Reader Matt writes ...
Hello Mish,
I love your blog. I read it every day. You are my non-conspiratorial
viewpoint on the economy. Your work keeping an eye on and analysis of Greece
lately has been very helpful to me in understanding the way of the world.
One thing I seem to recall with your previous posts is that in general you
don't think gold is manipulated like all the conspiracy advocates say it is.
I was recently reading this article that makes me question your viewpoint on
that. Perhaps you could comment on this article.
Thanks for your time and for your blog. I appreciate it.
Matt
Supply and Demand in the Gold and Silver Futures
Markets
Matt writes in regards to Supply and Demand in the Gold and Silver Futures Markets
by Paul Craig Roberts and Dave Kranzler and in general about the theory of
physical gold demand vs. paper gold.
This article establishes that the price of gold and silver
in the futures markets in which cash is the predominant means of settlement
is inconsistent with the conditions of supply and demand in the actual
physical or current market where physical bullion is bought and sold as
opposed to transactions in uncovered paper claims to bullion in the futures
markets. The supply of bullion in the futures markets is increased by
printing uncovered contracts representing claims to gold. This artificial,
indeed fraudulent, increase in the supply of paper bullion contracts drives
down the price in the futures market despite high demand for bullion in the
physical market and constrained supply. We will demonstrate with economic
analysis and empirical evidence that the bear market in bullion is an
artificial creation.
My Reply
Any time you see articles promoting the difference between physical gold and
paper gold you are most likely reading a pile of crap.
I have debunked such theories many times. In fact, one can easily prove such
talk is complete nonsense.
In spite of claims of shortages and price discrepancies, one can get physical
gold near spot rather easily.
- GoldMoney is a means.
- BitGold is a new means.
One can use BitGold to accumulate "physical gold" in small amounts
at 1% over spot price, up to $50,000 worth. One can use GoldMoney to acquire
larger amounts at far less markup.
So, please don't tell me there is a difference in price between physical gold
and paper gold. Right now, there isn't any.
Rather, there is a shortage of coins and other small denomination forms of
precious metals. There is also a huge number of suppliers that depend on hype
to make a living.
Here's my Reader Q&A On Bitgold.
Purposeful Lies
Claims that physical gold sells for huge percentage markups over "paper
gold" are purposeful lies or blatant ignorance. There are no other
options.
Such statements don't imply there is no manipulation. In fact, manipulation
is everywhere in my opinion, just not in all the ways the conspiracy nutcases
proclaim.
For example, there is no reason to believe the Fed is directly manipulating
gold. Indirectly, however, the Fed certainly is. By suppressing interest
rates and supporting the stock market, the Fed has indeed changed sentiment
towards gold.
In regards to dumping futures, the Fed is certainly not directly behind that
process either. But what about the market makers?
They could be, but I still suggest they do not care one way or another which
way something goes as long as they make a profit. With that thinking, it
would not surprise me one bit if the MMs manipulated gold to its previous
high with the GATA advocates screaming all the way that the MMs were holding
the price down.
It tiring to hear the exact same manipulation charges no matter what gold is
going. And such screaming has gone on for years, even though gold has
quadrupled since 2000 (certainly far more than the major stock market
indices).
That said, someone sure benefits from these the middle of the night plunges
at illiquid times.
So put me in the group wondering who that is, and what if any laws were
violated in doing so. And if laws were violated, let's have an
accounting, as well as a look at the laws.
I pinged my thoughts off Pater Tenebrarium at the Acting Man blog. He is one
of my teachers on Austrian economics. He responded ...
"I agree completely. It is a waste of time to chase after the
conspiracy theories. The overnight market dumps of futures definitely
represent short term manipulation, but I don't believe it's illegal."
To that, let me ask, if it's illegal, should it be illegal?
To answer that, we need to know who did it and why. If it was a hedge fund
seeking profits the answer may be different than if it was a mutual fund
betting against the interests of those for whom it has a fiduciary conflict
of interest.
We Waz Robbed
What isn't manipulated?
If the manipulation is illegal, let's see the case. And if there is a case,
we then need to discuss if such actions should be illegal.
Purposely betting against clients you are supposed to be representing would
cross the line.
Admission
Even though I was on the right side of the inflation/deflation debate, with
hyperinflationists and death-to-the-dollar advocates looking extremely
foolish along the way, I failed to see what "QE manipulation"
would mean for gold.
And let's not pull punches: QE is blatant manipulation. To get rid of that
kind of manipulation, one would need to get rid of the Fed.
Questions of the Day
Did anyone blaming "manipulation" fail to know the Fed
existed? That the Fed supports the markets with QE? With talk? With
suppressed interest rates?
The "we waz robbed" claim primarily comes from people who
simply do not want to admit they analyzed the market poorly over the past two
years.
I prefer to admit that I failed to see the complete implications of QE rather
than make self-serving conspiratorial claims or plow into assets that I know
are ridiculously overpriced.
Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
