There’s increasing noise that questions whether gold prices are being manipulated.
Given the current events in the eurozone especially, along with what’s happening elsewhere in the global economy, gold prices aren’t moving higher. In fact, they are going down. The complete opposite of what conventional wisdom says; the precious metal rises when uncertainty increases.
For instance, the future of the eurozone is doubtful, to say the least. Will the common currency region remain the same, or will it break apart? Greece can’t pay its debt. There are speculations that Greeks will go back to the drachma and exit the eurozone. This is causing investors to question whether Italy, Spain, and Portugal will follow suit as well.
One would assume this would have driven investors towards gold. Unfortunately, all the odds were defied. It looks like gold is losing its luster. The yellow metal can’t find a bid, trading at its lowest level since March.
Can Gold Really Be Manipulated?
In simple words; yes, gold can be manipulated.
You see, over the past few years, we have heard extensively about the regulators looking into a number of traders at major banks trying (or succeeding) to rig the LIBOR rates—the rate at which banks lend to each other.
We have even heard about banks involved in manipulating the currency markets! Understand this; the foreign exchange market is hands-down the biggest market with a volume of roughly $5.0 trillion each day.
Not too long ago, five global banks agreed to pay over $5.0 billion in penalties and pleaded guilty to criminal charges with regard to moving the currency rates for their own benefits. (Source: The Wall Street Journal, May 20, 2015.)
There are still stories hovering around where big banks are getting charged for their mortgage fraud, selling “bad” investments as “good” investments to investors, and shorting them to make profits. Yes, this is manipulation.
With this, it isn’t really an out-of-this-world idea to believe that the gold market cannot be manipulated. It’s a much smaller market than the interest rates market, the foreign exchange market, or the mortgage market.
Evidence of Gold Market Manipulation
In February, The U.S. Justice Department started an investigation of whether the precious metal prices are being manipulated. At least 10 banks were being probed and included names like JPMorgan Chase & Co. (NYSE/JPM), Barclays PLC (NYSE/BCS), and Deutsche Bank AG (NYSE/DB). (Source: Bloomberg, February 24, 2015.)
There have also been cases where regulators from nations like the U.K. and Switzerland have questioned manipulation in the precious metal prices.
What Investors Should Know
If we assume gold prices are being manipulated down, investors must know this; manipulation lasts for only so long. Eventually, the manipulator runs out of resources, and as a result, the market comes back to its real price level.
From my perspective, it’s really odd to see gold not reacting to what happened in Greece. I will let regulators look more into it, but the idea of the yellow metal being manipulated looks more convincing now than it did before.
Here’s what I know; investments are worth at least a look when they are down and out, and things are not making much sense. With gold prices declining, investors should be extensively looking at what’s happening in the market on fundamental basis, as signs are pointing towards higher prices in the long-term.