Anyone who acknowledges gold and silver manipulation in their articles at least has integrity.

Regards - VHF

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Gold's Drop Temporary

Patrick Heller

February 7, 2011

The prices of gold and silver dropped last month, similar to what they did at the beginning of 2010. Gold reached its recent low at a bit over $1,300 and silver bottomed below $26.50. Both are now recovering.

There are several indicators that the decline occurred because of market manipulation rather than the free market choices of investors. Some of these same indicators point to short-term increases that may break the Jan. 3 all-time record high price (ignoring inflation, of course) for gold and the 31-year high for silver.

Among the factors that indicate that markets were manipulated are:

• The consistency of the timing of major price drops during the 24-hour trading cycle. One major point was upon the opening of the London market, which occurs at 3 a.m. Eastern. The second is between the London a.m. and p.m. fixes. The third typical time of falling prices started about 30 minutes after the close of the New York COMEX. Free markets, with millions of potential traders, just don’t operate that way.

• The huge decline in the gold holdings of the GLD gold exchange traded fund. My suspicion is that this physical gold was obtained and used by the trading partners of the U.S. government to dump on the market to help suppress prices.

• The continuation of the drop in gold and silver prices in advance of the announcement of the January U.S. employment and unemployment report and the attempt to repeat this process again for the release of February’s report last Friday.

• The continuing suppression of 10-year U.S. Treasury debt interest rates below 3.5 percent and the almost constant daily increase in the closing Dow Jones Industrial Average, no matter whether the financial news was good, gloomy, or neutral. As all this price suppression was occurring, demand for physical gold by our customers (and dealers across the country) declined. However, demand for physical silver was still healthy. The U.S. Mint set a one-month silver American Eagle sales record of more than 6 million coins. Demand for physical gold and silver by Far East buyers continued unabated. If gold and silver prices were being artificially suppressed, it cannot go on forever. There are a number of indicators that those behind such suppression tactics are now in temporary retreat:

• In a Freedom of Information Act (FOIA) lawsuit filed by the Gold Anti-Trust Action Committee, Inc. (GATA) seeking information about gold swap activities by the Federal Reserve, a Federal District Judge last week issued a decision on a motion by the Fed to dismiss the suit. Of 10 specific documents that the Fed sought to exempt from disclosure, the judge sided with the Federal Reserve on nine of them. On the 10th document, the judge ordered that the Fed release it to GATA by Feb. 18. Beyond gaining access to this document that the Fed tried to keep secret, GATA also learned the nature of the other nine documents. The list indicates that the Fed has been actively involved in negotiating gold swap arrangements with other central banks during the time period covered by the FOIA request, from 1990 to 2009. The list of the non-disclosed documents proves that the Fed has been lying to the public about claiming to not be involved in potential gold swaps.

• COMEX silver inventories continue to decline. They have now dropped more than 10 percent since the middle of last June. Dealer inventories are sufficient to cover only 6.6 percent of open contracts, compared to coverage in the past that frequently ranged from 10-15 percent of open contracts. COMEX warehouses also have “eligible” inventories, which are owned by parties who are not liable to fulfill COMEX contracts. The investors who own these may choose to make their silver available to deliver against maturing COMEX contracts, but are not required to do so. In fact, I am hearing stories that an unusually high percentage of the eligible inventories are largely committed to be delivered to their owners or to other parties to whom they have sold them.

• COMEX silver contracts are now in extreme backwardation, where the spot month price is now higher than almost all future contracts going out to 2015. In normal markets, called contango, future month prices are higher than the spot month by roughly the interest rate currently in effect less a factor for storage costs. For the spot month price to be higher than some future months indicates a physical supply squeeze. For the spot month price to be higher than almost all future months indicates a long-term major supply squeeze.

• Availability of physical silver is taking longer. The U.S. Mint is rationing silver Eagles, so that it now takes one to two weeks to receive sizable orders. Silver bar orders are also mostly on a delayed delivery basis. The trend is moving toward longer delivery times.

• Gold and silver prices started to rise just before the release of the February U.S. employment and unemployment report. At the same time, the 10-year U.S. Treasury debt interest rate rose above 3.6 percent and could not be manipulated back below 3.5 percent.

In years past, it was possible to push down gold prices 5-10 percent or more and keep them down for multiple months. In 2009 and 2010, suppression tactics typically only worked for a few hours up to maybe two days. Even with the multi-week decline of gold and silver prices in January 2011, the price of gold did not fall below $1,300, a price record which gold had never reached before Sept. 28, 2010.

Similarly, even though the price of silver fell by a larger percentage than gold, it never fell below levels at which it traded before the November 2010 elections, except for the brief peak in early 1980.

Consequently, January’s temporary dip in gold and silver prices was much milder than the rounds of price suppression we saw in the 1990s and from 2000 through 2008. And they were milder even in the face of extraordinary blatant efforts to push prices down as far as possible. Now that is appears that the massive manipulation efforts have largely ended, expect to see gold and silver prices recover quickly. I expect them to reach new record levels sometime between the last week in February and the end of March.