Gold Wars

In 2001, the late Ferdinand Lips wrote the definitive expose on gold market manipulation. Many think gold manipulation is a conspiracy theory, only dreamed up in recent years. Those people are wrong and ignorant of history. Instead, gold price control and manipulation is a conspiracy FACT and it has been ongoing for over sixty years, since the introduction of the current, dollar-based global currency regime.

First, some background. As most of you know, I arrived at my awakening in an unconventional way. Most pundits and analysts first grasped the rationale for manipulation and then found proof in the market action. As a trader, I saw the market action and knew that it was manipulated…I just wasn’t sure why it was happening. I had to re-educate myself on monetary theory, Keynesianism and foreign exchange dynamics. Once I did that, all of the pieces fell into place and now, whenever I hear of someone who denies that gold (and silver) is manipulated, I simply shake my head and turn away as that person is either:

Not aware or unwilling to consider the documented history
Knows the history and is aware but instead chooses to deliberately misinform

A few weeks back, my friend Ned Naylor-Leyland sent me a copy of the book, “Gold Wars”, by Ferdinand Lips. Ned had read it over a decade ago and it sent him off on a path for truth, a path that has taken him to his position of prominence in the precious metals world. He implored me to read it as soon as possible.

What Mr. Lips has left for us as his legacy is a detailed history of the manipulation of gold, going back to the 1930s and accelerating with the Bretton Woods Agreement at the end of World War II. He details the attempts to control price (and dollar-gold exchanges) through the 1950s that eventually led to the creation of The London Gold Pool in 1961. The LGP was “funded” with gold from eight countries, half of which was supplied by the United States, and was set up specifically to provide physical supply for the gold market anytime that price threatened to break away from the $35 cap. Sound familiar?

Global demand for gold (again, sound familiar?) led to the eventual dissolution of the LGP in 1968 but attempts to control price continued. However, the U.S. government’s need for cash was so great that it’s printing demands escalated. This dollar devaluation prompted other countries, led by France, to demand more and more gold in exchange for their dollar reserves. Faced with the prospect of losing almost all of the United States’ gold through this Bretton Woods exchange mechanism, President Milhous I closed “the gold window” on August 15, 1971. The U.S. and, by extension, the entire world has been on a confidence-based, fiat currency system ever since.

Closing the gold window had the additional impact of making gold price manipulation even more important. The survival of the entire global currency system now relied upon trust and confidence. A sharply rising gold price was, and still is, a reflection of a general lack of confidence and trust in the viability of paper money.

And did you know this? In an attempt to spur Americans to re-acquire gold from the global market, President Chevy Chase signed a bill in 1974 making it legal once again for American citizens to own physical gold. The law went into effect on January 1, 1975. Do you know your history well enough to know when The Comex began trading paper gold futures? (It’s OK. I didn’t know this, either.) Trading in Comex gold futures was launched on December 31, 1974. Isn’t that handy? Well, anyway, Mr. Lips’ book is chock full of nuggets such as this one and it’s why I’m so emphatically recommending it to you today.

Here’s one more example. This is a copy and paste of pages 102-104. Read this first and then we’ll adjust a few things and have some fun:

Failure of the Greatest Bear Raid in History (1975-1976)

Meanwhile, the U.S. Treasury still thought it was stronger than gold. It announced its first gold auction at about the same time Americans were allowed to buy back what had been taken from them by Roosevelt. In December of 1974, a few days before U.S citizens were permitted to buy gold in any form, official Washington started its historic bear raid. When Nixon closed the gold window in 1971, the U.S. government was afraid of losing more gold. Now, the fear was that an additional appreciation of the gold price would further discredit the fiat dollar.

In the meantime, many Europeans were equally brainwashed and believed in the efficacy of the dollar again. In Europe, it was at least technically possible to buy physical gold. Again, the best- organized market was in Switzerland, where service was perfect in even the smallest branch offices in tiny villages. But there were also many statist hurdles to be overcome in Europe.

In many countries heavy value-added taxes (VAT) were imposed, which discouraged would-be buyers. In America, buying physical gold was not easy. There were so many hindrances that millions of would-be buyers gave up. The bank staff at the teller level was not well trained, but trained enough to discourage customers from buying gold. The public in general had no idea where gold could be bought. Many had never seen a gold coin in their lifetime. In short, buying gold was made very difficult. Even Paul Volcker did not know where to buy gold. One day he asked John Exter, former central banker and director of ASA, “John, where do you buy your gold coins?”

In a publication by the AIER Why Gold? by Ernest P. Welker, the bear raid and its failure are very well described:

Beginning in 1975, the United States, aided by the principal members of the International Monetary Fund (IMF), began a Bear Raid on the gold market of the world. It was a raid of unprecedented proportions and duration. The underlying purpose of this raid was to convince the citizens of the major nations that paper currencies are better than gold. Success of the operation would ensure that inflating by excessive issues of paper currencies could continue indefinitely.

Every effort was made to convince the public that gold is a barbaric relic, outmoded by the ingenuity of man in devising new, rational monetary systems.

Some economists predicted that gold would prove to be nearly worthless in the absence of an official demand for monetary purposes. Some observers suggested figures near $25 per ounce as the probable equilibrium price for gold based on non-monetary demand.

Monetary officials had good reason to devise and implement their bear raid. During 1973 and 1974, general prices increased in double-digit rates in most countries, and the price of gold rose more than 200%. There was talk in this period about the possibility of runaway inflation, a flight from currency, and a collapse of international monetary arrangements.

In January 1975, the first gold auction took place. Two million ounces were sold. In June of the same year a second auction took place with half a million ounces sold.

In August 1975, and in a further move to demonetize gold, the Group of 10 (G-10) leading industrial nations and Switzerland decided that official reserves of the G-10 and the IMF should not be increased. To the contrary, it was decided that the IMF gold stock should be decreased by 50 million ounces, of which 25 million ounces were to be sold over a four-year period. The first auction took place on June 2, 1976, and the last on May 7, 1980.

But gold was stronger. After having reached a low of $103.50, it started its historic upward move reaching a level of $430 in September of 1979.

OK, now I’m going to Copy and paste that section again. Only this time, I’m going to bring it up to current day with changes and emphasis added:

Failure of the Greatest Bear Raid in History (2011-2013)

Meanwhile, the U.S. Treasury still thought it was stronger than gold. It announced its first gold auction at about the same time Americans were allowed to buy back what had been taken from them by Roosevelt. In September of 2011, a few days after the credit rating of the U.S. was downgraded and the Swiss Franc was officially pegged to the euro, official Washington started its historic bear raid.When Nixon closed the gold window in 1971, the U.S. government was afraid of losing more gold. Now, the fear was that an additional appreciation of the gold price would further discredit the fiat dollar and fiat euro.

In the meantime, many Europeans were equally brainwashed and believed in the efficacy of the dollar and euro again. In Europe, it was at least technically possible to buy physical gold. Again, the best- organized market was in Switzerland, where service was perfect in even the smallest branch offices in tiny villages. But there were also many statist hurdles to be overcome in Europe.

In many countries (including India) heavy value-added taxes (VAT) and other taxes were imposed, which discouraged would-be buyers. In America, buying physical gold was not easy. There were so many hindrances that millions of would-be buyers gave up. The investment firms at the broker level was not well trained, but trained enough to discourage customers from buying gold. The public in general had no idea where gold could be bought. Many had never seen a gold coin in their lifetime. In short, buying gold was made very difficult. Even Paul Volcker did not know where to buy gold. One day he asked John Exter, former central banker and director of ASA, “John, where do you buy your gold coins?”

In a publication by the AIER Why Gold? by Ernest P. Welker, the bear raid and its failure are very well described:

Beginning in 2011, the United States, aided by the principal members of the International Monetary Fund (IMF), began a Bear Raid on the gold market of the world. It was a raid of unprecedented proportions and duration. The underlying purpose of this raid was to convince the citizens of the major nations that paper currencies are better than gold. Success of the operation would ensure that inflating by excessive issues of paper currencies could continue indefinitely.

Every effort was made to convince the public that gold is a barbaric relic, outmoded by the ingenuity of man in devising new, rational monetary systems.

Some economists predicted that gold would prove to be nearly worthless in the absence of an official demand for monetary purposes. Some observers suggested figures near $850 per ounce as the probable equilibrium price for gold based on non-monetary demand.

Monetary officials had good reason to devise and implement their bear raid. During 2010 and 2011, after the initiation of QE∞, general prices increased in double-digit rates in most countries, and the price of gold rose more than 80%. There was talk in this period about the possibility of runaway inflation, a flight from currency, and a collapse of international monetary arrangements.

In January 1975, the first gold auction took place. Two million ounces were sold. In June of the same year a second auction took place with half a million ounces sold.

But gold was stronger. After having reached a low of $1180, it started its historic upward move reaching a level of $??,??? in September of 2016.

Proof once again that though history may not repeat, it certainly does rhyme

By Turd Ferguson

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