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.

Grant Shapps on the campaign trail. Photo: Getty
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Grant Shapps resigns over Tory youth wing bullying scandal

The minister, formerly party chairman, has resigned over allegations of bullying and blackmail made against a Tory activist. 

Grant Shapps, who was a key figure in the Tory general election campaign, has resigned following allegations about a bullying scandal among Conservative activists.

Shapps was formerly party chairman, but was demoted to international development minister after May. His formal statement is expected shortly.

The resignation follows lurid claims about bullying and blackmail among Tory activists. One, Mark Clarke, has been accused of putting pressure on a fellow activist who complained about his behaviour to withdraw the allegation. The complainant, Elliot Johnson, later killed himself.

The junior Treasury minister Robert Halfon also revealed that he had an affair with a young activist after being warned that Clarke planned to blackmail him over the relationship. Former Tory chair Sayeedi Warsi says that she was targeted by Clarke on Twitter, where he tried to portray her as an anti-semite. 

Shapps appointed Mark Clarke to run RoadTrip 2015, where young Tory activists toured key marginals on a bus before the general election. 

Today, the Guardian published an emotional interview with the parents of 21-year-old Elliot Johnson, the activist who killed himself, in which they called for Shapps to consider his position. Ray Johnson also spoke to BBC's Newsnight:


The Johnson family claimed that Shapps and co-chair Andrew Feldman had failed to act on complaints made against Clarke. Feldman says he did not hear of the bullying claims until August. 

Asked about the case at a conference in Malta, David Cameron pointedly refused to offer Shapps his full backing, saying a statement would be released. “I think it is important that on the tragic case that took place that the coroner’s inquiry is allowed to proceed properly," he added. “I feel deeply for his parents, It is an appalling loss to suffer and that is why it is so important there is a proper coroner’s inquiry. In terms of what the Conservative party should do, there should be and there is a proper inquiry that asks all the questions as people come forward. That will take place. It is a tragic loss of a talented young life and it is not something any parent should go through and I feel for them deeply.” 

Mark Clarke denies any wrongdoing.

Helen Lewis is deputy editor of the New Statesman. She has presented BBC Radio 4’s Week in Westminster and is a regular panellist on BBC1’s Sunday Politics.