China, Gold Prices and US Default Threats

Gold vs. the dollar

00 107069-050-C2406D3B[1]

China, Gold Prices and US Default Threats

… by  F. William Engdahl


Rogozen Treasure
Golden treasure of the ages – Will paper beat it down?

Since August 1971 when US President Richard Nixon unilaterally tore up the Bretton Woods Treaty of 1944 and told the world that the Federal Reserve Gold Discount Window was permanently closed, Wall Street banks and US and City of London financial powers have done everything imaginable to prevent gold from again becoming the basis of trust in a currency.

Now, in the very days when a deep split in the US Congress threatens a US Government debt default, the gold price should normally jump through the roof. The opposite is the case. It is worth a closer look why.

On Friday, October 11, with no sign of any deal between US Congressmen and the Obama White House that would end the government “shutdown,” and with a government debt default appearing more likely by October 17 when the debt ceiling will be reached, the Chicago CME Group, which operates Comex, or Chicago Commodity Exchange where contracts in gold derivatives are traded, announced that at 8:42 am Eastern time that morning, the trading was halted for  10-seconds after a safety mechanism was triggered because  a 2 million ounce gold futures sell order was executed.

Something rotten in gold market

The result of that huge paper gold sale was that at just the time when a possible US Government debt default would send investors in a panic rush to the safety of buying gold, instead, the price plunged $30 an ounce to a three-month low of $1,259.60 an ounce. Market insiders believe the reason was direct market manipulation.

David Govett, head of precious metals at bullion broker, Marex Spectron, calls the sudden huge futures sale suspicious:

“These moves are becoming more and more prevalent and to my mind have to either be the work of someone attempting to manipulate the market or someone who really shouldn’t be trusted with the sums of money they are throwing around. There are ways of entering and exiting a market so that minimum damage is caused and whoever is entering these orders has no intention of doing that.” [1]

"Piled higher and deeper"
“Piled higher and deeper”

UBS gold trader Art Cashin echoed the suspicion: “…if that happens once it could be an accident of technology, or it could be a simple error. But when it happens five times over a period of months, it does raise questions. Is it being done purposefully?…Is somebody trying to influence the market?”[2]

That “someone” market sources believe is the Obama White House, in league with the Federal Reserve and key Wall Street banks that would be ruined were gold to really rise.

In March 1988, five months after the worst one-day stock market plunge in history, President Ronald Reagan signed Executive Order 12631.

Order 12631 created the Working Group on Financial Markets, known on Wall Street as the “Plunge Protection Team” because its job was to prevent any future unexpected financial market panic selloff or “plunge.”

The group is headed by the US Treasury Secretary and includes the chairman of the Federal Reserve, the head of the Securities & Exchange Commission, and the head of the Commodity Futures Trading Commission (CFTC) which is responsible for monitoring derivatives trading on exchanges.

Numerous times since 1988, reports have surfaced of secret interventions by the Plunge Protection Team to prevent a market panic selloff that could threaten the role of the US dollar.

Former Clinton White House staff chief, George Stephanopoulos, admitted in 2006 that it was used to support the markets in the 1998 Russia/LTCM crisis under Bill Clinton, and again after the 9/11 terrorist attacks in 2001. He said, “They have an informal agreement among major banks to come in and start to buy stock if there appears to be a problem.” [3]

Clearly stocks are not the only thing the Government manipulates. Gold these days is a prime focus. The price of gold in recent years—since the eruption of the US IT stock bubble in 2000—has exploded from around $300 an ounce to a recent record high above $1,900 in August, 2011. Gold rose an impressive 70% from December 2008 to June 2011, after the Lehman Brothers collapse and the start of the Greek crisis in the Eurozone.

Since then, with no clear reason, gold has reversed and lost more than 31%, despite the fact that talk of a unilateral Israeli military strike on Iran and the US financial debacle combined with a Euro crisis, and now, threat of US government default, created overall huge demand for investment in gold.

This past April 10, the heads of the five largest US banks, the Wall Street “Gods of Money”—JPMorgan Chase, Goldman Sachs, Bank of America and Citigroup—requested a closed door meeting with Obama at the White House.

Fifteen days later, on April 25, the largest one day fall in history in gold took place. Later investigation of trading records at the Comex revealed that one bank, JP Morgan Securities, was behind the huge selloff of gold derivatives.

Derivatives are pieces of paper or bets on future gold or other commodity prices. To buy gold futures is very inexpensive compared with gold but influence the real physical gold price, largely because the US Congress, under lobby influence from Wall Street, since 2000 and the Commodity Trading Modernization Act has left gold derivatives unregulated. [4] The President’s Plunge Protection Team was at work now as well, clearly.


"Welcome to my stash"
“Welcome to my stash”

China smiles and buys

In effect a war, a financial war, is underway between the Wall Street giant banks and their close allies including the major City of London banks and banks like Deutsche Bank on the one side, using paper gold derivatives trading in the unregulated COMEX, with covert support of the US Treasury and Fed.

On the other side are real investors and central banks who believe that the world financial system, especially the Dollar System, is teetering on the brink of disaster and that physical gold is the historical best safe haven in such a crisis.

Here, the recent buying of gold reserves by several central banks including Russia, Turkey and especially China, are notable. The short-term derivative gold price manipulations by JP Morgan and Goldman Sachs are creating smiles at the Peoples’ bank of China and the Russian Central Bank among other buyers of physical gold. Since 2006 Russia’s central bank has increased its gold reserves by 300%.

Now, the Chinese central bank has just revealed data showing that China imported 131 gross tons of gold in the month of August, a 146% increase compared to a year prior. August was the second highest gold importing month in its history.

More impressive, China has imported more than 2000 tons of gold in the past two years. According to a 2011 Wikileaks cable, the Peoples’ bank of China is quietly seeking to make the renminbi the new gold-backed reserve currency.[5] Hmmmm.

Here is another stash
Here is another stash

According to unofficial calculations the Chinese central bank today holds about 3500 tons of monetary gold, surpassing Germany, to make it number two in the world after the Federal Reserve.

And there are grave doubts whether the Federal Reserve actually holds the 8000 tons gold it claims.

When former International Monetary Fund director, France’s Dominique Straus-Kahn, demanded an independent audit of the Federal Reserve gold after the US refused to deliver to the IMF 191 tons of gold agreed to under the IMF Articles of Agreement signed by the Executive Board in April 1978 to back Special Drawing Rights issuance.

Immediately before he could rush back to Paris he was hit by a bizarre hotel sex scandal and forced to abruptly resign. Straus-Kahn had been shown a secret Russian intelligence report prepared for President Vladimir Putin in which “rogue” CIA agents revealed that the US Federal Reserve had no gold reserves and only lied that it did. [6]

The stakes for Washington and Wall Street in depressing the gold price are staggering. Were gold to soar to $10,000 or more, where many believe current demand-supply pressures would find it, there would be a panic selloff of the dollar and of US Treasury bonds. China now holds a record $3.7 trillion of foreign currency reserves and the US Treasury bonds and bills are about half that.

That selloff would send US interest rates sky-high, forcing a chain-reaction of corporate and personal bankruptcies that have been avoided since the financial crisis broke in 2007 only owing to record near-zero Federal Reserve interest rates.

That selloff, in turn, would be the end of the US as the world’s sole Superpower. Little wonder the Obama Administration is manipulating gold. It cannot last very long at this pace, however.


Editing:  Jim W. Dean


[1] Frik Els, Gold price pares gains as talk of market manipulation intensifies,, October 14, 2013, accessed in

[2] Ibid.

[3] Ambrose Evans-Pritchard, Monday view: Paulson re activates secretive support team to prevent markets , Telegraph UK, 30 October 2006, accessed in

[4] Clark Kent, Exposed: JP Morgan’s gold and silver price manipulation, 30 April, 2013.

[5] Tyler Durden, China Imports Over 2000 Tons Of Gold In Last Two Years, 13 October, 2013, accessed in

[6] EU Times, Russia Says IMF Chief Jailed For Discovering All US Gold Is Gone, EU Times, May 31st, 2011, accessed in


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{p}F. William Engdahl is strategic risk consultant, author and lecturer. He is author of the best-selling book on oil and geopolitics, A Century of War: Anglo-American Oil Politics and the New World Order. It has been published as well in French, German, Chinese, Russian, Czech, Korean, Turkish, Croatian, Slovenian and Arabic. In 2010 he published Gods of Money: Wall Street and the Death of the American Century, completing his trilogy on the power of oil, food and money control.{/p}{p}Mr. Engdahl is one of the more widely discussed analysts of current political and economic developments, and his provocative articles and analyses have appeared in numerous newspapers and magazines and well-known international websites. In addition to discussing oil geopolitics and energy issues, he has written on issues of agriculture, GATT, WTO, IMF, energy, politics and economics for more than 30 years, beginning the first oil shock and world grain crisis in the early 1970's. His book, ‘Seeds of Destruction: The Hidden Agenda of Genetic Manipulation has been translated into eight languages. A new book, Full Spectrum Dominance: Totalitarian Democracy in the New World Order describes the American military power projection in terms of geopolitical strategy. He won a ‘Project Censored Award’ for Top Censored Stories for 2007-08.{/p}{p}Mr. Engdahl has lectured in economics at the Rhein-Main University in Germany and is a Visiting Professor in Economics at Beijing University of Chemical Technology.{/p}{p}After a degree in politics from Princeton University (USA), and graduate study in comparative economics at the University of Stockholm, he worked as an independent economist and research journalist in New York and later in Europe, covering subjects including the politics of energy policy in the USA and worldwide; GATT Uruguay Round trade talks, EU food policies, the grain trade monopoly, IMF policy, Third World debt issues, hedge funds and the Asia crisis.{/p}{p}Engdahl contributes regularly to a number of international publications on economics and political affairs including Asia Times,,, The Real News, Russia Today TV, Asia Inc.,, Japan's Nihon Keizai Shimbun, Foresight magazine. He has been a frequent contributor to the New York Grant', European Banker and Business Banker International and Freitag and ZeitFragen in Germany, Globus in Croatia. He has been interviewed on various geopolitical topics on numerous international TV and radio programs including Al Jazeera, CCTV and (China), CCTV (China) Korea Broadcasting System (KBS), and RT Russian TV. He is a Research Associate of Michel Chossudovsky’s well-respected Centre for Research on Globalization in Montreal, Canada and member of the editorial board of Eurasia magazine.{/p} {p}Mr. Engdahl has been a featured speaker at numerous international conferences on geopolitical, GMO, economic and energy subjects. Among them are the Ministry of Science and Technology Conference on Alternative Energy, Beijing; London Centre for Energy Policy Studies of Hon. Sheikh Zaki Yamani; Turkish-Eurasian Business Council of Istanbul, Global Investors’ Forum (GIF) Montreaux Switzerland; Bank Negara Indonesia; the Russian Institute of Strategic Studies; the Chinese Ministry of Science and Technology (MOST), Croatian Chamber of Commerce and Economics.{/p}{p}He currently lives in Germany and, in addition to teaching and writing regularly on issues of international political economy and geopolitics, food security, economics, energy and international affairs, is active as a consulting political risk economist for major European banks and private investors. A sample of his writings is available at Oil{/p}


  1. Gerry Kraut, you are completely ignorant of US Treasury/Federal Reserve monetary operations, and most of your descriptions here are wildly off the mark. You’re mixing how banks operate (private sector) with how the federal government operates (government sector) from an accounting point of view.

    Read “Freedom from the National Debt” by Frank N Newman, former Deputy Secretary of the US Treasury. 87 pages. Just published.

    DaveE is right. The last thing we ever want to do is reintroduce gold as fiat for the US dollar.

  2. Mr. Engdahl, the rise and fall of gold right now is coming because central banks are allowed to buy all the gold they want and it doesn’t count on their books as spending. For example, the Bank of Greece can’t spend a penny without the EU ripping their nails off for violating the Maastricht Treaty, but it can buy billions of dollars of gold without anyone saying a word. It’s off-balance sheet deficit spending. On their balance sheet, they have expenditures, and they have monetary assets, which is where the gold purchases are. So they haven’t done any ‘monetary spending’. Central banks around the world are doing the buying and this is why. Who can blame them? They don’t even care what price they pay; they have a cushion in case everything goes to hell in a hand basket. Central banks own 35% of the gold supply.

    The price of gold rose a couple of years ago when Hugo Chavez asked for his gold back from Europe, and there was all this fear-mongering that there was no gold, so gold shot up to $1900+ on the whispers. $1900+ was the no-gold price and it’s been going down since then.

    • And completely wrong. Quantitative Easing (QE) is the following.

      The Fed has two types of bank accounts: checking and savings. They have fancier names but that’s it for now. Fed clients are US banks, US govt, foreign banks, foreign govts. That’s it. No one else. Each one of those clients has a checking and savings acct at the Fed. If you get a disability or SS check from the govt, the US Treasury has the Fed credit your bank’s checking account at the Fed and then your bank credits you. That’s how the settlement system works.

      Treasury securities are dollar deposits in savings accounts at the Fed.

      When the Fed buys treasury securities, it buys them on the open market. By law. The seller has no clue it’s selling to the Fed. The Fed buys the security, then moves the principle and interest to the seller’s bank’s checking account at the Fed. Now the Fed owns the security and is earning the interest. THAT INTEREST INCOME HAS EFFECTIVELY BEEN REMOVED FROM THE REAL ECONOMY. Last year, the Fed earned $100 billion in interest income from its QE operations, which it returned to the US Treasury at the end of the year after expenditures (about $400-$500 million plus 1.56$% in dividends on the original cost of shares to its regional bank shareholders). The Fed is required to return all profits to the US Treasury annually since 1947.

      QE was supposed to coax banks into lending more. It is nothing more than moving money from savings to checking. It’s an asset swap. A tax on the economy.

    • Why is the Fed doing QE, which is a monetary policy?

      Because Congress, which is constitutionally compelled to run the government and economy for the benefit of the people, has UTTERLY FAILED TO DO ITS ONE SINGULAR JOB: CREATE FISCAL POLICY for the good of the people.

      Go look at all the financial indices. We are slipping back into recession with the sequester and deficit reduction. The stimulus should have been $1.7 trillion in 2009. Christine Romer recommended that and Larry summers shot it down before it reached Obama (someone leaked the memo). We have infrastructure, research, and education we need to be spending money on right now. We need increased government spending in this cold economy, not less of it. We need full employment. We lose $9 billion per day in lost output from people being out of work. Per. Day.

  3. The problem is not the gold standard.
    The problem is fractional reserve lending which will abuse any monetary base.
    Gold has been money for longer than recorded history.
    Currency’s come, and go on a regular basis.
    Learn the difference between money and currency before stating your opinion.

  4. In order to best view the current crisis in currency, gold, central bank/government manipulation, a primer of the highest degree is now offered to all those who still are confused about the nature of the money beast.

    It comes in the form of a pdf file created to transfer the knowledge of Irwin Schiff, the father of Peter Schiff.
    Written in the mid 70’s “THE BIGGEST CON” is simply the most concise, exacting explanation of money, gold, manipulations, fraud and central banking thievery and forms the basis for the GOLD STAR AWARD for whistle blowing and further merits the highest Medal of Commendation from this Nation,

    Instead, because of his revelations blowing the IRS scam out of the water, his reward was prison.
    I dare anyone on this planet to read this predictive book as it relates to the criminal Central Banking whores and their lunatic hedge funds today, and not come away without having the basis for putting everyone of them in jail under R.I.C.O.

    This is not difficult to understand, there are whole books of code that deal with “equal weights and measures” from Government to Talmudic understandings.

    The current run of banking criminality linked with Government complicity has allowed this brazen act of financial sodomy to become the norm.

    Everyone bend over to accommodate this gang rape of the world, will stay fixed in this position until they have had enough.


  5. The US system of Government and commerce used to be worth its weigh in Gold. Now it has turned into lead – dumb and deaf.

  6. If the price of gold and silver were allowed to go where it should be against the dollar, it would wake the most head up butt sheeple to the fact that the dollar is in fact virtually worthless. The criminals behind the not federal and no reserves can not stop the collapse of the dollar, but they can delay it by driving the price down by selling paper gold and silver which they do not have the physical metal to redeem. Every time they do this they lose large amounts of money, but it is not real money, it is just paper backed by nothing and they can print all of it they want. The day the sheeple wake up and demand their gold and silver the party will be over. They will not get gold and silver for their paper, but the party will be over as well as the American economy.

  7. Seems a bit excessive to do that to Straus-Kahn when that info was made public over 30 years ago by Peter Beter.
    Check out PB’s audio letter # 56 – there are transcripts of his letters on the internet.
    From 1961 to 1968, the gold was removed by David Rockefeller’s henchmen
    Another secret that PB revealed: Fort Knox was used to store poison gas.
    Letter # 9:
    “… a CIA super poison processed from deadly radioactive plutonium-239 was stored in and leaking from the Central Core Vault of the Fort Knox Bullion Depository…..
    The contents of the leaking casks of CIA super poison stored in the Central Core Vault were dumped into the underground streams beneath Fort Knox…
    … In the relatively low concentrations now building up in places throughout the southeast, the time lag between exposure to the plutonium poison and its deadly cancerous effect may be considerable–months or even years, varying from one place to another depending on local conditions…..
    …. Meanwhile the grim joke is on the Rockefeller Brothers and their henchmen. Contaminated gold from Fort Knox is now stored in their hideaways…”

    In letter # 17, PB said that the government was blaming people’s sickness from exposure to that Fort Knox poison on swine flu.

  8. Nobody knows how much gold China has accumulated since 2008.
    It could well be the PBOC that is forcing the paper price down to buy the real thing at a steep
    discount.If indeed they still have any UST holdings,which I find doubtful,what better way to use
    the worthless dollars of a bankrupt nation,
    The fact that they have recently gone public on deposing the US$ as the global reserve currency,is
    going to make 2014 a fateful year for all Americans.If you aren’t prepping yet: Start now.War and/or hyperinflation lie right ahead.

  9. Thank you Bill for intelligent discourse on the state of the Money/Gold system. Seems to me their is so much paper derivatives on gold out there and paper options people have to mentally and physically separate their gold holdings from the market and not, like our jewish banker friends, continually listen too or react to the daily hype. If you have some gold, keep it safe and close to your chest. After all we know the same bankers are advising and quietly running the Chinese Banking system through the same game theory models of war used against the US. Please Continue Waking up the 50% who don’t participate in their government because we know it is corrupt, and the 8-10% who have always been awake, but lacked all the facts. It seems a good idea is slowly working. The confusion instigated along the way is a good tool to slow ‘the would-be rulers’ down..

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