Few analysts are watching the evolution of the COMEX/LBMA markets as closely as Jesse (Jesse's Café Américain). Both markets are where the gold spot price is determined and a lot of paper gold contracts and physical gold movement are involved. So it’s important to watch both markets waiting for a potential default event that would start to free the determination of the gold price from manipulation. In this interview with Jesse, we discuss the issues at the very centre of the gold market today : COMEX/LBMA manipulation, default event and how investors should react to the long correction in precious metals.
Welcome to Jesse's Café Américain - These are personal observations about the economy and the financial markets. In providing information, I hope this allows you to make your own decisions in an informed manner, even if it is from learning by my mistakes, which are many. My comments are intended to be reflection on general macro financial and economic events and trends.
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Fabrice Drouin Ristori (FDR): Reading your blog and market comments, you spend a lot of time analyzing what’s going on in the COMEX and LBMA markets, can you explain why you think these two markets are key markets to analyse in order to understand gold ?
Jesse: Prices for gold globally are still being set largely by the COMEX and the LBMA, despite the remarkable shift in physical markets and bullion buying to the developing countries, especially those in the Mideast and Asia.
This may not make sense, and I have noted this many times, as ‘the tail wagging the dog.’ How can what are highly leveraged markets, paper markets I call them, that are dominated by speculation and short term transactions and wild price volatility, be setting the prices and thereby the resource allocations for a global market which has to some extent grown beyond them.
This is the symptom of the changes which we have been seeing in the evolution of the international monetary system. It has become outmoded to the point of instability, as the forces of the old Anglo-American banking cartel attempt to maintain the status quo in a system that no longer works.
As the physical exchanges continue to grow I am adding them into my thoughts, very actively. I expect the changes in the monetary system, which I have called the ‘currency war,’ to be driven by their countries and by them. It is the old story of thesis and antithesis. The synthesis will be a new monetary system globally. What that will be I cannot yet know, but I think we can know where to look, and what to look for.
FDR: You are among the few gold analysts who have been warning about a manipulation in the gold and silver markets for a long time now, can you explain how it operates specifically in the COMEX/LBMA ?
Jesse: Thank you for the compliment, but I am hardly the primary one and certainly not the first. GATA and Ted Butler among others have been doing quite a bit of the ‘heavy lifting’ in sounding the alarm about irregularities in these markets. And I think that they are in a better position to explain the mechanics of it, having examined the market structures in great detail.
I first become interested in gold, and later in silver, around 1999 as a result of an intense study of the international monetary system. I had always enjoyed economics, and had managed a multi-billion dollar business unit that spanned almost 100 countries, so I became much more aware of the international currency markets and trade issues than most Americans certainly.
It was in this study that I first became interested in gold because one cannot understand money and international trade historically without understanding gold. And in another intense study of financial crises and bubbles, prompted by my own ringside seat at the tech bubble at the end of the twentieth century, I became intrigued by the role of money and paper and their interactions with real things and people.
Most manipulations of markets are control frauds by their nature, and contain all the usual characteristics of fraud. There is opacity, because frauds thrive in the dark, and on the asymmetric availability of information. There are always a few and very powerful insiders who have the ability to know more than others, to have access to privileged information, and to be able to manipulate the rules and the market mechanisms for their own purposes and advantage.
This is the heart of it. Everything else is detail, which you can surely find out in any amount of depth you may wish. But