Theories about what triggered gold’s recent drop are “cover stories,” says Chris Powell, co-founder of the Gold Anti-Trust Action Committee (GATA), an organization focused on exposing, opposing and litigating against collusion to control the price and supply of gold and related financial instruments.
The reason the metal fell was because central banks stepped in and gutted gold prices to avert a short squeeze in London, he noted.
Gold saw its biggest two-day drop ever, reported CNBC, which compared the decline with the stock market crash of 1987.
Powell said that type of price action was “too overwhelming.”
“Nobody sells gold like that in order to make a profit on a long-term gold holding,” he told Yahoo. “I’m pretty confident that it was a central bank operation. I can’t prove it, but too much gold paper was dumped for the crash to be a natural event,” he added.
Explaining what he meant by paper gold, Powell said he was referring to the gold futures market, which is where he believes the dirty work was primarily done. He believes central banks flooded the market with sell orders to prevent a short squeeze.
But the gold selling was not limited to the futures market. During the two-day decline, 150 million shares of SPDR Gold Trust (GLD) exchange-traded fund (ETF) were traded, according to CNBC. GLD is the largest physically backed gold ETF. Powell explained that the price action initiated by the central banks probably induced ETF investors to unload their shares. This is not the first time central banks have stepped in and crushed gold prices, Powell explained.
“That’s exactly what happened back in March 1999 when the Bank of England undertook its big gold dump to avert a short squeeze then,” he told Yahoo. He says an event like this happens every decade. The gold market gets tight and then “central banks have to intervene surreptitiously” to keep the gold price down.
While most who have weighed in on gold’s price crash have far different theories than Powell, he is not completely alone. Paul Craig Roberts, assistant treasury secretary under President Reagan and former editor of the Wall Street Journal, believes the Fed and a coalition of mega-banks are responsible for the drop in gold and silver prices. Writing on his website, Roberts noted he believes naked shorting of “paper gold” to be the weapon of mass destruction. According to Roberts, the Fed needed to protect the value of the dollar as it steadily creates additional supply.
“A fall in the dollar’s exchange rate would push up import prices and, thereby, domestic inflation, and the Fed would lose control over interest rates. The bond market would collapse and with it the values of debt-related derivatives on the ‘banks too big too fail’ balance sheets,” he wrote. “The financial system would be in turmoil, and panic would reign.”
Many question these theories on the basis that gold has been on a 12-year bull run. Powell says GATA classifies that as a “controlled retreat” by central banks, but they were certainly manipulating the market during that time. “A free market would not trade so steadily like that. And a free market would not crash like it did over the last week without a little help,” he insisted on Yahoo.
Central banks are active in the gold market 24 hours a day, Powell declared. They are the largest players in the gold market.
“So to inquire into the gold market in any place other than with the central banks first is futile,” he said.