The most explosive story of this past week was the public hearing held by the Commodity Futures Trading Commission, the CFTC. The discussion focused on large concentrated short positions in the marketplace held by major bullion banks, and whether these positions are indicative of market manipulation, and if so, should the CFTC impose position limits to curb such manipulation. At the heart of these hearings were presentations made by Bill Murphy and Adrian Douglas of GATA - the Gold Anti-Trust Action Committee. For 11 years, GATA has documented, using evidence on the public record, how gold and silver prices have been artificially suppressed through excessive short positions by major bullion banks. This has resulted in gold and silver being kept artificially low, and the dollar, along with other world currencies, artificially high.
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But it doesn't stop there. Later in the hearings, it was disclosed through questions and information presented by Adrian Douglas, that the London Bullion Market Association, the LBMA, trades, on a net basis each year, $5.4 trillion dollars. That's about half the size of the US economy. And on a gross basis the LBMA is about 1.5 times the size of the US economy. This makes gold the biggest commodity market in the world. How can it be so large when gold is apparently such a tiny market? One word: Leverage. Adrian explained how the LBMA is in effect, the equivalent of a fractional reserve ponzi scheme that is leveraged at 100 to 1. In other words, for every 100 ounces of paper gold that is sold, there is only one ounce of real gold to support it. This means there are 100 claims on every ounce of real gold that exists.
These numbers were validated by Jeffrey Christian, a gold expert at the CBM Group, whose comments verified that the London Bullion Market Association is leveraged 100 to 1. Ironically, he was not concerned with a default, because numerous mechanisms exist for cash settlement. According to Adrian, a cash settlement is the very definition of a default.
The greatest market manipulation of all time is about to unwind before our very eyes. It is unsustainable. Leverage of 100 to 1 will put the future price of gold at levels even the most enthusiastic gold bulls cannot imagine. Chris Powell, the secretary treasurer of GATA says that when you understand the implications of the gold price suppression scheme, you understand the secret of the financial universe.
Perhaps that's a secret someone doesn't want too many people to know about just yet. In 5 1/2 hours of CFTC testimony, the internet video feed miraculously went out 1 minute before Bill Murphy's testimony and came back shortly thereafter. Most people use windows media player. That feed went out, including mine. I switched to the alternative feed using real player and captured both sections of Bill Murphy's testimony. You can watch them on my web site at ConquerChange.com.
This is going to be an explosive year for the price of gold and gold related assets. When gold explodes to the upside many will try to blame gold for the ensuing financial crisis. However, you cannot reverse the law of cause and effect. Gold's function as a financial thermometer will simply be making up for lost time from years of suppression. The true culprits are the very individuals and organizations who have managed the price of gold since the mid 90's to create a false sense of economic security which has led to the moral hazard facing us today.
The hall is rented. The orchestra is engaged. Are you ready to dance?
