Best of the Week
Most Popular
1. Gold vs Cash in a Financial Crisis - Richard_Mills
2.Current Stock Market Rally Similarities To 1999 - Chris_Vermeulen
3.America See You On The Dark Side Of The Moon - Part2 - James_Quinn
4.Stock Market Trend Forecast Outlook for 2020 - Nadeem_Walayat
5.Who Said Stock Market Traders and Investor are Emotional Right Now? - Chris_Vermeulen
6.Gold Upswing and Lessons from Gold Tops - P_Radomski_CFA
7.Economic Tribulation is Coming, and Here is Why - Michael_Pento
8.What to Expect in Our Next Recession/Depression? - Raymond_Matison
9.The Fed Celebrates While Americans Drown in Financial Despair - John_Mauldin
10.Hi-yo Silver Away! - Richard_Mills
Last 7 days
Stock Market Selloff Structure Explained – Fibonacci On Deck - 2nd Apr 20
COVID-19 FINANCIAL LOCKDOWN: Can PAYPAL Be Trusted to Handle US $1200 Stimulus Payments? - 2nd Apr 20
Day in the Life of Coronavirus LOCKDOWN - Sheffield, UK - 2nd Apr 20
UK Coronavirus Infections and Deaths Trend Trajectory - Deviation Against Forecast - 1st Apr 20
Huge Unemployment Is Coming. Will It Push Gold Prices Up? - 1st Apr 20
Gold Powerful 2008 Lessons That Apply Today - 1st Apr 20
US Coronavirus Infections and Deaths Projections Trend Forecast - Video - 1st Apr 20
From Global Virus Acceleration to Global Debt Explosion - 1st Apr 20
UK Supermarkets Coronavirus Panic Buying Before Lock Down - Tesco Empty Shelves - 1st Apr 20
Gold From a Failed Breakout to a Failed Breakdown - 1st Apr 20
P FOR PANDEMIC - 1st Apr 20
The Past Stock Market Week Was More Important Than You May Understand - 31st Mar 20
Coronavirus - No, You Do Not Hear the Fat Lady Warming Up - 31st Mar 20
Life, Religions, Business, Globalization & Information Technology In The Post-Corona Pandemics Age - 31st Mar 20
Three Charts Every Stock Market Trader and Investor Must See - 31st Mar 20
Coronavirus Stocks Bear Market Trend Forecast - Video - 31st Mar 20
Coronavirus Dow Stocks Bear Market Into End April 2020 Trend Forecast - 31st Mar 20
Is it better to have a loan or credit card debt when applying for a mortgage? - 31st Mar 20
US and UK Coronavirus Trend Trajectories vs Bear Market and AI Stocks Sector - 30th Mar 20
Are Gold and Silver Mirroring 1999 to 2011 Again? - 30th Mar 20
Stock Market Next Cycle Low 7th April - 30th Mar 20
United States Coronavirus Infections and Deaths Trend Forecasts Into End April 2020 - 29th Mar 20
Some Positives in a Virus Wracked World - 29th Mar 20
Expert Tips to Save on Your Business’s Office Supply Purchases - 29th Mar 20
An Investment in Life - 29th Mar 20
Sheffield Coronavirus Pandemic Infections and Deaths Forecast - 29th Mar 20
UK Coronavirus Infections and Deaths Projections Trend Forecast - Video - 28th Mar 20
The Great Coronavirus Depression - Things Are Going to Change. Here’s What We Should Do - 28th Mar 20
One of the Biggest Stock Market Short Covering Rallies in History May Be Imminent - 28th Mar 20
The Fed, the Coronavirus and Investing - 28th Mar 20
Women’s Fashion Trends in the UK this 2020 - 28th Mar 20
The Last Minsky Financial Snowflake Has Fallen – What Now? - 28th Mar 20
UK Coronavirus Infections and Deaths Projections Trend Forecast Into End April 2020 - 28th Mar 20
DJIA Coronavirus Stock Market Technical Trend Analysis - 27th Mar 20
US and UK Case Fatality Rate Forecast for End April 2020 - 27th Mar 20
US Stock Market Upswing Meets Employment Data - 27th Mar 20
Will the Fed Going Nuclear Help the Economy and Gold? - 27th Mar 20
What you need to know about the impact of inflation - 27th Mar 20
CoronaVirus Herd Immunity, Flattening the Curve and Case Fatality Rate Analysis - 27th Mar 20
NHS Hospitals Before Coronavirus Tsunami Hits (Sheffield), STAY INDOORS FINAL WARNING! - 27th Mar 20
CoronaVirus Curve, Stock Market Crash, and Mortgage Massacre - 27th Mar 20
Finding an Expert Car Accident Lawyer - 27th Mar 20
We Are Facing a Depression, Not a Recession - 26th Mar 20
US Housing Real Estate Market Concern - 26th Mar 20
Covid-19 Pandemic Affecting Bitcoin - 26th Mar 20
Italy Coronavirus Case Fataility Rate and Infections Trend Analysis - 26th Mar 20
Why Is Online Gambling Becoming More Popular? - 26th Mar 20
Dark Pools of Capital Profiting from Coronavirus Stock Markets CRASH! - 26th Mar 20
CoronaVirus Herd Immunity and Flattening the Curve - 25th Mar 20
Coronavirus Lesson #1 for Investors: Beware Predictions of Stock Market Bottoms - 25th Mar 20
CoronaVirus Stock Market Trend Implications - 25th Mar 20
Pandemonium in Precious Metals Market as Fear Gives Way to Command Economy - 25th Mar 20
Pandemics and Gold - 25th Mar 20
UK Coronavirus Hotspots - Cities with Highest Risks of Getting Infected - 25th Mar 20
WARNING US Coronavirus Infections and Deaths Going Ballistic! - 24th Mar 20
Coronavirus Crisis - Weeks Where Decades Happen - 24th Mar 20
Industry Trends: Online Casinos & Online Slots Game Market Analysis - 24th Mar 20
Five Amazingly High-Tech Products Just on the Market that You Should Check Out - 24th Mar 20
UK Coronavirus WARNING - Infections Trend Trajectory Worse than Italy - 24th Mar 20
Rick Rule: 'A Different Phrase for Stocks Bear Market Is Sale' - 24th Mar 20
Stock Market Minor Cycle Bounce - 24th Mar 20
Gold’s century - While stocks dominated headlines, gold quietly performed - 24th Mar 20
Big Tech Is Now On The Offensive Against The Coronavirus - 24th Mar 20
Socialism at Its Finest after Fed’s Bazooka Fails - 24th Mar 20
Dark Pools of Capital Profiting from Coronavirus Stock and Financial Markets CRASH! - 23rd Mar 20
Will Trump’s Free Cash Help the Economy and Gold Market? - 23rd Mar 20
Coronavirus Clarifies Priorities - 23rd Mar 20
Could the Coronavirus Cause the Next ‘Arab Spring’? - 23rd Mar 20
Concerned About The US Real Estate Market? Us Too! - 23rd Mar 20
Gold Stocks Peak Bleak? - 22nd Mar 20
UK Supermarkets Coronavirus Panic Buying, Empty Tesco Shelves, Stock Piling, Hoarding Preppers - 22nd Mar 20
US Coronavirus Infections and Deaths Going Ballistic as Government Start to Ramp Up Testing - 21st Mar 20
Your Investment Portfolio for the Next Decade—Fix It with the “Anti-Stock” - 21st Mar 20
CORONA HOAX: This Is Almost Completely Contrived and Here’s Proof - 21st Mar 20
Gold-Silver Ratio Tops 100; Silver Headed For Sub-$10 - 21st Mar 20
Coronavirus - Don’t Ask, Don’t Test - 21st Mar 20
Napag and Napag Trading Best Petroleum & Crude Oil Company - 21st Mar 20
UK Coronavirus Infections Trend Trajectory Worse than Italy - Government PANICs! Sterling Crashes! - 20th Mar 20
UK Critical Care Nurse Cries at Empty SuperMarket Shelves, Coronavirus Panic Buying Stockpiling - 20th Mar 20
Coronavirus Is Not an Emergency. It’s a War - 20th Mar 20
Why You Should Invest in the $5 Gold Coin - 20th Mar 20
Four Key Stock Market Questions To This Coronavirus Crisis Everyone is Asking - 20th Mar 20
Gold to Silver Ratio’s Breakout – Like a Hot Knife Through Butter - 20th Mar 20
The Coronavirus Contraction - Only Cooperation Can Defeat Impending Global Crisis - 20th Mar 20
Is This What Peak Market Fear Looks Like? - 20th Mar 20
Alessandro De Dorides - Business Consultant - 20th Mar 20
Why a Second Depression is Possible but Not Likely - 20th Mar 20

Market Oracle FREE Newsletter

Coronavirus-bear-market-2020-analysis

Does Gold Price Manipulation Render Technical Analysis Obsolete?

Commodities / Gold & Silver 2009 Jan 22, 2009 - 05:11 AM GMT

By: Peter_Degraaf

Commodities

Best Financial Markets Analysis ArticleHardly day goes by without one of my subscribers asking me the above question. In this article I will attempt to provide some answers.

The fact that manipulation exists has been well documented; first by Frank Veneroso, later by John Embry, while he was Portfolio Manager at RBC Global Investment Fund.


Meanwhile GATA.ORG this year celebrates 10 years of informing the world of the facts behind the manipulation in the gold markets. Last year they paid for a full page advt in the Wall Street Journal with the headline: “Anybody seen our gold?”

Gold is the barometer of the health of a nation's currency. When the amount of money in circulation in a particular country is steady, people tend to trust that currency and do not hesitate to hold onto it, or keep it parked in a bank account, or under a mattress. All other things being ‘normal', the price of gold as expressed in that currency will tend to hold steady, and since gold does not draw interest, people will not be tempted to rush into purchasing gold.

It is when the money supply is increasing, that people, especially those who have studied monetary history, begin to get anxious about the future purchasing power of that money, and initially some of them and eventually more and more investors begin to buy gold as protection against the price inflation that inevitably follows monetary inflation.

It comes as no surprise that central banks take an interest in suppressing the gold price, in order to be able to add money to the money supply without having the barometer that mirrors their actions (the price of gold), warn the public of their mischief.

“In 1980 we neglected to control the price of gold. That was a mistake.” Former Fed Chairman Paul Volcker.

“Central banks are ready to lease gold, should the price rise.” Former Fed Chairman Alan Greenspan during Congressional testimony July 24/1998).

The manipulation in the gold market usually occurs when the Commercial Traders (often referred to as the COT's), have accumulated a large number of ‘shorting contracts' on the COMEX. When they begin to feel the pinch of margin calls against their mounting pile of short positions, they inevitably mount a sudden assault on the gold price, with the intent of driving the price down to a point where they can cover their short positions, and start the game all over again.

Charts courtesy www.stockcharts.com

Featured is the daily gold chart from July 2005 to June 2006. In July the ‘net short' position (short positions less long positions), totaled 53,000. It should be noted that commercial traders are apt to be more often short than long, because miners tend to lock in future production. By the time May 2006 rolled around the ‘net short' position had more than tripled, and price had increased to 40% above the 200DMA. This is the kind of technical setup that appeals to whoever may be behind the manipulation in the gold price, as margin calls at this point are starting to ‘bite'. A concerted effort by the ‘shorts' to gang up on the ‘longs', together with profit taking by a number of experienced traders, was enough to stop the rally and bring price back down to the 200D.

What this chart tells us is that technical analysis was quite useful in determining that a top was due and that it was time to take profits.

Featured is the gold price between February 2007 and April 2008. In February the ‘net short' position of commercial traders was 135,000. By March 2008 it had risen to 252,000, while price by then reached a point 32% above the 200DMA. Once again the people who are interested in keeping the gold price from rising forced gold down, and once again technical analysis was useful in warning that the market had become ripe for a pull-back.

Featured is the same gold chart again, only this time with a few more months added on. We see here a repeat of the March 2008 top from the previous chart, followed by a correction that takes price back to the 200DMA in June 2008. Next we see a top in July with ‘net short' positions reaching 247,000. This total did not raise any red flags, as price back in March by comparison advanced for a few weeks, after the ‘net short' position rose to 253,000. At this point there were no ‘clouds in the sky'.

About the only technical warning sign in July 2008 was the RSI (at top of chart), which had reached ‘70'.

It took blatant manipulation in July 2008 to hammer the gold price down – well below the 200DMA where bulls could always count on support in the past. This waterfall-like price drop was caused by 3 US banks that switched from being ‘2 to 1 long to short ' in early July, to ‘22 to 1 short to long ' at the end of July. This type of action by banks that are not in the gold producing business smells to high heaven.

This is one time when technical analysis was of little use. Anyone who saw this coming was either very good, or very lucky, or ‘in with the mob'.

In conclusion: Technical analysis works in markets where there is no manipulation. It also works most of the time, even in manipulated markets, in view of the fact that the manipulators also read the charts. Historically manipulations are doomed, as supply-demand factors rule in the end. The banks tried to hold the gold price at 35.00 in 1968, and during one day in April they sold 4,000 tonnes in a vain attempt to hold the line. They failed then, and they will fail in the future.

Thus, in the words of Richard Russell: “He who buys the dips, and rides the waves will be successful.”

Featured is the current gold chart. The lows are getting higher (green arrows), and as soon as price works its way above the two blue arrows (where resistance is evident), the rally that started in November can be expected to rise to a new all-time high. At the blue arrows is where we can expect strong resistance from the ‘gold bears'.

By Peter Degraaf

Peter Degraaf is an on-line stock trader with over 50 years of investing experience. He issues a weekend report on the markets for his many subscribers. For a sample issue send him an E-mail at itiswell@cogeco.net , or visit his website at www.pdegraaf.com where you will find many long-term charts, as well as an interesting collection of Worthwhile Quotes that make for fascinating reading.

DISCLAIMER: Please do your own due diligence. I am NOT responsible for your trading decisions.

Peter Degraaf 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