John Hathaway: Gold market has been rigged but trust in the riggers is declining

by Chris Powell, Dear Friend of GATA and Gold: Gold market rigging by central banks and their investment bank agents is the main topic of the year-end investor letter by John Hathaway, portfolion manager for Tocqueville Asset Management. Hathaway writes: “We believe that a breakdown of trust in financial intermediaries — including bullion banks, ‘synthetic’ gold substitutes such as ETFs, and derivatives, as well as the integrity of central-bank custodial relationships — is behind the growing clamor to repatriate physical gold bars owned by sovereign states. … gold “Grant Williams of Vulpes Investment Management explains, ‘Because of the mass leasing and rehypothecation programs [the use by financial institutions of clients’ assets, posted as collateral] by central banks, there are multiple claims on thousands of bars of gold. The movement to repatriate gold supplies runs the risk of causing a panic by central banks.’ … “Loss of trust is the genesis of bank runs. Bullion banking is a fractional-reserve system in which large amounts of credit are extended based on a relatively small quantity of physical metal. Sovereign gold bars are a major component of the credit base. We believe this is a story to watch very closely in the coming year. “It seems to us that that the circle of those disparaging gold has dwindled to a rear guard of hard-core, dollar-centric addicts still hooked on a monetary policy designed to herd investors into risky assets. In a truly Orwellian transposition, gold, the safest asset in history, is maligned by the financial media as risky, while financial assets at near-record valuations are viewed as compelling. In the simplistic logic that passes for financial wisdom, if equities are good, then gold must be bad. If there has been a Greenspan/Bernanke put for equities, why not a Yellen cap for gold? “Such a notion might explain the fearless manner in which gold has been periodically trashed. A skidding $US gold price confirms that all is well. ‘Synthetic’ gold, created by bullion banks for propriety-trading desks, high-frequency traders, and commodity traders, is dumped (often following Fed policy pronouncements) onto thin markets during non-trading hours to trigger stops and spread panic. No physical gold changes hands during such raids. Sellers abandon any pretext of ‘best execution,’ the usual standard for discrete distribution of positions. Instead, the raids are crafted to smash the price with as much noise as possible. “We believe that the gold market has been manipulated, which to us is no surprise. Rigging has become a central feature of financial markets since the onset of quantitative easing. Too-big-to-fail banks, U.S. and European, have admitted to manipulating Libor, energy, and currencies. …” Hathaway’s letter is posted at the Tocqueville Internet site here:

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