Think Gold Price Is Not Manipulated? Think Again!

On Wednesday August 17th the CME came out with an announcement that they would be raising margin rates on the purchase of future contracts on gold. They reported that this was an effort on their part to cool off the price of gold which has enjoyed a parabolic run since August 1st. They said that there would be more rate hikes to protect gold from becoming a bubble. When I read this I laughed at the arrogance of the CME. There is only one reason that that they want to stop gold's parabolic run. They simply do not have enough gold to fulfill the future contracts that they have already sold. Let's not forget that one future contract is sold in lots of 5,000 ounces.

That means if we use a proxy price if $2,000 an ounce, to make the math simple, we are talking about $10 million for one contract. Add to that, the CME gets a fee of $50.00 an ounce above the spot price, so for every contract sold they earn $250,000.00. Delivery and shipping are the buyers concern. This would lead me to conclude that the only possible reason to slow down gold's parabolic run would be that they simply do not have the gold to satisfy the contracts sold.

Let us also not forget that last April the CME raised the margin rate on silver not once but five times to get silver to finally capitulate. The fact is that the CME does not have the physical gold to satisfy the future contracts that have already been sold. Do you really think this will play out differently than it did with silver last April? Some may call it a bubble but I do not agree. Call it whatever you want. The fact remains that there is simply not enough gold to satisfy the thirst for the prospective buyers.

George Soros, the hedge fund investor who called gold the ultimate bubble, has divested his portfolio of nearly its entire investment in the gold, inciting many to fear that the price will very soon plummet, devaluing the specie-heavy portfolios of millions of investors.

Agree with him or not, like it or not, like him or not, attention must be paid to his movements. It can be very expensive to ignore the predictions of Soros. For example, on September 16, 1992 (a date subsequently known as "Black Wednesday"), one of the investment funds of Soros sold short more than $10 billion worth of pounds sterling, profiting from the British government's reluctance to adjust its interest rates to levels comparable to those of other European Exchange Rate Mechanism countries. Defiantly, the UK withdrew from the European Exchange Rate Mechanism, triggering an unsettling devaluation of the pound. Not everyone was harmed by this plummet, however. George Soros earned over $1 billion in the ordeal. Consequently, he was described by the media as the man who broke the Bank of England. In 1997, the UK Treasury estimated the cost of Black Wednesday at 3.4 billion pounds. This latest move to take a position against gold may have similar repercussions around the globe.

Soros, the Hungarian-born financier made the move to cut his holdings of gold only in the first quarter of 2011. As with most things this King Midas touches, the price per ounce of gold had skyrocketed during the period of his investment in it. While at the beginning of last year gold was trading at $1,100 an ounce, the trading price in 2011 has risen to as much $1,800.

The exact date of the dramatic divestment by Soros is unknown. It is known that the majority of those holdings are managed through the Soros Fund Management Company. Filings to the Securities and Exchange Commission (SEC), the American regulator showed that he had sold 99% of his holding in the SPDR Gold Trust (GLD), an exchange-traded fund (ETF) backed by gold bullion, by the end of March. The New York-based fund sold its entire holding in GLD but Mr. Soros bought shares in two mining companies, Freeport-McMoRan Copper & Gold and Goldcorp.

Despite the potential for a devastating global impact of such a move by one so influential, there are those on Wall Street praising the insight of Soros. Historically, it is typical that as the precious metals rally ends, you will get transition toward related equities. Indeed, the gold mining stocks have lagged the underlying asset as people would rather hold gold and silver above the ground rather than these metals still in the ground.

As I write today it looks like Mr. Soros did not get this one right and there are those not entirely convinced of the wisdom of Mr. Soros.

Filings to the SEC showed that Paulson & Co, the US hedge fund run by John Paulson, left its holding in the SPDR Gold Trust (GLD) unchanged. It was reported in Bloomberg online that Hal Lehr, a commodity trader at Deutsche Bank, said he remains bullish on gold despite its current levels and believed it could reach $2,000 an ounce by year's end. The report went on to say that gold ETF holdings fell by 3.3 percent in the first quarter of 2011 and there are reliable indications that some of that investment was used to purchase physical gold bullion.

As if there is not enough uncertainty, a worldwide devaluation of gold could create a ripple of financial insecurity. There can be no doubt that gold is viewed by a majority of the world as a very safe and trustworthy investment, one that only increases in value. This sort of reasoned speculation has undoubtedly fueled the bullish ballooning of the price per ounce of the metal.

If the actions of Mr. Soros and other global power brokers have the effect of devaluing gold, then the legitimacy and appeal of the call of many to return to a gold standard for the value of paper currency or to abolish the Federal Reserve and other similar central banks around the world will be similarly devalued.

Once the worth of both gold and paper currency is wiped out by the conspiring plotting of financiers, globalists, multinational corporations, central bank boards, and other likeminded and equally influential monied interests, there will be nowhere to turn for an object of value. This complete obliteration of precious metals and paper currencies will leave those who create such catastrophes as the sole site of economic refuge for those cast headlong into the storm of boom and bust cycles and the devastation that comes in their wake.

One of the most toxic elements present in this pool of bitter water is a worthless money supply. The Federal Reserve creates this non-potable problem by engaging in a practice known euphemistically as quantitative easing. It is a policy that plain-speaking men would call printing worthless money.

There is no governor on the engine of the Federal Reserve's printing press and the speed with which it can crank out reams of worthless paper money is dizzying. However, unlike paper money, gold cannot be manufactured and it is of finite quantity. While this bodes well for the eventual rebound of the price of gold (assuming that it soon begins to descend), there can be little expectation that those who benefit most from a world marketplace dependent on dollars and pounds will allow gold to supplant these currencies as the coin of the realm. From their point of view, access to that resource must be restricted and dependence on printed money must be perpetuated.

The current debt crisis in Europe is an example of how the price of gold can benefit from currency's shortfall. The millions upon millions of dollars owed by Greece, Ireland, Portugal, and others in the eurozone devalues paper currency while artificially (perhaps) propelling the price of gold into the stratosphere.

That said, there is a good chance that any effort to sell off holdings in the precious metal by George Soros and others may convince others to dump their own investments in gold rather than run the risk of being found on the outside of the trade looking in.

In fact I'm sure this is exactly what that cagey cat George Soros is betting on.

“some gold/silver is indeed good insurance”

This just brings us back to my original question...please explain the “insurance” side of owning gold. In buying home owners insurance you are insuring against loss...how does owning gold insure you against loss? If gold is something that is bought and sold then does it not stand to reason that it also moves up and down in price based upon supply and demand...it was just a few years ago that the ads on TV were mostly about sending your gold in the mail to get extra cash (gold prices were cheaper and people were selling) and now the ads are trying to get you to buy (and prices have gone up)...if gold is such a great insurance then why are the ones that now own the gold willing to part with it?

“If you get a chance, read what happened at farms during the Wiemar republic”

I have read some but should probably read some more about it...but I have also read about the history of gold ownership in this country and that does not make me any more comfortable.

“It's much easier to hide a gold coin than a COW! lol”

Thanks for this line...it made me laugh...no cow under my mattress.

However, Americans could not take their Federal Reserve Notes to a Fed bank and trade them for gold.

No, you had to settle for 90% silver, at least until 1964.

This note is legal tender for all debts, public and private, and is redeemable in lawful money at the United States Treasury or any Federal Reserve Bank",

was later shortened to:

"This note is legal tender for all debts, public and private."

If I would buy gold with my profits at $1800 and then the price of gold goes to $1200 then how is that “protected against the eroding nature of fiat currency” any better then any other investment in real assets?

there is risk associated with anything and everything. Dairy farmers were pouring their milk down the drain during the depression because deflation had driven the price of a gallon of milk down so low that they couldn't make money selling it. That's why we have taxpayer funded Agricultural subsidies today. So what happens if don't have the money to pay those subsidies anymore?

I have had plenty of people tell me that buying gold was a bad idea. Back at $950/ounce, they were all wrong and I was all right. What am I saying? I'm saying that I will take my own advice and you can do whatever suits you. If that means becoming a farmer, then go for it. Like I said, i don't have time for that.

Incidentally, my grandmother was raised during the great depression. She came from a large family in Indiana. They were farmers and they were dirt poor. I mean they were REALLY POOR. Farming didn't pay the bills during the depression. She ultimately got a job at a bluejeans factory and saved up to obtain a college degree in nursing after which she went on to be an officer in the US Army Nurse Corps. She was at Pearl Harbor. She helped save the lives of soldiers injured at Okinawa, Guadalcanal, Iwo Jima, etc. She was, ultimately, the most successful member of her family. She was extremely smart and she managed to become successful during the great depression. She started out as a poor Indiana farm girl. (she was also a hard core conservative Republican). My point is there. You may need to look for it.

please explain the “insurance” side of owning gold

It's like any other insurance, you hope what you have it for never happens (e.g. collapse of the dollar).

A great thing about it though is that the coverage never expires and its value vs. the dollar most likely increases. And you can leave it to your chillins.

if gold is such a great insurance then why are the ones that now own the gold willing to part with it?

I think you may be confusing investing/trading with insurance. Traders sell their gold when they've reached a target price. They'll even go short until the price falls to a point where they'll go long again. Gold dealers on the other hand make most of their money as middlemen charging a premium over spot prices (Gold Eagles prices now are almost $100 per ounce over spot).

Gold Eagles also come in 1/10 ounce sizes and again, 90% Silver is an option.

My silver assets have quadrupled in value and the gold has doubled in less than three years. I still have some cash on hand - starting to worry about it loosing considerable purchasing power though.

If you figure your labor, small time farming doesn't pay. If you figure the value of living a good life, farming is a gold mine...

“there is risk associated with anything and everything”

Thank you...this I already know...and is why I do not understand the idea of gold being “insurance”. I understand gold as an investment...and I never said that I do not have some of it. Gold can be a good investment if it was bought at $950 and sold at $1800 but would be a bad investment if bought at $1800 but sold at $950. My issue is that gold is now being sold as insurance...as “the only safe place to put your money”...if it is the only safe place then why are the people with the gold so interested in getting rid of it...selling it to others. The real answer is because they know that gold is going up because demand is going up...if nobody wanted gold then the price would drop. This is why I do not look at gold as insurance.

Yes, farmers were pouring “milk down the drain” and they have since then as well...reduce the supply or increase demand and the price will go up in a true market place. The problem with the farm market today is the stupid subsidies...I was actually offered one so that I would mow my pasture instead of graze on it...I don't accept subsidies.

Thank you for the story about the family back ground. I too have relatives that made it through the great depression. Several of them made it through by raising some animals for food (and they all lived in big cities) and my in-laws made it by planting a field with beans that they hand picked so they could barter with others...the community was able to feed itself. The thing that I have noticed with all of these stories...including yours...is that all of them made it through the depression by working, learning and some form of community but none of them had the “insurance” of owning gold. So if we look at the history of the “average” person...gold is not the “insurance” that it is being sold as. If we go into another depression gold will not be the thing that sees you through it...God, family and work will be much higher on the list.

Thank you for the reply.

“It's like any other insurance, you hope what you have it for never happens (e.g. collapse of the dollar).”

Okay...and if the dollar collapses how is gold then valued? Would it not be valued based upon what it could buy? With that in mind, if the average person is just trying to put food on the table after a collapse would there really be much demand for gold? I would think that based upon supply and demand the “value” would drop...but who knows.

“And you can leave it to your chillins.”

I actually know a farmer that started with one cow and has lived his enter life off of the calves from the first cow. He now has a herd of around 50 cows and set up a couple of his children with the start of a herd for themselves. So I guess you can leave it to your “chillins” either way :)

“I think you may be confusing investing/trading with insurance”

Actually I understand the idea of gold as an investment and agree that at times it makes sense to invest in it. My issue from the very beginning is the idea of gold being “insurance”. The ads on TV are pushing this idea big time. But if we get to a point of collapse I do not see it as insurance for most people...it will become a false sense of security for most. If we get to collapse then all of us will have to work harder then we now are to take care of our families...even if we own gold.

“My silver assets have quadrupled in value and the gold has doubled in less than three years.”

Congratulations...you made some good investments, but at today's prices do you see it as a good time to get into the market? Do you see gold doubling again in three years?

“If you figure your labor, small time farming doesn't pay.”

Everybody has to spend the same amount of time each day doing something (we all start with 24 hours)...I spend some of that time farming and get a return from it...maybe not much but it is still something. Others spend that time watching TV, golfing, gaming, etc. and that is there choice...but we don't normally think of that as “labor” so we don't count it against our daily time.

“If you figure the value of living a good life, farming is a gold mine...”

I completely agree :)

“Gold is money”

I would agree that gold is money if people are willing to accept it as money...that still does not make it “insurance”. I see it as an asset that can be bought and sold...and like any asset the value of the asset is determined by the parties that are selling and buying.

“Why not compare gold to the coffee shop business or the chicken raising business?”

I was just using what I thought was a good example since the price for each was the same...I would not use a coffee shop as an example since I do not like coffee...as for chicken raising...I could make the same comparison since I raise chickens but then I would have to type a lot more to relay enough information about them...the cow example was easier.

I could have also used the comparison of how people view the value of their home...guess what, the value is what somebody is willing to pay for it...not what the government or bank think it is worth. But that is another discussion...

If we go into another depression gold will not be the thing that sees you through it.

a pocket full of Krugerrands and sovereigns will see you through a lot my friend. As every financial analyst says, at least 10% of your investment portfolio should be in gold. I would go so far as to say another 10% should be in silver. I would go even further and say that it should be physical gold and silver. Gold is at 1750/ounce. I'm not selling mine. not even at that price. There is nothing on the horizon but more chaos and inflation. Contrary to what you may believe, gold absolutely is insurance in such times. That's why it costs $1,750/ounce right now.

Okay...and if the dollar collapses how is gold then valued?

See Zimbabwe, Wiemar Republic (to name a few) for examples.

Do you see gold doubling again in three years?

Yep! Actually, it's highly likely it will do so in half that time. I expect that's when the 2.8T in new borrowing will be gone and Obama will be asking for twice that much more (a Six Trillion dollar increase). That is IF we don't see a collapse of the dollar before hand. If that happens, who knows how high gold will go.

Have you seen these clips?

Rollover-1981- Depiction of Global Worldwide Economic Collapse in 2011
The Day After The Dollar Crashes

Final Warning

Just sayin'...

“As every financial analyst says, at least 10% of your investment portfolio should be in gold”

Agreed...gold can be a good investment.

“I would go even further and say that it should be physical gold and silver”

Agreed...if it is not in your possession then all you have is paper, just like paper money.

“I'm not selling mine”

Are you buying?

“There is nothing on the horizon but more chaos and inflation.”

Agreed...things do not look good at this time.

“Contrary to what you may believe, gold absolutely is insurance in such times.”

Insurance against what? Lose of wealth? Even with gold you can lose wealth which means it is not true insurance. It is an asset and that is what makes it normally a good investment.

“That's why it costs $1,750/ounce right now”

It is at $1750/ounce because people are willing to buy it at that price right now...partially because they have bought into the idea of it being insurance...”the only safe place to put your money”.

I agree that having some gold might be useful in a depression if you could actually use it to barter with. But I think that there will be much better things to barter with...things people need to survive. I do not need my gold to survive.

Your story is interesting, but of very little use to one simply looking for a smart way to hold his savings.

Let me know how much I would have to pay someone to take care of a cow to earn several hundred dollars profit. They also need to insure againt vet bills and disease, as well as providing all the food and land needed.

My cost to store a gold coin is zero, because I own a house with locks, and lots of hiding places.

Insurance against what? Lose of wealth?

loss of capital through inflation, deflation, and economic collapse. Don't own any if you don't believe it.

Are you buying?

Nope. I own enough and I got in at $950/oz. I'm currently focusing on paying off my house as an investment. I might not make a lot of money on that investment but I won't find myself homeless either. I am focused on capital/asset preservation. I'm not trying to get rich.

It is at $1750/ounce because people are willing to buy it at that price right now...partially because they have bought into the idea of it being insurance

they have lost faith in fiat currency and its ability to create stability. They, therefore, anticipate chaos and gold has always been the place to be during such times.

I agree that having some gold might be useful in a depression if you could actually use it to barter with.

I won't be bartering for anything except cash. Guaranteed. should the need arise, I will trade my metals and other assets for an acceptable quantity of US federal reserve notes which I will then use to keep my ship floating through the troubled waters. even if it dropped to $1,000/ounce, I would still have preserved my wealth. It will not drop to $1,000/ounce btw.

“loss of capital through inflation, deflation, and economic collapse”

Okay...I understand that. I bought the hobby farm first to provide a great place for my family to grow, but it was also a great investment that should preserve my capitol as well.

“I’m currently focusing on paying off my house as an investment.”

If you sold the gold would you have enough to pay off the house? In my way of thinking, having the house paid off would be more insurance then having gold in my pocket...

From this post I think we are both aiming at the same thing...”asset preservation”...we are just approaching it from different angles and with different risks.

“they have lost faith in fiat currency and its ability to create stability”...”I won’t be bartering for anything except cash. Guaranteed. should the need arise, I will trade my metals and other assets for an acceptable quantity of US federal reserve notes which I will then use to keep my ship floating through the troubled waters.”

This is where I get confused...if fiat currency cannot create stability now, why return to using it when we will be in chaos? If the economy collapses and paper money becomes worthless, I as a producer would not accept paper money in payment for let’s say a dozen eggs...but I might accept a bale of hay or apples, or gas, etc...

I guess we will both just have to continue with our plans to preserve our assets...hopefully we will both do well.

Your post actually points out that you are using gold as an investment while saying you are using it as insurance...

“simply looking for a smart way to hold his savings.”...”take care of a cow to earn several hundred dollars profit”

You profit from investments...if you invest well...but you can also loss from investments. With both the cow and gold you stand the chance to gain or loss...both are investments. My issue is not with gold as an investment, but with the selling of it to the average person as “insurance”.

the economy would recover because we start paying off our bills...do you think gold would continue to go up or would it go down?

Gold is in a win, win position at the current time (because of QE and Fiat currency). If for some unthinkable reason (e.g. a limitless source of energy discovered) the economy absorbed the massive debt and turned around, inflation would necessarily have to increase - a lot. How does rising inflation affect the prices of precious metals or commodities? Answer, inflation in a booming economy increases the prices of precious metals (especially those with industrial usage like silver and platinum) and commodities

“That is IF we don’t see a collapse of the dollar before hand. If that happens, who knows how high gold will go”

Couldn’t this also be said about other hard assets?

Sure, if the dollar collapses, we'll see tremendous price dislocations. Example: If the masses raid farms (i.e. Wiemar), you'll see prices for farms plummet but prices for food items skyrocket. It will be one screwed up, dangerous, miserable mess to navigate through. On the positive side, maybe you could hire guards that will work for food to help defend your farm.

Let's hope/pray it never gets to the "Mad Max" level...

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