Those who manipulate the price of gold are privy to information beyond the reach of the public. For decades now, this kind of tampering has enabled them to get rich quickly while keeping the price from climbing.

By Mostafa Belkhayate, Marrakech

Since gold started to decline, everyone has been murmuring that a central bank just sold X tonnes of gold. These sales have virtually nothing to do with what is really going on. Since 1999, the agreement between central banks enabling them to sell up to 400 tonnes per year, then 500 tonnes per year, never prevented gold shooting from $280 to $1,000 US per ounce. Though sometimes significant, central banks’ sales in gold have gradually become a factor that has no real effect on the price of gold. However…

At the moment, central bank gold loans are starting to boom. This is simply because it is an “invisible” means of securing liquidity – something vital in these tumultuous times. These gold loans are becoming a virtual ceiling on the price of gold as the amounts at stake are enormous and the actors are “playing” in a small room they were careful to shut in. I’ve been closely following the price of gold every day for over twenty years. This is what I’ve found:

1. There is no doubt that the price is being manipulated
2. Those who manipulate the price of gold are privy to information beyond the reach of the public
3. For decades now, this kind of tampering has enabled them to get rich quickly while keeping the price from climbing
4. This speculation totally derails the natural flow of the gold segment in the central banks’ reserves and thus, the foreign exchange segment as well

The IMF should require that financial institutions that borrow gold from central banks publish the details of the transaction including the exact amount of the loans, the rate and also scheduled payments. Today, they are satisfied with reporting their purchase and sale of real gold, but fail categorically to be as forthcoming about gold loans. The IMF should also require that central banks report the details of their gold loans. This would be revolutionary!

For those of us who are private professionals in the gold industry, information of this nature is worth its weight in gold. Here’s why:

• The price of gold is not at all determined by supply and demand
• It is primarily controlled by the narrow gold loan circuit
• Six international banks share a monopoly of this circuit

Between supply and demand, there is an annual deficit of approximately 500 tonnes of gold while the gold loan business can surpass 4,000 tonnes per year. The cash generated by gold loans is immediately recycled in American bonds which then leads to a massive purchase of US dollars. This leads us to our third point:

How credible is the US dollar’s unbridled surge?

Since August, the dollar has been climbing steadily. In my opinion, the only reasonable explanation for this current rise in the value of the dollar is the general misconception that some major investors have about short-term American treasury bonds – T Bills. Their belief that these are the most secure products on the planet is as solid as steel. And, as foreign investors need to covert their local currency (euros, yen, Swiss francs and so on) into American dollars to buy these bonds, we are witnessing a virtual, purchase frenzy. Indeed, for the first time in 10 years, I’m seeing orders for very heavy purchases scroll by on Forex … at market price! People are buying and buying at any price. Their motivation is solely short-term. Or perhaps one could say that their main aim is not to lose. This flux is creating a gag reflex. The demand for T Bills is so strong that the return slipped from 1% a month ago to the negatives we see today. It’s ironic when investors are willing to pay out of pocket to seek sanctuary in financial products. When things become this extreme, something simply isn’t right. All that’s left for the bubble to do is burst – as we’ve seen in the past.

It’s ironic when investors are willing to pay out of pocket to seek sanctuary in financial products. When things become this extreme, something simply isn’t right. All that’s left for the bubble to do is burst – as we’ve seen in the past.  

Consequently, the dollar continues to rise for only one reason: American and international investors are fearful and are looking for security. What do you think the dollar is going to do once these fears abate? The dénoument of this film lies in the following concept: investors bought the dollar, not because they feel confident about the American economy, but because they believe that, in the short-term, it’s the best way not to lose money. Yet, the history of financial markets teaches us that whenever decisions are made in haste based on short-term considerations, the underlying product invariably collapses. The fundamental principle confirms the technical analysis below. The American dollar is doomed to devalue by at least 30% in the next three years.

Demand determines the price of gold

As it is supply that determines the price of gold, the recent decline in value in gold caught “gold” investors off-guard. They need only understand that, in actual fact, gold has been doing well because, without this high demand, it would have crossed the $600 US threshold. Just how high will climb by the end of the year?

I am lowering my aim from $1,280 US to $980 US, considering that the widespread fear we have been seeing will slowdown gold’s ascent by $300 US. Nevertheless, you could say this is a very optimistic target as this would be a 36% increase in only two months, going from 720 to 980.

El Mostafa Belkhayate www.belkhayate.ma