Gold And Silver Price Manipulation Explained By Dimitri Speck

This is an excerpt from the latest Global Gold Outlook Report, released by Global Gold Switzerland. The article below represents an interview with Dimitri Speck. Subscribe for free to the quarterly Outlook Reports on www.globalgold.ch

Dimitri Speck is a renowned commodity analyst and quantitative trading system developer specialized in pattern recognition. He is the founder and editor of the website seasonalcharts.com, which provides accurate daily updated seasonal charts. He also acts as a consultant to the US-based Gold Anti-Trust Action Committee, GATA. Speck is author of “The Gold Cartel: Government Intervention In Gold, the Mega-Bubble in Paper, and What This Means For Your Future” (2013). Global Gold was interested to talk to Dimitri due to his strong reputation in identifying market anomalies, particularly in the gold market.

Global Gold (GG): What was your motivation to pursue the topic of gold?

Dimitri Speck (DS): I found myself mainly interested in gold due to the indebtedness of both the state and private entities. Gold, which lacks any form of counterparty risk, is an effective antidote against the risk, which this indebtedness poses. Further, it can’t be created by governments or banks. I found it strange that this was not taken into consideration by many analysts.

GG: You have a strong view on the manipulation of gold, and have proven it quantitatively. How did you discover this in the first place?

DS: As a quantitative analyst, I found a recurring pattern of a dip in the gold price at 10 AM New York time (which corresponds with London’s PM fixing). This is clearly visible in the chart below. The statistic relevance of this pattern is high since 1993 – which marks the beginning of systematic interventions in the gold markets. Before 1993 there were no abnormalities in the price fluctuations.

gold_intraday_average_1993-2009

gold price intraday between 1993 and 2009

GG: What are the motives behind the manipulation of the gold price?

DS: First of all, we need to hold fast to the fact that central banks are big players in the gold market. At the same time gold acts as a thermometer – to use the word of former Fed Chairman Alan Greenspan. When gold prices go up, this signals the perceived danger of inflation by market participants. Hence, the gold price indirectly tells you something about the confidence that people have in paper currency. So the central banks worldwide have an interest in suppressing the gold price, because that makes their “product”, fiat currency, look more attractive. Other motivations also include supporting bond markets, because the lower the return of the gold price, the more attractive interest bearing bonds become.

GG: Can you elaborate on the evidence you found of this manipulation?

DS: Although the manipulation was done covertly – there is plenty of evidence to prove it. Alan Greenspan was the initiator of the intervention in the gold market. During his reign as the Chairman of the Fed the central banks intervened massively between 1993 and 1996 to prevent the price from exceeding the USD 400 benchmark. The intervention was done through outright gold sales and gold lending to bullion banks. Between 1996 and 2001, the central banks struggled with a downward pressure on the gold price by carry-traders and bullion banks, who sought profit. Some politicians were also involved, including Gordon Brown (then Chancellor of the Exchequer) – who pursued a massive sale of UK gold reserves. Starting May 2001, the motives behind intervention changed. Instead of intervening to intentionally keep the prices low, central banks intervened to control the rise in the price. Greenspan changed his strategy, and decided he cannot keep the price at such depressed levels any longer. He achieved this by significantly reducing gold lending (while maintaining gold sale levels) – this caused a big upward push in the gold price.

GG: You mentioned that the manipulation of the gold price takes place during the PM fixing of the LBMA. What can you tell us about the LBMA and the fixing price?

DS: To start, let’s briefly explain how prices are fixed at the LBMA in the first place. It occurs twice daily via a telephone conference between the members of the LBMA.

The prices act as a reference for many gold products and financial instruments, which makes the LBMA pricing very important. I noticed that there have been anomalies in the price for a while now. There are also several papers published on the subject, most recently by two Australian researchers.

GG: Recently the LBMA decided that they will soon suspend setting the London Fixing for silver. Why do you think they have decided to do so? Do you have any thoughts on this topic?

DS: The price of silver is manipulated as well – and there is also statistical proof of the manipulation during the time of the silver fixing. The chart differs fundamentally from charts most of us are accustomed to viewing. It shows the average intraday path of silver over 14 years. This chart averages the prices of a multitude of days and displays them as a single price path in one chart. This allows you to easily spot typical time-of-day patterns. A drop of the average price is clearly visible at silver’s fixing in London around 7:00 AM (ET). This is the result of manipulations. But I must also admit that it is unclear for me whether the banks conducting the fixing are responsible for the manipulation. It is also possible that their clients or third parties are suppressing the price during the time of the fixing.

silver_price_intraday_1998_2012

silver price intraday between 1998 and 2012

 

GG: What are your views on the COMEX? Do you think it is a problem that contracts are not 100% backed by physical gold?

DS: The COMEX is a futures market – you’re only obliged to deliver at the end. It doesn’t really matter if the physical gold is there at the moment of trading, as long as it’s delivered when the contract expires. So to sum up, I don’t see a problem with the way the COMEX functions. I do think, however, that the main manipulation in the gold markets is done through the COMEX. For example, last year in the months of April and June, we had extremely large trades thrown into the market in a matter of seconds. Although this by itself is not proof of manipulation, it does seem very suspicious, because no one in their right mind would actually execute a trade in such a fashion.

GG: Why do you think that the manipulation in the gold market has been so effective?

DS: This is due to the nature of gold itself, meaning that it is not consumed but hoarded as store of wealth. If the price of any commodity of consumption decreases, people usually buy more at depressed price levels. This is the case for example for oil, because the lower price makes it more attractive. But when it comes to gold, it becomes less attractive as the price drops. How so? It all comes back to the key feature of gold as a store of wealth. When you see a drop in the gold price, the market participants become skeptical about their investment, driving the price further south.

GG: Looking at Switzerland, it had a 40% reserve requirement until 1999. Any thoughts on the topic?

DS: In November 1996, a group at the SNB analyzed the gold reserves and supported the mobilization of big gold reserves. Market observers expected sales and leases and started shorting the market. In the end, the price of gold dropped. Carry traders, who shorted gold, profited vastly from this.

GG: How would you describe the role of the bullion banks?

DS: Along with the US Treasury they represent the present gold cartel that manipulates the gold price. The bullion banks manipulate the price of gold for their own profit interest but are backed by the US government.

GG: The crisis in Ukraine and the annexation of Crimea by Russia shook international affairs and markets – do you see any impact on the gold market?

DS: If we take a look at gold prices now, I find that an escalation of the crisis is not priced in yet. We have not seen a significant rise in gold prices. An escalation of the crisis would drive up prices, while a non-escalation scenario would not impact the gold price. This offers an interesting asymmetrical payoff. But war is not the reason to buy gold. It is the indebtedness of the world and the money printed by the central banks. In my view, this makes gold an interesting investment at the moment.

GG: After providing us with your perspective on the situation in Ukraine, what is your take on gold, in general, and what are your views on the progression in the gold market?

DS: I am bullish for the long-term. This is mainly due to the debt situation we find ourselves in today. As long as this overindebtedness lasts gold should be part of your portfolio.

GG: The economic situation in the emerging markets, including China, doesn’t seem rosy at the moment. Do you think this could impact the gold prices?

DS: China poses a potentially very big problem. It bought large amounts of gold in the past. Now it is struggling with its own debts crisis. This could potentially lead to a lower demand for gold from the Chinese and negatively impact the gold price. However it is too early for an evaluation. There might also be opposing effects.

GG: Do you think that China wants to implement some sort of gold backed Yuan?

DS: No or at least not for the time being. China has a vested interest in the USD and its survival (at the moment). A large part of the Chinese foreign reserves are in US Treasuries, a collapse of the dollar would have massive negative repercussions for China.

 

Dimitri Speck’s book ‘The Gold Cartel’ provides a solid statistical analysis of every aspect of the gold market, a thoroughly researched and well-presented account of the history of the modern monetary system and a highly original perspective of the growing bubble in debt. We highly recommend this book. In fact, anyone with an interest in the gold market, the financial markets or the economy will undoubtedly benefit from reading it. Click here to view it on Amazon.

 

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