Review & Outlook

Cracks in Beijing’s Dome

A documentary reveals splits within the Communist Party.

March 10, 2015 7:40 p.m. ET

 Laborers work at a construction site near a smoking chimney in a suburb of Shanghai on March 9. Photo: Reuters

Citizens of modern democracies often take for granted the muckraking journalism that goes along with a free press. Yet for most Chinese such reporting is new and exhilarating, which might explain the phenomenal success of a video calling attention to the scandal of China’s polluted skies.

Viewed by hundreds of millions of Chinese in the week before it was censored, “Under the Dome” was supposedly produced by private citizen Chai Jing with her own money. That’s unlikely. Ms. Chai, a former state-television journalist, released her polished jeremiad against smog on the website of official media outlets such as the People’s Daily at the most sensitive time of the political calendar, days before the annual session of the country’s rubber-stamp parliament.

The following day, China’s newly appointed Minister of Environmental Protection, Chen Jining, endorsed Ms. Chai’s work. The video contains interviews with officials from the Environment Ministry, National Development and Reform Commission and the Party’s Finance Affairs Office. Scholars at Peking University contributed background material.

All of this suggests that Ms. Chai had official backing in her attempt to increase public pressure for environmental regulation. But neither is the video the product of the Party’s Propaganda Department. On the same day Minister Chen praised Ms. Chai, the censors ordered state media to stop covering her. A few days later, the video was scrubbed from the Chinese Internet altogether.

Ms. Chai didn’t question the Communist Party’s monopoly on power. Yet she laid the blame for the degradation of the environment squarely at the foot of the government, which fails to enforce its own laws. She also attacked the standards of giant state-owned petroleum companies, which enjoy equal political status to government ministries and effectively regulate themselves.

“Under the Dome” shows that an element within the Party wants to overcome resistance to environmental regulation by appealing directly to the public. That’s a positive development. But it brings to mind a 1988 episode in which reformers within the Party produced “River Elegy,” a television series that encouraged debate about China’s political development.

Hardliners suppressed it after a first airing. That leadership split over political reform contributed to the rise and violent suppression of the student democracy movement in 1989.

It’s always possible that supreme leader Xi Jinping and his allies backed Ms. Chai’s venture.

The video may boost his efforts to reform the economy and root out the faction of deposed Politburo member Zhou Yongkang. A push for cleaner air fits his emphasis on quality of life instead of GDP figures. Then again, if Mr. Xi has to look outside the propaganda apparatus to advance his agenda with such a risky gambit, that means he is unable to overcome internal opposition.

“Under the Dome” is a reminder that these internal divisions persist. It is all the more threatening to the Party since it exposes its vulnerability to bottom up challenges that encourage citizen activism. That, in the long run, can only end with the Party’s undoing.

Gold Manipulation: The “London Bias,” 1970-2014

Ed Steer, Editor, Gold & Silver Daily

Below is one of the charts that I used in my presentation at the Casey Research conference in San Antonio, Texas last September—and I thought it time for a revisit.

It’s based on an interesting piece of research by Sam and Bob Kirtly at SK Options Trading in Wellington, New Zealand way back on August 27, 2010.

All data on this chart are from the LBMA—the London Bullion Market Association—and I thank Nick Laird for generating it and adding all the extra data and dialogue boxes.

The chart runs from January 1970 until September 2014—almost 45 years.

The yellow line is the gold price—and it’s slaved to the left Y axis. The blue line is the value of a theoretical $100 investment made on January 2, 1970—and that’s slaved to the right Y axis.

The four dialogue boxes with the red words/numbers represent the gold price at four crucial points during the last 45 years.

In theory and without considering commissions, what this chart shows in plain English is that if you invested $100 at the London a.m. gold fix on January 2, 1970, sold your position at the London p.m. gold fix the same day, then reinvested the proceeds the next day at the London a.m. fix and sold at the p.m. fix once again—and did that every business day for 45 years in a row—you’d have had the magnificent sum of $12.13 in your trading account at the close of business on February 27, 2015.

This is what I call the “London bias”—and for most of the last 45 years, it’s been negative regardless of the gold price trend indicated by the Y axis.

The bias was positive from January 4, 1971 to January 2, 1975 because the $100 initial “investment” you made was worth a bit north of $330 on January 2, 1975. During that time, the price rose from a low of $37.70 to $179.40—a gain of 375%.

All that changed from January 2, 1975 going forward and with the exception of only a couple of years between 1975 and 1980, the yearly London price bias in gold has been negative ever since—for more than two generations.

In other words, since January 2, 1975—and with the very odd exception in the interim—the gold price has closed for a loss between the London a.m. and p.m. gold fixes for 40 years in a row regardless of what was happening in the overall gold market.

Note that between January 2, 1975 and January 21, 1980, the gold price rose from $179.40 to $878.50—a gain of another 389%. However, during that time, your $100 investment declined in value from just over $330 to just over $300.

Also note on this chart that during the biggest gold bull market in history between 1999 and 2011, the “London bias” continued to be negative, as the gold price closed down every year between the fixes.

The Friday before the Washington Agreement on Gold was signed on September 26, 1999, the gold price was at $265.70 per ounce. At its high tick on September 5, 2011, the gold price hit $1,896.50 per ounce. That bull market, before it got cut off at the knees, ran the gold price up 613% percent.
During that time period, your theoretical $100 investment fell from a hair under $60 all the way down to about $17 on the day that gold peaked.

How is that possible in a free market, you might ask. Well, the answer is that it ain’t.

There is nothing free market about this chart. What it clearly shows is a carefully planned and executed price-suppression scheme in the gold market. The overt market price suppression of the 1960s during the days of the London Gold Pool turned into the covert price-suppression scheme you see here. For those looking for the proverbial smoking gun of the gold price management scheme, it’s staring them in the face in this one chart.

And without doubt, it was—and still is—being carried out by the covert and collusive actions of organizations such as the Bank for International Settlements, the Federal Reserve, the Exchange Stabilization Fund, and the US Treasury Department. I’m sure it would be safe to include, at times, the central banks of England, France, Germany, and perhaps Switzerland. In recent years, it may also have come to include the People’s Bank of China.

Subsequent to me writing this article but before its publication, Ronan Manly over at BullionStar authored an essay titled The Bank of England and the London Gold Fixings in the 1980s. It showed up on that Internet site on February 28, 2015—and is certainly a must read in conjunction with the data shown on the above chart. One thing he pointed out to me was that according to his source (which I’ve subsequently seen), the Comex began trading gold futures contracts for the first time on December 31, 1974—one trading day before the London bias turned negative more or less permanently.

The participants involved in the precious metal price-suppression scheme can be observed in real time in the “Days of World Production to Cover COMEX Short Positions” chart that Nick Laird generates from the weekly Commitment of Traders Report produced by the CFTC—the very regulatory body that’s supposed to prevent this sort of price-management scheme from occurring in the first place. Here it is.

Almost with no exception other than cocoa once in a while, the short positions of the Big 4 and Big 8 Comex traders in the precious metal futures market have occupied the last four positions on the extreme right-hand side of this chart ever since I stumbled across it about 15 years ago. And as you can also tell from this chart, the price-suppression scheme in the other three precious metals—particularly silver—is even more egregious than it is in gold.

The short positions of the largest four and eight traders are shown for each physically traded commodity on the Comex—and it’s safe to assume that these big traders, especially in the four precious metals, are composed mainly of US and foreign banks as per the monthly Bank Participation Report. As for which banks they might be, one doesn’t have to look much further than the current market-making members of the LBMA. The rest of the Big 8 would be mostly comprised of the largest brokerage houses in the Western world. And as I’ve pointed out already, the People’s Bank of China may also be involved to some extent as well.

The five-year chart posted below (based on LBMA data) of the daily average gold price on a two-minute tick basis for the last five years shows the negative bias between the London a.m. and p.m. fixes more clearly. But in actual fact, the negative bias is much worse than that, because it really begins about an hour or so before the 8:00 a.m. GMT London open—and many hours before the morning gold fix. I know this to be true on a longer-term basis as well because I’ve been following this chart ever since German gold researcher and GATA consultant Dimitri Speck first posted it on the Internet almost 15 years ago. This is Nick Laird’s version of the same thing.

(It should be noted that this “London bias” has all but vanished during the last 18 months. That trading pattern began to change even before Barclays got fined £26 million in May 2014 because one of its traders got caught “banging” the London p.m. gold fix back sometime in 2012. Maybe the high-frequency traders and their algorithms have taken over where the bias left off? But having said all of that, the bias in question just reappeared in February in both gold and silver.)

As I’ve been saying since the outset, the individual London gold fixes—either a.m. or p.m.—are not and never have been the issue as far as gold price management at the “fixes” has been concerned. It’s the negative bias in the time period between the a.m. and p.m. fixes that’s the issue—and the last chart shows that the negative bias actually encompasses a far longer time period on a daily basis than the intra-fix time period itself.

If someone would care to offer a different interpretation of the above data, I’m sure the gold world in particular—and the precious metal world in general—would love to hear it.

Emerging Markets Lose Their Luster as Crises Mount


MARCH 10, 2015

In Russia, it’s assassinations and war. In Brazil, a corruption scandal may derail the economy. And in Turkey, the president is attacking the country’s senior central banker.
Emerging markets, not long ago seen as a necessary ingredient for the common portfolio, have lately taken on a more toxic quality as messy politics and staggering economies are prompting some investors to reassess their investment rationale.
Compounding these concerns has been the dollar’s upward march and the growing acceptance that the Federal Reserve will soon increase interest rates as the United States economy outpaces the rest of the world’s.
Emerging-market currencies, an accurate barometer of investor mood swings, are now suffering the consequences. The Turkish lira and the Brazilian real have touched multiyear lows against the dollar while the Russian ruble remains volatile after its 65 percent plunge.
Even the currencies of economies seen to be in better shape, like the Mexican peso, which is trading at record lows against the dollar, and the Indian rupee are under pressure.
“You are seeing all the bad things about emerging markets that originally made them sub-investment grade,” said Daniel Tenengauzer, an emerging-market specialist at the Royal Bank of Canada. “The whole thesis that emerging markets are emerging is being questioned right now.”
Mr. Tenengauzer points to Brazil as the main culprit. Allegations of kickbacks and bribes at Petrobras, the country’s energy giant, threaten to engulf the country’s business and economic elites.
Petrobras, which has relied on global bond markets to finance its ambitious investment plans, is now retrenching — a bad omen for Brazil’s investment-starved economy, which is not expect to grow this year.
But the outlook is no better in Russia, where a war with Ukraine and President Vladimir V. Putin’s erratic ways — combined with a collapse in the price of oil — have rattled investors. And in Turkey, the country’s president, Recep Tayyip Erdogan, has added to existing currency jitters by suggesting that head of the Turkish central bank is beholden to foreign speculators because he has not lowered interest rates fast enough.
Beyond these surface problems are deeper vulnerabilities in these and other emerging markets that, analysts say, will become more acute as the dollar continues to race ahead.
In a report published last week, Mr. Tenengauzer highlighted how, in the last five years of extraordinary central bank easing, emerging markets have taken on more debt as developed markets have done the opposite.
This dollar-based leveraging up has been led by capital-hungry companies that cashed in on a broad investor desire for high-yielding bonds. Chinese short-term debt has exploded to $850 billion from $101 billion since 2008; in Brazil, the increase was to $112 billion from $47 billion, and Turkey’s near-term liabilities jumped to $95 billion from $56 billion.
When their currencies were strong and the dollar weak, such a strategy made sense. But when the reverse is true, foreign investors take their money elsewhere, and these dollar debts become harder to pay off.
Of course, it is a mistake to treat emerging-market problems as uniform. For example, while Brazil and Russia suffered last year, stocks and bonds soared in India under a new reform-minded government. Indonesia, Taiwan and the Philippines also attracted investor interest because of their successful economic policies.
And while currencies have been volatile, capital flows out of emerging markets, although weaker of late, have not yet approached the levels of a year ago.
According to the Institute of International Finance, the trade group for global banks, global flows into emerging markets nearly halved last month, to $12 billion from $23 billion, with money flowing out in Brazil, Ukraine and Thailand and into Indonesia and India.
Since the beginning of the year, investors in the world’s largest emerging-markets investment vehicle, the $38 billion Oppenheimer developing markets fund, have withdrawn just $400 million — an amount by no means indicative of investor panic.
Still, emerging-market experts ​​say that the fact that the dollar is on a tear and that interest rates in the United States are moving up will entice investors to hunt for juicy returns in the United States as opposed to Brazil and Turkey.
“The U.S. is becoming a high-yielding country,” said Jeffrey Sherman, a bond investor at Doubleline, a mutual fund company based in Los Angeles.
Further cementing the United States’ appeal is rising doubt about senior-level decision making in some of the developing countries.
​In Turkey, for example, Mr. Erdogan has been pressuring his central bank, which is nominally independent, to bring interest rates down even though inflation remains high and the lira shaky.
Standard economic theory has it that higher interest rates quell inflation and support the currency.
“This is a vulnerable period,” said Michael Harris, a Turkey specialist at Renaissance Capital in London. “The market assumes that Turkey is one of the big victims of Fed tightening, so we need a spell now when politicians don’t throw more fuel on the fire.”
In Brazil, the Petrobras scandal has added to longstanding fears that the country became too reliant on the commodity boom of the previous decade and gorged on debt.
Now, with Petrobras debt being recently downgraded to junk status, investors fear that a downgrade of the country’s government bonds could follow.
So far this year, the Brazilian real has lost 15 percent and the Turkish lira has lost 12 percent against the dollar, making them the worst-performing currencies among major developing markets.
Brazil and Turkey have taken steps to reassure investors.
Late last year, President Dilma Rousseff of Brazil, under fire for her ties to Petrobras, appointed a new market-friendly finance minister, Joaquim Levy, to oversee Brazil’s cost-cutting drive.
And last week, a weighty delegation of Turkish politicians, headlined by Prime Minister Ahmet Davutoglu and the country’s finance minister, swept into New York to meet with anxious fund managers.
But as long as turmoil and scandal persist, such measures, while helpful, run the risk of being too little too late.
Mr. Tenengauzer, the emerging-market expert, said he had been barraged by phone calls from investors about the chaos in these markets. “It’s really affecting the asset class.”

Back in 1968 a British Commie also understood gold price suppression's imperial purpose

by cpowell

Sun, 2015-03-08 16:17  

Dear Friend of GATA and Gold:

Our friend D.H., who last week called attention to a magazine article written in 1968 by a former Chase Manhattan Bank economist, Michael Hudson, amid the collapse of the London Gold Pool, showing how control of the gold price was the primary mechanism of imperialism --
-- has located another magazine article from that time, an article possibly of even more interest because of its direct connection to international political rivalry.

The second article was published in the April 1968 edition of The Labour Monthly, the de-facto organ of the Communist Party of Great Britain, and written by the monthly's editor, the international Communist agent Rajani Palme Dutt:

Dutt recognized what the central banks and foreign offices of the Western powers themselves recognized, though the latter certainly didn't want to acknowledge it in public, only in private, as, for example here:

That is, they all recognized that maintenance of the imperial currency, the U.S. dollar, required suppressing the price of its main potential competitor, gold, and pushing it out of the world financial system.

In his "Notes of the Month" column in The Labour Monthly's April 1968 issue Dutt wrote:

"In the Notes of December 1966, under the title 'Deflation, Devaluation, and Damnation,' we anticipated that the present stage of the developing crisis of capitalism would not necessarily repeat the forms of 1929-31, since modern capitalism, through the further fulfillment of its laws of motion already laid bare by Marx and by Lenin in terms of the specific conditions of successive preceding periods, had reached to forms going beyond the concrete conditions of those preceding periods.

"On the basis of the concrete conditions of world capitalism in its present phase we offered the prediction that the next stage of its developing crisis would be likely to break out in the first place on the question of gold, the attempted replacement of gold by the dollar through the artificially imposed maintenance of a low price of gold, and the consequent prospective crash of this unstable system, which would lay bare all the contradictions and once again reveal the basic role of gold in the economy of capitalism."

And then quoting from his commentary of two years earlier, Dutt wrote:
"There is no more vivid expression of the general crisis of capitalism in the economic sphere than the collapse of the old pre-1914 gold standard -- for the present 'gold exchange standard' is a very different system, manipulated by the most powerful finance-capitalist interests, dominantly American; thinly concealing the ceaseless battle, alongside cooperation, of the currencies of the rival imperialist blocs, of the dollar, sterling, the franc, and the mark; and only revealing in the last analysis, when the chips are down, the ultimate basis still in gold as the final measure of value."

Of course Dutt's communism turned out to be an even less satisfactory system of totalitarian governance than the form of capitalism he criticized, in large part because it lacked subtlety and was too easily understood and thus too easily seen as responsible. The system could rule only with its guns drawn.

For the Western financial and governing class, the wonderful thing about gold price suppression and currency market rigging is that hardly anyone can figure them out and so the governing system's guns don't always have to be drawn.

But GATA is working on that, and the evidence is that the top levels of the remaining quasi-communist powers, Russia and China, have figured out gold price suppression and currency market rigging for some years now and are accumulating gold in preparation for busting the Western imperial system.

When will this overthrow take place? GATA has no idea. With its meager resources GATA merely rummages through the traces left by the contending powers in the hope of hastening the day. In pursuit of that objective your secretary/treasurer will embark tomorrow on what the great Oz called "a hazardous and technically unexplainable journey into the outer stratosphere," so these dispatches may be a bit irregular for a while.

In the meantime, the April 1968 Labour Monthly's commentary, "Gold Crisis," is posted in PDF format at GATA's Internet site to show that the current struggle is actually pretty old and enduring:

CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.