Apr 10

What’s Going on With Gold Recently?

Posted by Kristjan Velbri | Posted in Gold, Silver | Posted on 10-04-2010

There’s been a lot of misinformation spread about gold via the internet in the recent two weeks. Eric King of King World News seems to have stepped way over the line by presenting very dubious, and I would say, blatantly misleading information about the recent CFTC hearings. I have great respect for Mr. King for his efforts in trying to bring on guests that think clearly and don’t give you the bull that you can read in and see in mainstream financial media, but I can’t agree with everything that he and his guests say. Up to this point the amount of biased information coming from guests on his shows has been somewhat limited to a few outliers, but the last two weeks have been all about gold bugs (the paranoid folk who hate the recovery, love inflation and don’t want anything to do with real facts as they relate to financial markets).

I think that Mr. King puts too much trust into his gold bug guests, especially the ones from GATA. In fact I think they’ve got some kind of agenda on their own – they’ve been on this for years and they don’t seem to be running out of money. No sensible person would devote his life and career to fighting the gold market unless there was something in it for him or the people who are funding this. The only possible explanation for GATA’s involvement is their own financial gain, but I don’t understand the gold bugs with accounts in the mere thousands, there’s way too little for them in it if they somehow would be able to drive the price up a couple hundred bucks by tweeting and linking they gold bug nonsense. It seems that people are willing to lose every bit of skepticism they have for just a few hundred bucks (tech bubble/subprime bubble ring a bell?).

Here are the original interviews that are the basis of recent rumors, in the order of publication (don’t forget your inner skeptic behind when listening to these):
King World News interview with Andrew Maguire & Adrian Douglas
King World News interview with Gold Anti-Trust Action Committee (GATA)
King World News interview with Harvey Organ, Lenny Organ, Adrian Douglas

And here is an alternative, non gold bug view of the matter from two professionals:
Financial Sense Newshour 1st hour interview with Jeff Christian and Nick Barisheff, the show begins with the usual introduction (after all, it’s a weekly podcast), the interviews with gold experts start off at the 26th minute.

It may offer comfort to think that GATA is right when you are holding a long position in gold or gold related assets but at the end of the day, you have to keep a clear, skeptical mind. Don’t trust everything just because it supports your position. The gold bug bandwagon effect may turn out to have a net positive effect on your portfolio, but believing every conspiracy story out there will most likely have a negative effect on your portfolio in the long run. Banks and fund managers don’t make money by relying on David Icke or Dan Brown for the latest market insight, they make money by making rational decision based on trustworthy information gleaned from trustworthy, verifiable sources.

Disclosure: Long SVM, SLW. Long physical gold and silver based on fundamentals (I do not hold positions based on alleged manipulation stories, nor should any other prudent investor).

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Comments (2)


“So what exactly is the incentive for the IMF and other central banks to manipulate metals?

It’s a matter of preserving western currencies and interest rates, Powell says. “The Federal Reserve runs the world” and that’s not changing anytime soon. Heck, even various ex-Fed Reserve chairman all say they rigged the gold market, including Volcker and Greenspan. And this isn’t something GATA concocted in a media laboratory to get what they want – this is straight from the Federal Reserve’s official website.

In FOMC minutes from 1995, one can easily read for themselves that the Federal Reserve is engaged in multiple gold swap agreements with other countries and their central banks.

Interestingly enough, if the feds have been manipulating with the price of gold, they’ve done a very lousy job at that. Gold has been up 17% CAGR in the last ten (or was it eleven?) years. When it comes to what the central bankers have said, you can glean what you want from their statements. Creative accounting and creative reading are in the same category, because in both cases you show/see what you want to show/see. We’re not on a gold standard and there is no point in keeping a lid of the price of gold. The price of gold is determined by two things only:
1) the price of extracting gold
2) the supply/demand equilibrium
If you want to suggest that central banks and the elusive banking cartel have been able to somehow increase the supply of gold then you are deluding yourself. It has been demonstrated numerous times over that when demand for gold rises while supply remains at the same level, the price of gold rises. In fact, it happens every year during the time the Indian marriage season reaches its climax. The alleged e-mail exchanges between GATA and CFTC supposedly show a market manipulation. How can you call this manipulation if the price went down for only a short period of time? Just because the price at which they sold their contracts below the current market price doesn’t make it a manipulation. That’s how markets work – each participant posts his bid/ask price and an equilibrium is reached. If, however, the ‘gold cartel’ were able to keep the price down for a considerable length of time, and it could also be proved, we would have a problem. I see no such thing as gold has been going higher and higher over the years. I don’t see how this is possible in a ‘manipulated’ market. In any case, I have my doubts when it comes to GATA and their lot. The amount of supposed claims, statements and facts they throw out that have no source, no backing is enough to make any truth-o-meter go way past the limit (ie. the claim that GATA has previous booking on financial news media, the alleged hit and run story in London, there’s no proof, one man’s claim against another’s).

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