Monday, March 19, 2007

Did The US Goverment Fix Gold Price Prior To War In Iraq?

Central Bank Intervention and the Iraq War

In the run-up to the Iraq war, a news story suggested, albeit in a subtle manner, that coordinated central bank intervention in the gold market continues. A BBC report included the following:

US and Japan to protect markets

Just days ahead of a war, the US and Japan are prepared to co-operate to support the financial markets if there is a crisis. A deal was struck last week in the US between a former Japanese finance minister and the head of the US central bank, the Federal Reserve's Alan Greenspan.

"There was an agreement between Japan and the US to take action cooperatively in foreign exchange, stocks and other markets if the markets face a crisis," Chief Cabinet Secretary Yasuo Fukuda said.

This agreement was apparently not reported in any major American newspaper, but would represent a huge shift in official U.S. government policy if publicly confirmed. While intervention in the currency markets is very common and known by all market participants, interference in the stock market is not. More importantly for this purpose of this report is the article's reference to 'other markets.' Past central bank manipulation of the gold market (e.g. London Gold Pool), makes it reasonable to believe that it is one of the 'other markets' cited by Japan's Chief Cabinet Secretary in the BBC article.

The same day that the BBC report was published, an article in the London Evening Standard questioned whether numerous markets were being manipulated as the Iraq conflict neared. That piece, Plunge Protection and Rallying Shares, observed:

The more astute watchers of markets say that the only explanation for what began last week and continued yesterday was a US government-inspired support action to get markets where they wanted before the outbreak of hostilities.

The trick about buying and selling in markets is to complete the trade without moving the price. The massive and sudden surge of activity last week and yesterday only made sense if it was intended to shift the price. Last week and again precisely at 3.30pm yesterday, massive selling undermined the euro on the currency markets and made the dollar correspondingly stronger. To the minute, there was similar sudden heavy selling in the gold market. Last week this bashed the metal's price from $350 to nearer $330 and yesterday it killed off the recovery.

So much for gold as a safe haven in times of war.

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