View Full Version : Andrew Schectman: Gold Driven By Manipulation, Supply Shortages

21st February 2010, 21:41


I also believe that there is a tremendous concerted effort by some of the large, Western commercial and central banks to mitigate the rise of gold and silver.

Crigger: Why would they do that?

Schectman: There are large short positions on COMEX that I believe they're trying to escape from. They're trying to allow an orderly retreat from these abnormally large short positions that were developed mostly in the ‘90s, back when nobody wanted gold and silver. These short positions have gotten so large that the last thing that the U.S. government and the large commercial banks want is for the price to explode.

I do believe they realize they can no longer manipulate the market, and instead, I think they're trying to organize an orderly retreat. As a result, volatility is something that is to be expected. And it really frightens most of the public out of the market. It is not unusual to see gold run up, suck in all the speculators, and then they hammer it. And they hammer it to a point where the speculators get squeezed out, the people on margin get squeezed out, and those people vow not to come back in. But a few months later, we're right back to where we were.

In 2008, back when all the product disappeared, gold was $1000/oz. and then all of a sudden it went down to $700/oz. So the difference between the price that's quoted on COMEX—which is paper and is easy for the big banks to manipulate by selling contracts—is vastly disconnected from how hard it is to get the real product. But even a price that fell by over 35 percent was not enough to rattle investors. Like I said, demand for the physical product was so high, it was not unusual to wait two or three months to get gold eagles or bars, and so on.

So really, the gyrations we see in the gold price is all paper-derived. It's all on the COMEX. And as far as I'm concerned, manipulation does not do one thing to change the primary trend of a bull market, which I believe is still in its earliest stages.

Crigger: So, long term, the gold market is still driven by supply and demand fundamentals?

Schectman: Yes. Although I think to a large degree the price is manipulated through COMEX and paper contracts, demand for physical gold couldn't be higher. The Central Bank of India bought 400 metric tons. The Chinese are buying as much as they can. So are the Russians. The demand in this industry is enormous.

Crigger: What evidence is there of manipulation?

Schectman: There's a vast amount of evidence pointing to it, mostly through a term called Gibson's Paradox. Gibson's Paradox is an economic term—in fact, Lawrence Summers wrote a report about Gibson's Paradox, which basically said that real interest rates and the price of gold move inverse of each other.

Through the mid-90s, when it was a good time to be in middle-class America, when your home was worth more the next day when you woke up, when you could refinance and pay off debt and buy a car and house, and the payments were even less than they were the month before—with those super-low interest rates, gold, according to Gibson's Paradox, should have taken off. But through the manipulation and the suppression of gold, it enabled the U.S. to have artificially low interest rates while still attracting foreign investment.

So in the ‘90s, it was very easy to manipulate gold, because nobody wanted it anyway.

Crigger: Then why manipulate the price in the first place, if nobody wanted to buy it?

Schectman: That's a good question.

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