Virtually anything traded on an exchange of any kind is open to manipulation by those with deep enough pockets, or those prepared to take the risk of being bankrupted if massive trades on margins go wrong.
But gold is something of a special case as the principal accused manipulators of last resort are the gold establishment – central banks and governments supported by the bullion banks.
In terms of manipulation, most of what we are talking about could be considered normal practice – although whether ethical or not is another matter. It is possible to manipulate any kind of market.
China has been a past master in the commodities sector, for example, by producing and selling a whole host of commodities, particularly in the minor metals sector, at prices below the levels at which Western miners can produce them and thus cornering the markets for them.
One could accuse the big three iron ore miners – Vale, Rio Tinto and BHP Billiton – of doing much the same thing with iron ore production by all implementing major output expansions, creating a glut of product and driving down prices to such an extent that most smaller scale miners will be selling at a loss – which can only be sustained for a short time before closures and bankruptcies result. The big three will deny this of course and maybe this was not their intent, but it is having the same result.
Any system which allows, or encourages, virtually unrestricted futures trading is, in the writer’s view, opening the way to market manipulation. A major example would appear to be the silver market in particular.
However, here the position is being exacerbated by enormous silver inventories apparently being built up by some of the major bullion banks. Dedicated silver analyst Ted Butler has gone on record, so far unchallenged, as estimating that JPMorgan, as the prime example, may have built up a silver inventory of more than 350 million ounces.
The bank’s defenders will say that if it has accumulated its holdings all on behalf of clients, but the amounts seem too high to be purely based on client orders – and even if much of the holding, if Butler’s estimate of size is correct, and has been taken on client orders, then doubtless this would have been on advice from the bank.
If the bank does have this kind of silver hoard, then it enables it to exert effective control over the global silver market – and this does indeed appear to be something of a manipulated market – perhaps more than most others.
But what about gold? Silver is a small enough market to be relatively easily rigged by financial powerhouses, as can any other relatively small market, but gold is a hugely bigger proposition and, more than any of the precious metals, has an emotive and historical element, which sets it apart.
For hundreds of years, perhaps thousands, gold was money – many will say it still is – and the ultimate expression of wealth. Up to as recently as 1971, when President Nixon ‘closed the gold window,’ the world’s major reserve currency, the US dollar, was still gold backed.
After that, the world then entered a total fiat currency age and there has always been the worry from governments and central banks that a booming gold price would be taken as an indicator of the weakness of modern-day money.
In a recent note, Ben Davies of Hinde Capital described gold as the ‘canary in the coal mine’ – “God forbid the canary sings and gold reacts violently higher,” he says tongue-in-cheek. But he has his metaphor somewhat mixed. A canary singing means all is well – it’s when it falls off its perch that danger really threatens!
The Gold Anti-Trust Action Committee (GATA) has averred for many years now that the price of gold has been suppressed by governments and colluding central banks and their bullion bank allies, and has come up with impressive, one would say conclusive, evidence that this has indeed been the case at least from time to time. (Browse www.gata.org for examples of this evidence from government and central bank memos, documents and emails.)
GATA’s arguments have been treated with scorn by the gold sector establishment for the most part and also by the mainstream media, although its arguments do seem to be taken a little more seriously by the latter more recently. Scorn and contempt have always been the weapons the establishment has employed to try to suppress unwelcome fact and theory!
Arguments for collusion
GATA’s principal argument has been that central banks – and the US Fed in particular – have colluded to suppress the gold price and in particular to nip in the bud any indication of a gold price surge which could run out of control, thereby casting doubts on the strength of the dollar and the economy as a whole.
That the establishment presided over an uneasy period of strong gold price growth for more than a decade has often been put up as the counter argument here, but GATA would argue that without this degree of control gold would have risen far higher and much faster.
It was only when gold was really beginning to take off seemingly out of control in late summer 2012 that it looks as though some really serious intervention may have been put in place with massive transactions in the futures markets (flash crashes), stopping the gold price surge in its tracks and beginning the drive down to where it has fallen back today.
Some would say the effectiveness of this process was trialled in the silver market a year earlier when an enormous futures transaction in late April 2011 brought the latter price diving – followed by a similar apparent intervention a few months later to bring it down further.
These futures transactions seemed designed to depress prices sufficient to trigger stop-loss selling and thereby exacerbate the falls. They have continued from time to time every time silver has looked to take off again and seem designed to drive the less committed investor out of the market.
Exactly the same procedure appears to have been launched into the gold market in September 2011. Gold had surged to over $1900 and again enormous transactions on the futures markets, seemingly designed specifically to drive the price back downwards through stop-loss levels, were successful in so doing.
Interestingly, on a number of occasions just when specific U.S. government data would seem to raise doubts about the economy and thus be seen as gold price supportive, similar huge futures transactions appear to have been unleashed with similar effect. Looking through COMEX minute-by-minute volume activity would appear to confirm this.
Coupled with what looks like a concerted media campaign to play down any positive factors for gold – such as the seemingly enormous levels of eastern demand which are consistently downplayed and the huge flows of physical gold from West to East – the argument is that gold is being systematically suppressed in order to dissuade investors from entering the market and to avoid raising warning signals about the global economy and principal currency values.
Of course, for the bulk of the time the normal speculative element in the marketplace, fed a diet of anti-gold propaganda, can do the job of holding prices down quite well on its own. It is only when factors seen to be potentially gold positive appear on the horizon that enhanced intervention may have been necessary, and implemented.
That is largely the argument and the evidence that the gold price may be manipulated by the central banks (in collusion with government) and the bullion banks. Given that virtually all markets are manipulated to some degree or another (LIBOR, Forex, etc.), then there is indeed the likelihood that gold is not an exception.