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Topic
It has long been a generally accepted fact that western central banks continually attempted to manipulate gold and silver prices in the financial markets.
New Uses for Gold Increase its Value
For years, they conspired to artificially suppress the price of gold, pushing it lower by selling short massive numbers of gold futures contracts.
Well, more evidence of this came to light just this past week – the last week of April/first week of May. And along with it came some pretty convincing indications that western central banks no longer wield sufficient financial clout to enable them to keep gold and silver prices down. China is the new ruler in the precious metals financial market, the nation that swings the biggest financial stick and that has the strongest ability to move market prices.
Monday, April 29th, silver opened trading for the week at around $27.20 per ounce. But when the Chinese took their 3-day Labor Day Holiday on March 1st-3rd, the market – for no immediately apparent reason – suddenly tanked. The spot price of silver dropped as low as $26.01 before short covering late Friday brought the price back up to close at about $26.56 per ounce. Then – when the Shanghai and Hong Kong financial markets reopened on Monday, May 6th – silver almost immediately regained all of its losses from the previous week. And it then went on to move even higher, closing out the Monday trading session in New York at $27.45.
The story in the gold market was the same. On Monday, April 29th, gold trading had opened up at around $2,338 per ounce. Just like silver, when the Chinese left the market on Wednesday, gold prices dropped precipitously (and, also like silver, there was no apparent fundamental reason for the price drop), falling as low as $2,281. Again, bears covered much of their short positions before the markets closed on Friday afternoon in New York, lifting the price of gold back to just above $2,300 an ounce (one can easily imagine that the bulk of the short sellers did not want to still be holding onto their short positions when the markets reopened in China the following Monday). And what happened when traders in China returned to the table on Monday, May 6th? – Like silver, gold almost immediately recovered the whole downward spike of the previous week, moving back up from $2,301 to close Monday afternoon in New York at $2,325.
The same kind of story had played out during the Chinese New Year holidays that extended from February 9th to the 16th – there was nearly a $50 an ounce drop in the price of gold, followed by a quick recovery when China’s markets reopened the next week. Over the next two weeks, with China traders back in full force, gold prices spiked sharply higher, zooming from $2,035 to $2,185 an ounce.
There was a similar China New Year story in the silver market. The price of silver when the Chinese headed out on holiday to celebrate the new year: $22.75 an ounce. While they’re gone, a price decline to $21.98. When the holiday is over, silver spikes to over $23.00.
It’s worthwhile noting that in both holiday cases, the price-depressed markets saw significant short-covering price action before the Chinese markets reopened – kind of like the traders in London and New York knew that if they were still holding large short positions in the market once the Chinese were back in the game, they risked getting a hard financial slap in the face.
This price action in the precious metals market shows us a couple of things. First, central banks in the West are still trying to push gold and silver prices down when they can – that is, mostly when China is absent from the markets. But they aren’t able to commit market price massacres as they could in the past, nor are they able to sustain any significant price action to the downside. Second, it’s China – and her financial allies, such as Russia, India, and the other BRICS nations – that now rules the gold market. The relentless heavy gold buying by China and her financial partners is relentlessly driving gold prices higher, and financial authorities in the West are powerless to stop the strong uptrend.
The History of Gold and Silver Price Manipulation
Significant price manipulation – and that’s primarily been bearish manipulation, designed to artificially depress prices – of gold and silver prices has been actively going on for about 50 years, certainly ever since the United States officially abandoned the gold standard in 1971.
The London Gold Pool
What came to be known as “the London Gold Pool” was an arrangement between the central banks of the United States, the United Kingdom, and half a dozen western European countries. The London Gold Pool existed for the purpose of keeping gold prices “under control” (for “under control”, read “suppressed”) by trading in the gold futures market whenever gold prices started getting a bit volatile (i.e., substantially higher).
An important key that helped the Pool participants be able to – for a time anyway – nip bull market trends in gold and silver prices in the bud was doing their market intervention in the gold futures market. Trading the futures market gave the London Gold Pool a couple of advantages. First, gold and silver futures contracts are merely paper financial assets, rather than actual physical gold or silver. They represent large quantities of precious metals, but lack any genuine connection to the actual amount of gold and silver held in, for example, COMEX vaults. Second, futures contracts are traded on margin, which means that one can trade large numbers of contracts by using just a small cash deposit equal to only about 10% of the total contract value.
If they’d done their trading in the physical bullion market, then they could only have sold the actual amount of gold or silver bullion that they had. But in the fractional trading of purely paper assets, the Pool participants could sell short contracts that represented many times more than all the gold and silver that actually existed in the trading exchange vaults. They could effectively apply a virtually infinite amount of selling pressure.
Of course, they didn’t have to worry about being forced to actually deliver on all the contracts they sold short, something they never had any intention of doing. Instead, they’d merely close out their positions by buying back an equal number of futures contracts – usually at a nice profit, after having successfully driven prices substantially lower.
Spoofing
Another technique employed by the manipulators of gold prices was what’s known as “spoofing”. Spoofing uses fake orders to drive market prices in the desired direction. It works like this: A bank places a gigantic number of sell orders that it never really intends to execute. For example, with gold trading at $2,100, the bank might place orders to sell huge quantities of gold using sell-stop orders at $2.090 Thus, the sell orders would only be triggered if and when the price of gold dropped to $2,090 or lower. In fact, the bank would cancel the orders if the price of gold neared that price level, before it had a chance to actually reach it.
Just by placing the gigantic orders, the bank could unbalance the market. Genuine gold traders would see that the number of existing outstanding sell orders was, say, 10 times more than the number of existing buy orders. That’s an extremely bearish picture of the market, one that would incline many traders to dump any buy orders that they had placed or long positions that they held, and hop on the sell wagon themselves, thus helping the market manipulators shove prices to the downside.
These market manipulation schemes worked well for the perpetrators for many years. Gold and silver were only able to, at best, slowly inch their way higher over a long span of time. The kind of massive rallies in price that we’ve been seeing in the first quarter of 2024 were all but impossible.
Yes, the gold price manipulation schemes worked well for a long time. They worked well right up until…well, right up until they stopped working.
So, why did gold price manipulation stop working?
The End of Gold Price Manipulation
The gold and silver price manipulators pretty much got away with it for many years. But eventually, they simply lost control of the market. Mostly, it was just the pressure of real market forces that brought them to heel. The macroeconomic factors driving gold prices higher became too much to overcome.
Another thing was the fact that the manipulators were so brazen in their efforts that, despite their constant denials of engaging in price manipulation, their actions were so heavy-handed that they became apparent to nearly everyone. As time went on, both individual traders and organizations such as the Gold Anti-Trust Action Committee (GATA) complained more and more loudly to financial regulatory authorities, eventually forcing them to take some action. Over the past decade, banks and their gold traders have faced both numerous lawsuits and fines - even criminal charges. In September of 2020, JP Morgan Chase bank paid a $920 million fine for market rigging. The Commodity Futures Trading Commission (CFTC) in the US has initiated anti-spoofing actions against UBS Group and HSBC bank, among others.
Of course, it probably didn’t help that some of the major orchestrators of the market manipulations just outright admitted what they were up to. Federal Reserve Chairman, Paul Volcker, admitted in a 2012 interview his belief that central banks needed to suppress gold prices in order to ensure stable currency exchange rates. Surrrre, Paul…right, we believe you. Volcker was already on record as far back as 1973 for being an open advocate of suppressing the price of gold. (I guess he wasn’t too happy when gold shot up to $1,000 an ounce in 1979-1980. By the way, what subsequently crashed the market back then was the CFTC stepping in and changing the trading rules – jacking up margin requirements so high that many traders were forced to exit their large long positions, as they couldn’t afford to hold onto them.)
An article in World News Journal, a Chinese newspaper, summed up the case of gold price manipulation, stating, "The United States and Europe have always suppressed the rising price of gold. They intend to weaken gold's function as an international reserve currency. They don't want to see other countries turning to gold reserves instead of the U.S. dollar or euro. Therefore, suppressing the price of gold is very beneficial for the United States in maintaining the U.S. dollar's role as the international reserve currency. China's increased gold reserves will thus act as a model and lead other countries toward reserving more gold. Large gold reserves are also beneficial in promoting the internationalization of the renminbi."
Yeah, that pretty well sums it up.
More than anything else, the market just finally caught up with its manipulators.
Here’s a picture of the end of gold price manipulation – a gold price chart, showing price action since the turn of the century. Note the sharp price rise from 2004 to 2011, the second wave surge since 2020, and the moonshot that’s occurred since mid-2022:
It’s as simple as this: Extremely strong and sustained gold buying on the part of China, Russia, India – along with other countries in Africa, South America, and the Middle East – has simply overpowered the ability of central banks in the West to artificially depress gold prices. The worldwide demand for gold – with China alone snatching up approximately half (or more) of total annual gold production – is just too strong to be overcome.
Western banks can occasionally, temporarily – like when the Chinese go on vacation for a week – push the price of gold down a bit, but the current overall uptrend in gold prices has too much momentum for bears to be able to successfully sustain any push to the downside for any notable length of time. Every down move in gold prices is just happily greeted by most investors as a welcome opportunity to “buy the dip”.
Additionally, there’s the fact that in the past few years, mostly since 2022, the central banks of the United States and European countries have, themselves, become large net buyers of gold, as they try to build up their gold reserves. So, their own buying is working against any feeble, doomed attempts they might make to push gold prices to the downside. It’s kind of hard for them to be successfully short selling massive numbers of gold futures contracts when they’re actually buying and taking delivery of large amounts of gold futures contracts. The consensus of opinion is that they’ve all but given up on their gold price manipulation conspiracy.
The End of Gold and Silver Price Manipulation – Summary
For many years, gold investors and silver investors were frustrated by blatant market price manipulation aimed at suppressing prices. Whenever an uptrend in gold and silver prices would start to gain a little momentum, suddenly, seemingly from “out of nowhere”, massive selling pressure would enter the market, slaughtering gold bulls right and left.
But there’s been a sea change in the precious metals market over the past 20 years. As China, Russia, and other nations have continuously engaged in conscious, deliberate efforts to exponentially increase their gold reserves, the demand side of the supply and demand equation for gold and silver has just become too strong for sellers to overcome.
It’s as if China – with a wide, satisfied grin on its face – bids the former gold price manipulators, “Come on in – sell short all the gold futures contracts you want to – we’ll buy every one of them…and then some more.”
Additionally, financial regulators have finally started cracking down on the schemes, such as spoofing, that gold price manipulators used to accomplish their goals. Deprived of their primary weapons, gold price manipulators have been, well, shall we say, caught “short”.
- J.B. Maverick
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Sources:
https://www.kitco.com/charts/silver
https://www.tradinghours.com/markets/sse#holidays-2024
https://www.sbcgold.com/blog/the-end-of-gold-price-manipulation-what-investors-should-know/
https://www.sbcgold.com/blog/basel-3-end-game-for-silver-market-manipulation/
https://www.bullionstar.com/blogs/ronan-manly/us-gold-silver-futures-markets-easy-targets/
https://comexwehaveaproblem.blogspot.com/2018/04/ubs-and-deutsche-bank-gold-and-silver.html
https://www.moneymetals.com/news/2021/02/17/gold-market-manipulation-2021-1-002226
https://vaulted.com/nuggets/gold-price-manipulation/
https://internationalman.com/articles/manipulation-of-the-gold-price/
https://www.bullionstar.com/gold-university/chinese-gold-market
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