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December 10, 2004

Gold Manipulation is a Blessing
by T. Stein / S. McIntyre

In late 2002, as the US stock market was making new lows on a daily basis, it looked like there was no end in sight to the carnage. The NASDAQ bubble had been popped, and it seemed like the invisible hand of the market was doing its work and punishing overvalued tech stocks. All of the sudden however, out of nowhere, things started to change. It seemed that the market couldn't go down anymore and many suspected that Treasury Undersecretary Peter Fisher and his "Plunge Protection Team" were bailing out the markets.

The PPT, also known as the Working Group on Financial Markets, was created in response to the 1987 stock market crash. The powers that be in Washington decided that the prevention of a market panic was a national security issue, similar to a prevention of an oil shortage. Almost every floor trader on the NYSE, NYMEX, CBOT and CME will admit to having seen the PPT in action in one form or another over the years. By the end of 2003, it was once again proven that shorting overvalued tech stocks based on valuation was not a winning trade. Shorting these stocks can be very dangerous as XYZ.com could run from 40x earnings to 4000x earnings before it files for chapter 11 bankruptcy. Even though these stocks would eventually collapse and go bankrupt, there could be powerful interests in place that would make sure the bubble would be prolonged as long as possible. Many skeptics often point to the powerful interests who benefit from rising stock prices - General Electric, Dow Jones, incumbent politicians, every major bank, every major retailer...etc.

The same people who have been accused of manipulating the stock market have been accused of capping the price of gold & silver. It seems that every day at 8am, some mysterious trader in New York or Chicago comes in and kicks the teeth out of the price of gold or silver. There have been accusations of a conspiracy between money center banks such as JP Morgan, the various commodities exchanges and metal producers who hedge forward production. Now some are saying that the new gold ETF (GLD) is the just latest step in the gold-rigging scheme.

Whether or not you believe all or some of these conspiracy/rigging theories, we are here to tell you that this manipulation (if it exists) may not a bad thing. We are tired of all the gold & silver bugs complaining every time the metals suffer a large correction. If you are a true long-term believer, then be thankful that these forces are keeping the prices low for all of us to buy physical metals. If you are a greedy paper trader looking for a short term gain, then you will continue to be agitated by the choppy behavior of the metals prices. Maybe this alleged "scam" will continue to go on for many years, but sooner or later, market forces will win out.

Todd Stein & Steven McIntyre
Texas Hedge Report

Todd Stein & Steven McIntyre are internationally known analysts and editors of The Texas Hedge Report, a market newsletter that highlights under and overvalued securities in the equity, bond, currency, and commodity markets. For more information, go to http://www.texashedge.com

Copyright © 2004-2008 Todd Stein and Steven McIntyre

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