Price manipulation is the most controversial theory that has circulated among gold bugs for 20 years. Some argue that gold prices have been illegally suppressed over the last two decades by central banks and governments. The Gold Anti-Trust Action Committee, or GATA, is the biggest complainant.
According to statistics from the World Gold Council, central banks reportedly have 32,000 tons of gold, with the International Monetary Fund accounting for 2,966.8 tons. Under the Washington Agreement on Gold, its members can sell a maximum of 400 tons a year, thereby restricting the amount of gold in the open marketplace.
GATA argues that central banks actually have less than 15,000 tons of gold, and that the missing gold has been secretly sold or leased into the market to prevent gold prices from rising to their actual value, which should be between $3,000 to $5,000 an ounce.
"The reasoning for the suppression is governments/bankers [look at] gold to be a barometer of the health of economies and countries. These suppressors want to kill or at the very least, greatly slow the messenger," argues Peter Grandich, editor of Grandich Publications. The suppression theory means that global economies are in worse financial shape than investors think and that gold should be bought as the ultimate safe haven. Texas representative Ron Paul is planning to introduce a bill in Congress next year calling for an audit of U.S. gold reserves at Fort Knox.
The gold manipulation theory has been gaining traction of late after trader Brian Beatty filed lawsuits at the end of October against JPMorgan and HSBC for conspiring to "suppress and manipulate" silver prices on the Comex.
The allegations are particularly noteworthy because HSBC and JPMorgan are custodians of the physically backed exchange-traded funds like the SPDR Gold Shares(GLD_) and iShares Silver Trust(SLV_), which means the big banks are in charge of storing the metal investors are buying while being accused of manipulating the prices.
Bart Chilton, commissioner of the Commodity Futures Trading Commission , is pushing the commission to prosecute a two-year investigation into the silver market. According to reports, the CFTC is also looking into JPMorgan and possible silver manipulation trading.
The belief is that as investors realize that the precious metals market is manipulated, gold and silver prices will rise exponentially, but until then prices will suffer.
"Our complaint is that more often now they're doing it surreptitiously as a mechanism of supporting their currencies, supporting government bonds and suppressing interest rates," says Chris Powell, secretary and treasurer of GATA.
Powell also argues that manipulation gives the inside scoop for the investment banks who are working for the government and helping them execute their secret gold trades.