Gold Price Manipulation - Does it Matter?
There has been more talk in recent weeks on the subject of gold price manipulation. The purpose of this article is not to attempt to go into the details of whether or not there is manipulation, or how much there is, or who is doing it or why, because all of this is has been raked over by other writers in considerable detail. The purpose of this article is to examine what difference it makes to us as investors and traders, and how best to live with it.
The first point to make clear is that to whatever degree there is gold price manipulation/suppression, there is nothing much the ordinary investor can do about it - you are going to have to live with it, like taxation - so there's no point in losing any sleep over it.
The next point to grasp is that there is a "might is right" issue here. The plutocratic network responsible for gold price suppression knows that even if they are outed, they can simply brazen it out with an attitude of "Tough luck - there's nothing you can do about it". When you understand this point you realize that those who have worked tirelessly for some years to expose what is going on will probably only ever achieve a pyrrhic victory.
Now here is the fundamental point to grasp, which is the central message of this article. Even if it is proven beyond all doubt that there is a powerful conspiracy to restrain the price of gold, and even if, despite being dragged out into the light of day and branded, those responsible brazenly continue their operations, they will nevertheless be rendered increasingly irrelevant by unstoppable market forces. Take a look at the following chart, which shows the price of gold in Swiss Francs, and you will see that this is already happening, and the picture against the Euro is very similar. They have already lost control, even if they had it - as we can clearly see on this chart, they lost it in mid-2005. All that is left to them now is to fiddle about on the edges trying to fleece traders by creating false breakouts etc and engage in their ritualistic Friday gold bashing.
What has and is happening is best understood not by considering high finance, and going into complex and long-winded economic arguments, but by considering the analogy of an ordinary fruit and vegetable market. Suppose some regulatory body tries to cap the price of potatoes and there is an acute shortage. Unless it is prepared itself to ensure sufficient supply of potatoes to meet demand, the tables in the marketplace will empty and a vibrant black market will spring up offering potatoes at much higher prices. This is the situation we have found ourselves in increasingly with gold since mid-2005. There is growing demand for the metal itself worldwide and powerful players who know the score are not and will not be satisfied with scraps of paper - they want to see the color of their money, and that color is gold - and silver. In addition, smaller players are getting in on the act through the ETF's (Exchange Traded Funds). As the money in these funds expands it must be reflected in increased reserves of the metals and this is providing additional and increasing demand for gold and silver. In the face of increasing demand for the metals themselves, no amount of chicanery by conspirators attempting to suppress the price will succeed - short-selling, derivatives strategies, hedging by certain large gold producers, lying about and fiddling the figures for reserves in bank vaults - all of it will be swept aside by a good old fashioned groundswell of demand.
For practical purposes the arguments about whether the gold market is manipulated are largely a waste of time. So what if it is? - any market in which powerful players are involved is subject to manipulation to some degree, but even they must eventually yield to the overriding force of the primary trend.