Mr.

Market

Nick Barisheff: Gold price manipulation isn't mere conspiracy theory anymore

In an address this month to the Empire Club of Canada in Toronto, perhaps the country's most esteemed public forum, Bullion Management Group founder, president, and chief executive officer Nick Barisheff said gold market manipulation is no longer mere conspiracy theory "promoted by gold bugs and organizations like GATA" but is becoming "self-evident." 

Barisheff described the suppression of the gold price through derivatives trading in which virtually no metal ever changes hands. 

He quoted the deputy chairman of Russia's central bank, Sergey Shvetsov, as saying, "The major gold-producing nations are tired of an international gold price that is determined in a synthetic trading environment having little to do with the physical gold market."

DYI:  Huff and puff among all of the western powers as their debt pile both public and private increases almost exponentially gold prices would reflect this absurdity chasing ever increasing investors from their devaluing currencies.  The big four – Bank of England, European Central Bank, Japanese Central Bank, along with the 300 pound gorilla the Federal Reserve – have suppressed gold prices heavily since the secular economic-market top of the year 2000.  If they hadn’t one or more of these countries would have had a loss of confidence with their currency going into a death spiral exampled to the likes of Venezuela. [Of course the real solution is stop deficit spending begin an orderly pay down of debt along with interest rates above the rate of inflation].

That “real solution” is exactly what the Russians are doing promoted and championed by their central bank chairwomen Elvira Sakhipzadovna Nabiullina.

Russian publicity photo with Putin (left) and Elvira Nabiullina Chairwomen Russian Central Bank (right)

Russian debt is the polar opposite of the western powers and Japan.  If these numbers are accurate – I don’t trust any government’s including ours for factual reporting [I have to put that on the table] their household debt is a scant 13.5% with government debt at a mere 17% of Russian GDP.  Well positioned to weather any economic storm all on top of Russian growing gold horde.  There is you’re real reason for all of the Russia, Russia, Russia, talk in the main stream press.  They are attempting to lure the Russians into another arms race thus trapping into piling on debt degrading their significant economic advantage.  So far Putin hasn’t taken the bait.

In the end Mr. Market will have his way as gold prices rise in price.  As with the price of any asset category it will be a tortured saw tooth rise in price with short term and cyclical down turns in price all designed to throw you out of your position [and severely test your patience].

DYI’s averaging formula if stocks, long term bonds, and gold were all at average or fair value each category would hold 25%.  25% stocks, 25% long term bonds, 25% precious metals mining companies (gold) and then the default position cash at 25%.  The odds of this happening are preposterous but it shows the starting point of DYI’s play off of the late Harry Bowne’s Permanent Portfolio.  Despite Harry’s ground breaking use of uncorrelated assets – and yes it was ground breaking – what always “made my hair set on fire” if an asset category was insanely (easily measurable) over or under priced why on earth would I want to always carry 25%?

Below is what DYI's portfolio would have looked like in 1980.

24% Stocks

44% Lt. Bonds

0% Gold

32% Cash

Isn’t it interesting bonds having a greater role than stocks?  Most folks would be saying that we went on a massive stock market rally until the year 2000.  Unknown too many investors that period of time was the beginning of a bond rally of a lifetime.

      

Of course with gold our formula would have thrown you out of that market (1980) and for good reason as valuations measured by the Dow/Gold Ratio were off the charts for gold.

Below is DYI's portfolio for the year 2000.

0% Stocks

36% Lt. Bonds

64% Gold

0% Cash

Stocks of course in the year 2000 were wildly and insanely over priced.  And I will add very easily seen by any value player worth his or hers salt.  What was odd our formula – and correctly – was for bonds to continue their rally of a lifetime along with gold being the primary profit generator despite going against current dogma of bonds and gold rising together.

Returns since the year 2000 to present (updated monthly).

From High to Low

+356.6% Gold

+266.5% Transports

+147.3% Utilities

+140.0% Oil

+120.0% Dow

+ 86.7% S&P 500

+ 75.4% NASDAQ 

+ 62.3% Swiss Franc's

+ 56.6% 30yr Treasury Bonds

I didn’t compute for the downturn of 2009 however stocks did manage to dip slightly below fair value.  This in turn would have reduced – by formula – our gold and bonds [as Fed’s moved to sub atomic low yields] purchasing stocks (in the 30 percent range) then off to the races with stocks going to the moon and gold having its sell off.  So…Here we are today.

0% Stocks

0% Bonds

31% Gold

69% Cash

Our formula is telling us that it is highly likely for a deflationary economic smash bringing back down to earth stock and bond prices more in line with their respective means.  Treasury securities as well as tax receipts dry up with investors backing away demanding higher yields.  Gold will continue its final journey to massive overvaluation despite all of the combined world wide central banks efforts to suppress the price of the barbaric relic called gold.  

Mr. Market in the end ALWAYS has his way.

The Great Wait Continues….Better Values are ahead!

 DYI