Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
Stock Market Investors’ Limitless Risk Appetite - 27th Jan 21
3 Dividend Paying Stocks to Ride the New Housing Boom - 27th Jan 21
Biden Seeks Huge Spending, Globally Coordinated Tax Hikes - 27th Jan 21
Will Inflation Make Gold Shine in 2021? - 27th Jan 21
Amazon AI Stocks Investing Analysis 2021 - 27th Jan 21
Why You Shouldn’t Get Excited About Gold Price Mini-Rally - 26th Jan 21
The Truth About Personal Savings Everybody Should Know and Think About - 26th Jan 21
4 Economic Challenges for 2021 - 26th Jan 21
Scan Computers 2021 "Awaiting Picking" - 5950x RTX 3080 Custom PC Build Stock Status - 26th Jan 21
The End of the World History Stock Market Chart : Big Pattern = Big Move - 26th Jan 21
Stock Market Recent Sector Triggers Suggest Stocks May Enter Rally Phase - 26th Jan 21
3 Top-Performing Tech Stocks for 2021 - 26th Jan 21
5 Tips to Manage Your Debt - 26th Jan 21
Stock Market Intermediate Trend Intact - 25th Jan 21
Precious Metals Could Decline Before their Next Attempt to Rally - 25th Jan 21
Great Ways of Choosing Good CMMS Software for a Business - 25th Jan 21
The Dark Forces behind American Insurrectionists - 25th Jan 21
Economic Stimulus Doesn’t Always Stimulate – Pushing On A String - 25th Jan 21
Can Karcher K7 Pressure Washer Clean a Weed Infested Driveway? Extreme Power Test - 25th Jan 21
Lockdown Sea Shanty Craze - "Drunken Sailor" on the Pirate Falls Crazy Boat Ride - 25th Jan 21
Intel Empire Fights Back with Rocket and Alder Lake! - 24th Jan 21
4 Reasons for Coronavirus 2021 Hope - 24th Jan 21
Apple M1 Chip Another Nail in Intel's Coffin - Top AI Tech Stocks 2021 - 24th Jan 21
Stock Market: Why You Should Prepare for a Jump in Volatility - 24th Jan 21
What’s next for Bitcoin Price – $56k or $16k? - 24th Jan 21
How Does Credit Repair Work? - 24th Jan 21
Silver Price 2021 Roadmap - 22nd Jan 21
Why Biden Wants to Win the Fight for $15 Federal Minimum Wage - 22nd Jan 21
Here’s Why Gold Recently Moved Up - 22nd Jan 21
US Dollar Decline creates New Sector Opportunities to Trade - 22nd Jan 21
Sandisk Extreme Micro SDXC Memory Card Read Write Speed Test Actual vs Sales Pitch - 22nd Jan 21
NHS Recommends Oximeter Oxygen Sensor Monitors for Everyone 10 Months Late! - 22nd Jan 21
DoorDash Has All the Makings of the “Next Amazon” - 22nd Jan 21
How to Survive a Silver-Gold Sucker Punch - 22nd Jan 21
2021: The Year of the Gripping Hand - 22nd Jan 21
Technology Minerals appoints ex-BP Petrochemicals CEO as Advisor - 22nd Jan 21
Gold Price Drops Amid Stimulus and Poor Data - 21st Jan 21
Protecting the Vulnerable 2021 - 21st Jan 21
How To Play The Next Stage Of The Marijuana Boom - 21st Jan 21
UK Schools Lockdown 2021 Covid Education Crisis - Home Learning Routine - 21st Jan 21
General Artificial Intelligence Was BORN in 2020! GPT-3, Deep Mind - 20th Jan 21
Bitcoin Price Crash: FCA Warning Was a Slap in the Face. But Not the Cause - 20th Jan 21
US Coronavirus Pandemic 2021 - We’re Going to Need More Than a Vaccine - 20th Jan 21
The Biggest Biotech Story Of 2021? - 20th Jan 21
Biden Bailout, Democrat Takeover to Drive Americans into Gold - 20th Jan 21
Pandemic 2020 Is Gone! Will 2021 Be Better for Gold? - 20th Jan 21
Trump and Coronavirus Pandemic Final US Catastrophe 2021 - 19th Jan 21
How To Find Market Momentum Trades for Explosive Gains - 19th Jan 21
Cryptos: 5 Simple Strategies to Catch the Next Opportunity - 19th Jan 21
Who Will NEXT Be Removed from the Internet? - 19th Jan 21
This Small Company Could Revolutionize The Trillion-Dollar Drug Sector - 19th Jan 21
Gold/SPX Ratio and the Gold Stock Case - 18th Jan 21
More Stock Market Speculative Signs, Energy Rebound, Commodities Breakout - 18th Jan 21
Higher Yields Hit Gold Price, But for How Long? - 18th Jan 21
Some Basic Facts About Forex Trading - 18th Jan 21
Custom Build PC 2021 - Ryzen 5950x, RTX 3080, 64gb DDR4 Specs - Scan Computers 3SX Order Day 11 - 17th Jan 21
UK Car MOT Covid-19 Lockdown Extension 2021 - 17th Jan 21
Why Nvidia Is My “Slam Dunk” Stock Investment for the Decade - 16th Jan 21
Three Financial Markets Price Drivers in a Globalized World - 16th Jan 21
Sheffield Turns Coronavirus Tide, Covid-19 Infections Half Rest of England, implies Fast Pandemic Recovery - 16th Jan 21

Market Oracle FREE Newsletter

FIRST ACCESS to Nadeem Walayat’s Analysis and Trend Forecasts

Is the Gold Price Manipulated?

Commodities / Gold and Silver 2016 Feb 05, 2016 - 04:45 PM GMT

By: Arkadiusz_Sieron

Commodities

The claim that the gold prices are manipulated is one of the most popular notions within the gold investing community. Probably, no other market (except the silver market) holds such a belief so strongly. The core argument goes as follows: an increase in price of gold signals inflation and the decline in the value of fiat currencies, especially the U.S. dollar, which undermines confidence in the contemporary monetary system. Thus, governments, central banks and their collaborators from the financial system are heavily interested in suppressing the price of gold.


Three insights support this theory: one theoretical and two empirical. First, the Austrian theory of money and business cycle says that gold was chosen as money by the free market and a monetary system based on fiat money is inherently unstable. Therefore, the price of gold would be higher without government interventions. Second, we know that the price of gold was fixed for decades by governments or suppressed under the London Gold Pool. Third, a few financial institutions (like Barclays) have already been fined for influencing or manipulating gold prices.

However, academic research conducted recently by Dirk Bauer did not find any clear evidence of gold price suppression. So is gold manipulated or not? Let’s investigate this issue in detail, starting with the above arguments.

First, we agree that gold used to be a free-market money for thousands of years and it would probably re-emerge again without the government meddling in the monetary system. We also agree that the current financial system is inflationary and eventually doomed to collapse (as the Bretton Woods was). However, nobody knows when the current monetary system will crash – it may actually take decades or centuries (like the collapse of Roman denarius) and there is no guarantee that gold would replace the U.S. dollar as the major currency in the new monetary system (some are looking at bitcoin and similar products for this purpose). Therefore, the price of gold is lower than in a monetary system based on gold as money, but it does not imply that it is manipulated. As the yellow metal no longer serves as genuine money, its value is simply lower.

Second, yes, the price of gold was fixed under the gold standard, but it was not manipulated. Gold was simply money, while the U.S. dollar was defined as a specific unit of gold weight, which naturally created a “fix”. It is also true that the governments tried to suppress the price of gold by creating the cartel of eight central banks pooling the gold reserves in the London Gold Pool. However, it was under the Bretton Woods system and gold was still used (at least partially) as money. The central banks and governments tried to regulate the price of gold because they wanted to assure the convertibility of the greenback into gold. But today, the U.S. dollar is no longer convertible into gold, so there is no need to control the gold price. For the Bretton Woods system to remain effective, the free market price of gold would have to be maintained near the $35 official foreign exchange price, since when it was higher, it was tempting for other countries to buy gold at the official price and sell it in the London gold market, which exacerbates the drain on the U.S. gold reserves.

Actually, the history of the London Gold Pool shows that it is extremely difficult to systematically manipulate the price of gold. The market prices often diverged from $35 and the whole cartel collapsed after just a few years, bearing earlier huge costs to suppress the price of gold. Thus, even a group of the world’ eight most powerful central banks could not overcome market forces and merely stabilize the price of gold (but today, with a much larger and more liquid market the price of gold is believed by some investors to be systematically lowered). As one can see in the chart below, when the London Gold Pool ended, the price of gold rose.

Chart 1: The price of gold (in $) between April 1, 1968 and April 1, 1969 (London PM Fix)

Third, the case of Barclays (or other financial institutions) fined for influencing the setting the gold prices does not prove a systematic manipulation in the gold market. Why? Barclays was fined for failures in internal controls that enabled former trader Daniel James Plunkett to manipulate the gold price to avoid paying $3.9 million to a customer under an option contract. Therefore, what this case proves is that traders try to influence the markets to benefit their book. Nobody denies that this sort of price manipulation exists in financial markets; however, it is not the same as a global conspiracy systematically manipulating gold prices downward. In fact, traders try to influence the price of the underlying assets, including gold, around expiration dates both ways, depending on their position. Moreover, as James A. Kostohryz pointed out, they can manipulate the price only for a specific date, as later they have to unwind the positions that they initiated.

We have not discussed all arguments for and against the stance that the gold market is fundamentally rigged in this part, but neither theoretical considerations, nor historical examples analyzed so far prove that gold prices are systematically repressed by manipulation. There may be some minor and short-lived aberrations or direct manipulations, but gold market is simply too large and liquid to be systematically directed. Therefore, gold investors should base their decision on both technical and fundamental analysis of supply and demand, not the notion of manipulation. We do not deny that there are attempts to influence the price of gold, but they should not have systematic or lasting effects in the gold market.

Thank you for reading the above free issue of the Gold News Monitor. If you'd like to receive these issues on a daily basis, please subscribe. In addition to these short daily fundamental reports, we focus on the global economy and the fundamental side of the gold market in our monthly gold Market Overview reports. We also provide Gold & Silver Trading Alerts for traders interested more in the short-term prospects. If you're not ready to subscribe yet, or are unsure which product suits you, we encourage you to sign up for our mailing list and receive other free alerts from us. It's free and you can unsubscribe anytime.

Thank you.

Arkadiusz Sieron
Sunshine Profits‘ Market Overview Editor

Disclaimer

All essays, research and information found above represent analyses and opinions of Przemyslaw Radomski, CFA and Sunshine Profits' associates only. As such, it may prove wrong and be a subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Przemyslaw Radomski, CFA and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Radomski is not a Registered Securities Advisor. By reading Przemyslaw Radomski's, CFA reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Przemyslaw Radomski, CFA, Sunshine Profits' employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

Arkadiusz Sieron Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules