Thoughts On Gold Price Manipulation

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 |  Includes: GLD
by: Doug Eberhardt

Something doesn't add up. On the one hand we have sales of gold American Eagle coins soaring as well as inflows into the 14 U.S. listed precious-metal ETFs like GLD, rising by more than $282 million last week. Yet from the graph below we see the price of gold in the last month and year time-frame has actually turned negative.

Manipulation of the Stock Market?

To first decipher whether there can be manipulation in the gold market, one can look to the stock market for abnormalities and make some assumptions.

When the Baltic Dry Index was heading south as it was during the financial crisis of 2008, the S&P 500 also headed south. But this year, as seen by the chart below, the Baltic Dry Index headed south again, but the S&P kept rising. The chart since 2001 has shown the two moving hand in hand and then, miraculously after the passing of the Dodd-Frank Wall Street Reform and Consumer Protection Act, which allows the Fed to receive authorization from the Treasury for extensions of credit in "unusual or exigent circumstances." Of course no one knows what would trigger these unusual or exigent circumstances or how the credit is paid back. The answer to how it is paid back is with the profits from their manipulation of the S&P 500. How else do you explain this atypical behavior? Who else has the funds to move this type of market? Perhaps the banks do, but of course they cannot collude legally (perhaps there should be a Jamie Dimon watch (he is the CEO of J.P. Morgan Chase in case one didn't know). Last I saw he was meeting with Obama November 19th. The S&P closed at 1,386.89 that day. Today it is 1427.84. Just saying.

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The Baltic Dry Index has recently bounced as well as the S&P as it's up 8 out of the last 10 trading days. Mission accomplished? Maybe for the short term. Anything can happen in the short term. Which leads us to possible gold manipulation.

Is There Gold Manipulation?

No one can prove gold manipulation, but one can look at the data and draw some conclusions. The first thing to consider is if one believes the stock market is actually manipulated, then they must consider that the gold market is much smaller in size and a lesser amount of money can manipulate prices, just as it has many mornings around 8:30am the last week.

Over the years, many gold bugs talk about the massive silver shorts at J.P. Morgan Chase as a reason to buy silver as eventually, when the price of silver begins to move higher, the shorts will rush to cover, I can't jump on that bandwagon as I can't prove it. The high for the price of silver was $50 in 1980. We came within a few cents of that price in March of 2011 but have since bottomed in the mid 20′s twice since that time in December of 2011 and this past summer. Presently we are at $32.90 for the spot price of silver. If J.P. Morgan was playing this game of manipulation, then they could have put a ton of their money on that short last year and be sitting with some nice profits today. Who's to say they didn't? If you don't believe that banks are heavily involved in the gold and precious metals game, then take a look at the following chart. They are increasing their involvement. Could it be that this market is easier to manipulate profits?

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And who is the biggest player in the metals market? None other than J.P. Morgan Chase who can easily move a market in any direction they want, especially with direction from a collective few who meet and discuss (for the betterment of the economy of course).

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I mean, J.P. Morgan Chase has to make money somewhere, because they sure as heck aren't making it with falling interest rates on home mortgages or in the derivatives market as seen in the following chart.

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Could the Fed and Banks Get A Christmas Wish of a Negative Year for Gold Prices?

We all know the Fed and Bankers don't like competition to their Federal Reserve Note deposits. They need the boomer generation and older folks to keep investing their FRN's in Treasuries and CD's at 1% or less.

At a time when the fiscal cliff is all the news and CNBC has a countdown clock to mark the date when the Fiscal Cliff occurs, could there possibly be a short term breakdown in the prices of gold and silver? Much of this depends on the U.S. dollar, which I have been bullish on since the euro and Yen have more issues associated with them than the U.S. does as I pointed out in Did Bernanke Implement QE Infinity to Save the Euro? The euro and the yen combined make up 70% of the U.S. Dollar Index. The gold/dollar relationship has historically been inverse of each other. Also, look and see how over the last year gold priced in Euros and Yen has outperformed all the other currencies with gold up 4.75% priced in Euros and 8.67% priced in Yen.

The data tells us the U.S. dollar is still perceived as the last bastion of safety until the Banks screw that perception up, and they will.

I have been telling clients to dollar cost average into a position for quite some time. I have also said this is a tortoise versus hare investment with gold being the tortoise. Investing in gold isn't a get rich quick way of making money. Gold investments should be a protection of your portfolio from the "eventual" dollar collapse. Gold is insurance.

Gold Won't Break To New High This Year - First Time Since 2007

For the short term however, as seen in the following charts, we may take a breather from the 5 years straight of higher highs in gold prices, especially if the Fed remains silent. Good time for J.P. Morgan Chase to do some damage. I mean Goldman Sachs just told their clients to get out of gold in the coming months. You'll see them at number 4 in the charts above. They know how to butter their bread.

December of 2011 we saw gold priced at $1,709 on the 9th, about where we are today. By the end of the year, gold was trading at $1,531. 2012 is the first year since 2007 that gold failed to break to a higher high. I don't see it happening between now and the end of the year, especially if the euro breaks down with the Yen pushing the dollar higher.

Of course if the price all of a sudden did fall, it won't last. The Debt clock isn't going in reverse and Congress only talks about cutting deficits not debt. But big money can move this market for the short term.

While I do believe Europe and Japan will crack before the U.S., all currencies are buying you less gold and will continue to do so over time. This is mainly because all currencies are backed by governments that can't balance a checkbook because of unlimited ability to print money by their Central Bank. What happens when you can't print money? Just look at Greece. They are the poster child of governments who can't balance their books. Thank God for Central Banks! (just kidding)…

Is Gold Breaking Down?

60 day and 1 year charts in various currencies:

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Gold isn't breaking down to where holders of gold should be worried. But if their is manipulation of the gold market, watch the $1,531 mark as a low they may want to take out. It would make the gold haters at CNBC gleeful if they accomplished this. It would make J.P. Morgan and Goldman Sachs a ton of money. But the smart gold investor would just buy more on any dip. We all can agree, whether a gold hater or lover, the debt clock doesn't slow down and won't for many years. Governments will always do what they do best; spend your hard earned money and the money the Central Banks create so they can go further in debt making slaves of us all.

On a personal note, I am bullish as anyone on gold long term. I just try to call it like I see it for the short term, based on the data I see.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. I am a Precious Metals Broker Selling Gold and Silver Bullion