There's a villain to the gold crash story

The reason gold fell so far.

The sudden and completely unexpected collapse of gold – down 13.7 per cent in the blink of an eye – was a huge market intrusion or manipulation, or major fiddle, into an overall rising bullion market - but by whom?

The spin was already craftily fed into the ether, along with the price: the fingered culprit was little lowly Cyprus, everyone’s favourite kicking-boy at the moment, as it was forced by the so-called rescuing Troika – the IMF, the EU and its ECB - to sell off its minimal gold hoard of just a piffling €400 million, and in effect send it to Germany.

The Troika isn’t interested in saving the Cypriot economy and its banks’ depositors, you see, but is only out to save the euro and its over-grandiose ambitions for the now over-stretched eurozone. The truth about gold, however, was completely different, and contained menacing overtones for the future of the world economy.

The real villain

So, stand up the real villain: it’s Ben Bernanke, of course! Yes, Helicopter Ben, you have been unmasked as the central banker at the Fed who’s slowly losing his clothes, and now Spear’s will rapidly remove your fig-leaf of a great deception – to reveal a major market manipulation.

And we will attempt to formulate the thinking behind you actions, which isn’t difficult, as we have seen through your QE failing game. Spear’s can see the consequences that so frightened you, that led to your breaking yet another sacred central banking rule: never to manipulate markets with public money.

Even your predecessor Sir Alan Greenspan - unwisely knighted in the UK for his services to (irony of ironies) financial stability - wisely disavowed any Fed interference with the booming dotcom markets of his day, which eventually crashed: but Greenspan didn’t see it as within the Fed’s charter to interfere with stock or bullion markets, or for that matter, to have a QE policy driven by unemployment.

Fake money

Now Bernanke is upholding his own failing and unproven strategy of flooding the economy with printed – or rather fake – money. He may have avoided a wholesale banking collapse, and supported the ongoing bonuses of those who broke the bank back in 2009.

His further attempts to avoid Global Depression II, however, are just stepping-stones to the ultimate disaster, the very result he so earnestly wished to avoid. His concern is that he will fail to prove his monetarist theory that the 1930s Great Depression was caused only by a serious lack of liquidity... for which his simplistic solution is just to print more of the bloody stuff, and throw some of it out of his helicopter over Iowa or wherever else isn’t on the map.

This is Bernanke’s answer to the unanswerable question, but QE doesn’t add one iota to aggregate demand. His QE3+ printing programme, which currently spews out $85.0 billion into the US economy every month, does nothing whatsoever, unfortunately, to increase consumer demand; and demand is what the world economy actually needs to get back to anything recognisable as Growth, as we once knew it.

Why gold tanked

What Bernanke did, on Friday, 12 April, was hit the market with 500 tonnes of naked shorts, knocking $73 off an ounce of gold. That adds up to 16 million ounces, worth $24,800,000,000, producing a loss for the seller(s) of $1,168,000,000: this begs the question of who has $25 trn of walking-around money in his hip pocket, and can afford to drop $1.2 bn on the street?

Answer: only the Fed, which can print money until the cows come home.

But what if it goes wrong? It’s an enormous and uncharted risk that Bernanke is taking, so why did he take it? Obviously, he wants to keep gold at around $1,400 per ounce, but why? Because the fall in value of the dollar against gold is caused by his QE3+ programme, which is designed to reduce unemployment by over one per cent, to seven per cent, but not to weaken the dollar and send import costs up, and lose control of interest rates. Hmm. It all sounds pretty rum.

Bernanke’s actions are the flipside of other central bank actions: Venezuela has repatriated its gold; Germany is doing the same, but the US only agreed to hand it over a seven-year period. So Bernanke now wants the price down, as he is committed to QE3+ until the US economy achieves lift-off.

The economy, however, is still patchy and not yet anywhere near take-off speed, so he daren’t let interest rates rise while he is printing money like a maniac, or he thinks his recovery will falter and fail.

It’s not difficult to see all this nonsense ending up as a nasty mess in the field at the end of the runway... with inflation and slump, slumpflation in a word, and banking and derivative collapses also found at the scene. What price gold then?

Stephen Hill is a businessman who has been published on classical economics and on European philology and philosophy. Read more by Stephen Hill

This article first appeared on Spear's.

Gold! Photograph: Getty Images

This is a story from the team at Spears magazine.

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Theresa May's cabinet regroups: 11 things we know about Brexit negotiations so far

The new PM wants a debate on social mobility and Brexit. 

This was the summer of the Phony Brexit. But on Wednesday, the new Tory cabinet emerged from their holiday hideaways to discuss how Britain will negotiate its exit from the EU. 

The new prime minister Theresa May is hosting a meeting that includes Brexiteers like David Davis, now minister for Brexit, Boris Johnson, the new Foreign secretary, and Liam Fox.

For now, their views on negotiations are taking place behind closed doors at the PM’s country retreat, Chequers. But here is what we know so far:

1. Talks won’t begin this year

May said in July that official negotiations would not start in 2016. Instead, she pledged to take the time to secure “a sensible and orderly departure”. 

2. But forget a second referendum

In her opening speech to cabinet, May said: “We must continue to be very clear that ‘Brexit means Brexit’, that we’re going to make a success of it. That means there’s no second referendum; no attempts to sort of stay in the EU by the back door; that we’re actually going to deliver on this.”

3. And Article 50 remains mysterious

A No.10 spokesman has confirmed that Parliament will “have its say” but did not clarify whether this would be before or after Article 50 is triggered. According to The Telegraph, May has been told she has the authority to invoke it without a vote in Parliament, although she has confirmed she will not do so this eyar.

4. The cabinet need to speak up

May’s “you break it, you fix it” approach to cabinet appointments means that key Brexiteers are now in charge of overseeing affected areas, such as farming and international relations. According to the BBC, the PM is asking each minister to report back on opportunities for their departments. 

5. Brexit comes with social mobility

As well as Brexit, May is discussing social reform with her cabinet. She told them: “We want to be a government and a country that works for everyone.” The PM already performed some social mobility of her own, when she ditched public school boy Chancellor George Osborne in favour of state school Philip Hammond. 

6. All eyes will be on DExEU

Davis, aka Brexit minister, heads up the Department for Exiting the EU, a new ministerial department. According to Oliver Ilott, from the Institute for Government, this department will be responsible for setting the ground rules across Whitehall. He  said: “DExEu needs to make sure that there is a shared understanding of the parameters of future negotiations before Whitehall departments go too far down their own rabbit holes.”

7. May wants to keep it friendly

The PM talked to Prime Minister Sipilä of Finland and Prime Minister Solberg of Norway on the morning of the cabinet meeting. She pledged Britain would "live up to our obligations" in the EU while it remained a member and "maintain a good relationship with the EU as well as individual European countries".

8. But everything's on the table

May also told the Finnish and Norwegian prime ministers that negotiators should consider what is going to work best for the UK and what is going to work for the European Union, rather than necessarily pursuing an existing model. This suggests she may not be aiming to join Norway in the European Economic Area. 

9. She gets on with Angela Merkel

While all 27 remaining EU countries will have a say in Brexit negotiations, Germany is Europe’s economic powerhouse. May’s first meeting appeared amiable, with the PM telling reporters: “We have two women here who have got on and had a very constructive discussion, two women who, I may say, get on with the job.” The German Chancellor responded: “Exactly. I completely agree with that.”

10. But less so with Francoise Hollande

The French president said Brexit negotiations should start “the sooner the better” and argued that freedom of labour could not be separated from other aspects of the single market. 

11. Britain wants to hold onto its EU banking passports

The “passporting system” which makes it easier for banks based in London to operate on the Continent, is now in jeopardy. We know the UK Government will be fighting to keep passports, because a paper on that very issue was accidentally shown to camera.