Naomi Prins & Wesley Legrand interviewed on gold, in depth

10-23-2011 interview

Wesley, what is gold’s pivotal role in global politics and finance?
Fund manager Wesley Legrand from Australia:  Gold has always been the purest and oldest form of sound money. It really is now the barometer of faith in the fiat monetary system. It is very hard to measure confidence and faith, but that of course is what the whole system is dependent on.  Gold is the best measure of that faith. There is no counterparty risk to gold, it ispretty much the only monetary asset in the world where there is no counterparty risk.
Why has the suppression of the gold price been a prime directive of the establishment and central banks?
Wesley Legrand:  Effectively the underlying reason is to mask and therefore facilitate monetary inflation, which is simply money printing. 
They are stealing purchasing power away from the masses, it’s a stealth tax.  Obviously all fiat paper currencies have lost significant purchasing power since the gold standard was abandoned in 1971, and the US dollar as the world reserve currency has lost more than 90 percent of its purchasing power in that time.  So that is the underlying reason – to facilitate and mask the inflationary tax.
Do you think, too, that the suppression or “managing” of the gold price has been a prime directive of the establishment and central banks?
Nomi Prins:  I think there is this fear. The central banks and the national economic establishment, first and foremost, want to maintain control over monetary policy with respect to rates, and thus, to the printing of money.
How important is short selling in the precious metals markets seen from the perspective of a fund manager?
Wesley Legrand:  It’s of paramount importance, because this is the main tool that the bullion banks use in their price suppression scheme. The JPMorgans and HSBCs are in effect the expansion arms of the Federal Reserve and the US government. They can create paper gold, which is obviously different to physical gold, and they can create as much paper gold as they like to short sell. They short more gold and silver than actually physically exists.
Do you think those short positions are illegal, because they are naked, not backed by anything physical?
Wesley Legrand:  Correct, yes, I do, as there is simply no bona fide financial reason for these investment banks to be involved in precious metals or commodity markets in this way. Naked shorting is blatantly manipulative and should be banned completely.
What’s your take on short selling in the precious metal markets, Nomi?
Nomi Prins: We have to consider short-selling which is legal vs. naked short-selling which isn’t. 
The issue of simple short selling is when banks – or private equity and hedgefunds – take a position that the price of gold will fall for some particular period.
If they back that position with extreme leverage, they are effectively suppressing the value of gold. But this is legal. 
By naked short selling, banks – investments banks, private equity, hedgefunds,etc. – can illegally manipulate the gold price by their short sell without even necessarily having a stock of physical gold to back their short, which is technically illegal. 
But because there is no real global reporting mechanism or requirement for indicating gold naked shorts, or silver for that matter, there is no real transparency fo rthe banking system in terms of who is short or by how much and thus, how much they would have to possibly get in the form of physical metal in order to fill that short.  And this goes for the Federal Reserve and European Central banks as well. 
It is difficult to trace that manipulation absent true transparency, and that becomes an even bigger problem.
What would you suggest should be done about this, Wesley?
Wesley Legrand:  The bullion banks should be banned from the short side of the market. There is no genuine economic reason for these bullion banks to be involved. The LME and the COMEX were originally created commodities companies who used to operarate and hedge themselves in those markets. There is no room for Wall Street and asset banks to distort and control the markets purely for speculative gain . This is just not freemarket capitalism, as GATA famously says:  “There are no free markets,only interventions.”
Do you consider the entire gold and silver paper markets as fraudulent?
Wesley Legrand:  Yes, as there is a hundred times more paper gold traded than is physically in existence and it’s similiar for silver.  And again, these banks have no genuine role economically to be short.  So yes, they’re fraudulent.
Would you invest in ETFs?
Wesley Legrand:  No, I wouldn’t.  I think a lot of the physical gold in bank bullion vaults is the subject to double claim.  We know that central banks account for gold on their own balance sheets, but then when they lend that gold out the gold is also counted on the balance sheets of the institutions they lend it too – so it’s subject to multiple claim.  I certainly think there is not nearly enough physical gold in the world to cover all the ETF paperclaims in the world.  A lot of people will get a rude shock one day when they will go to claim their physical gold with their paper entitlements.
Since we’ve used the words “legal” and “fraudulent,” do you perceive the accounting practices of central banks related to their gold reserves as accounting fraud?
Nomi Prins:  Since they effectively make their own rules, it’s difficult to classify the reticence of information with respect to gold as actually illegal.  Again, there haven’t been publicly available records recently of how much gold is in reserve at various central banks, and because there is no true information there can be all sorts of accounting manipulation, fraudulent or not, that we can’t track.  But certainly manipulation on price, on availability, on the amount of physical gold in storage, and so forth should be classified as a component of securities fraud.  Before the real gold standard was dropped during the Great Depression, there used to be much more mechanisms, not only related to the accounting for the value of gold which was pegged to the value of various currencies, but also for the amount of gold in storage. Today, we don’t really have that aspect. Therefore, any time there is no real transparency, whether it’s in gold reserves at central banks or in governments, or in subprime mortgages, there is the potential for fraud.
Is a return of the gold standard realistic in your point of view?
Wesley Legrand:  Well, I don’t know if it’s realistic, but I would argue that anything would be better than the current system and it seems as if the only thing that can impose the necessary discipline on governments and central banks to stop them from printing money without limit and generate never-ending more debt is to have some form of gold standard. The best solution would be to abolish all central banks at the same time as returning to the gold standard, but sadly this is not realistic!
Wesley, do you think the financial crisis goes now into full gear?
Wesley Legrand:  It’s probably not going to be a case of a sharp, disastrous fall as we had in 2008/09, but I suspect it’s going to be deeper over a longer period of time, which is actually worse….
Do you think it is scandalous that the private banks transferred their debt to the populations?
Wesley Legrand:  “Scandalous” is one of the more gentle words I have heard to describe the banks….
(Wesley Legrand,who was born in 1979, is a fund manager at Grand Private Equities in Adelaide, Australia. He studied Economics, Finance and Law at Adelaide University and has worked now for 13 years in the stockbroking industry.  In 2008 he set up with his father Grand Private Equities as a boutique advisory firm servicing high networth private clients, with a particular focus and expertise on emerging miners in the precious metal space.)

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