Economic News

With physical gold demand soaring last month in India and with central banks, how long can the cartel keep prices suppressed in paper markets

Back in 1980 the Hunt Brothers helped drive up the price of silver by attempting to corner the market before the CFTC came in and changed the rules.  Now that same agency is doing the opposite by allowing the banking cartel to summarily suppress prices without intervening to stop the manipulation.

But as with all markets and asset classes artificially controlled by a small group of players (often called a Monopoly in financial terms), the consequences usually result in extremes… as seen with the silver price nearly hitting $50 per ounce 48 years ago, and today that same metal now being held down an estimated $250 – $500 below what it would be if adjusted for inflation.

Depending on the gold/silver ratio used gives a broad array of inflation adjusted silver prices. The tables below shows the currency/gold ratio and the corresponding silver price using a gold/silver ratio of 40, 25 and 15. The gold/silver ratios of 40, 25, and 15 were chosen because when the gold price equaled the currency/gold ratio in 1983 the gold/silver ratio was 38. In 1979, when the gold price equaled the currency/gold ratio, the gold/silver ratio was 23. Finally, in 1980, when the gold price was 214% higher than the gold/currency ratio the gold/silver ratio was 15. – Seeking Alpha

So with this in mind the only question that remains is, what will happen to the price when the manipulation either stops voluntarily, or is forced upon the cartel when supply reaches near zero?  And that move towards dangerously low levels of supply is coming upon us very fast.

Central banks remain noted gold buyers and there are signs of demand picking up in India, says Standard Chartered Bank. Goldprices have fallen lately, which the bank blames on U.S. dollar strength. “Physical demand will be key to tracking how solid the floor for prices is, but in the seasonally slow period for demand, it will likely be fragile,” Standard says. “The exception here is potential demand growth in Turkey amid political and economic uncertainty. In an environment lacking strong investment demand, physical demand sets the price. But not everyone is selling gold – central banks added to reserves in May, demand in India has shown signs of life, and risk reversals suggest there is some hesitant appetite to establish long positions.” Gold prices started to edge lower in May and India’s gold imports rose by 36% that month compared to April, Standard says. Imports were down 31% year-on-year. However, Standard says, “If demand does pick up significantly counter-seasonally, inventory will likely be depleted quickly, pushing local premia higher.” Meanwhile, International Monetary Fund data show that central banks continued to add to their gold reserves last month, Standard says. Russia was the largest buyer, adding 18.4 tonnes, taking year-to-date purchases to 89.5 tonnes. –Kitco

Price suppression has made retail sentiment nearly non-existent for gold or silver outside of a few countries like India and China.  But since central banks are quietly accumulating it hand over fist, to be of any real use as either a monetary reserve or to back their currencies would mean that prices must be finally allowed to rise, and eventually go to their fair market levels.

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