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Fed Thrilled Inflation Is Heating Up, Will Let Prices Run Higher
Powell: Governments Are LYING about Their Gold Activities while Mining Companies Cower
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Welcome to this week’s Market Wrap Podcast, I’m Mike Gleason.
Coming up we’ll hear a fascinating interview with Chris Powell of the Gold Anti-Trust Action Committee. Chris gives perhaps the most thorough explanation of why governments are so intent on manipulating the precious metals markets and reveals some very interesting recent data about what they’ve quietly been doing. Don’t miss conversation with Chris Powell of GATA, coming up after this week’s market update.
Precious metals markets rallied this week through Thursday even as the Federal Reserve hiked interest rates and vowed more rate hikes to come, but now they’ve given back the gains here on Friday morning. On Wednesday, the central bank lifted its benchmark Federal funds rate by 25 basis points, as was widely expected. Fed forecasters are now calling for two more rate hikes by the end of the year.
A narrow reading of the Fed’s policy decision might suggest that it is being hawkish on inflation. The underlying reality is that policymakers are cheering recent rises in inflation data. And their rhetoric on so-called “symmetric” inflation targeting is laying a path for inflation to continue rising above their 2% target.
In his prepared statement this week, Fed chairman Jerome Powell talked about how “encouraging” it is that the prices Americans pay for everything they buy is back on the rise.
Jerome Powell: After many years of running below our 2% longer run objective, inflation has recently moved close to that level. Indeed, overall consumer prices, as measured by the price index for personal consumption expenditures, increased 2% over the 12 months ending in April. The recent inflation data have been encouraging, but after many years of inflation below our objective, we do not want to declare victory.
We want to ensure that inflation remains near our symmetric 2% longer run goal on a sustained basis.
Powell seems to believe that stronger, more sustained inflation numbers need to be seen before he can “declare victory” over sub-2% inflation. It’s an odd battle for a central bank to be engaged in – fighting against 1% inflation because price levels are just too darn stable.
One of the Fed’s mandates is, in fact, price stability. By definition, 1% inflation is more stable than a 2% or higher rate. There would be nothing more stable than 0% inflation. But Keynesian theory prescribes higher rates of consumer price increases, which supposedly boost the economy by encouraging people to shift their spending forward in time and save less for the longer term.
The other, less acknowledged reason for the Fed’s push for higher inflation is as a tool for driving down the real value of government debt obligations. The Treasury Department would be unable to pay the interest on its long-term bonds for very long if it had to do so in constant dollars. Federal finances depend on the currency supply expanding and the value of the Federal Reserve Note declining.
But monetary authorities don’t want inflation expectations rising to the point where investors start demanding significantly higher yields on bonds. One of the ways inflation expectations are contained is through the manipulation of inflation statistics so that the official inflation number always comes in below alternative and arguably more realistic measures.
The Fed’s preferred Personal Consumption Expenditures indicator is now running at right around 2% annually. But an alternative Consumer Price Index gauge rose in May to its highest reading in more than six years – 2.8% year-over-year. The Producer Price Index, which measures wholesale inflation for goods and services, rose sharply in May to an annual rate of 3.1%.
Growing inflation concerns may soon start translating into rising demand for precious metals. This week, gold prices are now down 1.4%, with all of that loss coming here today. The yellow metal now trades at $1,282 an ounce as of this Friday morning recording.
With Friday morning’s pullback, silver spot prices are now down for the week as well and currently check in at $16.68 per ounce, off 1.0% now since last Friday’s close. Despite today’s weakness, silver has seemed to garner some relative strength at key recent resistance levels. The market hit a 5-month high on Thursday before selling off here on Friday. What looked like a potential breakout in silver just yesterday is apparently going to have to wait, yet again to the chagrin of silver bulls.
Silver was looking like it might actually resolve its long consolidation pattern going back two years and finally breakout to the upside. A push above the $17.60 level hit in January would have established a new 2018 high and provide confirmation of a higher high on the charts. But the white metal failed at around $17.20 and now finds itself a good distance away from that $17.60 mark yet again.
Bulls will also be looking for confirmation from the gold and silver mining stocks, which have been lagging lately. They should get more of a pop in a major breakout for the precious metals markets. Prior to today’s selloff across the entire sector silver was really the only one breaking out, with mining equities along with the gold, platinum, and palladium markets trading more tepidly.
This week platinum is down 2.4% to trade at $891 while palladium is also posting a 2.4% weekly decline and comes in at $994 per ounce.
Bulls can take some encouragement in the fact that all the metals showed relative strength this week in the face of a Fed rate hike and stronger U.S. dollar, today’s pullback notwithstanding. The Dollar Index rose 1% this week through Thursday’s close, but precious metals markets continue to hold their own. That could bode well for metals price trends in the weeks ahead.
Well now, without further delay let’s get right to this week’s exclusive interview.
Mike Gleason: It is my privilege now to welcome in Chris Powell, Secretary-Treasurer at the Gold Anti-Trust Action Committee, also known as GATA. Chris is a long time journalist and a hard money advocate and through his tireless efforts at GATA he is working to expose the manipulation of the gold and silver markets. Through GATA's work over the years some important revelations have come to light, which quite honestly should concern everyone.
It's great to have him back with us. Chris, good to have you on again and how are you?
Chris Powell: Oh, very good, Mike. Glad to be here.
Mike Gleason: Well, Chris, before we get into other things please start by giving our audience a bit of background on your organization as some may not be familiar. What is GATA? How did you get started? And where do you focus your efforts?
Chris Powell: GATA is the Gold Anti-Trust Action Committee. We got started in January 1999 to expose and complain about and, if we could, stop the manipulation of the gold market, which is done largely surreptitiously by central banks and their agents. Certain investment banks.
We originally thought that the suppression in the monetary metals prices was an ordinary market rigging scheme run by the largest participants in the markets, the banks. After we did a year or two of research we realized that gold price suppression is longstanding Western government and central bank policy going back many decades. It used to be implemented in the open through the gold standard and the London gold pool and mechanisms like that. Now it is implemented largely through the rigging of the futures and derivatives markets. The major participants in this rigging are the Federal Reserve, the Treasury Department, the Bank of England, the Bank for International Settlements.
If you look closely through the government archives, the policy records, you can see this policy of gold price suppression is very plainly articulated. There's really nothing secret about it if you're ready to look for the documents. The problem is there're very few people who want to get into this issue because it would show that our market system is an illusion. That governments and central banks are really rigging not only the monetary metals markets, but they're rigging all markets and that in fact, we have a very elaborate government system of control of the prices of all capital labor goods and services in the world. It's really a totalitarian system and we just try to show people the documentation of it, urge them to raise questions about it and slowly push the world toward a free market system.
Mike Gleason: On that note, you guys have been at this a long time and the evidence just keeps piling up as to pervasive price manipulation in the metals markets. And to be fair, banks have now been caught cheating in a variety of markets – LIBOR, currency markets, mortgage back securities – you name it, they've rigged it. It seems like your job should be getting easier, but it isn't. Why is that? Why is it so difficult to get reform given the markets so clearly need fixing?
Chris Powell: Well I think there's two reasons, Mike. First is the cowardice and corruption of the mainstream financial news organizations. In fairness to them, this market rigging is considered a national security issue by most major governments. If we ever had free markets, governments would lose much of their control over society. Mainstream financial news organizations, for the most part, do not want to pick up this issue. They will never put a critical question to a central bank. That is really the most aversive thing that journalism could do, and it would never do it.
The second reason is that the industry that is most devastated by this longstanding policy, the mining industry, is too cowardly as well because the industry is completely vulnerable to governments and completely vulnerable to the biggest banks that are the government agents. There's a couple of reasons for that. Mining requires government approval for access to minerals. I mean, minerals are the product of land rights and governments are sovereign over land rights. Any mining company can lose its mining rights, its favorable royalty arrangements with governments very quickly if a government is alienated by the political activism of a mining company.
Further, of course, mining's a very environmentally sensitive business and any government can shut down any mining company really on any environmental pretext at any time. So, the mining companies are terrified of the government and don't want to alienate the government further. Mining is also the most capital intensive business in the world. It can take billions of dollars and many, many years before a mine can be opened and since so much capital is involved, it's required by the mining industry, the biggest investment banks in the world dominate the industry's financing globally. The biggest investment banks in the world are also formally agents of governments.
In the United States, most of the big banks are primary dealers in U.S. government securities. They're very intimately connected to the U.S. Treasury Department. Mining industry looks at this scheme and says, "Gee, if we complain about the suppression of the price of monetary metals by the government, not only is the government going to try to cut us off, well our own banks will cut us off.” So, the mining industry is helplessly, cowardly here. There's some exceptions. There's a few very brave exceptions, but on the whole the industry is absolutely useless for the cause of free markets and sound money.
Mike Gleason: Yeah, that's a real shame. One of those few guys sticking his neck out there, Keith Neumeyer, First Majestic Silver, we both know. We've had Keith on our program several times and he's doing the work that should be done by all of his colleagues.
Chris Powell: Well, there are few other mining entrepreneurs. Eric Sprott being one very-
Mike Gleason: That's true.
Chris Powell: -very prominently. And there are, you know, a few companies that have helped us consistently over the years. I'm not sure if I should mention them, to praise them or that would just get them in trouble, but there are some. But, on the whole, the industry is useless and its trade organization, the World Gold Council, is essentially a functionary of the government and distracting the world from the gold price suppression issue.
Mike Gleason: What about the potential for civil courts to hold crooked bankers to account. Plaintiffs have brought a high profile civil case for metals price rigging against Deustche Bank and a number of other bullion banks more than a year and a half ago. Deustche settled and provided mounds of documents and recordings to assist in the suit against the remaining banks. The lawsuit made some headlines and gave some reason for hope. It was a way of end running regulators who seem to be totally inept. But the news around that case has dried up. We know these things do take time, but since GATA is well connected in these sorts of matters I wanted to ask if you might be able to update our listeners about the status of this civil suit and what are your thoughts generally about whether the civil courts might be able to hold banks to account for their frauds?
Chris Powell: Well, yes, there is an anti-trust lawsuit in New York against some of the major banks, including Deustche, and Deustche has confessed to rigging the market and offered a financial settlement there. That lawsuit is essentially on hold right now because the Justice Department intervened in the middle of it, claiming that it wanted to begin investigating the gold and silver market rigging issue and it thought that the lawsuit proceeding to discovery and deposition would interfere with the Justice Department's own investigation.
Well, just a couple of weeks ago, the Justice Department did bring criminal charges against a bunch of investment bank traders in the gold and silver markets. Traders for three European banks and those three banks, completely separate from this lawsuit in New York, they agreed to pay fines to the U.S. Commodity Futures Trading Commission for manipulating the gold and silver markets through spoofing. These were European banks, and the most recent action, HSBC, Deustche Bank, and UBS. There were no U.S. based banks involved in that criminal action and that regulatory enforcement action.
I have to believe no action has been brought against U.S. banks by the Justice Department or the CFTC because U.S. banks that are involved in the gold price suppression scheme are almost certainly acting in the markets as the formal agents of the Fed and the Treasury Department. In fact, in the United States, under the Gold Reserve Act of 1934, as amended in 1970's, the U.S. government has been given power by Congress and the President, as a matter of law, to secretly rig any market in the world. I know that sounds like an astounding assertion, but anybody can look it up. You can go to the Treasury Department's internet site and look up the Exchange Stabilization Fund, which is an agency of the Treasury, and you'll see that the Exchange Stabilization Fund has the power under the Gold Reserve Act to intervene secretly in any market and rig any market.
I infer from that, and I don't think very wildly, that any bank broker who assists the U.S. government, functions as an intermediary for the U.S. government in rigging markets, shares the sovereign immunity of the U.S. government and can't be prosecuted or sued civilly for it. And I imagine that is why no U.S. banks were charged in the CFTC and Justice Department’s enforcement action that was brought a couple of weeks ago because when it is done in the United States by U.S. banks and brokers acting for the Treasury Department or the Federal Reserve, market rigging is completely legal.
Among the documents that we have and can show to anybody are filing by CME Group, the operator of all the major futures exchanges in the United States. Filings with the Commodity Futures Trading Commission and the Securities and Exchange Commission acknowledging that the CME Group gives trading discounts to governments of central banks for trading secretly all futures contracts in the United States and that's, I think, pretty much in documentation that governments are secretly trading off futures contracts in the United States. I'm not making this up. These are filings with the CFTC and the Securities and Exchange Commission where the exchange operator admits that not only are governments and central banks secretly trading all futures contracts, all major futures contracts in the United States, but they're getting trading discounts from the Exchange for doing so. And while these documents are on our internet site and on the CFTC's internet site, on the SEC's internet site, these cannot be acknowledged and examined by the mainstream financial news media. It's just too sensitive. Too much of a national security issue.
Mike Gleason: Chris, you sent out an alert to your email list earlier this week about some very substantial gold market activity by the Bank of International Settlements. Apparently, the BIS has engaged in gold related derivatives and swap transactions in January involving some 580 tonnes of gold. First, why is the BIS even involved in the gold market in the first place, and does this increase in activity have any significance?
Chris Powell: The Bank for International Settlements is kind of a central bank association of all the major central banks in the world. It is the gold broker for many of the major central banks. A primary purpose of the Bank for International Settlements is to facilitate interventions in the currency markets by its member central banks. Among the documents we have on our internet site is the PowerPoint presentation that was given by the BIS, I think about eight or nine years ago, to prospective central bank members in a meeting at BIS headquarters in Basel, Switzerland.
Among the services of the BIS that were advertised in the PowerPoint presentation are secret intervention in the gold and currency markets. I mean, that's just another document that's out there. That’s what the BIS does. It intervenes secretly in the gold and currency markets on behalf of its central bank members. The BIS is a major player in the gold market. It's the gold broker for central banks. It puts out a monthly statement of account, which our consultant Robert Lambourne monitors very closely. I think he's the only person in the world, at least in the public arena, who monitors the BIS activity in the gold market. As signified by the monthly reports by the BIS, over the last year, he has tracked very substantial increases in the BIS's activity in the gold market. The growth of its gold derivatives.
The BIS seems to have gotten out of the gold derivatives business until about a year ago and then it got back in, in a huge way. And I guess in December, I think, the BIS monthly report showed that its involvement in gold swaps and gold derivatives had gone down slightly, but then in the January report, which we publicized this week, the BIS's involvement in gold swaps and derivatives increased substantially. So the BIS is undertaking gold trades and gold derivative trades for its central bank members virtually every day. It has been for a long time. The BIS is moving gold around among central banks and among their bullion bank agents to apply metal and derivatives in markets where gold is most threatening to explode. That is the primary mechanism now of managing the gold price. Central banks cooperating through the BIS and moving gold and gold derivatives around to tamp the price down.
Again, these are public documents. Anybody can find these documents on the internet site of the BIS. You won't find the PowerPoint presentation there that advertises secret interventions in the gold market, but we have that on our internet site. All you got to do is question the central banks about this. I did this a couple of months ago. I sent the BIS press office Rob Lambourne's most recent report asking, "Does he construe your data correctly about your gold and gold derivatives and could you please tell me the purpose of your intervention in the gold market this way," and I got a very quick response from the press office saying, "No, we don't talk about this stuff and you can get more information about gold from other central banks." Well of course the other central banks don't talk about it either.
Mike Gleason: Is there any legitimate reason for governments to be trading gold? I mean, it's no secret that central banks hold gold because, despite what they say, they do recognize it as money. Is there any legitimate reason for them to be doing this?
Chris Powell: Well, sure. Some central banks could be wanting to purchase gold because they could see it as the ultimate money. They could see it as being very undervalued. They could look at it as an asset they'd do well to have more of. But, that's not the explanation that central banks give if you really press them. In recent years they've said, for example, that they have been leasing gold to earn a little interest on a dead asset. It’s kind of a ridiculous explanation because central banks don't have to earn any money. Central banks create money. Central banks create money to infinity. They don't have to lease gold to make money.
In fact, the secret March 1999 report of the staff of the International Monetary Fund, which is posted on their internet site, confirms that central banks conceal their gold swaps and leases precisely to facilitate their secret interventions in the gold and currency markets. Actually, central banks, many of them, still own gold because you need to own some gold if you're going to control the currency markets. You can't control the currency markets unless you can intervene in the gold market, gold being the ultimate currency. Even now, central banks recognize it as such. That is primarily why central banks own gold. In fact, a few years ago, the annual report of the Reserve Bank of Australia was candid enough to acknowledge this. It said that central banks own gold for currency market intervention.
Mike Gleason: Well eventually maybe the whole system breaks and they lose control, they lose the confidence in the system and then finally they won't have an opportunity to continue to suppress pricing. Maybe that will come at some point in the future.
Well, excellent stuff, Chris. I really want to thank you for your insights today and for the work you're doing there at GATA. Somebody's got to do it and we're very thankful that your organization is. And before we let you go, give our listeners more information on how they can learn more about this and follow what you're doing there at GATA, and then also, how they can get involved and donate if they wish to see your organization continue to do this important work.
Chris Powell: Thanks, Mike. Well, our internet site is gata.org. We put out daily dispatches of news interests to gold investors and people who believe in free markets. You can enroll in our internet site to get on our free dispatch list. We are also recognized as a 501(c)(3) charitable organization under the U.S. Internal Revenue Code. We're an educational and civil rights organization and if people would like to make donations to us, those donations are federally tax exempt in the United States and there's a mechanism on our internet site for donating to us and we do welcome donations maintaining the site and really supporting the research of our consultants and undertaking our travel to conferences. These things do run into a little money anyway. We're not a very big, rich non-profit. We're usually running from hand to mouth, so if anybody wants to help us out we much appreciate it. We're certainly not really getting much help from the mining industry, so if you want to send us t$10 by check or credit card, it'll be $10 more than we'll ever be getting from Newmont Mining.
Mike Gleason: Well we appreciate you coming on as always and spending some time with us here today, Chris. Look forward to catching up with you again down the road as this continues to develop, and I hope you enjoy your weekend. Take care, my friend.
Chris Powell: Thanks, Mike.
Mike Gleason: Thanks again to Chris Powell at the Gold Antitrust Action Committee. Again, check out gata.org for more information. They publish a lot of great content there at GATA, and we highly recommend everyone check that out. And I also want to urge folks to consider making a tax-deductible donation to ensure GATA has the resources to continue this important work. Again, gata.org is where you can do that.
That will do it for this week. Be sure to check back next week for our next Friday for our next weekly Weekly Market Wrap Podcast. Until then, this has been Mike Gleason with Money Metals Exchange, thanks for listening, and have a great weekend everybody.