Le Metropole Members,

A great day at the CFTC, and another one's coming
Submitted by cpowell on Fri, 2010-03-26 01:15. Section: Daily Dispatches
9:36p ET Thursday, March 25, 2010

Dear Friend of GATA and Gold (and Silver):

A few observations by someone who caught most of today's CFTC hearing via telephone conference call. ...

1) The plug seems to have been pulled on the CFTC's Internet video feed just as GATA Chairman Bill Murphy was called to speak. (The audio feed on the telephone conference call was not interrupted.) Was it just technical inadvertence? An urgent test of the Emergency Alert System? Or something more sinister? Of course we hope it was the latter as we await an explanation from the CFTC.

2) A couple of individual traders and investors, Mark Epstein and Harvey Organ, provided valuable evidence from the trenches that something is very much amiss in the precious metals markets, testimony that offset the smug assurances from big investment operations that everything is (as always) just fine.

3) Assisting Organ, GATA board member Adrian Douglas managed to put on the record his documentation that the London gold market is a fractional-reserve operation, selling much more gold than exists.

4) Indeed, several witnesses from respectable operations seemed to acknowledge and even consider it a great virtue that much trading in the futures markets isn't backed by real product at all. For if real product had to be put aside to back the short sales, commodity prices would rise as real product was taken off the market and held aside for investment purposes. That is, these witnesses seemed to be saying that short-side price manipulations are OK if not the very purpose of the modern futures markets.

This may have been first perceived (at least first perceived in public) in 2001 by the British economist Peter Warburton in his seminal essay, "The Debasement of World Currency: It Is Inflation, But Not as We Know It," which can be found at GATA's Internet site here:

http://www.gata.org/node/8303

Warburton wrote: "Last November I estimated the size of the gross stock of global debt instruments at $90 trillion for mid-2000. How much capital would it take to control the combined gold, oil, and commodity markets? Probably no more than $200 billion, using derivatives. Moreover, it is not necessary for the central banks to fight the battle themselves, although central bank gold sales and gold leasing have certainly contributed to the cause. Most of the world's large investment banks have over-traded their capital so flagrantly that if the central banks were to lose the fight on the first front, then their stock would be worthless. Because their fate is intertwined with that of the central banks, investment banks are willing participants in the battle against rising gold, oil, and commodity prices."

The idea, Warburton suggested, was to divert much of the vast inflation of the world's money supply away from real things that are counted in consumer price indexes and into financial instruments that represented mere claims on real things, and thereby to deny the world what he called a "stable numeraire," some reliable measure of currency debasement.

"The search is on for the perfect hedge," Warburton wrote. "What would be the ideal characteristics of such a numeraire? First, it would be in fixed physical supply. Second, it would be resistant to weather-related influences. Third, its ownership would be diffuse, rendering futile any attempt to restrict supply through a non-competitive structure. Fourth, it must be freely tradable. Fifth, there would be no futures or options markets attached to it." Emphasis added, to show that Warburton recognized nine years ago that the futures and options markets had become primary mechanisms of commodity price suppression.

5) The gold price suppression scheme got a backwards acknowledgement from a witness who sought to disparage believers in it -- John J. Lothian of Lothian & Co. in Elmhurst, Illinois, a money manager and financial consultant (http://www.johnlothian.com/johnjlothian.html). Lothian testified that those who complain about manipulation in the futures markets are "rent-seeking parasites" and "charlatans" trying to frighten people and diminish confidence in our institutions. But Lothian also remarked that central bank gold reserves could be considered part of a physical hedge of a gold short position -- that is, that gold shorts may safely rely on central banks to help them cover their positions in a pinch, and thus that central banks are very much part of a scheme of gold price suppression. To get admissions like that, GATA happily will bear any amount of insults any day, though if we're going to be called "rent-seeking parasites," shouldn't we at least get a few billion dollars in TARP bailout money from the Federal Reserve and fancy offices in Lower Manhattan like the other rent-seeking parasites? Maybe we're just not big enough parasites yet.

6) CFTC Commissioner Bart Chilton cordially but skillfully questioned witnesses so they might make their points about market manipulation. Today's hearing never would have happened without him. He has strived to see that not just the powerful are heard by the government.

7) Thanks to GATA, silver market analyst Ted Butler, and all of you who have supported us financially and with encouragement and have written to the CFTC, members of Congress, and the news media, the gold and silver price suppression schemes are way out in the open now. Like modern central banking itself, they soon will not survive scrutiny. So click on the link below, double-click on the song title, and sing along. We really don't do enough gospel music around here.

CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.