Is the
Federal Reserve losing control of the gold
price?
By Paul
Craig Roberts
August
08, 2019 "Information
Clearing House"
- After years of being kept in
the doldrums by orchestrated short selling
described on this website by Roberts and
Kranzler, gold has lately moved up sharply
reaching $1,510 this morning.
The gold price has continued to rise
despite the continuing practice of dumping large
volumes of naked contracts in the futures
market.
The gold price is driven down but quickly
recovers and moves on up.
I haven’t an explanation at this time for
the new force that is more powerful than the
short-selling that has been used to control the
price of gold.
Various
central banks have been converting their dollar
reserves into gold, which reduces the demand for
dollars and increases the demand for gold.
Existing stocks of gold available to fill
orders are being drawn down, and new mining
output is not keeping pace with the rise in
demand.
Perhaps this is the explanation for the
rise in the price of gold.
During
the many years of Quantitative Easing the
exchange value of the dollar was protected by
the Japanese, British, and EU central banks also
printing money to insure that their currencies
did not rise in value relative to the dollar.
The Federal Reserve needs to protect the
dollar’s exchange value so that it continues in
its role as the world’s reserve currency in
which international transactions are conducted.
If the dollar loses this role, the US
will lose the ability to pay its bills by
printing dollars.
A dollar declining in value relative to
other countries would cause flight from the
dollar to the rising currencies.
Catastrophe quickly occurs from
increasing the supply of a currency that central
banks are unwilling to hold.
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One
problem remained. The dollar was depreciating
relative to gold.
Rigging the currency market was necessary
but not sufficient to stabilize the dollar’s
value. The gold market also had to be rigged. To
stop the dollar’s depreciation, naked short
selling has been used to artificially increase
the supply of paper gold in order to suppress
the price.
Unlike equities, gold shorts don’t have
to be covered. This turns the price-setting gold
futures market into a paper market where
contracts are settled primarily in cash and not
by taking delivery of gold.
Therefore, participants can increase the
supply of the paper gold traded in the futures
market by printing new contracts. When large
numbers of contracts are suddenly dumped in the
market, the sudden increase in paper gold supply
drives down the price. This has worked until
now.
If flight from the dollar is beginning, it will
make it difficult for the Federal Reserve to
accommodate the growing US budget deficit and
continue its policy of lowering interest rates.
With central banks moving their reserves from
dollars (US Treasury bonds and bills) to gold,
the demand for US government debt is not keeping
up with supply.
The supply will be increasing due to the
$1.5 trillion US budget deficit.
The Federal Reserve will have to take up
the gap between the amount of new debt that has
to be issued and the amount that can be sold by
purchasing the difference.
In other words, the Fed will print more
money with which to purchase the unsold portion
of the new debt.
The creation of more dollars when the dollar is
experiencing pressure puts more downward
pressure on the dollar.
To protect the dollar, that is, to make
it again attractive to investors and central
banks, the Federal Reserve would have to raise
interest rates substantially.
If the US economy is in recession or
moving toward recession, the cost of rising
interest rates would be high in terms of
unemployment.
With a
rising price of gold, who would want to hold
debt denominated in a rapidly depreciating
currency when interest rates are low, zero, or
negative?
The
Federal Reserve might have no awareness of the
pending crisis that it has set up for itself.
On the other hand, the Federal Reserve is
responsive to the elite who want to rid
themselves of Trump.
Collapsing the economy on Trump’s head is
one way to prevent his reelection.
Dr. Paul Craig Roberts was Assistant Secretary of
the Treasury for Economic Policy and associate
editor of the Wall Street Journal. He was
columnist for Business Week, Scripps Howard News
Service, and Creators Syndicate. He has had many
university appointments. His internet columns
have attracted a worldwide following. Roberts'
latest books are
The Failure of Laissez Faire
Capitalism and Economic Dissolution of the West,
How America Was Lost,
and
The Neoconservative Threat to
World Order.
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and support Dr, Roberts Work.
The
views expressed in this article are solely those
of the author and do not necessarily reflect the
opinions of Information Clearing House.
