Gold market manipulation and the paper system [Video]

In a recent Money Metals podcast interview, host Mike Maharrey spoke with Chris Powell, secretary and treasurer of the Gold Anti-Trust Action Committee, or GATA. Powell has also served as a director of GATA and was managing editor of the Journal Inquirer in Manchester, Connecticut, from 1974 through 2018.

Powell said GATA was formed in late 1998 and incorporated as a tax-exempt 501(c)(3) organization in early 1999. Its original purpose was to investigate, expose, challenge, and litigate against what its founders believed was manipulation of the gold market. Silver was also part of GATA’s work from the beginning.

After consulting attorneys, Powell said GATA concluded that lawsuits against the U.S. government would be unlikely to succeed because the Gold Reserve Act of 1934 gave the government broad authority to intervene in markets secretly. GATA shifted its focus to gathering documents, publishing research, and exposing what it considers gold and silver price suppression.

Powell said the organization has now pursued that work for 26 years. GATA publishes daily dispatches covering precious metals, currencies, central banks, and related market developments.

A quarter-point rate hike against massive deficits

Maharrey and Powell discussed the Federal Reserve’s recent 25-basis-point interest-rate increase. Powell argued that a quarter-point hike is insignificant when measured against the scale of U.S. deficit financing and government borrowing.

He described the present financial system as one of ongoing money and credit creation. In Powell’s view, expanding deficits, inflation, government power, and corruption are interconnected. He argued that focusing on a single rate move distracts from the much larger issue of accelerating federal debt.

Maharrey said the Fed effectively manipulates the price of money. Powell agreed that the rate hike could make sense within the Fed’s own framework, but he questioned whether it could meaningfully affect the underlying fiscal trajectory.

Gold Price suppression and central-bank demand

Powell contended that gold price suppression has served to obscure the consequences of government deficits and monetary inflation. He said this system has faced more pressure during the last year and a half as central banks and investors increasingly seek physical gold.

He argued that the coalition of central banks once aligned behind keeping gold prices low has fractured. Powell pointed to China and Russia as major countries that have sought alternatives to the U.S. dollar, while even some European nations have announced gold purchases for their reserves.

According to Powell, central-bank gold buying has helped drive gold prices higher in recent years. He also said some countries may be accumulating more gold than they report publicly, noting that Saudi Arabia was discovered 10 to 15 years ago to have purchased more gold than it had reported to the International Monetary Fund.

Maharrey cited analyst Jan Nieuwenhuijs for his work estimating China’s actual gold accumulation. The two agreed that China’s reported additions may understate its total purchases.

Tokenized Gold and the risks of paper claims

The interview also examined efforts by London financial regulators to explore tokenized gold. Powell said tokenization may create another electronic claim on metal rather than a claim to gold held securely and readily available for delivery.

He argued that London and the United States already have vast paper gold markets. Futures contracts, unallocated accounts, and other instruments can represent claims on gold without ensuring that each claim is backed by immediately deliverable physical metal.

Powell said the paper gold system depends on holders of financial claims not demanding delivery at the same time. In his view, tokenized gold could create another layer of potentially oversubscribed claims.

Maharrey compared the issue to fractional-reserve banking. The system can function smoothly until too many people seek delivery of the underlying asset at once.

Asia builds a physical Gold market

Powell said Asia is building a more delivery-oriented gold-market infrastructure. He pointed to China’s gold futures market, vault development in Hong Kong and Singapore, and plans for additional facilities across the region.

He said the emerging Asian model is oriented toward physical metal and fast delivery, rather than extensive paper trading. Powell argued that gold has been flowing from West to East as Eastern buyers redeem Western paper claims for physical bullion.

Maharrey noted that Chinese holdings of U.S. Treasuries had reportedly fallen to their lowest level since 2008. The discussion framed China’s declining Treasury exposure, gold accumulation, and interest in commodities as part of a broader move away from dollar dependence.

Powell argued that countries seeking monetary sovereignty need an alternative to another nation’s currency. In his view, gold is uniquely suited to play that role.

Tether’s Gold lending raises questions

Powell and Maharrey also discussed Tether, a major stablecoin issuer that has said it holds gold as part of the assets backing its stablecoins. Powell said Tether had reported holding roughly 113 tons of gold.

A Bloomberg report discussed during the interview indicated that Tether was lending gold to bullion businesses, including coin manufacturers. Powell questioned how gold could simultaneously be available as stablecoin backing and be lent out elsewhere.

He argued that lending gold can recreate the same risks found in conventional paper gold markets. If multiple parties believe they have a claim to the same metal, the system can be strained when delivery demands rise.

The discussion also referenced delays at the Bank of England in repatriating vaulted gold. Powell said such delays raise questions about how readily physical metal can be delivered when demand increases.

Why physical Gold still matters

Maharrey asked Powell why investors should own gold if they believe the market is manipulated. Powell responded that gold’s long-term price chart offers a strong argument for ownership despite periodic interventions and volatility.

He referenced a remark Jim Rickards made on CNBC roughly 15 years ago that owning gold meant fighting every central bank in the world. Powell said the situation has changed, arguing that investors now have many central banks on their side because they are actively buying gold.

Powell said an investor owning physical gold is effectively positioned against what he views as a massive, uncovered short position created by the paper gold system. He added that some analysts expect an eventual official revaluation of gold.

Both Powell and Maharrey emphasized a long-term perspective. Maharrey said he views gold as a tool for preserving wealth rather than trading weekly price moves. Powell agreed, saying investors should expect attempts to discourage gold ownership but should maintain patience, conviction, and a long-term outlook.