Can Gold Prices Be Manipulated?

Authored by Alex Kimani via SafeHaven.com,

Is gold price manipulation a real thing or just another of those myths that have gained popularity in financial and investment circles?

Manipulation in this context is defined as a purposeful effort to control gold prices.

A section of gold investors believes that gold prices are systematically manipulated, generally downwards.

There are several variations to the theory, but the general belief is that precious metals like gold and silver are under the thumb of central banks and other large banks, which use high frequency trading (HFT) as well as derivatives (aka naked shorts) to tamp down prices. There are also worries about discrepancies between paper gold and physical bullion in systems such as the London Bullion Market Association (LBMA) Gold Price.

Then of course the media itself has its own conspiracy theories.

While there hasn’t been that much academic research conducted on the subject, available empirical data suggests that gold price manipulation is possible on a short-term basis but not over the long-term.

How to Manipulate Gold Prices: Selling Naked Shorts

Paul Craig Roberts and Dave Kranzle, Institute for Political Economy fellows, high-yield bonds traders and founders of Golden Returns Capital LLC., provide pretty compelling evidence of gold price manipulation by the collusion of the Fed and several large banks.

The two traders have claimed that the New York Comex exchange is the Fed’s primary venue of the Fed’s manipulation activities. The biggest Comex players include HSBC, JP Morgan and Bank Nova Scotia, which jointly account for a large portion of the exchange’s trading volume.

Comex futures trading takes place through a system known as Globex  which can be accessed by any trader with a computer-based futures trading platform. In addition to Comex, the Fed also manipulates gold prices in the much bigger London gold market where daily transactions exceed $24 billion.

Selling naked shorts simply means that the Fed short-sells gold without first borrowing it or at least ensuring that the metal can be borrowed as is the usual short-selling practice. The Fed presumably does this to protect the dollar and enable banks to repurchase gold at lower prices.

(Click to enlarge)

Source: PaulCraigRoberts.Org

Messrs Roberts and Kranzle cite at least three instances when they were able to detect such suspicious activity on the Comex exchange.

The first happened on Monday, January 6, 2014.

After rallying $15 in the Asian and European markets, gold prices suddenly plunged $35 at precisely 10:14 a.m. after more than 12,000 contracts (more than 10 percent of the day’s trading volume) were sold in the space of less than 60 seconds. The volume of the sale is what gave it away as blatant naked short-selling--12,000 contracts represents 1.2 million ounces of gold, about three times the total amount of gold that was available in Comex vaults at the time.

The style, too, is highly suspicious. A bona fide trader looking to sell a large position would normally try to carefully work off their position over an extended period to disguise their selling activity and also avoid interfering with prices as much as possible. The dumping of such a huge position in such a short period of time is a deliberate ploy to drive down gold prices.

The gentlemen also cite another such activity--this time on Globex. Beginning December 18, 2013, huge volumes of Comex gold futures were sold in several waves via Globex immediately after the FOMC announced its decision to trim its bond purchases by $10 billion per month. The funny thing is that this happened at a time when the Globex computer trading system is least active. All this selling activity was done presumably to prevent the announcement of tapering from sending the dollar, stock and bond markets into a tailspin.

To cap their argument, the pair points out that central banks have on several occasions failed to honor their obligations when called upon by nations at their time of their need, thus suggesting a depletion of gold bullion at their vaults. For instance in 2014, the Fed negotiated a seven-year timeline to ship back Germany’s 1,500 tonnes of gold, suggesting it did not have the full amount in its possession.

Incidences such as these  tend to lend credence to the selling of naked shorts theory.

Long-Term Manipulation Unlikely

The report by Roberts and Kranzle appears elegant and pretty convincing. There’s a good chance that the heavy and rapid bursts of selling activity described here is the result of the Fed or other large entity trying to push gold prices down.

What is highly doubtful though is whether any trader, the Fed included, could be able to sell naked shorts for any length of time. This is the case because such an activity would create a huge short squeeze with the trader buying in huge volumes (futures contracts and physical bullion) to cover their shorts, which would inevitably push gold prices up.

Over the long-term, empirical evidence suggests that gold prices are determined by global money supply, US trade/debt imbalances, central bank activities, interest rates and commodity prices (especially oil).

(Click to enlarge)

Source: Money Metals Exchange

Comments

nope-1004 Croesus Tue, 07/10/2018 - 17:57 Permalink

The existence of a debt laden reserve fiat, and the peoples confidence in it, relies on the price of gold being kept in check.

Gold and silver are hated by bankers because of its limited supply.  You can't offer credit terms or financing if the monetary instrument is real and not limitless in its supply.  How can you put your hooks into the general population and perpetually enslave them if you can't bring future demand forward to the here and now because full payment is required on the spot?  Enter credit.

We've come so far as a people and our economy is so sophisticated.  lmao

The credit cycle is complete.  Next up is a washout.

 

In reply to by Croesus

Manthong El Oregonian Tue, 07/10/2018 - 18:34 Permalink

“Can Gold Prices Be Manipulated?”

Of course, just like:

..a Hawaiian birth credential

..or a Kenyan book cover

..or an Indonesian college grant application

..or a Syrian chemical attack

‘’or a London Novichok attack.

.or an Iraqi WMD

..or a Libyan gold dinar

..or a Ukrainian gold reserve

..or a BIS trading desk

The list is endless.

“There are no markets, just interventions”

-Chris Powell, GATA

In reply to by El Oregonian

Karl Marxist Coinista Tue, 07/10/2018 - 21:47 Permalink

The fact is the crypto markets are very manipulated by the exchanges. There's also Brock Pierce, Bitfinex, EOS and Tether which are centralized and are Deep State controlled. Pierce is a convicted pedophile which explains how he got so high into the Deep State with the ability to manipulate markets.

In reply to by Coinista

Snaffew Looney Tue, 07/10/2018 - 18:27 Permalink

the author is a fool...in 1980, based on M1 money supply, gold was valued at $400/oz...it hit $800 on the overreaction.  Today, based on M1 money supply, gold is valued at $13,600/oz and silver at $160/oz.  If long term manipulation is not possible based on gold's value due to global money supply, then how does one rationalize such an extreme discount in current gold prices?  The author obviously works for the Central Banks and he is a bullshitting moron.

In reply to by Looney

SeuMadruga Snaffew Tue, 07/10/2018 - 20:49 Permalink

What is highly doubtful though is whether any trader, the Fed included, could be able to sell naked shorts for any length of time. This is the case because such an activity would create a huge short squeeze with the trader buying in huge volumes (futures contracts and physical bullion) to cover their shorts, which would inevitably push gold prices up.

All a "super-trader" hellbent on manipulating any "market" needs is to precipitate the avalanche of other traders joining in the stampede, thus establishing a longer-term trend during which his positions can then be closed-out before any reversal.

The filthy "re-hypothecation" of gold between cb's and commercial banks seems even more obscure than sovereign bond markets, making the yellow metal another very convenient selling (paper)"item" for limitlessly raising USD, especially amid current growing offshore "eurodollar" shortage manifesting itself on the present DXY uptrend.

In reply to by Snaffew

dark fiber . . . _ _ _ . . . Tue, 07/10/2018 - 18:16 Permalink

Dumping 250000 contracts within half an hour, the DB probe the UBS traders chat logs, it's all a conspiracy theory.  This is what is not a conspiracy theory, when this thing blows up, they will come after your personal gold holdings in the name of "national interest" and those cheering them on will be the smartasses calling you a conspiracy theorist, a goldbug and a doom porn addict.  Hope you have plenty of lead to back your gold.  Without lead you have nothing.

In reply to by . . . _ _ _ . . .

Kaiser Sousa valerie24 Tue, 07/10/2018 - 18:05 Permalink

its moronic....all u got to do is go here and just do a general search on Gold/Silver and u will see that "they" know both r REAL MONEY and theyve been tryin to convince the debt slaves that it aint since the beginning of the 20th century...for fucks sake they even archived all the docs....

https://history.state.gov/search?q=Gold

"there are none so blind who will not see..."

In reply to by valerie24

DennisR Tue, 07/10/2018 - 17:53 Permalink

Wouldn't you want a more usable asset like a home or shares in a growing company which produces dividends?   Not sure how a shiny metal is relevant in 2018.