Friday, July 27, 2018

The tables turn for gold holders as it appears that China, more than the U.S., is manipulating gold prices to protect their currency

The primary reason that the U.S. demonitized gold and tied its price to the Futures market was to protect the dollar as the nation embarked upon a 40 plus year program of credit expansion and devaluation.  Yet even with this process of detouring gold into the realm of commodities over that of money, there have been certain times where even the central banks and powers that be lost control over the price such as in 1980 and 2011.

Prior to the 1970's, inflation was something that even the Fed found abhorrent and worked extremely hard to cull anytime economic expansion created higher prices.  But once the U.S. was removed from the gold standard, the opposite occurred since debt requires inflation and ever expanding money supplies to be able to afford to pay off these obligations with inflated currency.

When the Great Recession hit following the 2008 Financial collapse, deflation had reached a point where the dollar fell to 72 on the dollar index and gold prices skyrocketed to around $1940 per ounce.  And with the central bank finding itself forced to engage in a credit expansion program that would entail the creation of $10's of trillions in printed money, something had to be done to keep trust in the dollar while at the same time moving sentiment away from the growing trend for people to store their wealth in gold.

Thus the futures market began to allow naked shorting on a scale never before seen in history, and subsequently manipulation of gold and silver futures contracts led to not only the price falling nearly 50% in a short period of time, but sentiment for the precious metals was nearly wiped out as well.

Fast forward to 2015.

In late 2015 China expanded the Shanghai Gold Exchange to engineer its own gold futures contracts which unlike those in London and Chicago, guaranteed the potential for delivery if customers so chose.  And within a year and a half China became the world's largest physical gold market, even charging higher premiums than what was stated each day out of London.

Additionally, over the past 12 months it is appearing that China has tied their currency to the price of gold, and it is likely that the recent fall in gold prices are tied not to U.S. manipulation, but rather from China as they embark on a major devaluation of the Yuan.
Now that China seems to have seized control of the gold price, capping and suppressing it to knock commodity prices down, thereby easing the de-facto devaluation of the yuan in China’s trade war with the United States, the gold sector is more demoralized than ever. The only pulses left in the sector seem to belong to mining executives and internet sites touting shares to an ever-diminishing audience. – Silver Doctors

The fact that central banks through their primary dealers (bullion banks) must manipulate the gold price to protect their own currencies validates that gold is (and always has been) money.  And so when we look to what factors in the future will push gold prices higher, and back up to where they should be minus the years of intervention, then we must look at the currencies for that answer, and in particular, those of the dollar, and now also, the Chinese Yuan.


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