The following is the English translated version of Mr. Freeman’s interview with the German website blu-News:
See the article on the blu-News website here.
Why has gold crashed?
A conversation with Kevin Freeman
Two weeks ago we saw the strongest decline on the precious metals markets for decades. Only on Monday the 15th of April the price of gold went down by 10 percent and in the meantime, after the initial shock has passed and the prices have slightly recovered, there remains perplexity. What has happened and how was it possible that the precious metal prices went down so suddenly? Blu-News spoke with Kevin Freeman, the author of “Secret Weapon“.
Blu-News:
Mr. Freeman, what is your opinion, what happened during the last two weeks on the precious metals markets, and are there indications of a deliberate act of economic warfare behind this price collapse similar to the financial crash of 2008?
Kevin Freeman:
What we saw with the massive gold drop was a lot of naked short selling. There was little evidence that the sellers held or were prepared to deliver physical gold. This is why I believe it was naked short selling, where a sale is made but the seller neither has the item being sold or has borrowed it.
The selling was conducted on such a large scale that would suggest a Central Bank or Sovereign Fund of some type was involved. It could have been advance selling by someone like Cyprus to lock in a price ahead of later delivery. Cyprus has a large reserve of gold that they will be forced to sell given their financial problems. But, that doesn’t make much sense as the panic caused by the mass selling resulted in lower prices and the purpose of locking in a price is to get better prices.
It certainly seemed as if the intention was to cause a panic in the gold markets. Having said that, one or more very large holders facing margin calls might have been forced to sell, causing the same effect.
Andrew Maguire, former Goldman Sachs employee and gold trader, believes it was a type of Fed Manipulation. His work has been cited by Dr. Paul Craig Roberts, former Reagan economist.
Regardless, the large scale of the selling is suspicious to say the least. And, the way things happened were reminiscent of the things I wrote about in Secret Weapon. As those who owned gold with borrowed money panicked, they were forced to sell other things including stocks to raise cash to cover margin calls. This caused a cascade decline that accelerated with word of the bombing in Boston. The combination of the sharp drop in the gold and stock markets combined with a terror attack later in the day certainly was unsettling.
Blu-News:
Some German analysts suggest that the price of gold could spike very soon because there is not enough physical gold left on the market to cover the huge amounts of allegedly naked short selling that caused the current price drop. Do you think this is realistic?
Kevin Freeman:
First, not sure if it was the Fed or someone else orchestrating a price drop. That is the contention of Paul Craig Roberts and others, however. If that were the case, it seems clear that the effort was made using paper means as opposed to actual physical gold supply coming to market. Just from a pure supply/demand view in actual physical gold, the demand appears to be increasing more rapidly than supply. Which leaves us with the notion of naked short selling. Naked short selling involves the sale of something that the seller does not have to sell and has not borrowed to sell. This differs from traditional short selling in which the seller borrows the item and promises to repay the loan at some point.
Before going further, it should be noted as demonstrated in my book Secret Weapon as well as the facts of 2008, naked short selling has the potential to completely wipe out a company dependent on the equity markets for capital. When combined with Credit Default Swap manipulations (which can destroy a company’s ability to raise debt capital), naked short selling can effectively destroy a company. Some companies such as banks cannot survive without access to a continuing flow of capital. That’s how Lehman was killed according to George Soros. But, while naked short selling can be an instrument of death for some stocks, it cannot destroy commodities that retain some intrinsic value. It could kill a tulip bulb mania but not utterly destroy wheat, corn, oil, or gold. The reason is that the demand for real commodities will outlive the ability of the seller to stay naked short.
In the case of naked short selling of gold, if the markets are honest, there will have to be a covering at some point. This will require that the items sold, in this case certificates or paper evidencing the ownership of gold, are repurchased and ultimately provided to the buyer. Assuming that the paper version of gold does ultimately represent a claim to real, physical gold, the naked short seller will be forced to go into the physical market and come up with real gold to attach to the paper sold. Otherwise, the entire thing is fraudulent. The net result (especially with Russia, China, India, and others buying up the physical supply) will be a lot of additional demand on an already tight market and much higher prices. A spike if you will. This is a classic short squeeze. Now, of course, the seller might have gold already, especially if the seller is the Federal Reserve or some Central Bank (assuming they do hold gold). In that case, this wouldn’t really be a naked short selling story at all. And, if the Central Banks have the reserves they claim, they can keep prices down for a while.
Blu-News:
We know that China and Russia and other enemies of the West are buying large amounts of physical gold and these countries together with Islamic radicals are suspects behind the 2008 economic attack. Lets assume Andrew Maguire is right and it was really the FED who orchestrated this price drop. It seems to me that with such price manipulations the FED is only helping the enemies of the West to acquire more physical gold out of the hands of panicking western small investors? If I remember correctly, in the wake of the 2008 economic attack the policy of the FED was not really constructive too. Some analysts in Germany think the FED is constantly trying to manipulate the price of gold down just in order to save the Dollar, but that does not look plausible to me in the long run. What do you think, what kind of strategy is guiding the actions of the FED?
Kevin Freeman:
Why would the Fed want to hold down the price of gold? The most reasonable answer would be as you suggest, to prop up the U.S. Dollar. If that is what is happening, and the Fed truly did it naked short (suggesting a limited direct holding of gold), then your conclusions are correct. This would be a dangerous game that would hurt the dollar more than help it in the long run. It would have been an act of panic responding to what they perceived was a clear and present danger to the dollar’s role as primary reserve currency.
It could also be that a major hedge fund chose to go naked short or perhaps a Sovereign Wealth Fund hoping to make a quick profit or even arbitrage. They may have been tipped off by Goldman Sachs or someone else that dumping of gold would take place. We have pointed out that officially the largest holders of gold are all central banks that can and will sell gold as needed. So, a big hedge fund could have jumped ahead of the market, causing a minor panic in the paper markets.
Two things are certain: First, the price drop a week ago created a small panic and those looking to dump gold had an excuse. Second, the physical gold markets saw a great deal of buying.
It is our contention that there are a multitude of geopolitical forces at work in what we have termed a global economic war. We believe that Phase Three of this war has targeted the United States dollar and our Treasury markets. I certainly agree that if the Fed is trying to artificially lower the price of gold to prop up the dollar, it will backfire.
Blu-News:
Thank you very much, Mr. Freeman, for your assessment on the current situation. Readers who want to learn more about the subject should read Kevin Freemans book Secret Weapon, as well as his website Global Economic Warfare, where a specific analysis on the gold price decline can be found.
References:
Secret Weapon – Kevin Freeman; Regnery Publishing; Januar 2012
After Gold Crash, Expert points to Central Bank Manipulation – 16.April 2013; The New American
