Thursday, February 27, 2014

Breaking Today on Bloomberg: Gold Study Shows Signs of Decade of Manipulation.

Gold is something we keep an eye on because it directly relates to the value of the US dollar. It also is a competitor to fiat currencies around the world so Central Banks prefer that gold not become too popular. They don't mind gold trading in range, but sharp moves up can be a troubling signal to investors that something is wrong. 

Given all this, a breaking article on Bloomberg this evening will get the attention of many people. Paticularly of interest will be this segment in the article:

All Down

Abrantes-Metz and Metz screened intraday trading in the spot gold market from 2001 to 2013 for sudden, unexplained moves that may indicate illegal behavior. From 2004, they observed frequent spikes in spot gold prices during the afternoon call. The moves weren’t replicated during the morning call and hadn’t happened before 2004, they found.
Large price moves during the afternoon call were also overwhelmingly in the same direction: down. On days when the authors identified large price moves during the fix, they were downwards at least two-thirds of the time in six different years between 2004 and 2013. In 2010, large moves during the fix were negative 92 percent of the time, the authors found.
There’s no obvious explanation as to why the patterns began in 2004, why they were more prevalent in the afternoon fixing, and why price moves tended to be downwards, Abrantes-Metz said in a telephone interview this week.
“This is a first attempt to uncover potentially manipulative behavior and the results are concerning,” she said. “It’s down to regulators to establish why there are such striking patterns but banks have the means, motive and opportunity to manipulate the fixing. The results are consistent with the possibility of collusion.”
My added comments: Of course gold advocates will not be surprised at this report. Many have claimed for years that big banks were engaged in efforts to contain or suppress gold prices on behalf of Central Banks who as noted above prefer gold not to become too popular. 
Jim Rickards and others say the FED (or big banks on their behalf) will enter the gold market at times to contain the price (heavily sell short). Not because they care what the price of gold is. He says its because they do not want a sharply rising gold price to upset the markets and investors confidence in their policies. They are OK with a steadily rising price over time as they need controlled inflation and a steadily declining dollar to reduce the overall debt to GDP ratio. (Inflation allows debt to be paid back with cheaper devalued dollars over time).
A sharply rising gold price causes people to question if something is wrong and especially during this time when massive QE programs are being implemented. It is easy to understand why Central Banks would not want a sharply rising gold price as markets could interpret that as coming high inflation. It also might be viewed as QE policies not working properly. So here is another story we will keep an eye on over time.

Addendum: For a look at some Surprising Insider Goldbugs go here.

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