Since the beginning of the pandemic, we’ve seen many crucial and historic developments in the precious metals market. For long-term physical gold investors, who recognized the importance of the precious metal as a safe haven and as a hedge against systemic and monetary risks, the rally has been especially rewarding, while it has also served as an undeniable vindication of their position.
Today, with gold having reached historic highs, there are many open questions in the mainstream about why and how we got here and what to expect next. I’ve always believed that, in order to understand the present and get an idea about the future, one must first study the past, as the perspective provided by history is essential and greatly illuminating. This is why I turned to Chris Powell, co-founder of the Gold Anti-Trust Action Committee (GATA), whose deep and nuanced understanding of the gold market, as well as the forces that shape and influence it, can help put these issues in their proper context.
Chris Powell is a political columnist for the Journal Inquirer, a daily newspaper in Manchester, Connecticut, USA, where he has worked since graduating from high school in 1967. He was managing editor of the newspaper from 1974 to 2018. His column is published in newspapers throughout Connecticut. He is also secretary/treasurer of the Gold Anti-Trust Action Committee Inc., (GATA) which he co-founded in 1999 to expose and oppose the rigging of the gold market by Western central banks and their investment bank agents. He edits the GATA Dispatch, the organization’s daily electronic newsletter. He is a member of the Board of Directors of the Connecticut Council on Freedom of Information and was its state legislative chairman from 2004-2010.
Claudio Grass (CG): It’s been a tumultuous time since the beginning of the year, with a lot of “firsts” and records in policymaking, in the markets and certainly in precious metals. Given the extreme times and extreme measures we’ve experienced in recent months, did you anticipate gold to rally as strongly as it is and do you expect the rally to continue?
Chris Powell (CP): Recent developments in the gold market have been suggesting big changes — for example, the growing public acquisition of gold by certain central banks, the diminishing effectiveness of the regular central bank-inspired smashing of gold and silver futures prices, the rise and fall of the use of the “exchange for physicals” mechanism for settling Comex contracts, the desperate efforts of the London Bullion Market Association and the New York Commodities Exchange to get London and New York prices back together, and the sudden conversion of the Comex from a derivatives market to a physical market and the huge metal offtake there.
These developments occurred amid a backdrop of enormous money creation by central banks and a rising gold price. They could be construed as signifying that demand for actual metal was curbing the influence of gold derivatives and that the whole gold derivative system was beginning to implode.
If, indeed, a short squeeze is developing in gold, sharp rallies are to be expected, as they are to be expected with any short squeeze. So I’m optimistic about the prospects of the monetary metals. But will the recent developments start democratizing central banking or push central banking and government to become more interventionist and totalitarian? I think it could go either way.
CG: There are so many explanations bouncing around about what’s really driving the rally: inflation fears, economic uncertainty, a rise in retail demand…What do you think is the best explanation for it?
CP: I think it’s most likely that it’s the implosion of the fractional-reserve gold banking system based on deception through derivatives. The implosion may have been triggered by the stress added to the world economy by the virus epidemic but other stresses were already present, like the growing international recognition and resentment of the United States’ increasing use of the dollar as a mechanism of imperialism, and recognition that gold may be the best escape from dollar imperialism. The world wasn’t likely to happily remain the slave of the United States forever.
CG: Looking at the infinite stimulus being injected into the global economy by central banks and governments everywhere, what are your main concerns over its wider impact? There’s a big “inflation vs deflation” debate going on, where do you stand on this and what do you think the likeliest outcome is?
CP: I long have been inclined to think that the U.S. economists Paul Brodsky and Lee Quaintance were probably right with their paper eight years ago in which they surmised that the general plan of the big central banks was to redistribute gold reserves so that countries with big foreign exchange holdings in dollars would be hedged against the dollar’s inevitable devaluation. Voima Gold researcher Jan Nieuwenhuijs last month published evidence tending to support the Brodsky-Quaintance hypothesis.
I also long have been inclined to think that the Scottish economist Peter Millar was right with his paper from 2006, in which he argued that central banks and governments had used gold revaluation to devalue their currencies and especially debt, to prevent exponentially rising interest expense from devouring the real economy, and would have to do so again.
If these guys are basically right, gold would seem likely to return to a central place in the world financial system, if not with a return to an international gold standard then with a system that formally acknowledged gold as a measure of currencies. Certainly, gold is the only politically neutral potential alternative reserve currency.
CG: Do you think the role of central banks has changed in this crisis? Have monetary interventions taken a back seat to extreme fiscal policies?
CP: More than ever today central banks, not elected governments, run the world. Central bank intervention, not free markets, determines the price of all capital, labor, goods, and services. This is essentially a totalitarian system. Central banking doesn’t serve the public interest. It serves only holders of great wealth.
As he campaigned for re-election in 1936, Franklin Roosevelt spoke of “organized money”:
“We had to struggle with the old enemies of peace — -business and financial monopoly, speculation, reckless banking, class antagonism, sectionalism, war profiteering. They had begun to consider the Government of the United States as a mere appendage to their own affairs. We know now that Government by organized money is just as dangerous as Government by organized mob.”
Well, as might have been expected, in the decades since then organized money has captured central banking and the financial regulatory agencies. Can organized money be overthrown without a collapse of the whole financial system? I don’t know. People in the United States today are far less educated and informed than they should be. It’s the old corruption of prosperity and imperialism.
CG: How do you evaluate the rise in retail demand for gold, especially the paper kind, aided by low-cost brokers and mobile trading apps?
CP: It’s hard to tell how much demand is going into real metal and how much just into more paper. I don’t think the rise in reported holdings by the exchange-traded funds GLD and SLV is necessarily positive for metals prices, because I think the bullion banks that run the EFTs use their metal deposits to smash the physical markets with at crucial points.
I suspect that the main drivers for gold are non-Western governments and central banks that have wised up to Western gold price suppression policy and have realized how much political and economic leverage they can gain with gold.
CG: This rise in amateur trading facilitated by popular apps, aka the “Robinhood” effect, has already had an impact in stock markets. Do you think it also has the capacity to exacerbate the bifurcation between the paper gold and the physical markets?
CP: I suspect that this trading is largely ignorant and speculative and thus will end up mostly supporting the “paper” side of the metals markets and be easily flushed out.
CG: Staying on the topic of bifurcation, do you expect this sharp contrast between the equity markets and the real economy to continue? Or do you think a second, perhaps much harder market crash, is on the way?
CP: It’s all a matter of how much intervention governments and central banks are prepared to do. They already have destroyed most of the world’s market economy. If they are prepared to buy everything and intervene infinitely in the futures markets to suppress commodity prices to disguise the debasement of currencies, maybe there never needs to be an equity market crash again. But then there never again will be much economic and social progress.
CG: What would be your advice for the long-term, conservative precious metals investor at this point? Should we be buying more gold, looking to diversify with different metals, or simply hold?
CP: I’m no investment adviser. I’m a high school graduate. So, my advice is only that of a layman: Acquire all the monetary metal you can, find a safe planet to keep it on, and, when you do, please call me.