Evidence of Gold Market Manipulation

About two years ago a few people in America accepted the fact that there is intervention in the gold market to keep the price of gold under pressure and proceeded to form an association that intended to expose this practice.

Mr. Bill Murphy, chairman of this group, GATA (Gold Anti-Trust Association), is at present in South Africa to publicise their efforts and also to recruit general and financial support.

Funds are urgently needed as one of the members of GATA, Mr. Reg Howe, in December brought suit against some of the people and institutions who according to information available to GATA are involved in this practice.

Howe is doing this in his personal capacity, with support from GATA, as he is an experienced attorney and long time member of one of the foremost legal firms in Boston. He also has extensive knowledge of the gold market on which he writes with authority at his own website at www.goldensextant.com.

Just the idea that a few common people who have gathered on the internet at Murphy's website at www.lemetropole.com could dare to challenge some of the giants of the financial world sounds very farfetched, but we also know what happened when David met Goliath.

The respondents in the case include Messrs. Alan Greenspan, Chairman of the Federal Reserve, Lawrence Summers, erstwhile Secretary of the Treasury, as well as institutions such as Goldman Sachs, JP Morgan and the BIS, the central banks' central bank.

The question is of course whether David has the right stone to load in his sling and hit the bulls eye. I enjoyed the privilege to meet Bill Murphy on two occasions and to listen to what he had to say.

At the moment some of the material they hope to lay before the court in March in order to have the case placed on the roll should perhaps not be divulged. However readers can access the public court documents at the GATA website at www.gata.org in which many facts are already made known.

In conversation with Murphy it would appear that the experts in and outside the gold industry who treat the idea of a conspiracy as a laughing matter may well have to eat crow when they try to explain why they themselves could not draw the necessary conclusions from what is essentially public information.

There is, for example, a statistical analysis of the gold price available that in terms of the accepted statistical view of price behaviour for all practical purposes confirms suspicions that there is intervention in the gold market.

The academic view of periodic changes in prices – hour by hour, day by day or week by week – is that changes in direction occur with equal probability while the extent of the changes follow well known statistical patterns.

If it should be found that the price behaviour of some commodity deviates from the standard model, it can firstly be determined to which direction the deviation is biased, also whether the deviation is constant over time and thirdly, the probability that the deviation could be a statistical aberration in the market or whether it has to be ascribed to some intervening force can be calculated.

An analysis of changes in the price of gold between the closing of the US markets and the next AM fix in London – a time slot during which gold trades mostly in Asia and in early morning trade in Europe – shows that over a long period the behaviour of the gold price is close to that predicted by the models. Increases and decreases occur almost evenly, as they should in a normal market.

When the same analysis is done for the time slot from the AM fix through to the close of the US market, it is found that more often than not the price of gold ends lower in US trade.

The statistics show that the probability that this deviation can arise from normal supply and demand conditions is truly negligible and that for all practical considerations has to be due to long lasting and persistent intervention in the gold market.

The main complaint originates in the fact that bullion banks could lease gold from central banks for as little as 1%. The gold is sold in the market and the funds so obtained are invested in other instruments at a much higher rate of return.

Further, if by the time the gold has to be returned to the central banks the gold price is lower than at the time of the lease, the bullion banks would score additional profits. On the other hand, if the gold price should increase substantially, the banks stand to lose a great deal of money. GATA contends this is one of the reasons why the price of gold is being kept artificially low.

GATA is reputed to have hard facts in its possession that prove the complicity of many persons and institutions in this practice. It will thus be very interesting to watch how this case unfolds – and of course what the effect on the price of gold will be!

Today we examine a weekly chart of the gold price. It is clear that the yellow metal is still trapped within a bear channel and that for the past few weeks it is hovering just above important support. Should the price now break lower to end a week below the level of say $260, it would imply that the sad story of gold has another chapter to go.

However, should gold be able to build further on the early signs of life we have seen recently, then it could reach the strong resistance level at $281 and even at $302 – again as per the Friday PM fix.

A break to above $300 would not only be psychologically important, but technically it would mean a break from the medium term bear channel – which would imply the potential for the price of gold to increase rapidly from then on, perhaps even reaching as far as $400.

This will not happen easily, as there are very strong forces ranged against gold. Should gold nevertheless manage to reach $300, then even the institutions united against the gold price could be compelled to become buyers. Should they not do so, given their short positions, the people responsible run the risk of being held personally liable for the consequences of their decisions and that would be a real nightmare.