Tuesday, January 14, 2014

Are Gold and Silver Prices ‘Manipulated’, or Not?

It is unlikely that gold and silver prices are not ‘manipulated’, given that every other market is – but the question really is whether governments and central banks are part of the process, or not.
There remains a debate over whether gold and silver prices are ‘manipulated’, although perhaps the debate should actually be are the prices manipulated by central banks, governments and the major investment banks in an attempt to control (suppress) prices.
In truth, of course gold and silver markets are manipulated – as is virtually every other market on the planet.  It’s really a question of how one defines manipulation.  Short selling, or concerted buying, by big money, particularly through the use of High Frequency Trading, of any stock or commodity could be considered attempted manipulation and no-one doubts this goes on the whole time in virtually any market or stock one cares to name.
It’s part of the modern financial system and however one looks at it, it probably should be considered at the very least unethical, if not, in some cases, illegal, although market regulators turn a blind eye.  It gives market advantage to big money which the average investor cannot hope to counter and thus creates a far from level playing field hugely in favour of the major institutions – or at least those with big money at their disposal.  That’s how the rich get richer.
However that’s not really the debate with gold, and to a lesser extent its less costly sibling, silver which just tends to move in exaggerated concert with gold.  Here we enter the realms of global power plays because of the historical significance of gold as the ultimate measure of wealth, for an individual – and even more so for a nation.  Gold is perceived everywhere, much as Western economists may deny it, or disapprove of it, as being the yardstick against which key currencies are measured.  Rising gold prices in any currency are not real increases.  It is the declining value of currencies against the golden constant which is the reality. 
Now governments and the central banks do not like the weaknesses of their currencies being emphasised for all to see by their depreciations in terms of gold and, so the argument goes, they may do their utmost to prevent the gold price rising outside certain controlled parameters. 
Indeed if they can actually cause the gold price to dip that is a job particularly well done.  Now arguably, back in the northern summer of 2012, gold looked to be in danger of breaking out hugely upwards, only to see a subsequent series of price reversals bringing it back, at one time, around 40% from its high point.
This is not seen by the gold bulls and entities like GATA, as just a bubble bursting and extreme profit taking by the investment community, but they attribute more sinister motives to the recent price pattern and see governments, central banks and their major investment banking allies as acting in concert behind the falls.  And given that governments and central banks openly ‘manipulate’ currency exchange rates to meet their perceived requirements in the global marketplace, if one looks at gold as a currency then it is perhaps inconceivable that these entities are not involved in attempts to move the gold price in a direction which suits them and their global financial policies.
Some of the arguments on governmental and central bank involvement in the control of the gold price have been superbly laid out in a recent article called Gold Manipulation 101 by Bill Holter of  Miles Franklin Precious Metals Specialists.  Holter notes in particular that he has explained over his career many times “why” gold would surely be manipulated and that the Fed (and other foreign central banks) would be foolish not to try to suppress the price.  Gold is THE main competitor to fiat currency, an exploding price is like a neon sign advertising policy failure and currency flaws, as Paul Volcker once said, “It was a mistake to let gold get away from us.” And then goes on to explain exactly how this price suppression was achieved in the past and how it is today.
Back in the 1960s and 1970s the process of keeping the gold price under control – once the gold window had been opened – before which gold had effectively been at a fixed price – was handled by the London Gold Pool where physical gold was sold on the London Market so as to meet any excess demand until gold stockpiles were depleted to the extent that this control could no longer be achieved and the price then spiked up to $850 in 1980.
The problem then became how to supply gold to meet any excess demand and thus get, and keep, prices under control again.  This appears to have been done by persuading the major gold producers to forward hedge their gold sales to protect their profits going forwards which effectively brought, as Holter puts it, 1,000′s of tons of gold “forward” for sale and on to the market.  It had not been mined yet but the true intent and result was to place excess supply (which had not even been mined) onto the market to depress the gold price. Some see this as collusion by the gold miners in gold price suppression although, in our view, it was slick salesmanship by the bullion banks which handled the forward sales contracts. 
Indeed the hedging, and eventual gold price recovery, after the ‘Brown Bottom’ of 1999-2002 which saw the low point in the gold price as the U.K. sold half its gold reserves under the Chancellorship of Gordon Brown (later to become the UK’s Prime Minister), accompanied by rising costs, that led to the demise of some gold miners – notably Ashanti Gold Mines which had to be rescued, by being swallowed up, by AngloGold.
But the gold price started recovering.  The gold ETFs were launched which diverted much needed investment away from the gold producers into the Funds – latterly a major source of physical gold helping suppress the markets as continued adverse gold publicity fed to the media pushed the ETF investors into equities,
But, in the interim COMEX trading and paper gold took precedence as the prime manipulation tool with vast volumes of paper gold being pushed onto the futures market as gold looked to be starting to take off again which, in conjunction with High Frequency Trading (HFT), contributed to a number of flash crashes in the market, usually taking place out of U.S. trading hours when markets were thin.  Some of these flash crashes were major with huge numbers of contracts being sold with the very obvious intent of triggering other HFT stop loss sales and thus creating huge downward spikes in the markets.  These also had the effect of driving further sales out of the ETFs and thus adding physical gold supply into the equation.
Finally Holter points to the last and longest lasting method to manipulate gold’s price has been the “leasing” of central bank metal. This, Holter reckons, arose from the 1996 U.S. ‘strong dollar’ policy which meant somehow keeping the gold price down and at this point Central Bank gold leasing was introduced whereby Central Banks could lease out their gold at a ridiculously low rate to a bullion bank, while the latter could sell the gold on and invest the proceeds at a far higher rate in ‘safe’ government bonds. 
A no-brainer for the banks – and because the gold was leased, not sold, has enabled the central banks to retain the gold in their books as it is a loan.  Much of the gold sold though has been converted into jewellery – or found its way into other strong hands - and as the gold price has risen, while physical metal remains in short supply, it seems unlikely that the gold can actually be returned to the central banks in physical form.  (Hence the speculation as to why it is taking seven years for Germany to get its 700 tonnes of gold back from the central bank depositories in the U.S. and France).
As Holter concudes, Any and all of this could be proven beyond any doubt and the perpetrators brought to justice and jailed within just a few days.  There is a paper trail for all of this and the Justice department would have slam dunks all over the place…but there is a small problem.  They can’t (and won’t) prosecute “themselves” because ALL of these schemes had one goal in mind, suppress the price of gold.  This is exactly the “unofficial”…official policy.
This is the theory of the actual practice behind gold price manipulation (suppression) by governments and central banks and their allies in the financial hierarchy.  There are still many deniers out there who put the strange gold price flash crashes of the past two years down to market forces, but the access to the kinds of funds necessary to perpetrate them does, in our minds, suggest that there are indeed other factors at play here than purely banking and fund financial ones.
Of course there are other factors in the equation now, which will ultimately see any suppression scheme fail long term, but may just lead to other forms of manipulation elsewhere for political advantage.
As we have pointed out in these pages a number of times recently, Chinese demand is almost capable on its own of absorbing the total of global new mine production and thus, along with other gold purchasing nations demand for physical metal by strong holders seems to be exceeding global supply.
This means less and less physical gold availability in the West which ultimately has to diminish the capability of those trying to control the gold price to do so – particularly as outflows from the ETFs slow down.  But then we may just be seeing a transfer of gold price manipulation capabilities from West to East and who knows what that might bring in terms of pricing.  Gold is significant enough in its global financial position for someone to want to control it – it just depends who will have the future financial muscle to do so – and what their agenda might be.

Monday, January 6, 2014

Fed Playbook, 2014 Game Plan All Set for Yellen

Janet Yellen - the New Federal Reserve Chairman

With the playbook already written and the 2014 game plan in place, Janet Yellen is poised to become quarterback of the U.S. economy.

On Monday, the full Senate is scheduled to vote on Yellen’s nomination to succeed Federal Reserve Chairman Ben Bernanke as head of the central bank. Her approval needs a simple majority of the Senate’s 100 members and she is expected to easily surpass that.

The playbook for the coming year basically consists of one play: scaling back, or tapering, the Fed’s monthly bond purchases, a program known as quantitative easing.

The game plan will depend on the economy. If the data continue to steadily strengthen, the Fed, as it announced last month, will gradually taper its asset purchases at intervals of $10 billion a month until the program expires later this year.


The playbook seems fairly rigid. The Fed in 2013 had telegraphed for months its intention to start scaling back its easy-money policies through a gradual tapering because that method would have the least impact on the broader economy.

Raising the key fed fund interest rate is still off the table for the foreseeable future.

The game plan needs to be flexible, however, capable of shifting in accordance with data from key sectors such as labor, housing and manufacturing. So if labor markets dramatically improve or decline, the Fed can adjust its tapering policy on the fly, increasing or decreasing the rate at which it moves away from quantitative easing.

Careful, Cautious, Measured Fed Policy

“It’s going to be a very careful Fed policy,” said Cliff Waldman, a senior economist for the Manufacturers Alliance for Productivity and Innovation (MAPI), a public policy and economics research organization in Arlington, Va.

Waldman predicted that the first year of tapering, which will coincide with Yellen’s first year as Fed chair, will be “cautious and measured.”

“We are in unchartered waters,” he said. “The Fed did during this crisis what it didn’t do during the Great Depression, and that’s a good thing. But there’s zero historical precedent for what’s going on and we’re still in a post-crisis world. The Fed realizes there are still landmines out there.”

Rising interest rates, an inevitable result of tapering, probably won’t have much impact on large U.S. manufacturers such as IBM (IBM), Parker-Hannifin (PH), Ingersoll-Rand (IR) and Sauer–Danfoss (SHS), Waldman explained.
Big, multi-national companies aren’t likely to see their borrowing costs rise very much, he said, because they’ve already established solid credit track records. Smaller manufacturers – and small businesses as a whole – will feel more of an impact because its riskier for banks to loan them money.
Most forecasters believe the U.S. economy will continue to slowly gain momentum in 2014, which will allow a Yellen-led Fed to stick to the playbook established in late 2013 under Bernanke.

Broad Fundamentals Solid

Gus Faucher, an economist with PNC Financial Services Group, said broad economic fundamentals -- consumer balance sheets, corporate profitability, government finances --  have solidified in recent years and should follow that trend in 2014.

“The imbalances that caused the recession have corrected themselves. What that means is that the economy is strong enough to continue to expand even with the tapering,” Faucher said.

Tapering’s impact on the housing sector should prove something of a double-edged sword. On the one hand, reducing the Fed’s monthly bond purchases of Treasuries and mortgage-backed securities will force mortgage rates higher. That could push some prospective buyers out of the market and decrease overall home sales.

That might not be such a bad thing, however. The most recent S&P Case-Shiller home price index for October rose by nearly 14% year-over-year, the largest gain since the collapse of the U.S. housing market in 2008 and stoking concerns of another bubble.

Faucher said that rate isn’t sustainable and that higher mortgage rates “will take a little steam out of the price growth.” He’s predicting a year-over-year home price increase of about 5% between now and 2015.
“That’s a sustainable pace, roughly in pace with income growth,” Faucher said. “Housing won’t become unaffordable, we won’t see a bubble.”

Instead of tapering having an impact on labor markets and job growth, it will be the other way around, said Greg McBride, senior financial analyst at Bankrate.com.

Increased Stock Market Volatility

In other words, if job growth accelerates and the headline unemployment rate falls sharply the Fed might consider accelerating its tapering program. Conversely, if labor markets hit another rough patch the Fed could slow the pace of tapering.

McBride sees stock market volatility spiking with tapering. All of the major stock indexes have soared for five years under the Fed’s easy-money policies. The Dow Jones Industrial average and broader S&P 500 index have both surpassed levels achieved prior to the 2008 financial crisis and both ended 2013 at record highs.

McBride doesn’t see that upward trajectory ending. Indeed, he believes stocks will end higher in 2015 than they began this year. He just sees stocks zigzagging more often as traders respond to the beginning-of-the-end of easy money.


“I think the market will end higher than it started but it will be a bumpy ride,” McBride said. “The market is going to have to recalibrate from the impetus of easy money and return to a focus on fundamentals, namely top line revenue growth and profit growth.”

Friday, January 3, 2014

PPCoin (Peer Coin) - Crypto Currency





PPC Specifications:

  • Blocks every 10 min
  • Coin supply* non-deterministic coins will be available
  • Difficulty adjustment each block
  • Hashing algorithm SHA-256
  • Reward varies on difficulty coins per block
Peer Coin, abbreviated PPC is a cryptocurrency which is forked from bitcoin. PPCoin aims to achieve high energy-efficiency while keeping as much as the official Bitcoin properties as possible.

PPCoin works with Stake/Proof-of-Stake, this is a term referring to the use of the currency itself to achieve certain goals.

PPCoin uses proof-of-stake to provide minting and transaction processing of place of proof-of-work. Unlike Bitcoin ppcoin does not require the use of energy to sustain the network. Proof-of-work currently remains the most practical way of providing initial minting of a cryptocurrency so it was decided to keep it as part of the hybrid design.

Untill v0.2, central checkpointing was a critical part of the protocol. The main purpose of this is to defend the network during the growth period and to ensure a smooth upgrade path if any critical vulnerabilities are found. Central checkpointing will slowly be weakened and should eventually removed from the coin.

Unlike Bitcoin there is no hard cap on the amount of coins that will be created. Bitcoin is limited to 21 million coins where PPCoin only has a hard cap of 2 billion coin in the code. There is no intention to limit the amount of coins that can be generated.



“There is a 2-billion coin max value in the source code, however that is only used for consistency checking and is not meant to be part of the minting design.”