In this version of reality, we have a useful idiot who appears to stumble upon incontrovertible evidence of what anyone who was around in 1971 already knows: that the Federal Reserve is "managing" the gold price via futures and leasing arrangements. This is seized upon by the great unwashed as some nefarious plot, and transformed into a major money maker by those who know a ready audience when they see one. The operative model here is evangelism, but in its secular form. This turns up the heat on both gold and silver, and we have a bull market.

This bull is allowed to run, while simultaneously being fed snippets of "intelligence" to create the appearance of a Fed that is losing control. Rumors of naked shorts emerge. Convenient evidence is unearthed. The blog-o-sphere is a-buzz. Clever sages pontificate while the herd nods appreciatively. Everyone's making money. Everyone's happy.

Mission accomplished.

What mission is that? To raise the price of gold as high as possible before foreign central banks can accumulate significant amounts. This raises the cost of moving to a gold standard, in effect slowing down movement in that direction. Furthermore, since gold is priced in dollars, foreign nations have to acquire an ever increasing amount of dollars to purchase gold, which works to support the dollar in currency terms. Altogether, this acts as a brake on US dollar depreciation. The fact that other nations are also depreciating their currencies means that this dollar recycling operation can continue as long as the price of gold keeps rising.

The ultimate goal is in fact a return to a gold standard, but gradually, and in such a manner that the US dollar retains its reserve status. For this to happen, there has to be enough gold in foreign hands to back their currencies, but not enough that the position of the US dollar is threatened. The question then arises: how much gold does the US really have? Do they have enough, or can they acquire enough to maintain their position? Legend has it that they don't, but has anyone seen an audit? The assumption is that there isn't as much as claimed, but that's just an assumption. What if it's true though? They have other gold at their disposal. Yours, for example. Given a choice between lending your gold to the government or being taxed at a confiscatory rate, what choice do you have? The stroke of a pen is all it would take. I doubt it goes that far though. I'm sure they have much more than they're letting on.

So, where does silver fit into all of this? Silver is the diversionary play - the flywheel. When gold gets too far ahead, silver gets whipped into a froth (easy to do -it's a small market) which draws speculators away from gold, then hands them losses or traps them in long positions when support is pulled, as we've recently seen. This takes the edge off speculation in both metals, and returns the rise in gold to a more sustainable pace.

Take it or leave it - like every other theory, it's based on a wide range of unproven, possibly unprovable assumptions. It does have one major advantage though. It credits the monetary and banking powers with more intelligence and cunning than the pundits and "mavens" who claim to have a fix on what's really happening. Frankly, it's laughable to think those guys could ever gain access to the inner workings of the game, and for the most part, I doubt that's their real motive. As long as the game's afoot, they're getting paid to spin their stories, most of which amusingly, do yeoman's work if my theory is anywhere close to the truth.

ebear