Arctic Goldfinger

The International Monetary Fund (IMF) and its cousin, the World Bank, are remnants of the now-collapsing U.S. Dollar-based monetary system that was created at the end of World War II. The U.S. emerged from the war as the world’s greatest power and was in a position to dictate a monetary system that was based on its currency. The U.S. Dollar was backed by gold until 1971 when President Nixon put that to an end. Since then the dollar has been backed by nada.

The IMF is a bloated useless remnant of a financial aid bureaucracy that has largely been rejected by the third-world countries that it was supposed to help. It has grown bigger and bigger as it has done less and less and has found itself, in recent years, begging for money from the world’s financial powers. The IMF owns three tons of gold that were contributed to its capital and the IMF has been begging for years to sell some in order to keep itself afloat. And for years that idea was rejected, that is, until now.

It was reported by Reuters today that the G-7 nations have approved gold sales by the IMF under an agreement that will be finalized in April. I am going to assume for the sake of this discussion that the gold sales will actually take place. Among other formalities, it requires the approval of the U.S. Congress. That is hardly a sure thing with a Senate Majority Leader from a major gold producing state (Nevada), but I will assume nevertheless that the sales will go through.

Will those sales depress the gold price? Maybe. Does that make any difference in the long run? No. The IMF gold is a matter of common knowledge, and, for a long time, and has been factored into the market’s thinking as to what an ounce should be worth. Therefore no new gold is involved, but just old gold (and almost all gold is old gold) will be moving from one set of hands to another. An increase in supply ordinarily will drive down any price. But the potential worldwide demand for gold is vast. Every single depreciating dollar on this planet is a candidate for conversion into gold.

The threatened sale of government gold has hung over the gold market for decades. My feeling these days is that they should just go ahead and sell it. I will take my chances on the market reaction to such a move. As I have said in earlier posts, I (and others) believe that governments have much less gold to sell than they want us to think. As for the gold that they have, let them go ahead and dump it. Gold is money and paper is paper. If they want to go gold-free then good riddance.

The IMF sale is just one more element in the concerted multi-year plan for gold price suppression. As least the IMF will do better for itself than Gordon Brown did for Britain when he dumped half of Britain’s gold for peanuts. But I am certainly not attributing any wisdom to the IMF since they would have happily sold it long ago if they were allowed to. Now that they can sell it they will. And my reaction is “go ahead, make my day.”

Magical thinking seems to be a basic human trait. There is some innate optimism that makes us think that we can “defy the odds.” There is no better tribute to the power of magical thinking than Las Vegas.

I used to be quite a gambler myself. For some reason I thought that some Higher Power would make the dice hop down the table and come out my way. I didn’t just think that I might win. I EXPECTED to win. Sometimes I did and sometimes I didn’t. But my intellectual understanding that the odds were against me never shook the feeling that I was going to get lucky.

I eventually learned, however, that my wishes and desires are not a factor in the way things turn out. I still like to gamble, but now know that I need to be “lucky” and (a) it won’t happen more often than it will, and (b) whether it happens or not has nothing to do with me. It’s simply part of the laws of probability that sequences favorable to the player will occur in the short run, if you are in the right place at the right time. But all the rabbits feet in the world won’t make that happen if it’s not your day.

I say all of this to introduce a sad reality — that a bull market in gold is the harbinger of economic problems. To put it another way, if gold goes to $2500 an ounce it will do so in the context of a much altered and very troubled world. It will probably mean that people’s wealth is being rapidly eroded by powerful inflationary forces and that the poor and those on fixed incomes will (as usual) suffer the worst. It might signal a collapse of the international monetary system and a worldwide depression. Whatever it is, it won’t be pretty.

I have decided, however, that I won’t feel guilty for, as they would say in craps, “betting the don’t.” I am not rooting for all these troubles. I am just investing in accordance with a reality that I did not create.

It is possible, of course, that there could be a positive economic turn of events and that gold would languish or even crash. But that would entail a flushing out of the massive debt in our economy. It would require money to become valuable again and that, in turn, would require money to become “tight.” Many many people would lose their homes and businesses and the country would slide into a major recession or even depression until the system repairs itself. Those are simply the wages of economic sin. Debt must either be defaulted upon or paid. There is no other option.

In my opinion that scenario is highly unlikely. There is no one with the political will to pay that sort of price. Money printing and deficit spending are much easier than budget cutting and monetary tightening. Beyond that, Fed Chairman Bernanke, a student of the Great Depression, will not want to be known as the man responsible for another one.

The likely outcome will probably be the usual: inflation. Rather than suffer defaults on the mountain of debt it will just get paid off with cheaper dollars. Will there be a repeat of the hyperinflation of the 1920’s in Germany? Probably not. Just a long sickening slide into economic mediocrity with people having their pockets picked by inflation day after day and week after week.

As for gold, it will, as always, be the ultimate money. Gold may fluctuate in price when reckoned in terms of printed money, but it will never become valueless.

You don’t have to be a financial genius to spot the bullish trend in the gold market. It jumps off the page when you look at any weekly or monthly price chart. For six years the gold price has risen in the classic bull market pattern — a series of higher highs and higher lows moving diagonally in waves toward the upper right hand corner of the page.

But a chart only tells you about the past. The big question is whether gold is going to continue to rise in the future. I believe that it will and I base my opinion, in part, on my view that the recent bull market in gold, since its beginning, has been a “realizing market.” To explain what I mean, I need to delve into bull market anatomy.

The credit for my terminology goes to Bill Gary, the President of Commodity Information Systems, a publisher of commodity price charts. He divides bull markets into two major categories: “anticipatory” bull markets and “realizing” bull markets. The difference between the two is striking.

An “anticipatory” bull market is fueled by some specific ongoing event that, in the mind of the bulls, will soon lead to a significant and identifiable tightening of supply. And less supply, of course, all things being equal, means higher prices. Anticipatory bull market are very obvious, very exciting and can be extremely short lived.

The classic example is a “freeze” bull market in orange juice futures. It seems to happen almost every Winter. A huge arctic high pressure system starts to sweep South from the Canadian plains. The instant that is recognized the O.J. futures start to twitch. As the cold front moves toward Florida the futures price of O.J. begins to rise.

What is happening is that speculators are betting that the cold front will reach Florida and decimate the orange juice crop. That’s not very nice of them, I suppose, but business is business. The sellers (the people on the other side of the trade) are betting that the crop will survive.

The sellers usually win. The cold front either peters out or simply isn’t strong enough to affect the crop in the face of defensive measures from the growers such as smudge pots and spraying the fruit with water. (Don’t ask me why that works, but it does).

The whole drama is enacted from start to finish over a matter of days, but you can see how the bull market is “anticipatory.” The orange crop is just fine when the bull market begins, but traders are anticipating a supply disruption. Also, there tends to be a lot of news coverage and market excitement in an anticipatory market. For O.J. traders, The Weather Channel, at least for a while, becomes more interesting than CNBC. (In fact, in my opinion it is almost always more interesting, and certainly more informative, than CNBC).

All “weather markets” are anticipatory and they are more typically played out over a matter of months. “Drought markets” in grains are good examples of anticipatory bull markets, with futures brokers trying to rev up market excitement with talk of “beans in the teens.” But the result is usually the same as with the O.J. — the crop survives and the sellers win.

“Realizing bull markets” are a whole different breed. Rather than being fueled by information, they seem to just happen. And, because there is a lack of hard information, there is skepticism and doubt the whole way up.

The current bull market in crude oil happens to be a pretty good example. There are lots of theories as to why the market has been rising, but there are plenty of doubters ready and willing to dismiss each theory. Is it because of “peak oil” (the theory that the world’s oil supply is running out)? Is it tension in the Middle East? Is OPEC keeping oil off the market? Who knows? But there have been skeptics every inch of the way up from fifty dollars a barrel to almost a hundred.

This is called a “realizing” bull market because the market realizes that there is tightness of supply only after the fact. Since the market move never seems to be explained it is repeatedly questioned. Every downturn is proclaimed to be the end of the bull market. Of course the market immediately starts heading right back up and makes new highs.

One of the characteristics of a realizing bull market is that it has “legs.” It goes much farther than anyone (other than the hardest core of the bulls) ever considered imaginable. Who ever thought that crude oil in 2007 would pass ninety dollars a barrel? The market climbs the proverbial “wall of worry” that characterizes bull markets. (Bear markets “flow down a river of hope”).

In my opinion the bull market in gold is a classic realizing market. There are lots of theories to explain it, but every one has its doubters. Maybe it is slowing production from mines. Maybe it’s the falling dollar. Maybe it’s less Central Bank selling. Maybe it’s stealthy Central Bank buying. Maybe it is the price of oil. Take your pick. I certainly don’t know.

One thing for sure is that there is not rampant bullishness among the public. Not even close. A twenty-eight year high in the gold price barely made the news. The Main Street investor simply doesn’t have gold on her or his radar screen. Every correction is proclaimed to be the end of the bull market. In contrast, in an anticipatory bull market every correction is called a “buying opportunity.”

My analysis of bull markets is hardly the only one available. It is common to describe bull markets as moving in “stages” with the early ones being quiet and the later ones frenetically speculative. I simply view that as a realizing market becoming an anticipatory market with the public moving in and the pundits declaiming about some imminent market scenario will drive prices to the moon.

That explains my belief that the time to get out is when the public starts getting in. That is why, in my “Gold Market Advice for Today” on this site, I have specific touchstones for the time to leave. Having gold show up on the cover of Time Magazine is my favorite. At that point everyone will be talking about the impending collapse of the international monetary system, everyone will be recommending gold, and the end of the bull market will then be in sight since the end of the world, in general, tends not to happen.

In the distant past, former Fed Chairman Alan Greenspan was a rabid “gold bug.” His article “Gold and Economic Freedom,” written in 1967, is still a classic defense of the role of gold in the monetary world. The full text can be accessed from my Blogroll using the link entitled “Greenspan on Gold.” I strongly suggest that you read it right now. It was a masterpiece when it was written and it is a masterpiece today.

Now fast forward to 2007. Alan Greenspan’s memoir, “The Age of Turbulence,” is a New York Times best seller and talks about gold in several different chapters. Greenspan, to his credit, is openly nostalgic about the glorious era of the gold standard when inflation was virtually nonexistent.

But he explains to us that modern society has made a bargain with the Devil which has made inflation virtually inevitable. He lays it on the line. We are unwilling to pay for entitlement programs such as Social Security and Medicare by taxing ourselves. Instead, we run persistent deficits. Monetary inflation is the unavoidable result of printing the money necessary to pay for more things than we are willing to tax ourselves for.

He predicts, therefore, that we are facing a major inflation problem going into the future and that the Fed will have no choice but to fight inflation with its major weapon — higher interest rates. And not just higher nominal interest rates, but higher REAL interest rates. That is, interest rates that exceed the rate of inflation. (Given the B.S. built into the governments CPI numbers, the interest rate right now would have to be over 10% to meet that objective).

So is gold out of the picture? Here is what the Maestro says on page 481: “For the most part, the American people have tolerated the inflation bias as an acceptable cost of the modern welfare state. There is no support for the gold standard today, and I see no likelihood of its return.”

A few pages later (page 491) he reflects on the question of whether stable prices will ever be possible. He says: “Monetary policy can simulate the gold standard’s stable prices. Episodes of higher interest rates will be required. But the Volcker Fed demonstrated that it can be done.”

Ah! The Volcker Fed. For those of you who are too young to remember, Fed Chairman Paul Volcker, during the Jimmy Carter Presidency, was appointed in the midst of the last great gold bull market and at a time when inflation (as honestly reported) had clearly gotten out of hand. Volcker boosted interest rates into the stratosphere and had Federal T-Bonds yielding double digit interest rates. This boost in real interest rates brought inflation under control by pushing the economy into a major recession.

Greenspan has laid out the challenge very accurately. If you want the essential characteristic of gold, that is, an absence of inflation, the Fed has to be prepared to substantially raise interest rates and create a real return on cash as opposed to the inflationary death by inches that we are experiencing today.

So it all boils down to whether Bennie and Ink Jets have the onions to raise interest rates to much higher levels. It is important to note, however they have to deal with issues that Volcker did not. We now have a nine trillion dollar national debt and massive deficit spending. Also, at the moment, we have a financial system that is in a shambles thanks to the consequences of the ongoing real estate bubble.

The fundamental question for the gold investor, therefore, is whether Bernanke is likely to pull a Volcker. In my opinion, that is not likely to happen (if at all) until gold has gone much higher than it is right now. In the meantime, I appreciate the Maestro’s kind words about gold.

As for the gold standard, he may be right that it will never come back. There may be some other solution out there to the current worldwide economic mess. In the meantime, however, gold is going to appreciate in value while everything sorts itself out.

There is a link on this site to a 47 minute animated film entitled “Money As Debt.” The film contains a cogent description of the origins of the current banking system and why the system is headed for eventual collapse.

I was watching it with the Amazing Kathryn, however, and I remarked to her, about 2/3 of the way through, that the film was about to go off the tracks in its recommendations for the future. She asked me whether I have said that on this blog and the answer at the time was no. The purpose of this entry, therefore, is to explain why I believe the film goes astray once it enters the home stretch.

The first 35 minutes or so of the film spell out the history of banking as practiced today with an analysis is factual and rock solid. In a nutshell, it describes how banks create money out of thin air and must create more and more of it to keep the financial system afloat. But then, after setting out that history, the film turns to the obvious question of what should happen next. At this point it badly founders by dredging up a mishmash of worn out socialist ideas.

It brought to mind part of an old union song that was sung in college by some of the school’s budding young socialists. The lyrics, in part, went:

Oh the banks are made of marble,
With a guard at every door,
And the vaults are stuffed with silver,
That the workers sweated for.

Ironically, one of the film’s major points is that the vaults are NOT stuffed with silver. And that, if they were, we wouldn’t be in our current mess. But a link on the movie’s site to “socialistworld.net” pretty much foreshadows the harebrained ideas that follow. (A gratuitous dose of environmentalism is also throw in to give the film a more contemporary flavor.)

For starters, the film broaches the idea of modernizing barter into something workable as a substitute for money. For example, it suggest using vouchers representing an hour of someone’s work as a sort of currency. The problem, of course, that an hour of a lazy bum’s time cannot be equated with an hour from someone who is industrious. The old socialist notion of “from each according to his ability and to each according to his need” never ever ever ever works.

As another option the film suggests that the government issue money that is used for the building of useful infrastructure, such as bridges, and that then stays in circulation. Needless to say, any government issuance of money invites the issuance of greater and greater amounts, but the filmmakers solve that problem by suggesting that the electorate would vote out of office any administration that created excess inflation.

To call this naive is an understatement. Since when has any government been truthful with the electorate about its economic policies? The film makers fall into the eternal socialist trap: an unwillingness to accept the fact that power corrupts. We have dealt with enough “Peoples’ Republics” to know that collectivism is generally an excuse for tyranny. If government is the answer, then the film makers were obviously asking the wrong question.

The film rejects gold as part of any solution and that hardly surprises me. Gold is to socialists as Kryptonite is to Superman. It simply has too much historic symbolism for them to even begin to think about it. Their understanding is backwards on that score, but that is the subject for another blog entry.

So what SHOULD happen after the current system collapses of its own weight? I don’t really have the answer to that. There are those who say that gold is the only solution and I’m not sure I agree with that. The future is too unpredictable to draw such a hard and fast conclusion.

What I do know is that gold is a good parking place for wealth while the mess is sorted out. I view it as more of a shelter from the storm than as a permanent edifice. The ultimate solution to the eternal problem of money will be known only in the fulness of time.

However I still strongly recommend watching “Money As Debt.” Its usefulness as a diagnosis of the current money problem is admirable even though its prescriptions for the future leave a lot to be desired.

I thought “Helicopter Ben” was a pretty good nickname for the Fed Chairman, but somebody dreamt up an even better one for him and the whole Federal Reserve Board: “Bennie and the Ink Jets.”

Printing vast quantities of money is what they do, but they also have to perform the magic trick of convincing people that this avalanche of paper money has nothing to do with inflation. Bernanke, of late, has tried to perform this bit of legerdemain by blaming inflation on “inflationary expectations.” In other words, if we could just keep inflationary expectations “well anchored,” then inflation would stay in the acceptable range. (Why there should even be an “acceptable” range for inflation is a really good question).

So what would take to rev up inflationary expectations? How about this: suppose you were earning five percent on your savings account while, at the same time, the inflation rate was ten percent. Naturally, you would save as little money as possible and spend it as fast as you could. In fact, since asset prices would be outstripping interest rates at a healthy clip, you would borrow like crazy and pour the money into real estate and the stock market and other things whose rising prices would let you make a profit and pay the money back with cheaper dollars. (Remember that prices going up and money being worth less are the same thing).

But wait a minute. Isn’t that EXACTLY what people are doing right now? The answer, of course, is yes. The Fed labors mightily to “anchor” inflationary expectations by relying on the government’s phony CPI numbers, but people aren’t stupid. The KNOW that saving money is the royal road to ending up poorer than when you started. Market “bubbles” are as much about self preservation as they are about greed.

It should hardly be surprising that the federal government is even less interested in saving money than the average Joe on the street. The Bush Administration seems to think that the best way to pay for a war is to put it on the national credit card. And the government borrows and borrows and borrows as if it will never have to pay the money back. And, in fact, since Bennie and the Ink Jets control the throttle on the dollar printing press, it is very likely that we will pay our creditors back with toilet paper.

So the Fed not only has to “anchor” inflationary expectations at home, but they have to also do it abroad. Otherwise our creditors will start dumping their dollars and/or stop recycling them back to the U.S. by purchasing Treasury debt. That would force interest rates much higher and create a major risk of either another Great Depression or a hyperinflation that destroys the value of the dollar completely.

If I make it sound like the American economy is precariously balanced on a knife’s edge then you have been paying attention. Congress and the Administration have created a worldwide financial morass, but they hope that Helicopter Ben to talk our way out of it. Good luck to him and to us.

Let’s assume for the sake of argument that Howe and Landis are on to something and that this clandestine gold leasing is a fact. What does it mean for the price of gold? You can find as many answers as you can gold aficionados. They range from the merely bullish to the very bullish to the unbelievably bullish.

Let’s start at the extreme and look at the unbelievably bullish case. These folks believe that Howe and Landis have uncovered only the tip of the iceberg. The superbulls believe that there is no gold in Fort Knox and that the Central Banks only have a fraction of the gold they claim to have. They also believe that the Central Banks will, at some point, demand their gold back from the investment banks who will, in turn, have to buy it on the open market. This will trigger the mother of all short squeezes and send the price of gold to — who knows? I have heard mention of five figure numbers per ounce.

The very bullish point of view simply doesn’t buy into the Fort-Knox-is-empty kind of thinking. These folks believe that there has been some leasing of gold by Central Banks, but they still have plenty left. They believe that gold is mispriced to the low side because of the missing gold, but not to the point of sending the price to the moon. They do believe that the investment banks will be squeezed, though, and that the price rise will be dramatic as the investment banks are forced to cover their short positions in the open market.

The bullish point of view agrees with the very bullish point of view regarding the mispricing of gold, but disagrees when it comes to the investment banks. The merely bullish believe that the Central Banks will let the investment banks off the hook by allowing them to settle their debt in cash rather than gold. And since cash is printed by you-know-who . . . you can figure out the rest.

I personally hold the merely bullish point of view. I believe the investment banks are too wired into the world financial establishment to be left on the hook. Keep in mind that the current Treasury Secretary, Hank Paulson, was Chairman of Goldman Sachs. I do believe there is a deficit in the Central Bank reported gold, but I do not believe that we will see a short squeeze for the ages. (It would be nice to be wrong about that.) I therefore expect the price of gold to rise substantially, but I don’t expect a moon shot.

So why wasn’t Gibson’s Paradox working any more? That is, with real interest rates declining, what was holding down the gold price? There were no announcements of new Central Bank selling, yet the market was acting as if gold was appearing out of thin air to meet the increased demand naturally resulting from the low real interest rates.

Howe and Landis deduced, after finding some clues in obscure Central Bank gold statistics and a few things said in the public record, that the source had to be the Central Banks, but this time covertly, out the back door, rather than openly out the front door. It was their theory that the source of the supply was a new gimmick: gold leasing.

Instead of selling gold outright, the Central Banks were leasing it, quietly and privately, to international investment Banks such as Goldman, Sachs. An investment bank would pay what is called the “lease rate” on the gold. (To call it an “interest rate” would be an admission that gold is money). The “lease rate” for gold was extremely low. The investment bank/lessee would then sell the gold on the open market and invest the sales proceeds in some instrument paying well in excess of the lease rate. They pocketed the difference between the lease rate and the rate of return on the sales proceeds.

But here’s the part that stinks: in the opaque accounting of Central Banks the leased gold was still accounted for as an asset and was carried on their books as if it were still in the vault. Therefore, the amount of gold they CLAIM they owned had stayed the same. The difference, however, is that some of it was now hanging around the necks of Indian brides.

The investment bank/lessees owed the Central Banks the borrowed gold, but the gold had long since disappeared into the physical market. So the investment banks now had a “short position” in gold. They had sold something that they didn’t own and which they were legally obligated at some point to lay their hands on and return to the Central Banks.

This scam had three results. First, the gold price was suppressed. Second, the Central Banks, through the gimmick of leasing, no longer had control of as much physical gold as they showed on their books. Third, a group of investment banks owed the Central Banks a lot of gold that they didn’t have. In the next post I will discuss the implications of all this.

I have talked about the open selling of gold by Central Banks. And whatever their motives might have been, they made no secret about what they were doing. They certainly had as much right as anyone to sell their gold.

But suspicions began to arise that something other than the open selling by Central Banks was suppressing the gold price. The intellectual heavy lifting was done by two very bright men named Reg Howe and Bob Landis. (There is a link on this blog to their website, goldensenxtant.com, that tells the story that I am about to tell, but in far greater and more sophisticated detail). Starting around 2001, something strange seemed to be happening because of the gold market’s non-response to an economic phenomenon known as “Gibson’s Paradox.”

I am not sure why it is considered a paradox, but this economic rule of thumb pertains to the relationship between the price of gold and our old friends real interest rates. Real interest rates, you may recall, are nominal interest rates (e.g. the rate on your bank CD) minus the rate of inflation (as best you can calculate in light of the government’s ongoing statistical lies).

Here’s an example of how you would figure a real interest rate: Suppose the nominal interest rate on your Bank CD is six percent. So far so good, but if you also have an inflation rate of six percent you are effectively earning zip-a-dee-doo-dah on your money.

Historically, there appears to be a rough inverse correlation between real interest rates and the gold price. In other words, the price of gold will tend to go up when real interest rates go down, and vice versa. That is Gibson’s Paradox.

This seems pretty easy to explain. When real interest rates are high you can actually earn money on your money. This tends to make people want to save rather than spend and that, in turn, will mean less spending and therefore less inflation. Less inflation usually means less desire to own gold. Conversely, when real interest rates are low, and the best use for money is spending it rather than saving it, then gold looks more attractive as protection against the resultant inflation.

Now for a side note. Like all economic principles, Gibson’s Paradox isn’t a scientific law like the law of gravity. In fact, anything you call a “law” that has its roots in human behavior is suspect. Thus, much of what is called social “science” is garbage.

A further problem stems from there being recurrences that resemble “laws,” but turn out to be sheer coincidences. An example: for a number of years the Superbowl was considered predictive of the following year’s stock market. If an NFC team (or a non-original AFC team, i.e., the Steelers) won, then the market would go up. Otherwise it would go down. That “Superbowl Predictor” worked year after year. That is, until the New England Patriots (an original AFC team) started winning Superbowls. The Superbowl Predictor turned out to be just a coincidence.

So, with that caveat, I return to Gibson’s Paradox. Starting in the 1990’s Gibson’s Paradox seemed to no longer “work” in the gold market. Real interest rates went down, which historically implied that the price of gold would go up, but it didn’t.

Messrs. Howe and Landis smelled a rat and I will next identify the rat and dissect it.

Central Bank selling of gold did not end with Britain’s seemingly odd decision to jettison half of its gold reserve. There next came an agreement among a group of European Central Banks to do more of the same. The bizarre part was that this strategy was described in terms of “supporting” the price of gold. Since the European Central Banks were then, and are now, among the largest holders of gold (the United States being the largest) they definitely had the power to influence the price by selling or not selling.

The idea that they were “supporting” the price of gold was based on the fact that they placed limits on the number of “tonnes” (metric tons, i.e. 1000 kilos) they would sell over the term of the agreement. The limit was 400 tonnes (later 500 tonnes) per year, which doesn’t make it seem like much of a limit, except, of course, one supposes that they could otherwise sell all the gold they owned at once.

This agreement was initially known as the “Washington Agreement on Gold” since that is where it was cooked up, but it has subsequently been renamed the “Central Bank Gold Agreement.” The signatories have lived up to its terms and year after year sold and sold and sold and sold.

While this was going on, however, the price of gold continued to rise and rise and rise and rise. The market seemed to find all these tonnes of gold quite appetizing and would gobble them up as soon as they came on the market. Of course, if you give the situation a moment’s thought, you realize that at the same time that the Central Banks were selling their gold they were printing tons of paper money for people to buy it with. There were weirdoes out there (like me) who think, for some perverse reason, that endless reproducible pieces of paper for virtually irreplaceable ounces of gold is not such a bad deal.

And, of course, there is the one question that they never seemed to answer very convincingly, namely, why were they selling their gold at all? From the tone of the discussion, you would think that the Central Banks had looked in the attic and came upon all this dusty gold lying around and decided to organize a garage sale. As if!

It is at least clear, however, that what I have described to you so far has taken place in the open. In fact, it occurred with the full intention of making sure that everyone knew what was going to be sold, how much and pretty much when. I promised you more than that, though. I said that I would tell you about price suppression by covert means. A genuine conspiracy. That discussion will begin next.