Adrian Douglas: What can ever beat the gold and silver cartel?

By Adrian Douglas

“Dear GATA:

“First, thank you for your efforts. Please keep up the outstanding work.

“I recently viewed the video of the GATA panel discussion that took place at the 2009 Vancouver Resource Investment Conference. It was fascinating. That led me to your Internet site and I have enjoyed reading some of the posted articles. One that caught my attention was Adrian Douglas’ “Pirates of the Comex.” My question may seem juvenile, so please forgive me, as I am still playing catch-up with understanding the gold market.

“I was wondering if the financial institutions that are identified in Douglas’ study truly have the means to dominate the short interest position in the market, and if they are allowed to continue this practice (without any serious oversight or regulation) and they continue to throw out these massive leveraging schemes, then why won’t they continue to do so in the near, intermediate, and long term as well? Who or what will be able to compete with such massive arsenals at their disposal?

“In other words, what are the forces that will be strong enough to overpower their strategies?

“– JDA”

Dear JDA:

As the author of the article to which you refer, I would like to respond to your concerns.

The forces that will bring down the precious metals cartel are the forces of supply and demand that have governed economics throughout history.

Paper supply can mimic real supply for quite some time but not forever. The price of gold and silver are set on the Comex futures exchange. The promise to deliver gold and silver in the future can easily swamp the future demand for gold and silver precisely because it is in the future. Investors cannot overpower the cartel in this quaint game of poker because the cartel always has enough fiat money to go “all in” and bluff the long investors.

However, the cartel cannot win this game in the physical market and the front month or cash market of the futures market. For no matter how much fiat money you can produce, it will never be real physical metal.

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