Fed Floods Market with Fake Gold, the Latest Hurdle for Gold Investors

By Dominique de Kevelioc de Bailleul

Tungsten-filled 10-ounce gold bars suddenly have appeared at some of the finest dealers of Manhattan.

No doubt, beginner investors who seek to purchase real money, a real asset, the ultimate safety, have had to overcome decades of carefully orchestrated financial propaganda from the Fed, Washington and academia.  ‘They’ say, the dollar is good, and gold is just a rock, a silly anachronism and an asset useful only to persecuted WWII-vintage Jews.

Then, having cleared the propaganda hurdle, the new class of awakened investors have had to somehow research the gold market long enough to maybe run into articles which discuss the accusations of fraud riddled throughout the paper gold aspect of the market and the manipulation scheme perpetrated by JP Morgan.

What appeared to be an easy way out of the dollar, through a click of a mouse and a few bucks commission on the Scottrade website, may turn out to be more dangerous than holding a debauching currency.

Enter, stage right, comes Jeff Christian, who assures investors that the paper market is on the up-and-up.  The debate between GATA and Jeff Christian kept some investors out of the line to take delivery of real metal, forestalling a bit longer the inevitable and coming stampede into the gold market.

Was GATA an organization spewing ‘conspiracy theories about a gold cartel?

Christian, a suspected shill for the gold cartel, argued that GATA was seeing things, imagining dark-hat bankers ripping off the public with un-backed gold ETFs and bogus short sales of the metal in the futures market.

The case of Andrew Maguire and the CFTC investigation into JP Morgan proves beyond a reasonable doubt that Christian is either a liar, an incompetent or a shill for the Fed.

Christian leaves the stage and CFTC’s Bart Chilton enters.  Chilton, the corn-fed, boy-next-door kind of guy, who grows up to become a heroic fighter of corruption in the financial markets, is the perfect character for the next act to Christian’s ‘Gaslight’ performance.

And the tangible results of the so-called Eliot Ness of Wall Street?  Nothing.  Nearly three years after the CFTC hearings and investigation into JP Morgan, Chilton comes up with zip, furthering the con of the U.S. dollar.  Chilton is now quiet.  He’s done his job for the Fed.  He may leave now.

Now, the poor, confused investor hears that the Fed’s QE-to-infinity policy will further debase the U.S. dollar.  Even some of the ‘big boys’ have come out with recommendations to buy gold.  PIMCO’s Bill Gross and Bridgewater Associate’s Ray Dalio have gone public recently to counter Warren Buffett, Charlie Munger and Bill Gates, the con-job trio billionaire shills for the Fed.

Is it time to buy some physical?  Even the big boys think it’s a good idea.

But wait, the circulation of phony gold bars hits the news, and the companies selling the bars are, of course, the most reputable walk-in retailers of New York.

And the timing of news of the tungsten-filled gold bars couldn’t come at a most fortuitous time for the Fed.  The most recent announcement of QE3-to-infinity policy from Bernanke & Company is a downright admission that the U.S. economy is not responding to previous QEs, unprecedented levels of ‘currency swaps’ and a reflation of the over-the-counter derivatives market.

The Fed needs more help pushing the mob away from gold, because there isn’t enough gold to back all the paper promises saturated throughout the banking system.

“We’re getting closer and closer to the big disclosure that the banksters have stolen the gold, and now they’re flooding the market with fake gold,” TruNews radio host Rick Wiles tells his listening audience of Sept. 24.

Is Wiles spreading another ‘conspiracy theory’?  Let’s ask Christian what he thinks.  Let’s see if Chilton will recommend to the U.S. State Department that it shut down the Chinese company that’s been alleged to have made the phony bars.  Let’s see if Warren Buffett has anything to say.

Gold Price: Chinese to Bust Gold Cartel

A higher gold price is inevitable for a variety of fundamental reasons, not least of which is the yellow metal’s limited ‘available’ supply against a backdrop of overall growing demand from private parties across the globe.  But Tangent Capital’s Jim Rickards points out that strong demand for gold coming from that very same global banking system should buoy the gold price, as well, every step of the way to, maybe, just maybe, Jim Sinclair’s $12,500 price tag.

Rickards explains the simple dynamic between the three dominant currencies in play during the epic global re-balancing act—the U.S. dollar, euro and the yuan (renminbi).   Each government behind these currency will ensure a long-term tailwind to the gold price for, we hope, many years, because an abrupt revaluation of the gold price could suggest untold social unrest, revolutions and war—which is a scenario Swiss money manager Marc Faber predicts.

“The main event is the three-ring circus of the U.S., Europe and China and their respective currencies, the dollar, euro and the yuan,” he wrote in a piece posted on King World News on Sept. 18.  “The dynamic is straightforward – all three would like a cheaper currency, relative to the others, to help exports.”

Correct.  Each country has its own constituency to reasonably satisfy under the most difficult of circumstances since at least as far back as the Great Depression.  Ultimately, no one wants a trade war, though during political seasons the hyped jingoism stirred up among pols to garner votes from the Colosseum crowd rears its ugly head as the true degenerates of societies play the old as it is tired game of tribalism rhetoric.

Cutting through the politics, Rickards explains why owning gold is important during the present state of war, a currency war, between the three blocks.

“This dynamic plays out as you might expect. The U.S. devalues against yuan and the euro – it gets all of what it wants. China revalues upward against the dollar, but keeps a peg to the euro – it gets half of what it wants,” he explained. “And the euro remains strong against the dollar and pegged against yuan – so it gets none of what it wants. This has been the prevailing paradigm since June when the Chinese finally let the yuan appreciate against the dollar in a serious way.”

Aside from the stresses between Germany and the PIIGS as a sequel to Rickard’s thesis, Beijing has a big problem with the way this currency war is playing out. That is, rapid inflation in China.

There is no way that China, nor any country, can escape rising consumer prices under the scenario, above.  But, between the U.S. dollar and the euro, representing 88% of total central bank reserves, China has been, and will continue to be mired in inflation for ever at the pace of devaluation of the dollar and euro must achieve to right global imbalances between debtors and creditors.

A U.S. or European citizen can absorb some inflation due to relatively high per capita purchasing power parities (though painful to the bottom of the economic ladder), but China’s $8,500 per capita PPP is too low to keep the natives calm during this expected protracted process.  Do Tunisia, Egypt and Libya come to mind?  All three countries weigh in with under $4,000 per capita PPPs.

The plan, then?  Beijing must grab as much gold for its central bank and its people as fast as possible without disrupting the gold price too much in an effort to absorb the inflationary effects of the depreciating U.S. dollar and euro of the future.

According to a WikiLeaks cable,

CHINA’S GOLD RESERVES

“China increases its gold reserves in order to kill two birds with one stone”

The China Radio International sponsored newspaper World News Journal (Shijie Xinwenbao)(04/28): “According to China’s National Foreign Exchanges Administration China ‘s gold reserves have recently increased. Currently, the majority of its gold reserves have been located in the U.S. and European countries. The U.S. and Europe have always suppressed the rising price of gold. They intend to weaken gold’s function as an international reserve currency. They don’t want to see other countries turning to gold reserves instead of the U.S. dollar or Euro. Therefore, suppressing the price of gold is very beneficial for the U.S. in maintaining the U.S. dollar’s role as the international reserve currency. China’s increased gold reserves will thus act as a model and lead other countries towards reserving more gold. Large gold reserves are also beneficial in promoting the internationalization of the RMB.”

It’s laughable to think the gold price means nothing to the Fed and ECB (Jeff Christian, are you listening?).  But, in this case, the price of gold is important to Beijing, as well.  As China accumulates gold to buttresses its reserves, a steady rise in the gold price, not a rapid one, is preferable to its long-term plan to introduce the yuan as a fully convertible reserve currency—backed by gold.  Strong evidence from bullion dealers, KWN’s anonymous London trader, Jame Turk and Eric Sprott indicate that Beijing was the big buyer (India, too) during gold’s drop to below $1,600 per ounce.

How this will all play out and who will get what they want from the new reserve currency regime down the road is unclear, but it’s no matter, according to Rickards.  Throughout history, the winners of currency devaluations have a 100 percent track record of emerging from the heap of paper.  No exceptions.

He concluded his piece, “ . . . it is not quite true there are no winners in a currency war. There is always one winner – gold.”

Just in from the Financial Times of London (subscription required, but excerpted by zerohedge.com):

Analysts expect the September import surge to continue until the end of the year as Chinese gold buyers snap up the yellow metal in advance of Chinese New Year, China’s key gold-buying period.

In September we saw some bargain hunters come back into the market on the price dip,” said Janet Kong, managing director of research for CICC, the Chinese investment bank.

Data from the Hong Kong government showed that China imported a record 56.9 tonnes in September, a sixfold increase from 2010. Monthly gold imports for most of 2010 and this year run at about 10 tonnes, but buying jumped in July, August and September. In the three-month period, China imported from Hong Kong about 140 tonnes, more than the roughly 120 tonnes for the whole 2010.

The last two months of this year are likely to see China’s gold imports surge further ahead of Chinese New Year, supporting gold prices, according to Ms Kong. “We’ve noted a quite strong seasonality in gold prices, typically prices go up in the months before the Chinese New year.