From the outset of this essay, I would first like to point out the notable selfless effort and time that some good people before me have invested in this most noble pursuit for the truth. This essay would not be possible without the yeoman's work of
Have any of you ever read the essay by Dana Allen titled, How the Soviet Empire's Fall was Engineered? If you haven't, I [like Steer] would suggest to you that it's a must read - which I've
Instead of framing this essay as a simple story about gold and price fixing, I would like to expand on Steer's efforts with a few telling observations of my own that dovetail quite nicely, at least in a geopolitical sense, with Ed's already credible thesis woven around the disappearance of Canada's sovereign gold. This essay will also serve to add more context to a prior piece I penned entitled,
Table 1. Compliments of Ed Steer
Take note that the GSE or Not to GSE article referenced above begins, on a time frame basis, roughly with the time period of mid term elections in the first Clinton Administration [when Canada's sovereign gold has been largely exhausted]. The article cites Lawrence Summer's academic work done at Harvard with Barsky as it relates to Gibson's Paradox, interest rates, dollar policy and gold price fixing. Ed Steer's research along with Dana Allen's essay was the seed for that piece - and explains where the thought process [I prefer the term beta test] likely originated for Summer's and Barsky's academic efforts.
What is clear to me is in the 1980's during the Reagan administration, the strategic commodities of gold and oil were, in a sense "weaponized". Stated differently, their prices were surreptitiously managed down to the point that the Russian Bear had no viable/profitable means of generating hard currency [US dollars]. This is graphically illustrated in table 1 where the price of oil virtually collapsed in 1986. Reagan, hell bent on defeating communism, had proposed the advancement of "Star Wars" technology [a different word for an arms race] which in theory could have rendered Soviet weaponry obsolete - so they needed to "spend" to keep up. The pursuit of Star Wars technology along with other supply side experiments [like arms for the insurgent Mujahideen in Afghanistan] the Reagan administration was vigorously pursuing was driving unprecedented budgetary deficits by the mid 1980's.
The potent mix of deficit spending [money creation] along with energy price shocks in the 1970's had nearly dissolved the economic foundation of the entire capitalist world through a severe inflationary induced recession. While the price of oil had been brought under control by the mid 1980's, the price of gold was surging from roughly 300 to 500 dollars between 1985 and 1987. The gold surge largely resulted from the 1985's Plaza Accord [G-5, Canada not included] and subsequent devaluation of the US dollar. In the face of continued relentless deficit spending, another inflationary spiral might well have taken root. While official gold sales were factually occurring with increasing regularity "behind the scenes" with their importance being downplayed - meanwhile, the public face being spun in foreign exchange markets had morphed by early 1987 when the
I view this reality as nothing more than official acknowledgement that "Gold" buys respect on the world stage in all affairs relating to economics and global finance. What a pity that my country, Canada, has cashed in their chips so to speak. Just recently
[Ed. Note: Well folks, there's an argument to be made that the G-5 became the G-6 because Canada had GOLD. Now, without gold, we in Canada are quite possibly facing the prospect of being jettisoned from this elite group of seven? At least the idea is being circulated. Does this not strike anyone as being odd?]
Simply raising interest rates [as was prescribed and successfully implemented by Fed chairman Paul Volker to stamp out inflation years earlier] to stem inflationary pressures along with the dollar's decline brought on the stock market crash of 1987. It would appear the heightened level of indebtedness had somewhat dulled the effectiveness of the customary use of raising rates as a means for reducing inflation, real or anticipated. As a result, increased and more aggressive gold sales were likely chosen to "mask" existing/continuing inflation and put a floor under the dollar while at the same time depriving the Soviet Bear of much needed hard currency.
In the 1980's the closed economy of the Communist Soviet System was not self sustaining and hence required trade, at a bare minimum in some commodities critical to them, with the west. It's hard to overlook, the Soviets also had their hands full on the military front, fighting an unrelenting U.S. funded insurgency in occupied Afghanistan. This type of military adventurism was then, as the Americans are learning on a couple of fronts today, ruinously expensive. During the 1980's, western governments were categorically running monetary policies tilted towards or biased [through deficit spending] to inflationary outcomes and expectations. Under these circumstances, in the absence of manipulation, gold would and should have been increasing in price, fulfilling its historic function as a barometer for inflation, throughout the 1980's.
Oil and gold were virtually the only two commodities the Soviets produced in sufficient exportable quantities that were readily "saleable" in the west. Crippling Soviet gold and oil revenues effectively drove them into bankruptcy which resulted in the fall of the Berlin Wall. The costs of maintaining an Empire had simply overwhelmed the Soviets, just like it had the Egyptians, Romans, Spaniards, French and English before them. Believe it or not, the failures alluded to above only mirror the success rate of fiat currency regimes since they've been known to mankind. Given these historical 0-fer success rates, we should all wish the Americans well - and good luck - in Iraq and Afghanistan and where ever else they end up next.
[Ed. Note: While the fall of the Berlin Wall was widely reported in America as the official end of the Cold War and the defeat of communism; it had little or zero effect on bringing down another more enduring symbol of communism, namely the Great Wall of China].
Another thing that has become abundantly clear in my mind is that the Russians [Putin] are nowadays more than well aware how they were "done in" at the hands of the vaunted American led/engineered price fixing [gold and oil] scheme in the 1980's - and they've taken something away from the experience.
First, they're publicly on the record acknowledging their awareness that nefarious price rigging in the gold market is a practice continued to this day by the U.S. government or its auspices at the Fed and Treasury. This point was made publicly in a speech by Oleg V. Mozhaiskov, Deputy Chairman, Bank of Russia at a meeting of the London Bullion Market Association [LBMA] this past June 3-4, 2004 in London, England. In his speech, Mr. Mozaiskov asserts the position of the Bank of Russia that gold prices would be some 200 or more dollars higher per ounce if the gold market were free of surreptitious interference. When
Now, I would like you all to consider what's occurring right now - as it relates to the long and prolonged downward slide the U.S. dollar [as measured by the U.S. dollar index or USDX] has been on over the past 3 years. Once again, in the face of mounting U.S. budgetary and trade deficits, the U.S. dollar has declined in value to multi-year lows [80.00] against the constituents of the index, shown in table 2, it is measured against.
|US Dollar Index (USD)|
|Table 2: Constituents With Weights - USDX|
|The U.S. Dollar Index® is computed using a trade-weighted geometric average of six currencies. The six currencies and their trade weights are:|
At the time of writing, the USDX has "bounced" off 80.00. What I would like to point out to you, dear reader, is the following:
• The recent upward bounce of the dollar has occurred in every "free floating currency" with the exception of the Russian Rouble. In fact, the Russian Central Bank has just recently allowed its currency to begin fluctuating in value against the US dollar.
• While the U.S. dollar has had its biggest uninterrupted positive move [over the past 3 days] versus the Euro in a year - and moved up smartly against virtually every other currency - it has in fact declined against the Russian Rouble. I feel that technical analysis fails to explain this.
• I would suggest to anyone who wants to listen that the most recent up tick in the USDX from 80.00 to roughly 83.25 is not merely the result of the US dollar being "oversold" at 80.00. If this were truly the case, one would logically expect the Rouble to "sell off" against the dollar with the rest of the currencies. The fact that it did not suggests that COORDINATED INTERVENTION IS LIKELY RESPONSIBLE FOR THE US DOLLARS RECENT SHOW OF STRENGTH.
|US/CAD||Recent Cad $ high of 1.1900||1.2344|
|US/Euro||Recent Euro high of 0.7370||0.7590|
|US/Yen||Recent Yen high of 102.25||105.10|
|US/Rub||*Currently at its recent high*||27.76|
Table 3: Selected Fx quotes
• Ladies and gentlemen, I would suggest to you all that the Russian Central Bank is simply not playing along in the coordinated elitist interventionist game in this latest round of foreign exchange price management. This is all likely being orchestrated by Central Banks!
Failure of the US dollar to break below 80.00 after a few attempts resulted in some highly followed and admired technically oriented traders [whom I completely respect so they shall remain nameless] to start making proclamations [based in technical analysis] such as:
"So out of respect for the market, let me give you a mini-max on the US dollar counter-trend weak hand short squeeze rally."
Minimum rally to .8400
Medium point potential to .8600
Maximum point to .8800
*So why wouldn't the Russians be willing to play along in this elitist game of currency rigging? Are the Russians trouble makers? Are the Russians slow learners at technical analysis? Do they not have the play book? Perhaps it's a case of "once bitten, twice shy?" Or has the discipline of technical analysis, in effect, betrayed itself - by its very nature predictably telling would be price fixers with adequate resources where they can turn would be buyers into willing sellers by achieving certain thresholds [aka: chart painting]. I suspect one of the underlying assumptions in technical analysis is that folks who trade do so to maximize profits. In this context, one should remember that price riggers do not necessarily care whether they maximize their paper profits or not. By their very nature they are generally in the business of printing as much of their fiat money as they need anyway.
Perhaps the Russians are really smarter than any of us think they are? The record shows that while their foreign currency reserves have been increasing [the result of a balance of trade surplus], they have been reducing their holdings of US dollars and they have been also increasing the percentage of foreign reserves denominated in GOLD.
Perhaps the Russians are leery with the manner in which the price of oil has fluctuated recently on world markets? Its "free market price" skittish behavior has strongly resembled that of the major currencies and gold which are highly suspect to be more or less "rigged".
The Russians have recently been making overtures about changing the way they do business in oil; debating whether or not they may soon price their sovereign oil exports in Euros instead of US dollars.
Perhaps when the Anglo - American fiat currency system completely collapses on top of us all, due to the sheer weight of unending and mounting debt/money creation - we will all finally get to see for ourselves that Fort Knox been emptied of gold right under our noses for some noble cause. If I was a betting man, I'd wager a roll of quarters that the Strategic Petroleum Reserve is missing a few quarts [or bone dry with an IOU swap left in its place] of crude oil too.
Perhaps the Russians have a better handle than anyone as to how much gold there is remaining in western world central bank's vaults? Perhaps that number is much less than anyone has ever guessed it to be? Perhaps this is why the Russian Central Bank is buying gold bullion? So many questions.
Then again - perhaps not - maybe soothsayers like newsletter writer Dennis Gartman are correct when they claim that conspiracies are rarer than hen's teeth? Perhaps there never really was such a thing as a grassy knoll? Maybe we all win lotteries and live life happily every after! After all, lottery odds are better than the ones you get for long term success in either Empire or Fiat.