Jul 03
Gold Price Manipulation? So What?
Posted by Kristjan Velbri | Posted in Gold, Markets, Personal Finance | Posted on 03-07-2009
Whether or not the price of gold, as many have been arguing here and elsewhere, is being manipulated or not, interestingly enough, doesn’t matter.Gold is told to be an excellent preserver of wealth, especially in rough times like these and I agree with that but I don’t think the manipulation hypothesis should be given as much focus as it’s been given so far, simply because there is nothing wrong with central and commercial banks occasionally pushing the price lower.
Why? Well, the central banks, led by the Federal Reserve, have been printing huge amounts of new ‘money’ and as soon as it gains velocity, inflation will propel gold to new highs. One way to preserve wealth is to buy gold and the best time to do it is before inflation kicks into high gear. Let’s assume that the manipulation hypothesis holds true and the price of gold is being artificially suppressed. As an individual who is trying to buy gold I could not wish for a better setup, I would be glad to be able to buy gold at a suppressed price.
If gold exploded in a manner that it did almost 30 years ago, the hypothetical manipulators would be unable to hold the price of gold down. Margin calls would be all over the place and the hypothetical manipulators would have to exit positions en masse. That is very likely the scenario that would play out during another violent push higher. If you factor in the amount of deliveries that would be taken in the case of a price explosion, there would be nobody left to manipulate the price of gold.
If the price of gold will not explode, I still won’t be worried about the effect of the alleged manipulation because even the ‘manipulators’ have been unable to stop the price from rising so far. I will preserve my wealth with or without intervention by the banks.
Manipulation or no manipulation?
I’m not saying the manipulation hypothesis holds true. I’m not saying it is completely wrong either. In fact, I don’t even care much because in the long run, it really doesn’t matter. If there is merit to the manipulation argument, I don’t care because I can’t do anything about it (let’s face it, manipulation hypothesizers, you’ve been all over it for years and you haven’t had any influence on the CFTC). If the manipulation hypothesis is just that, a mere hypothesis, I don’t care either. All I care about is the price of the yellow stuff and as I pointed out earlier, the ‘manipulators’ have been unable to keep gold price from rising from the low $200s to almost $1000.
There are much larger forces in play that will determine the price of gold in the coming years. We have all heard the inflation story, but added to that are growing signs that China is diversifying its foreign reserves away from the dollar and into gold. The population of the planet is in an uptrend and will continue climbing for the foreseeable future, this means that there will be less ounces per capita – more wealth and more people makes for a greater need for wealth protection. Of course, I haven’t listed all the factors that contribute to the rise of the yellow metal and that is not the point of this article. The point I would like to make is this: buy gold when it dips and don’t fret about the manipulation hypothesis. We are in a secular bear market for stocks and a secular bull market for gold (see the chart of DJIA/gold) and market intervention, real or not, doesn’t make a difference.
Disclosure: long AUY and silver bullion.
Long AUY and silver stocks/bullion as well!
[...] Kristjan Velbri wishes gold bulls would stop whining about price manipulation. “There are much larger forces in play that will determine the price of gold in the coming years.” 1 comment! [...]
The printing press has become the “new industry” in America. The Feds print long bonds which are yielding 4.5%, which US banks buy using freshly FREE printed money, almost a miniture contango, to produce free profits, so they can sell printed stocks, to Wall Street, which then sells them to “investors”(suckers) on the street. Banks are NOT lending to business, Bank loans to business, are down again this month, because their too busy, in the FREE printing game. (scam). If it isn’t a scam in America, just wait 5 minutes. Gold is a little out of the loop, but may find it’s legs after Labour day weekend.