Last week, gold saw a nearly 17% price drop in just a few days of trading. This spawned a massive sell off and had some people wondering if gold was truly the safe bet they had been told it was. Unfortunately, those sellers did not realize that the Federal Reserve has been attempting to kill the price of gold to save the dollar.
The Federal Reserve has been printing 1,000 billion dollars a year causing massive inflation in the U.S. economy. Foreign powers are ditching the dollar and until recently, gold had been standing tall as an alternative. The unexpected crash in the gold market was a shock to everyone, except Ben Bernanke. Bernanke is attempting to destroy the competition. But wait, is that even possible? Gold is real money and its value can’t truly be destroyed…right?
Well, sort of. It depends on if your gold is on paper (digital) or if it’s under your mattress. While no decent financial adviser would advise you to keep your gold bullion under your bed, the simple fact is, you know it is actually there. The Federal Reserve can force its dependent bullion banks to manipulate the prices of gold “on paper” even though it has no correlation with the actual supply and demand of physical gold.
How the Fed manipulates gold prices
Alchemist of ages past claimed that they could turn worthless metals into gold. Though the pseudoscience died out quite some time ago, it has been revived by the Federal Reserve with a highly frowned upon, but overused practice called naked short selling.
Naked shorting is selling something before you actually have possession of it. In our gold bullion example, a bank can sell gold it does not physically have because they know you will most likely never ask for it. Many well-intentioned buyers put their money into the COMEX gold market and it literally disappears. They keep it in the markets and do not ask for delivery so there is no guarantee that the gold actually exists or ever did exist.
Even with gold marked registered, there is no actual proof that it has a dedicated claim to it because the amount of gold actually delivered is less than 10%. If you own gold marked as registered, someone else could own that very same gold. If all gold “owners” were to demand delivery, it is very likely that many would be going away empty-handed.
The fact that less than 1% of commodities are settled by physical delivery leaves gold and silver markets sensitive to interference from the Fed. The recent dip in the gold market is a direct result of the Federal Reserve forcing bullion banks to short sell gold, making it possible for the banks to sell it at whatever price they want and the lower the better says Ben Bernanke. According to him, gold is an awful waste of resources.
When it comes to advice from people like Bernanke, try to remember the Latin phrase, cui bono, “to whose benefit?” George Soros told the world that gold was the “ultimate bubble” in 2011, but he immediately went out and increased his gold investments to $680 million as the markets dipped on his advice. It is also very interesting to note that the $8.5 billion Soros Fund Management was able to sell off more than half of its gold shares in February of this year, two months before gold prices sank to an all time low. Was it just good timing?
What this means to you
If you are holding on to physical gold, it is more valuable than ever. If your gold is in the paper markets, you might want to wait out the storm, but paying attention to the Federal Reserve’s assault on gold is key. When gold returns to the supply and demand based market, even your paper gold will be worth a fortune.
Paper gold is susceptible to manipulation by people who are trying to restore faith in the dollar. The Fed’s methodology is something like trying to save a sinking ship by throwing more water onto the deck, and we don’t expect them to figure that out anytime soon.
But if you need another reason to feel secure about physical gold markets: The Chinese are still buying it like crazy.
From the China News, “Beijing gold stores sell 20,000 grams of gold bullion in just two hours, trading a volume of nearly 200 million.”
From YCWB.com, The city of Guangzhou is on a “catalytic gold grab.”
Even Ron Paul says he’s hanging on to his gold.