In a recent interview, Keith Weiner, CEO of Monetary Metals and President of Gold Standard Institute USA, provided his view that there’s no evidence in support of large-scale gold manipulation through what is referred to as “naked short selling.” He also addressed another popular theory among gold investors and explained how China’s massive imports of gold are not in preparation for a dollar collapse but, instead, the primary means by which Chinese corporations have been getting around strict capital controls, and how this practice is starting to come to an end.
Here are a couple excerpts from his interview (click here for audio):
FSN: Keith, there has long been a theory that the price of gold is rigged and being suppressed by thousands of dollars below its true value. Do you see any truth to this?
KW: The standard manipulation theory says that the banks are selling gold futures to manipulate the price downwards and the competing theory that I'm offering is that the banks are doing an arbitrage—that they're buying bars of physical metal and selling futures...to make a buck on the spread… There are two places where these theories predict opposite outcomes. And one is, let's say the price drops as it did approximately a year ago—April 12th and April 15th. The gold price dropped I think it was about $230 between those two days and of course the rumors were swirling that there was massive naked short selling of futures... [Well] what would happen if you were to suddenly sell enough paper, enough futures contracts, to push the price of gold down $230? …the answer is you'd push the price of the futures contract down $230 [and]...the price of the futures contract would be very far below, like 20% below, the price of spot gold and it is simply a fact that did not occur. If you looked at the data from those dates you did not see the price of the future being below the price of spot let alone by that kind of magnitude...so here's a case where the two theories predict opposite results and the data is in and one theory is proven wrong...
FSN: Do you see large gold imports into China as evidence that they are preparing for a dollar collapse?
KW: That's an interesting question. I think there's one view that looking at Chinese central planners as being wise and perhaps not bogged down by some of the gridlock that occasionally plagues Washington that also says, “Oh, the Chinese are smart and they have their eye on the long ball and they see what is coming,” and all that—I'm not sure how you reconcile that with their abuse of their own currency, their empty cities, vast numbers of empty skyscrapers, trains to nowhere, empty airports, empty shopping malls, all of which is financed with debt…[Really] at the end of the day, they are a bunch of Keynesians that are running China's central bank and China’s monetary system, same as we have here, so I'm not sure that I accept that these Keynesians see the end of paper currencies per se...[when we look at the large gold imports into China] it was actually large corporations and they were doing it to get around the Chinese governments restrictions. And so, to really try and express this briefly, China has capital controls and...one of the reasons is that they have a different interest for money that is trapped onshore. It’s a much higher interest rate than what prevails in the rest of the world. And so naturally if you are a big Chinese corporation and you can engineer a scheme by which you can borrow at the prevailing dollar rate of interest and bring that cash somehow onshore into China and convert it into Chinese yuan, you'd have an enormous competitive advantage relative to all your competitors that have to borrow at a much higher Chinese rate of interest. And so, to make a long story short, what they were doing was to have their offshore subsidiary borrowing dollars to buy the metals and then sell it to the onshore subsidiary; and it was a lot of smoke and mirrors to basically allow them to get yuan onshore, but which they're paying interest at the dollar rate of interest globally. So the net result of this was relentless imports of copper at first, and then other metals, and then gold because gold is obviously much easier to store since it has a higher density than copper. So ultimately it went to gold and they were doing this to work-around China's capital controls. Well, as it unravels and now the Chinese regulators are cracking down on it and they have other problems—their credit expansion may be coming to an end because nobody can make the payments on the debt given that the debt was used to finance unproductive assets and malinvestments... [Now] all of these schemes are unwinding and now the banks that were lending are trying to count up the collateral and figure out how much is there and they're finding their short and it’s turning into a gigantic mess.
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