Gold Manipulation?
Posted by Frugal on December 19th, 2006
I’m sure all of you who invested in precious metals noticed that last Friday, both gold & silver had a BIG drop. Actually, throughout the last two weeks, I have been worried about a successful attack on the gold price. It was the first time that I saw “attack”s pretty much everyday throughout a two week period. Obviously, gold was trying to make thru $650 before that time.
Most people don’t believe in the gold price manipulation theory. But I have become a converted believer after watching 24-hour Kitco’s gold price chart almost every trading day throughout the last 3 or 4 years since I first started investing in gold. Actually, I don’t check my own stocks that often. Usually the first (if not the only) thing that I check is the Kitco’s gold/silver charts, and then maybe my company stock price. And throughout these 3 or 4 years of watching the international trading of gold, I have noticed something. And it’s what all those gold bugs have been saying, and there is even an university professor who did a statistical study on this (sorry, can’t find the link, I read it maybe 1 or 2 years ago): statistically, gold price falls hard MUCH more often in the US market than ANY other international markets. I don’t have any numbers/link to back this up, except by telling you that it’s really true after watching gold trading throughout these years.
Kitco’s gold chart makes it really easy in observing this. Everytime, when such “attack” occurs, you can easily see that gold price pretty much drops vertically in Kitco’s chart. And that just pretty much never happens in any other markets from my own experience. The vertical fall is always the signiture. Despite that in the US market, gold may sometimes go up close to vertically, it happens with much less frequency.
The second thing that I’ve noticed throughout the past 4 years is that when a BIG drop in gold price occurs, it is usually coordinated or preceeded by a bigger than usual drop in the UK London market first. London market is another market that tend to have a bigger drop, except that the drop is not as vertical as in the US. Well, you know, UK is the best pal of United States, and it’s the only country who sold tons of gold when gold was trading at $250. Great cooperation with US indeed!
So before last Friday, what I saw was gold price was making V-shaped precipitious price drop (something like above that I recorded on Dec 4), with the price sometimes fully recovered, but usually impaired somewhat afterwards. The precipitious drop happened throughout the past two weeks (roughly some 8 days out of 10 trading days). I haven’t seen such “attack” happening so frequently in any two week period. Usually if it happens once a week at all, it’s A LOT already. Well, and then came the Friday, with double or triple attacks (you can almost count how many attacks there were in the chart below).
Well, anyway. I’m readying myself for two things to happen. One is that gold price falls below $450, and then I will go to bank and take out all the equity in my home and buy all physical gold & silver that I can. Or gold price goes to $850 and beyond, and I will just keep sitting on my current stake of precious metals.
Some of the things that gold bugs say are really down right scary. Things such as USA has its gold vault emptying at Fort Knox, and has been slowly sold out through gold loans (& this link too), will make the newspaper headline if it is ever found out to be true. I do know one thing. If/When the panic day of $US comes, it will be far better to have physical gold than GLD or any form of paper gold, or even gold stocks. If such day comes, maybe outright confiscation of physical gold behind paper gold (yeah, they will let you settle in fast depreciating cash) will occur. And then you won’t find physical gold/silver for sale, or maybe they will simply trade in the black market. I hope such days will never come, but just in case, I will pick up equivalent amount of physical precious metals to be able to pay 6 months of expenses, and possibly make my swap of precious metal stocks into physical at a later stage hopefully in this long term PM bull market.
One of the MAJOR reason that I was able to get 1stMillionAt33 was that there are just TOO MUCH paper money around. Look around! A billion here, a billion there. And the debts are counted in trillions. And the number of millionaire household in the USA has been steadily increasing at a rapid pace. In the book “The Millionaire Next Door”, I later found out that the study was actually done in 1996, and at that time, the median salary was some $110K, while the median networth of all the millionaires was about $1.6M. The author later wrote another book “The Millionaire Mind”, and did another study in 2001, and then the median salay became $410K, while the median networth jumped to 4 million plus. Roughly 4X increase in the span of 5 years. Either the author’s study is somewhat statistically faulty, or that the very rich people are getting much further ahead than the rest of us, or both.
So my basic advice to all of you. Grab a piece of everything in life to diversify your assets first, according to your expenses. Buy a home, buy an auto, buy the corresponding stock/company that you spend money on, or at least allocate your assets proportionally to the amount/type of expenses that you incur. Then, after that, you should grab things that are RARE that others don’t have because rare things/talents that are in short supply always are more valuable. Well, you know what’s rare, and what’s not rare, right? Definitely not more PAPER MONEY which can be printed at will at the Fed’s whim.
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December 19th, 2006 at 7:41 am
Golds manipulation days are numbered as the explosive growth in China, India and Brazil put pressure on gold production/consumption. I closely follow gold too and I’m seeing a lot of action in China that indicates it is quietly buying up gold mines, advising its citizens to purchase gold and building strategic alliances with gold producing countries.
December 19th, 2006 at 8:05 am
Nice post, Frugal. When I first heard about gold price manipulation six years ago, I dismissed it as a crazy conspiracy theory. But, it appears to have a good deal of merit. In fact, the largest retail gold dealer (Blanchard) filed an anti-trust lawsuit against Barrick Gold and J.P. Morgan Chase in 2002 for “unlawfully combining to actively manipulate the price of gold.” Blanchard claimed that Barrick and JPM made(US)$2 billion in short-selling profits by suppressing the price of gold at the expense of individual investors.
GATA.org (Gold Anti-Trust Action Committee) writes a good deal about gold and the bullion banks. It’s a non-profit group that works to to expose gold price manipulation and prevent further abuse. Sounds crazy, but they actually have some good information, and have been featured in the mainstream media.
December 19th, 2006 at 9:05 am
“and did another study in 2001, and then the median salay became $410K, while the median networth jumped to 4 million plus. Roughly 4X increase in the span of 5 years. Either the author’s study is somewhat statistically faulty, or that the very rich people are getting much further ahead than the rest of us, or both.”
Now add about $10 trillion in real estate equity from 2001 to present and the rich are getting richer.
1. http://millionairenowbook.blogspot.com/2006/09/why-arent-you-wealthy.html
2. http://money.cnn.com/2006/08/29/news/economy/wealth_gap/index.htm
December 19th, 2006 at 10:12 am
http://scholar.google.com/scholar%3Fq%3Dgold+price+manipulation+study+professor%26hl%3Den%26lr%3D%26oi%3Dscholart
December 19th, 2006 at 10:21 am
The two links about fort knox gold are not true. The first link sounds like that of a conspiracy theorist and the second is speculative. I would heavily discount them.
December 19th, 2006 at 1:40 pm
Frugal,
The drops in PMs have always been fast and furious, but I doubt any collusion can be proven. Is this any different than market makers at the NYSE running the stops? As long as there has been pit trading, market makers and big players have tried such tactics. It just looks much worse in PMs because the composition of players is one-sided.
The manipulation theory is interesting (and I don’t mean to put down the works of Gata and Frank Veneroso), but how does it impact one’s trading/investing results even if it were true? If one is a long term bull then any suppression simply allows one to pick up more at a lower price. If one is a trader then the price drops have to be integrated into the toolbox of pattern recognition. Anyone following what I’ve been writing about PMs in the past week shouldn’t be surprised by Friday/Monday’s drop and least of all by today’s action.
December 19th, 2006 at 4:22 pm
Sanjay,
There are other articles on Fort Knox. I only wanted to put up the two links that I think are more neutral in their statements, instead of statements from gold bugs. I don’t know whether it’s true. But there MUST be an audit on the actual gold which in fact has NOT happened for almost 50 years. The last audit done was simply not a real audit.
December 19th, 2006 at 4:32 pm
ML,
I believe that things can be proven through statistical studies which was what the university professor did. Just like back-dated stock options. It was first discovered through statistical studies.
Definitely, for a long term investor, any drop is “welcomed” (if you pick up more). That’s why I have reserved my home equity for that purpose, in the case when PM drops a lot. I don’t trade short term, so I sit through such pull-backs most of the time.
I am sharing my personal experiences on the gold trading actions. I can pretty much count in one hand for vertical price drops in other international markets in the last 4 years. Maybe just once or twice. Certainly, the volatility in the US may be proportional to its liquidity. But counting big price drops (vertical or not), the US market still appears to be way too frequent.
Just my two cents.
December 19th, 2006 at 4:48 pm
Thanks for your links Larry. I keep wondering about that $400K+ salary…. If I’m earning that much, I can probably save one million (after tax) in about 6 years,
. Make things so much easier indeed.
December 19th, 2006 at 6:17 pm
Frugal: My best years at Lehman Brothers were 1988-1991. I averaged about $200,000 ($500,000 equivalent today I guess). What did I do? That’s right…..saved about 1/3 and plowed it into Bay Area houses. (I didn’t know what else to do)
December 21st, 2006 at 7:43 pm
No wonder you are so rich,
. Even a couple of years help a lot! That was a good investment choice that you made. I would have done similarly (well, of course, I probably will not get such chance in my life….)
December 22nd, 2006 at 6:09 am
“I probably will not get such chance in my life….) ”
This is the part that is so hard to understand and to beleive. The prices I paid on houses in Berkeley did not seem “cheap” at the time. But, they always seem so with the passage of time looking back. That’s a no brainer. And, so, think about it theis way, everyone who came before you bought real estate at high prices. It’s just that they tend to continue higher over time.
Now, looking back at Berkeley, for example, we laugh and wonder why we only bought three instead of 33….
Now, where are we in the current cycle and can we have expectations of another 15 years of rising prices. I have no idea. I know, as always, the reward is wort the risk. And, that our population will grow from 300 million to 400 million by 2035. But, the answer is in the job growth.
December 22nd, 2006 at 6:51 pm
Larry,
I meant earning $500K inflation-adjusted annual salary. I didn’t mean buying homes in Berkeley or anywhere else (at whatever price). That I can always do assuming that I can carry the payment for whatever home or homes that I buy.