Is US Federal Reserve losing control of gold price?

The price of physical gold has lately surpassed US$1,510/oz and likely to remain on upward trajectory in the near future. Efforts are often made to bring the price of precious metal driven down, but it recovers quickly and moves on up. Analysts either don’t have any plausible explanation or are too afraid to talk the truth.

It is not a secret that many central banks around the world have been converting their dollar reserves into gold, which reduces the demand for dollars and increases the demand for gold.  Existing stocks of gold available to fill orders are being drawn down and mining output is not keeping pace with the rise in demand, perhaps this could be one of the explanations for the rise in gold price.

During the many years of Quantitative Easing the exchange value of the dollar was protected by the Japanese, British and EU central banks, also by printing money to insure that their currencies did not rise in value relative to the dollar. The U.S. Federal Reserve needs to protect dollar’s value so that it continues to play its role as the world’s reserve currency in which international transactions are conducted.

If the dollar loses this role, the US will lose the ability to pay its bills by printing dollars.  Dollar decline in value relative to other countries would cause flight from the dollar to the rising currencies. Catastrophe quickly occurs from increasing the supply of a currency that central banks are unwilling to hold.

The dollar has been depreciating relative to gold.  Rigging the currency market was necessary but not sufficient to stabilize the dollar’s value. The gold market also had to be rigged. To stop the dollar’s depreciation, naked short selling has been used to artificially increase the supply of paper gold in order to suppress the price. 

Unlike equities, gold shorts don’t have to be covered. This turns the price-setting gold futures market into a paper market where contracts are settled primarily in cash and not by taking delivery of gold.  Therefore, participants can increase the supply of the paper gold traded in the futures market by printing new contracts. When large numbers of contracts are suddenly dumped in the market, the sudden increase in paper gold supply drives down the price, this seems to be happening now.

If flight from the dollar is beginning, it will make it difficult for the Fed to accommodate the growing US budget deficit and continue its policy of lowering interest rates. With central banks moving their reserves from dollars (US Treasury bonds and bills) to gold, the demand for US government debt is not keeping up with supply.  The supply will be increasing due to the US$1.5 trillion US budget deficit. 

The Fed will have to take up the gap between the amount of new debt that has to be issued and the amount that can be sold by purchasing the difference.  In other words, the Fed will print more money with which to purchase the unsold portion of the new debt.  

The creation of more dollars when the dollar is experiencing pressure puts more downward pressure the currency.  To protect the dollar or make it attractive to investors and central banks, the Fed would have to raise interest rates substantially.  If the US economy is in recession or moving toward recession, the cost of rising interest rates would be high in terms of unemployment.  

With a rising price of gold, who would want to hold debt denominated in a rapidly depreciating currency when interest rates are low, zero, or negative?

The Fed faces an impending crisis that it has set up for itself. It is being said that the Fed is accountable to the elites who want to rid themselves of President Donald Trump.  Collapsing the economy on Trump’s head is one way to prevent his reelection.