Because of its fascination for mankind, gold has always been surrounded by conspiracy theories
and stories of price suppression and manipulation.
That's really no surprise.
After all, wherever you find money, you inevitably find human beings trying
to cheat in some way or another.
Fake gold bars have frequently surfaced over the years, with gold-plated tungsten, which
has an identical density to gold, being the most common substitute.
Fortunately, any one of a number of very simple tests
will provide a conclusive answer as to whether a particular bar is fake or not.
Gold is unique.
However, the most important questions about possible manipulation of the gold price concern
much broader issues and occur at a much higher
level.
Well, look, the question about manipulation is clearly a favored one, people
like to discuss this.
I do think that even a cursory glance at historical fact will lead you in fairly clear
direction.
I mean, it's not like this is a hidden thing.
I mean, the London Gold Pool existed, it was an overt
way of managing the gold price in terms of its price.
It's clearly in the interest of central bank to manage,
particularly in the monetary system as it functions right now-- whether it does function
not being a slightly separate point-- it's clearly in their interest
to manage the risk-free rates.
Would you influence the gold price?
Well, it's said that gold is the reciprocal trust of
central banks, you betcha it would achieve the gold price, notwithstanding the fact that
central banks are the biggest holders of gold-- 60% of their
reserves are in gold, would you want to suppress it?
You betcha.
The problem's too big.
Are they doing it?
I don't know is the answer, but money-- there's always
a raising certainty, they probably are.
Others, however, are far more confident, not only as to the question of whether the gold
price is manipulated, but also who the culprits might
be.
Well, the gold price is absolutely manipulated.
When I say that, I'm not, you know, implying some
deep, dark conspiracy.
I don't think Janet Yellen wakes up in the morning and thinks about gold-- I don't
think Janet Yellen knows anything about gold to be honest with you.
She's sort of a geeky liberal labor economist who worships the Phillips curve,
so I don't think Janet Yellen is behind some conspiracy to
suppress the price of gold.
But there's absolutely manipulation.
I've spoken to several experts.
One is a PhD statistician, so it's not a PhD in economics, it's a PhD in statistics.
Works for one of the largest hedge funds in the world.
He looked at a 10-year time series and he took--
like literately tick-by-tick information on the COMEX gold
futures for 10 years, and he said there is no explanation for this data other than manipulation,
it could not possibly have happened through normal
market forces.
In particular, he knows that at the end of the
day, like on the last trading tick on the COMEX, the price of gold got smacked down.
And then at the open the next day, it could kind of pop up
again.
So he said, well, this is the easiest trade in the world, just buy gold right after the
close and sell it the next morning just before the open, and you know,
just make consistent, steady profits.
Well, anyone knows anything about markets and how they operate
knows that you cannot make consistent, steady profit.
This is what Bernie Madoff said he was doing, right?
So he said the probability that the price naturally goes
down at the close and naturally goes up the next morning is like zero after 10 years.
And this is not inference, I mean, this is like DNA.
Like, you know, you may not see the crime being
committed, but if you have the DNA evidence, you can be pretty sure who did it.
Governments everywhere throughout history have wanted to manage-- it's a critical national
securitywhether you go back to the time of the Romans, et
cetera, value of a currency is very, very important to
manage, particularly if you're a government that hasn't managed your finances all that
well.
And unfortunately, that is over time, most governments
sooner or later find themselves in that position.
And so the manipulation is right there in the open in that it is a creation of a derivative
market that satisfies demand that would otherwise go into
physical, and that was the goal of setting that up and that's
not well understood I don't think by many market participants, but as I said, it's there
in black and white in kind of the historical archives.