Is the Price of Gold Artificially Depressed?

Upon analyzing over 30 years of data involving the gold price, we conclude that the seasonal lows usually occur in March and June. Quite often however, after the June low a secondary low is experienced in August. This secondary low is usually slightly higher than the primary low. People who have resisted the temptation to buy the June low will usually take advantage of this last opportunity before the start of the Christmas rally that seems to happen almost every year.

The past few days have seen the domineering short sellers do their utmost to drive the price into the basement, hoping that they might be able to reduce their ‘net short’ position, which had grown quite high. At some point the hedge funds and thinly margined investors run out of gold to sell to them and then the selling dries up. Next, some technical buy signals commence to flash and buyers begin to outnumber sellers again, and this starts the next rising sequence.

Gold is amazingly cheap just now. At the current $880.00, it trades at just $30.00 (or 3.5%) above its 1980 high. During the 28 years since 1980, practically everything has risen sharply in price. From milk, bread, eggs, meat, fish, cars and houses everything else is going up in price by leaps and bounds. Cars and houses may be slipping in price at the moment, but they are still priced in multiples of their 1980 prices.

This comparison makes one wonder if the price of gold might be artificially depressed. But actually, that is precisely what GATA and Frank Veneroso and John Embry have been asserting for years.

If indeed someone or a number of people are involved in deliberately suppressing the gold price, then eventually the price will rise like a beach ball that has been pushed under water. The central banks of the world tried the suppressing game in the 1960’s and they failed. The reason for such suppression is the knowledge that gold is an obvious barometer for price inflation. It is much easier to inflate the money supply with a constant gold price than it is with a rising gold price.

The amount of gold in existence is finite. It cannot be increased any faster than by 1.6% per annum (the rate at which mines are producing gold). Whereas the amount of money in circulation is currently expanding at double-digit levels, on a worldwide basis, the U.S. M3 money supply back in 1980 was 1.8 trillion dollars. Today, according to economist John Williams, the U.S. M3 money supply has ballooned to almost 15 trillion dollars. Some of that extra money has the potential to move into gold.

The stage is set for a remarkable rise in the price of gold.

Happy trading!

Comments

[CLH]

No gold is not artificially depressed. Its really going down. Get used to it. The dollar is rising.

[WWW.EZOCAM.COM]

Gold Will Definitely RISE by this Year End , i am not a optimist neither am i irational on thoughts that pertains GOLD will RISE by this year end 2008 !! I SIGNAL BUY NOW !!

[Sidj]

I quote Warren Buffett from earlier this year:
"If something is unsustainable, its going to have consequences; so far the consequences have been a general decline in the dollar against major currencies. If we continue the same policies, we're going to get the same results in the next five or ten years."
He also said:
"Inflation has been in remission and is likely to be more prevalent in the next ten years."
Anyone disagree with Buffett?

[surfer843]

Paul Volcker has said that the only mistake they made back in the day when he was trying to move the country out of the 80s mess was they didn't control the price of gold.

Do the math. Imagine you are Ben....and printing 15B PER DAY for the banks.

[Kelly Lieberman]

Absolutely, 100% manipulated by the Fed via the central banks etc.. All the fundamentals point to this.
The question is, CLH, how long do you think we can continue to print money that has no basis in value???
It is the same as any one of us charging up $3 million per household - and our only plan to pay it off is with money copied off our scanner. Eventually it catches up with you.
Apparently, from the crisis the finanial, housing...markets are in we are now going to pay the price.
Start scanning your dollar - but better make it a $100 bill or buy some gold and silver while you can.

[René Cohrt]

Nothing is fundamentally changed. Gold is the only money left and it´s price will rice exorbitantly.

[hisen1]

So ... What are the best gold stocks to buy now and for later ? (Herb I)

[User 30121]

Verrrrry nice article. Thanks for writing it!

Kelly...don't waste your time trying to educate CLH. There are those like CLH that are of the opinion that "as long as I have mine, screw you". That sort of thinking has gotten us to where we are today. (Please read West's article in the Gold section today, its a GEM).

...and yes, by all means, KEEP BUYING GOLD AND SILVER...as I believe its the only way we will SURVIVE! Enjoy your posts very much!

[FoxV]

Gold stocks are still paper. So is GLD. Buy physical for investment. Buy stocks for gambling.


Bird in the hand is worth two in the bush.

[huangjin]

The Fed isn't printing dollars...they are swapping Fed assets for bank assets. The Fed stopped "printing" in 2005 and for the past three years we've been working our way through the surplus dollars Greenspan flooded into the system. We are almost finished now.

[User 239721]

Reply to CLH: You say the dollar is rising? By what, by 2cents? lol! Go ahead and keep your faith in paper that can be used as the paper you wipe your arse with. lol!

[JBP]

FoxV,

GLD holds gold and issues baskets for redemption. Not paper... Correct me if I'm wrong.

[Lester]

I see an amendment coming! In the inevitable event of greater national emergency, the Patriot Act will be used to again confiscate physical gold held by citizens wherever US marshals can reach with their grubby hands.
Given the extent of US military presence all over the world, that's pretty far and wide. Given that Washington was able to invade Iraq to gain greater control over the oil supply lines - which is not even the only line - what's there to stop the clandestine robbery of gold wherever it may be stored? Obviously neither international law, nor any other factor can stop this army on the march!
Nobody is going to threaten a nuclear standoff over gold! Ultimately, Washington is most likely to use clandestine methods to ensure the survival of the dollar. The existence and operation of Guantanamo proves that the US military IS the law.
Anyone to the contrary?

[Coelacanth]

No....you're not seeing things. Gold is dropping.

[sd]

I agree with Lester and CLH and Coelacanth. Gold will not be allowed to rise and thus threaten the establishment. (Too much positive noise is a bearish indicator.)

[FoxV]

JBP on the surface one share of GLD equals 1/11th of an ounce of gold in their storage. However underneath the surface in the prospectus is a lot of strange statements about what they mean by "gold in their storage"

Could be tinfoil hat stuff, could be legitimate. In the end I don't really know,only JPMorgan does. And its because of that "I don't know" part that I always say if you want to buy Precious metals as a long term investment, buy physical. Its the only way you'll know what you actually have

If you want to buy short term to flip on the swings buy the stocks

As for the Confiscation issue, I'm Canadian, and so far I don't have to worry about it. As for you Americans, I guess it comes down to how you feel about it. A possible alternative is off shore stuff like Buillion Vault account (UK), or Kitco Pools (CAN). But there are Patriot Act issues with this as well so it all comes down to how much your trust your government

[poet1]

never buy a pool- who knows if the entity that you buy from, actually has every ounce of gold that they claim to hold- generally they do not. leased out, fractional reserve, same systems as banks. buy land, solar panels & a water catchment tank. don't borrow for it either.

[Jimbo]

Methinks Lester has been drinking the fermented Koolaid. The U.S. military is badly overextended. This is why we seem to be getting ready to use only diplomatic pressure on Iran. I don't see how our being in Iraq has made the world's oil more accessible.If anything, our military presence in Iraq has made oil availability worse. Of course, the last time civilian possession of gold in the U.S. was seized was done by that nice man, Franklin D. Roosevelt.

[bowman711]

Anyone who isn't blind can look at the daily gold charts and see that almost everyday, at least recently, when NY NYMEX opens there has been a $10 to $20 drop in the price of gold, a drop that looks like Yosemite Falls. How can it be possible that gold makes such drops day after day on no news, unless it is being manipulated? For example, through Sydney, Hong Kong, and London, today's gold price was level to rising to $885. As soon as NY NYMEX opened, it started a drop nearly straight down to $870. What was any news today that would cause such a drop?

[imapedestrian]

GLD has become the PRIMARY tool of gold price manipulation. Boycott it and buy CEF or GTU.

Does anyone really understand how GLD works? GLD was created to transform gold from a real asset into a financial asset. The manipulation goes on and expands.

Like other ETFs, there are several entities that are allowed to create units of GLD, and also destroy units, according to supply and demand.

When demand is high, these entities are supposed to create units and then purchase either gold, or gold futures to back it up. The purchases will then add to demand and create additional pressure on the price of gold.

However, there is nothing stopping these unit creators from not purchasing either the gold or the futures contracts. It is risky, but then again, these are the same guys who want nothing more than the public to give up on gold.

Imagine, investors are panicking, and flock to GLD as a "safehaven," creating intense demand. Millions of "units" are created, but only a portion, if any of the money is actually put in to the gold market. Investors do not see any real movement, and may see a decline, causing them to loose faith in gold, then sell, causing more decline.

Stay away from GLD. It is the tool of the same folks who shorted the European central bank gold.

[[e-mail]]

Those of you that believe in the dollar,you better get the real History books out,& get the truth,that is not taught in our schools! Why did Nixon cut all ties to the Gold Sttandard?Because Nations had caught on to the demise of the Dollar. The Backers of the Federal Reserve System care less about Americans,they just want to keep collecting that 6% interest they get for Americans to use their own money! When folks start to protect themself,from Inflation,they go to real money,Gold & Silver! The Black Shadow Bunch must keep Gold prices from getting to high,so they inject themself into all kinds of price take downs, you can find proof at GATA.org,jsmineset.com & sites like Goldseek/Silverseek.co... Jim Rogers has made it clear,that the markets are not free, & has got out of the Dollar!
I am no rich man,just a plain old country boy,but I remember my Dad telling me to save each Silver coin I found in change,that was in 1964, He was a collector of coins & knew what money was! When Silver was selling for 40 plus $ a oz, he off loaded his culls of morgans & other 90% Silver coins,that he knew would not be in high demand by collectors in the future! He took those hugh profits,payed off the house, waited intil Gold tanked by Fed intervention,& Bought High Grade Gold & Silver investment Coins.
Hey CLH,can you trade a 90% silver dime(common date) for frest vegs at rual farmers markets, ??I can, also for Gas for my car! They will take silver any time over paper dollars, does that tell you something??
Gold & Silver will be attacted,over & over,because its real money! Coinflation.com list daily the dollar amount you should get for a 90% Silver Dime, but you try to find them at a coin shop or on the web, or from ebay, you will pay many more dollars,than Spot! CLH, you may also need to visit shadowstats.com or followthemoney.org, to get the real truth about the Dollar & our Great Federal Reserve & then Google Markit.com & dig to see if you can get Share holders info, good luck, to all holding real money Gold & Silver! The dollor is worth 1.5 cents right now!

[CaptBob]

Whoever wants to hold gold down is getting their wish today.
In the direct buy sell of the gold market they may have some leverage but today it's a dollar that's gaining as oil looses that's taking gold down, and I doubt anyone has the muscle to effect all three.

I do have to admit that the dollar is garbage and as soon as oil gains --as it will--and the latest strong dollar rumor wears off---Gold will go up--and up---and up!.

[mdmrjsds]

How do you depress artificially the price of something that is already artificial? There is only a psychological basis for the price of gold. I suppose it is a good indicator, like a put call ratio for the markets, a measure of bearish or bullish sentiment. When gold is cheap we're in a bull market, when gold is expensive we're in a bear market. Price shifts indicate the transition from one to the other.

The same effect could be had by using osmium. A completely useless rare heavy metal. It just doesn't have the psychological cachet that gold does.

[marxbites]

The dollar is garbage because they've printed away 98% of it's purchasing power since 1913.

1932 1oz gold = $20

2008 1oz gold = $1000

Meaning it's 1/50th or 2% of it's gold backed buying power.

And yet an oz of gold buys comparatively the same amount of goods or services today as it did 2000, or 100 years ago.

[berberick]

Stop acting like gold is a currency ! Try to go to the grocery store with a gold coin and buy a loaf of bread ! Gold is supply and demand , it's worth what someone will pay for it period . It's not a currency - the inflation hedge theory is just that . If the inflation hedge theory was true gold would be at thousands of dollars . You try to tell me what inflation has been over the last 200 years . I've traded gold a few times , I've traded silver a few times - but it's just that a trade .

[SWRichmond]

Gold is an internationally recognized store of value. Paper dollars are (were?) an internationally recognized store of value. They are competitors. One can be created without limit, the other requires much effort to make available to use; once made available, though, it doesn't tarnish, rust, burn, or otherwise degrade.

In order to have value, one requires the support of legions of lawyers, central banks, monetary exchanges, counterfeiting laws and police forces, treaties, etc. The other has value simply because it does. Think about it. Gold is the only internationally recognized medium of exchange that isn't based on someone else's promise to perform.

Gold IS a currency. Not one you take to the grocery store, but certainly one you can take to any nation and exchange it for their local fiat (if you really wanted to...)

[goldilocks]

Lester, it's a matter of fact that privately held gold can again become illegal to own, and I wonder why so very few people seem to be bringing up the subject of confiscation...(yet, anyway)...aren't rare coins exempt from this ?

[SleepyLagoon]

surfer843 -

Volker's admission of his only mistake being not controlling the price of gold is very interesting. If you have a source for this information, I would be grateful if you would kindly post it. Thanks.

[Sidj]

We'll see if gold bottoms soon. The 1980 high of $850 might be a support level. Gold usually bottoms in the summer then rallies. But if gold is too risky for your blood you can try something else tangible like collectibles. Go buy some rare comic books like Nicolas Cage. Amazing Fantasy 15 (1st Spider-Man) has appreciated 85% since 2000. Compare that to the Dow or S&P.

[jetsby10]

the dollar is strengthening? On what basis? 2% interest rates? Is the trade deficit getting smaller? Is the Federal Government balancing their budget? Is the money supply contracting? The trade deficit is still growing. The Bush administration announced a record amount of spending. Oh yeah, and all those federal bailouts to JPM, BSC, Fannie and Freddie? I can't see a single thing in play that doesn't point towards gold being a good play.

[Nelson_Lai1975]

My respond to berberick

Please let me know where you live, I will bring truck load of bread and exchange them for gold coin.

Get I get a 1/10 oz pure gold coin for a loaf of Pepperidge farm bread ?

How many loaf of bread do you want to exchange them for. If needed be, I can hire extra driver to deliver more truck load of bread to your house.

Please remember to tell me where you live, I will drive a truck full of breads to your house. (I hope you like the free home delivery)

----------------------...
Aug 07 07:43 PM
Stop acting like gold is a currency ! Try to go to the grocery store with a gold coin and buy a loaf of bread ! Gold is supply and demand , it's worth what someone will pay for it period . It's not a currency - the inflation hedge theory is just that . If the inflation hedge theory was true gold would be at thousands of dollars . You try to tell me what inflation has been over the last 200 years . I've traded gold a few times , I've traded silver a few times - but it's just that a trade .

[keo]

Some quotes:

"Gold is money. That's it". J.P. Morgan

"Deficit spending is simply a scheme for the 'hidden' confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights." - Alan Greenspan

"Gold still represents the ultimate form of payment in the world. Germany in 1944 could buy materials during the war only with gold. Fiat money in extremis is accepted by nobody. Gold is always accepted." -- Alan Greenspan 1999

"There can be no other criterion, no other standard than gold. Yes, gold which never changes, which can be shaped into lingots, bars, coins, which has no nationality and which is eternally and universally accepted as the unalterable fiduciary value par excellence." - Charles De Gaulle

"There are about three hundred economists in the world who are against gold, and they think that gold is a barbarous relic - and they might be right. Unfortunately, there are three billion inhabitants of the world who believe in gold." - Janos Fekete

I could go on and on....