Recently, I blogged about why the U.S. government has a vested interest in keeping gold prices low (see my post What is gold price suppression? for more). Today, I offer up four signs that gold price suppression is actually happening:

1) Swiss miss? One of the strangest impacts of the news that Switzerland was pegging its currency to the Euro was the downward pressure it put on the price of gold. Before the news, the Swiss franc was generally regarded as one of the last strong currencies in the world, and the fact that it would no longer serve as a safe haven should have pushed gold up according to Hinde Capital CEO Ben Davies.

“Why was (gold) selling off just ahead of a really bullish announcement?” Hinde asked in an interview with King World News. “You have to believe that there was some coordinated action. When I say that, the central banks will all have been in on knowing ahead of time that the Swiss were going to announce this. So there was central bank selling because they really didn’t want the price of gold to skyrocket on what is incredibly bullish news for gold.”

Even Goldman Sachs’ head gold trader Zak Dhabalia was perplexed. “The immediate aftermath was in complete contradiction to prior recent episodes of intervention and what anyone would have expected,” he said (per Fool.com). “Instead of spurring a further gold price rally on the basis that it was one of the few remaining safe haven ‘currencies’ we saw a USD$50 collapse in minutes.”

2) Collusion among central banks. GATA.org is one of the most forceful advocates for transparency in the gold markets. And they’ve been trying for years to draw attention to comments by William S. White, former head of the monetary and economic department at the Bank for International Settlements. At a convention of central bankers in Basel, Switzerland, in 2005, White declared that a major purpose for cooperation between central banks is “the provision of international credits and joint efforts to influence asset prices – especially gold and foreign exchange.” GATA’s went as far as taking out a $264,000 full-page ad in the Wall Street Journal re-printing White’s comments (along with a few others).

3) Gold margin requirements. I constantly go back and forth on whether or not the COMEX is attempting to manipulate commodity prices by raising and lowering gold and silver margin requirements. On the one hand, the COMEX exists to make money for its parent company, the CME Group. When prices get too volatile the CME Group tries to shake out weak hands (and protect itself from losses) by raising margin requirements.

On the week of Sept. 19, though, news leaked out that the COMEX would be raising margin requirements on gold at the close of trading on Sept. 23. This information got out even after gold prices were already falling rapidly (and the rumors likely accelerated those losses dramatically). Having followed the gold and silver markets closely for four years, this is the first time I’ve heard of the COMEX “leaking” news about margin requirements. Granted, it could have been an accidental leak by a rogue insider, but the whole thing feels fishy – particularly since it helped contribute to one of the biggest sell-offs in gold since 1987.

4) The Chinese have figured us out. It’s interesting that gold price suppression gets sneers in the U.S., but the U.S. embassy in Beijing was alarmed enough by a newspaper editorial in China to forward it to the U.S. State Department. That happened in 2009 (according to a cable leaked by Wikileaks). The Embassy forwarded on the following snippets from the editorial that ran in a State-sponsored newspaper in China:

“The U.S. and Europe 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.”

It’s important to remember why central banks want gold prices suppressed: they need investors to maintain their faith in fiat currencies. Without that faith, an economy collapses, and few things erode faith in fiat currencies like a rapidly rising gold price.

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Tags: gold margin requirements, gold price manipulation, gold price suppression, Swiss Franc, WikiLeaks

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