Wikileaks recently released a U.S. State Department cable stating:
“China increases its gold reserves in order to kill two birds with one stone”. China’s increased gold reserves intent is to act as a model and lead other countries towards reserving more gold as large gold reserves are also beneficial in promoting the internationalization of the RMB.
The U.S. and Europe on the other hand 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.
James Conrad; a PhD economist and former Dean of the University of Indianapolis School of Business recently said that the gold market is manipulated. Specifically, he wrote an essay on the gold market by pointing out:
There is no other leveraged commodity market where short sellers increase their positions, materially, as the price rises, and increase them even more when prices are exploding, except gold and silver. The reason traders don’t normally do that is that it exposes short sellers to unlimited liability and risk. Yet, in both March and July 2008, and on countless occasions over the past 21 years, vast numbers of new gold and silver short positions were temporarily opened up, with the position holders seemingly unconcerned about the fact that precious metals had just risen exponentially, and that there was a very real potential they would bankrupt themselves with unlimited upside potential. Normal traders would not expose themselves to such unlimited risks.
I conclude, therefore, that over the last 21 years or so, “fake” precious metals supply in the form of promises of future delivery have habitually been increased when prices increase until increased “supply” managed to overwhelm increased demand, leading to a temporary price collapse.
On June 3, 1975, Fed Chairman Arthur Burns, sent a “Memorandum For the President” to Gerald Ford, which among others cc:ed Secretary of State Henry Kissinger and future Fed Chairman Alan Greenspan, discussing gold, and specifically its fair value, a topic whose prominence, despite former president Nixon’s actions, had only managed to grow in the four short years since the abandonment of the gold standard in 1971.
In a nutshell Burns’ entire argument revolves around the equivalency of gold and money, and furthermore points out that if the Fed does not control this core relationship, it would “easily frustrate our efforts to control world liquidity” but also “dangerously prejudge the shape of the future monetary system.” Furthermore, the memo goes on to highlight the extensive level of gold price manipulation by central banks even after the gold standard has been formally abolished.
The problem with accounting for gold at fair market value: the risk of massive liquidity creation, which in those long-gone days of 1975 “could result in the addition of up to $150 billion to the nominal value of countries’ reserves.”
One only wonders what would happen today if gold was allowed to attain its fair price status. And the threat, according to Burns: “liquidity creation of such extraordinary magnitude would seriously endanger, perhaps even frustrate, our efforts and those of other prudent nations to get inflation under reasonable control.”
Is there an international arrangement to maintain a control over gold prices in the international arena? Go figure…..
If we want to have a chance to remain the masters of gold, I believe an international agreement on the rules of the game seems to be a matter of urgency.
We would fool ourselves in thinking that we have time enough to wait and see how the S.D.R.’s will develop. In fact, the challenge really seems to be to achieve by international agreement within a very short period of time what otherwise could only have been the outcome of a gradual development of many years.
Your feedback is as always greatly appreciated.
Thanks much for your consideration.
By : Ziad K Abdelnour
Ziad is also the author of the best selling book Economic Warfare: Secrets of Wealth Creation in the Age of Welfare Politics (Wiley, 2011),
Mr. Ziad Abdelnour continues to be featured in hundreds of media channels and publications every year and is widely seen as one of the top business leaders by millions around the world.
He was also featured as one of the 500 Most Influential CEOs in the World.
