The Great Precious
Metals Managed Retreat
By Dr. Jeffrey Lewis
Many observers, notably GATA, have
characterized the more than decade long run up in the precious metals markets as
a managed retreat orchestrated by the big bullion banks.
These banks typically profit by using their
large transaction size and deep pockets when the market is vulnerable to induce
substantial price variations, often by triggering stop loss orders placed by
short term speculators.
Price Suppression More a Reality than a
Perhaps one of the more popular criticisms of
price suppression theories is that if the silver and/or gold markets were so
managed in this way by the bullion banks, why have their prices risen so
steadily over time?
First of all, this critique is weak because
even largest corporate banks would have a hard time holding back the long term
flow of investment funds into the precious metals markets. They may be able to
trigger short term fluctuations, but the long term trend will overcome those
On the other hand, if the real mover and
shaker behind the bullion banks’ notable precious metal selling activities and
consistent large short positions is actually a central bank or another official
agency suppressing the price in order to prevent rampant inflation due to a
devaluing paper currency, then that makes a lot more sense.
Such an entity can print effectively unlimited
amounts of dollars to pay for its losses, and it would never be forced to
deliver physical metal it did not have because they would generally be trading
futures on the short side. Since the seller of a futures contract controls
physical delivery, they can simply opt not to deliver and cash settle instead.
Other Financial Scams Exist, so Why Not
Furthermore, it is interesting to note in the
age of the LIBOR scandal, FASB mark to market rule changes, HFT programs front
running retail investors, MF Global’s dramatic demise, and Bernie Madoff’s
outrageous Ponzi scheme, that it continues to be taboo to even entertain the
idea that the precious metals markets could actually be managed.
Of course, the acceptance of price suppression
in silver and gold futures as a reality, or even as a likely possibility, will
immediately call into question the real value of every other commodity also
denominated in U.S. Dollars.
Basically, if inflation can be controlled in
this way by manipulating futures markets, this strategy is probably being
employed throughout the commodity markets to artificially prop up the
intrinsically worthless Dollar and manage inflation.
Do Politics Underlie Price Suppression?
If price suppression is in fact an unspoken
public policy, then it really becomes a political issue, which may be the hidden
factor here influencing price discovery and value. Certainly it is not a stretch
to consider fiscal overspending occurring in the name of political agendas. Such
a policy would also be facilitated by historically loose monetary policy and may
have given rise to the ever-intensifying economic cycles that the world is now
Already, regulators have been ‘captured’ as
the game starts to become more exposed, which is consistent with the seemingly
managed nature of the price suppression system.
In this scenario, the regulators are be left
with the ability to make announcements and speeches only, and they have been
further compromised as the financial system crumbles, where the impetus to exert
political influence has become especially acute as the State is running out or
has run out of the means with which to impose its financial power on its own
Participants Increasingly Aware of Price
Although many market participants would still
not dare to imagine that ultimate eventuality actually happening, keen observers
are increasingly witnessing that process occurring in its early stages.
The market also seems to be progressively
reaching the point where 'everyone knows' that the price of silver, gold and
just about every other commodity is being politically managed to the point where
underlying fair value across the board has become remarkably distorted.
Furthermore, it is no coincidence that this
price suppression theory fits the facts so well, despite the sheer complexity of
the manipulative methods employed and the instruments traded in what has
essentially become a black hole of shadowy derivatives markets.
Ignorance need not be conscious, so there’s no
need to turn a blind eye to an issue just because very few people actually
understand what is going on all over the world today as fiat currencies
gradually make a managed retreat to their true value - zero.
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