About the Author

Dimitri Speck is an expert on commodities markets who may actually be familiar to many of our readers as the creator of seasonal charts (which incidentally are the statistically most accurate seasonal charts available). Readers may also recall that we referred to Mr. Speck’s work in the past, when speculators were accused in the media of causing hunger in the third world, as their activities were alleged to artificially inflate the prices of agricultural commodities. When we wrote about the topic,  the voices of reason were few and far between. Mr. Speck’s unique and highly original contributions to the debate certainly took some of the wind out of the sails of the economically illiterate scaremongers in the media and politics.

 


If you are in search of professional book reviewers for hiring, visit this book review writing service – AdvancedWriters.com and its freelance experts.


 

The Gold Cartel

The English language edition of Mr. Speck’s book “Geheime Goldpolitik”, has been published early this year under the title “The Gold Cartel”, in parallel with an updated second German edition. The book has received great praise from many quarters, and it is well-deserved (ironically, even from a central banker, in spite of the fact that central bankers come in for a lot of criticism in the book).

The first few pages of the book right away prove to the discerning reader that the author actually understands gold. Surprisingly, this can often not be taken for granted. A great many analysts continue to regard gold as akin to an industrial commodity, including many working for ‘expert’ organizations, whose main job it is to publish data and forecasts on the gold and silver markets.

Essentially one could ay that the Gold Cartel consists of three major parts, namely statistical studies, a historical disquisition and a theoretical part that deals with the consequences the adoption of a full-fledged fiat money system has wrought.

Note: This is an abridged and edited version of the review that appeared in issue 92, January/February 2014 of the Hedge Fund Journal.

 

Statistical Studies

When Frank Veneroso published a study on gold lending in 1998, many people probably heard the term ‘gold carry trade’ for the first time. However, it became a staple of deliberations about the gold market in subsequent years. A superficially legitimate (if ultimately slightly dubious) business activity, namely the hedging of future gold output by mining companies, had apparently been turned into a major and potentially explosive financial engineering scheme. However, research was hampered by the fact that the carry trade involved gold held by central banks. It was shrouded in secrecy and its size could only be estimated. While Veneroso’s work was path breaking, it was marred by its lack of precision, which partly resulted from the difficulty of obtaining good data.

Central bank accounting for gold was (and in most cases remains) rather peculiar: gold receivables and bullion still in their vaults are treated as a single line item in their balance sheets. This makes it nigh impossible for outsiders to ascertain how much of their gold is actually on loan. Central banks used inter alia the alleged need to protect the trade secrets of their business partners as an excuse to avoid publishing the data. This flimsy pretext naturally fanned speculation about the amounts involved as well as the planners’ motives. It was no secret that central banks once upon a time intervened in the gold market quite openly. Given gold’s nature as the ‘political metal’, it didn’t seem a big stretch to suspect them of still doing so clandestinely.

Estimates of the size of the carry trade published by researchers varied enormously (the more establishment-friendly they were, the smaller their estimates would be). Enter Dimitri Speck, who has delivered what is to date probably the best such estimate ever produced by an independent gold market analyst, not least because he actually employed sound statistical analysis.  His estimate of the amount of gold lent out by Germany’s Bundesbank over time, calculated from the meager tidbits of information that could be gleaned from the BuBa’s balance sheet, confirmed the soundness of his methods. The BuBa recently relented in the face of public pressure and finally lifted the veil of secrecy from the data, so we know how close the estimate came (the BuBa is no longer lending out gold by the way).

‘The Gold Cartel’ presents the results of painstaking statistical analysis of the gold market from every conceivable angle. It never gets so technical as to bore the reader – the analysis reads rather like a detective story. It focuses specifically on whether anomalies that point to possible interventions are detectable in the gold market and whether the beginning of these anomalous activities can be dated. Gold’s behavior during financial crises, as well as the  carry trade and the determination of its overall size are other focal points.  There is a refreshing difference in Mr. Speck’s approach to the subject compared to that often encountered elsewhere, which we believe makes the book an enjoyable and highly informative read even for people who are skeptical  about the intervention thesis. There is very little speculation, instead the focus is strictly on known or knowable facts.  Speck lays out a logically consistent and coherent history of the gold market. Some of his conclusions naturally remain open to debate; history is a thymological discipline and as such always leaves room for interpretation. It should be mentioned that although central banks nowadays increasingly strive to provide greater transparency, Speck thoroughly disabuses the reader of the naïve notion that they ‘would never intervene clandestinely in markets’ by providing hard evidence of past transgressions (which include even the deliberate falsification of data in one instance).

 

fig15.1Gold lent out by the German Bundesbank over time – click to enlarge.

fig16.4Estimate of central bank gold entering the market worldwide – click to enlarge.

 

Historical Background

The book’s statistical analysis is buttressed and supplemented by a gripping account of the history of the modern monetary system, beginning with the step-by-step disintegration of the Bretton Woods system in the late 1960s (which culminated in Nixon’s gold default in 1971) and encompassing everything that has happened since then, including the creation and first major crisis of the euro. All these events are brought into context with what happened concurrently in the gold market. There is a detailed look at the FOMC meetings of the early 1990s, which show that although gold had been thoroughly ‘demonetized’ from an official standpoint, it still was very much on the minds of many FOMC members at the time, including then chairman Greenspan. The conversations at these meetings clearly show that there was major concern at the time both over gold’s potential as a competitor of the US dollar as a store of value as well as its function as an indicator of inflation expectations.

As Speck explains with respect to the gold carry trade, once gold lending by central banks had grown well beyond the hedging needs of mining firms, the interests of private parties involved in the trade and those of central banks at first increasingly converged, only to diverge again at a later stage. He demonstrates convincingly that once the carry trade exceeded a certain size, the role played by private profit motives must have grown ever larger. In order to keep being able to play the game and avoid losses, bullion banks started putting pressure on central banks to motivate them to continue to sell and lend out ever increasing amounts of gold. For a time, an odd role reversal between bullion banks and central banks took hold with respect to their gold market-related interests.

Speck looks closely at what happened during this phase in the late 1990s.  A great many politicians, whose credentials as experts on gold or monetary policy were rather dubious, attempted to influence the climate and official attitudes toward gold. Unwilling central banks such as e.g. the Swiss National Bank were put under great political pressure to agree to gold sales. Many of the events surrounding official gold policy in the late 1990s are largely forgotten today, and Speck does us a great service by rescuing them from the memory hole.

Gordon Brown’s famously ill-timed sale of the bulk of the UK gold reserves is of course discussed as well. To this day it remains a bit of a mystery why Brown deliberately chose to perform the sales in a manner that ensured that the UK would get the lowest possible price. Clearly though, there was more to it than just the fact that he was evidently one of the worst market timers of all time. The discussion of the Washington agreement, which effectively froze the carry trade and limited official sales, was especially interesting to us. Few people will remember all the details and announcements that were made just prior and after the agreement was struck, or may never have been aware of them at all. The information Speck provides in this context serves to greatly enhance one’s understanding of these events.

In this context, Speck also provides a logical explanation as to why the carry trade never ‘blew up’ as so many forecasters had expected it to do – in spite of the considerable size it had attained at its peak and in spite of the fact that a bull market in gold began in 1999/2000.

 

fig9.1Gold sales by central banks, net – click to enlarge.

 

The Giant Credit Bubble

The statistical and historical analysis of the gold market is followed by a theoretical part that deals in great detail and in a highly original manner with the problems the abandonment of gold as an anchor of the monetary system has ultimately brought about. The conceptual approach to the topic will be recognizable to readers familiar with the Austrian School of Economics, even though Speck employs at times a slightly different, somewhat idiosyncratic terminology. The most notable effect of demonetizing gold has been and continues to be the recurrence of numerous sizable booms and busts, although Speck rightly acknowledges that the emergence of credit expansions could not necessarily be completely averted in a gold-based system, although gold would   definitely ‘serve as a brake’, as he puts it.

A detailed description of how credit-financed bubbles begin and are then continuing to grow, driven by their inherent dynamics, is provided. The most important feature of such bubbles is that speculation for some time appears to ‘pay for itself’, as artificial accounting profits emerge. Wealth is seemingly created ex nihilo, and profits are booked even though no-one has actually produced anything tangible. This explains the enduring popularity of credit-driven bubbles, as it is simply human nature to embrace the ‘something for nothing’ mirage that is their major characteristic.

Since financial bubbles have real economic effects, and since their recurrence can seemingly not be averted, the  focus of the authorities soon shifted to the question of how the effects of their bursting could be mitigated –  a momentous decision, as Speck proceeds to show. The mitigation policy involves governments intervention in the form of a further expansion in debt and credit claims, the very policies that lead to the emergence of bubbles in the first place. Illogical as this is, it almost always seems to ‘work’ in the short term.  As credit claims accumulated in the past are never extinguished, but merely added to, a kind of ‘mega-bubble’ evolves over time. Private and public sector indebtedness both continue to expand, effectively egging each other on. An ever greater pile of credit claims towers over the real economy. Speck also points out that the vast expansion in public sector liabilities is deeply undemocratic, as it lulls the population into believing that it can get ‘something for nothing’. As a result, there are only superficial deliberations over the wisdom of public spending. Ultimately, no-one is taking responsibility while the political class pursues its own narrow interests. Indeed, as official remarks preceding the abandonment of gold in 1971 show, it was precisely the ability to run deficits in quasi-perpetuity that attracted governments to the new monetary system. The ability to increase spending without having to increase taxation is deemed a highly desirable method of achieving short term political goals.

Establishment economists have done us a great disservice by ignoring and/or whitewashing the long term implications of the ever-growing level of financial claims. Ever since the 1987 crash, central bankers have begun to consistently err on the side of easier monetary policy and their focus has increasingly turned toward he chimera of price stability, while the growth in credit claims has been ignored. ‘Mitigation of busts’ has become the official mantra to this day.

Speck also discusses the question of the long term consequences of this spiral of ever-growing debt. As he points out, the classical denouement of a credit-financed bubble used to be a major deflation, egged on by debt defaults and the associated destruction of deposit liabilities held by banks falling into insolvency. There can however be no guarantee that this outcome will be repeated in modern times. Today, the authorities can and do intervene to avert deflationary reductions in outstanding financial claims. Their countermeasures could eventually result in the exact opposite outcome (i.e., a major inflation). However, other possibilities are just as thinkable (such as e.g. a prolonged period of stagnation as has happened in Japan).

 

fig34.4Japan’s debt to GDP, total and disaggregated: the world’s biggest debtberg – click to enlarge.

 

fig34.5Global debt to GDP – click to enlarge.

 

Summary and Conclusion

We highly recommend this book to anyone with an interest in the gold market. In fact, anyone with an interest in financial markets and/or the economy will undoubtedly benefit from reading it. It provides a solid statistical analysis of every aspect of the gold market, a thoroughly researched and well-presented account of the history of the modern monetary system and a highly original perspective of the growing bubble in debt and credit claims we have experienced since adopting today’s system of credit-based money.

 

Dimitri Speck, The Gold Cartel (link to Amazon)

 

Charts from ‘The Gold Cartel’ by Dimitri Speck
 

 

Emigrate While You Can... Learn More

 


 

 
 

Dear Readers!

You may have noticed that our so-called “semiannual” funding drive, which started sometime in the summer if memory serves, has seamlessly segued into the winter. In fact, the year is almost over! We assure you this is not merely evidence of our chutzpa; rather, it is indicative of the fact that ad income still needs to be supplemented in order to support upkeep of the site. Naturally, the traditional benefits that can be spontaneously triggered by donations to this site remain operative regardless of the season - ranging from a boost to general well-being/happiness (inter alia featuring improved sleep & appetite), children including you in their songs, up to the likely allotment of privileges in the afterlife, etc., etc., but the Christmas season is probably an especially propitious time to cross our palms with silver. A special thank you to all readers who have already chipped in, your generosity is greatly appreciated. Regardless of that, we are honored by everybody's readership and hope we have managed to add a little value to your life.

   

Bitcoin address: 12vB2LeWQNjWh59tyfWw23ySqJ9kTfJifA

   
 

One Response to “Book Review: The Gold Cartel by Dimitri Speck”

  • Calculus:

    I’ve just read it, and it explained EVERYTHING to me about the how and why of Gold manipulation.

    Sure, it’s not a novel, it’s not an easy read (you have to concentrate) but the facts are laid out very clearly about why Gold is manipulation by the Central Bankers over the last several decades.

    Folks, if/when the price can’t be controlled one day you better make sure the Gold you own is in your hands. If not, you can’t say you weren’t warned….

Your comment:

You must be logged in to post a comment.

Most read in the last 20 days:

  • The Great Debasement - Precious Metals Supply and Demand
      Fiat Money Woes Monday was Labor Day holiday in the US. The facts are that the euro lost another 1.4%, the pound another 1.1%, and the yuan another 0.9% last week.   Assorted foreign fiat confetti against the US dollar – we have added the Argentine peso as well, as it demonstrates what can happen when things really get out of hand. [PT]   So, naturally, what is getting play is a story that Bank of England governor Mark Carney said the dollar’s influence...
  • Hong Kong - Never the Same Again
      Freedom Rock Hong Kong ranks among the freest societies in the world. Not only economically, but socially it is a very liberal place. It was marinated in British ways until 1997, much longer than Singapore and other colonies. Then China took it over as a special administered region, which according to the agreement with the UK meant that it was only nominally to be under Chinese control for the next 50 years. It was possibly the only colony in which a vast majority of citizens did not...
  • Suffering the Profanity of Plentiful Cheap Money
      A Case of Highway Robbery What if the savings in your bank account lost 55 percent of its value over the last 12 months?  Would you be somewhat peeved?  Would you transfer some of your savings to another currency?   USD-ARS, weekly. For several years the Argentine Peso has followed a certain pattern: it declines mildly, but steadily, with little volatility for long time periods, and then spikes in crash waves whenever a crisis situation comes to a head. In early 2011, it...
  • Don’t Be Another Wall Street Chump
      The Future and the Past Securities and Exchange Commission Rule 156 requires financial institutions to advise investors to not be idiots. Hence, the disclosure pages of nearly every financial instrument in the U.S. are embedded with the following admission or variant thereof:   “Past Performance Is Not Indicative of Future Results”   “Buy and hold”... “The market goes always up”... “No-one can time the market”... “Buy the dip” “With what? You...
  • A Wild Week - Precious Metals Supply and Demand
      Paying a Premium for a Lack of Default Risk The price action got pretty intense last week! The prices of the metals were up Monday, Tuesday, and Wednesday. But Thursday and Friday, there was a sharp reversal and the silver price ended the week below its close of the previous week.   The net speculative position in gold futures has become very large recently – the market was more than ripe for a shake-out. [PT]   Silver made a round trip down from $18.35 to...
  • Will the Nikkei Win the Next Olympic Games?
      Listless Nikkei On 24 July 2020 the Olympic Summer Games will begin in Tokyo, the capital of Japan. Olympic Games and Soccer World Cups are among the largest sporting events in the world.  Do you perhaps also think that these events may affect the performance of local stock markets?   Olympic Summer Games 2020 – official logo (left), and a fan-made logo (right) by designer Daren Newman [PT]   Let us examine whether and in what way such major sporting events impact...
  • The Weird Obsessions of Central Bankers, Part 3
      Inflation and “Price Stability” We still remember when sometime in the mid 1980s, the German Bundesbank proudly pointed to the fact that Germany's y/y consumer price inflation rate had declined to zero. It was considered a “mission accomplished” moment. No-one mentioned that economic nirvana would remain out of sight unless price inflation was pushed to 2% per year.   CPI, annual rate of change. During the “stagflation” period of the 1970s, Congress enacted the...
  • The Weird Obsessions of Central Bankers, Part 1
      How to Hang on to Greenland Jim Bianco, head of the eponymous research firm, handily won the internet last Thursday with the following tweet:     Jim Bianco has an excellent idea as to how Denmark might after all be able to hang on to Greenland, a territory coveted by His Eminence, POTUS GEESG Donald Trump (GEESG= God Emperor & Exceedingly Stable Genius). Evidently the mad Danes running the central bank of this Northern European socialist paradise were...
  • The Weird Obsessions of Central Bankers, Part 2
      The Negative Interest Rates Abomination Our readers are probably aware that assorted central bankers and the economic advisors orbiting them occasionally mention the “natural interest rate” (a.k.a. “originary interest rate”) in speeches and papers. It is generally assumed that it has declined, which is to say, time preferences are assumed to have decreased.   This is actually an understatement...   Although interest is generally associated with money, the...
  • Why Are People Now Selling Their Silver? Precious Metals Supply and Demand
      Big Moves in Silver Last week, the prices of the metals fell further, with gold -$18 and silver -$0.73. On May 28, the price of silver hit its nadir, of $14.30. From the last three days of May through Sep 4, the price rose to $19.65. This was a gain of $5.35, or +37%. Congratulations to everyone who bought silver on May 28 and who sold it on September 4.   The recent move in silver [PT]   To those who believe gold and silver are money (as we do) the rising price...
  • Fiat Money Cannibalization in America
      An Odd Combination of Serenity and Panic The United States, with untroubled ease, continued its approach toward catastrophe this week.  The Federal Reserve cut the federal funds rate 25 basis points, thus furthering its program of mass money debasement.  Yet, on the surface, all still remained in the superlative.   S&P 500 Index, weekly: serenely perched near all time highs, in permanently high plateau nirvana. [PT]   Stocks smiled down on investors from their...

Support Acting Man

Austrian Theory and Investment

j9TJzzN

The Review Insider

Archive

Dog Blow

THE GOLD CARTEL: Government Intervention on Gold, the Mega Bubble in Paper and What This Means for Your Future

Realtime Charts

 

Gold in USD:

[Most Recent Quotes from www.kitco.com]

 


 

Gold in EUR:

[Most Recent Quotes from www.kitco.com]

 


 

Silver in USD:

[Most Recent Quotes from www.kitco.com]

 


 

Platinum in USD:

[Most Recent Quotes from www.kitco.com]

 


 

USD - Index:

[Most Recent USD from www.kitco.com]

 

Mish Talk

 
Buy Silver Now!
 
Buy Gold Now!