racket”?  Have they grown so arrogant that they simply seize anyone’s wealth at any time and know that they can get away with their crime?  Or are they like bank robbers who’ve been caught in the act and are now trying flee by speeding, crashing into other cars, and running red lights?   Has the bank robbery become so obvious and the bank robbers so desperate that they’ll do anything to escape?

• John Embry, chief investment strategist at Sprott Asset Management, was recently interviewed by King World News. He said that a coming catastrophic loss of confidence will push gold and silver to price levels that most investors can’t even fathom.
“I have been following the manipulation of the gold and silver markets for over 14 years now, and I can honestly say that I’m not sure I’ve seen a more blatant attempt to drive prices lower.”

“I would love to know what the central planners are thinking here.  I believe that this is all about confidence.  When you are running a pure fiat currency system, confidence is the only thing you have to keep things together.  And if confidence in paper and bond markets is lost, then this is going turn into a total debacle. 

“The sad fact is they are doing QE [inflating currencies] all over the world and I don’t see how the central planners are going to be able to maintain confidence for much longer.  But the reality is they attempt to kill the messenger [gold], so they beat the hell out of gold and silver with paper shenanigans over the past month.  This has been a brutal, deliberate, and obvious attack.”
I agree that the current gold price manipulation is too blatant to deny, but the reason for that market manipulation remains a mystery.  Mr. Embry may be correct in supposing that the price of gold is being suppressed in order to maintain false confidence in the purchasing power of the fiat dollar.  I’d certainly agree with that analysis if the manipulation were still secretive and virtually unseen by the public.

But, the “waterfall events” (where prices suddenly plunge) are such blatant evidence of market manipulation, that they must ultimately diminish public confidence in not only the gold market but in the powers of the manipulators, themselves.. 

We know that the stock markets have been supported by the “Plunge Protection Team” since the Reagan presidency.  That support is market manipulation.  Given that our stock markets are manipulated, it should come as no surprise to learn that our gold markets are also manipulated. 

Of course, in the stock markets, the Powers are pushing prices up rather than down (as in gold).  But how much confidence can anyone have in a stock where prices are artificially supported?  Isn’t it obvious that artificially high stock prices must ultimately fall?  Likewise, how much confidence can anyone hold in the value of a paper dollar that’s being openly and artificially supported by suppressing the price of gold? 

Anyone who truly believes in the power of a free (unmanipulated) market, must believe that sooner or later, the true (unmanipulated) prices for gold and stocks will be found, as will the true purchasing power of the fiat dollar. 

•  Confidence is key.  But confidence in what

For most investors, it’s irrelevant whether the price of their investments rises because of the free market, market manipulation or the lunar tide.  As long as the price of their investment is rising, investors are happy. 

People who lose confidence in gold or stocks may still find confidence in the “Powers” to continue to manipulate the markets.  So long as the Plunge Protection Team guarantees that there will be no waterfall events in the stock markets, people can purchase stocks with much confidence.    But their confidence is not in the free market, but rather on the power of the Powers That Be to prevent a real stock market “crash”. 

Thus, in a world where market manipulation is overt and taken for granted, today’s investor’s primary question becomes How much longer can the Powers That Be continue to manipulate?  As long as the people have confidence in the manipulators, the price of gold can be artificially suppressed and the prices of stocks can be artificially elevated.

But the manipulators have a problem. 

Every time they try to drive the price of gold below $1,575, they’re quickly turned back.  Thus, the powers of the “Powers” are shown to be limited.  Recognizing the limits of the powers of manipulation does not inspire confidence in the government that wields those powers.  If the Powers can’t currently push the price of gold down to $1,300 or $1,400, how long will it be before the Powers are shown to lack sufficient power to prevent gold from rising over $1,800?  And once gold breaks $1,800 will the Powers be able to prevent a dramatic rise in gold’s price (and correlative fall in the value of the fiat dollar)?

Thus, even confidence in the manipulators is being diminished by overt manipulation.  When the Powers turn on a “waterfall event,” it can’t be denied that they have significant power.  But when the “waterfall events” not only fail to drive the price of gold below $1,575 but even fail to suppress gold’s price “permanently,” we also see the Powers’ limits.  Limited powers don’t inspire confidence.

So, let’s suppose the Powers know that overt manipulation of gold prices ultimately serves to diminish public confidence in the manipulators’ power.  If the Powers nevertheless continue to cause “waterfall events,” are the Powers acting out of desperation?  Are they like men in an airplane whose motor has failed.  Are they’re throwing their own property and even some of their members out of the plane in order to lighten the load and allow the plane to glide farther and perhaps land safely?
•  John Embry:  “The upside for both gold and silver are totally intact and, if anything, the upside is greatly improved because of the large physical offtake on this recent smash.”
In other words, when the Powers force the price of gold down, people not only buy more gold, but they also take delivery of underpriced, physical gold.  Some of that physical gold, perhaps much of it, must ultimately be supplied from the Powers’ own vaults

Thus, the Powers can’t sustain the apparent value of fiat dollars by suppressing the price of gold without sacrificing some of their own supply of gold. 

We’re left to wonder how long the Powers will, or even can, continue to sacrifice their own gold to maintain the illusion of fiat dollar value.  Sooner or later, either the Powers will: 1) be forced to admit the absurdity and suicidal nature of their support for fiat currency; or 2) exhaust their own supplies of gold.  In either case, at that point, the manipulation of gold prices will end, public confidence in manipulated markets will fall, and the price of gold will skyrocket, and the dollar and other fiat currencies may die.

•  But there is an alternative:  What if the fiat currencies collapsed under the weight of their own fraud and without regard to the price of gold?  Market manipulation would end and gold would soar.  But the end of market manipulation would not be the cause for gold’s rise—it might only be coincident with the demise of fiat currencies.

Market manipulation is not an objective so much as a means to an end.  The fundamental reality is the teeter-totter relationship between the price of gold and the perceived value of fiat dollars. If external circumstances cause the price of gold to go up, the perceived value of the fiat dollar will go down.  Likewise, if external circumstances cause the perceived value of the fiat dollar to fall, the price of gold will rise.

My point is that market manipulation is a means, not an end.  Market manipulation is intended to create an illusion of price stability for both gold and the fiat dollar that simply can’t be sustained. 

For the past year, the US Dollar Index’s measure of the fiat dollar’s value has never fallen below 78 or risen above 84.  That Index has, more or less, hovered around 80. 

I don’t think that’s an accident.  If the dollar’s perceived value falls significantly below 80, it will be evidence of significant monetary inflation.  The price of gold should rise dramatically, and the dollar could conceivably collapse. 

On the other hand, if the US Dollar Index rises significantly above 80 and stays at something like 85 or 90, it will be evidence of significant monetary deflation and possible proof that we are caught in a genuine depression.  

More, as the US$ Index rises, the dollar becomes more valuable, and the true size of the National Debt (as measured in purchasing power) grows.  The National Debt is already unpayable.  Any increase in size (as measured in purchasing power) could potentially ruin the federal government.

Thus, I see the national government and Federal Reserve as caught between the rock and the hard place.  If they let the dollar fall well below 80 on the US$ Index, the price of gold may rise significantly, and the dollar might die.  If they let the dollar rise well above 80 on the Index, the purchasing power of the National Debt might grow high enough to push the federal government into an overt bankruptcy and the federales might die.  If my conjecture is roughly correct, the government may be trapped in a scenario where they must maintain the US$ Index at about 80 and price of gold around $1,700.

What’s the probability that any market can be held in stasis for an extended period of time?  Zee-ro.   

• Did the Powers recently push price manipulation too far?
John Embry:  “Without question.  I actually am amazed because I believe China as well as a number of Far-Eastern and Middle-Eastern operations, are looking to acquire as much gold as they can.  The Western central planners are making a ghastly mistake.”
In other words, in their determination to protect the fiat currency racket, western governments and central banks are “selling” their real money (gold) to Asia—and selling it for peanuts.
“The question here is why are they doing this manipulation so blatantly?  I believe these guys are trying to give the appearance that everything is fine in the short-term, but my instinct tells me things are far worse than anybody is letting on.”
Maybe things are even worse than Mr. Embry fears.  Maybe the end of the fiat dollar is so close that the Powers are resigned to its demise.  Maybe the Powers’ recent attempts to manipulate the markets have become blatant because they know the end of fiat currency is so near that there’s no longer any point to concealing the racket. 

•  Casey Research reports:
“Another source of demand from banks could be the change in Basel III regulations. If you haven’t read about it, gold could get promoted to Tier 1 status, meaning it would be considered a ‘zero-percent risk weighted item.’”
Currently, gold is unattractive to banks because it’s a “Tier III” asset.  I.e., if a bank buys $1 million worth of gold, it can only count that gold as worth $500,000 in its list of assets.  Under current regulations, gold is a losing proposition for banks.

However, last Fall, the European Central Bank and the Federal Reserve simultaneously proposed that bank regulations in both Europe and the US be changed to elevate gold to the status of a “Tier I” asset—just like cash and government bonds.  As a Tier I asset, $1 million in gold would count as $1 million in assets on the banks books.  As a Tier I asset, gold would be at least as attractive to banks as cash or government bonds.  

If the Basel Committee decides to grant gold a Tier I status, it will open the door for gold to compete directly with cash and government bonds on bank balance sheets – and provide banks with a true “asset” that actually has a chance to appreciate.

But fiat currencies and government bonds can’t compete with gold.  Arguably, the central banks’ and market manipulators’ primary objective over the past 40 years has been to prevent direct and open competition between fiat currencies and gold. 

To once again allow fiat currencies and government bonds to compete directly with gold is like throwing two featherweights into the ring with one heavyweight champion.  The heavyweight will pound those featherweights right through the canvas mat—and it won’t take long.  If they the heavyweight gold into the same ring as fiat dollars and US treasuries, the fight might not last a full round.   

The fact that the Powers would even consider allowing the featherweights (fiat currency and government bonds) to step into the ring with the heavyweight (gold) is evidence that the “trainers” (manipulators) know that the featherweights’ careers are already over. 

If the Powers already know that the game is over, maybe they’re pushing the price of gold down so the banks can buy more underpriced gold now, before Basel III opens the banks’ doors to own gold.  It’s entirely possible that allowing the banks to keep gold as a Tier I asset may be the event that ultimately ends market manipulation, allows the price of gold to soar, and marks the demise of the world’s fiat currencies. 

I’m not predicting that all of these events (Basel III approved, manipulation stops, gold soars, paper dollars die) would all occur on the same day or even same quarter.  I’m simply suggesting that when the history books are written and they look back to the moment when Basel III was  approved, that that event may be seen in retrospect as having triggered the subsequent end of market manipulation, a rising price for gold and the eventual collapse of fiat currencies.

If so, the reason the Powers are so blatant in their market manipulation may be that they know that Basel III will be approved and thereby end of reign of fiat dollars. 

Perhaps the Powers aren’t desperate so much as resigned.  If Basel III is expected to mark the end of the fiat monetary system, maybe they’re just using whatever fiat currency powers remain, before the fiat currencies are no more.

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