Is the Gold Market Fixed?

In a recent news article on the Miningweb newswire, dateline Johannesburg, it was reported that "South African gold stocks were massacred today as free-falling bullion knocked almost 8 percent off the Johannesburg Stock Exchange's gold index. The fall in the bourse's gold stocks came in the wake of a large after-market trade in New York last Tuesday, June 4, with an unnamed fund liquidating 5,000 futures contracts, a move which knocked the price first to $326/oz, then to $324/oz and finally to $321/oz, where some dealers reckon it has found support. Interestingly, one senior Johannesburg-based trader says the long-liquidation by the fund appears to have been an intentional strategy to lower the gold price. He could not give reasons for the fund's alleged intent, although he said it could have been a move designed to lower the gold price in order to buy in again at lower levels. The sale was executed using the 'Access' system on COMEX, which allows for anonymous trading by large funds."

This most informative piece of information from a respected news source is only one of a rather large spate of news and gossip traveling around the Internet concerning gold price manipulation. Specifically, it is alleged that certain banking interests are selling gold rallies around $325 in order to cap the gold price at or near this level in order to prevent a "runaway" gold price. Could there be even a shred of truth to these rumors? Is there, in fact, an ongoing manipulation campaign in the gold futures market as well as the market for gold shares? And if there is such a concerted effort to cap gold prices, will it succeed for long? To answer these questions let's call up one of the greatest tape readers and market tacticians of the past century, Richard Wyckoff, a.k.a., "Rollo Tape."

Wyckoff once said, "Manipulation in the stock and commodity markets is an everyday fact of life. The small-scale trader, the scalper, the skimmer, the plunger, and the big-money trader all must contend with the effects of manipulation in their day-to-day market campaigns. Manipulation of prices is done by well-financed money interests who have a particular stake in a given stock or commodity and must necessarily "manipulate" price transactions in their buying and selling so as to fool the uninformed tape reader. In fact, so vital is manipulation to the success of a large-scale trading campaign that those who carry big lines [of stock or commodities] must engage in it, otherwise they would never be able to make a profit above what they bought their initial line at since these large transactions would show up on the tape very clearly as insider selling. Therefore, skill and manipulative movements are required to unload a large amount of stock or commodity."

As Wyckoff explained, manipulation, per se, is a regular occurrence in the futures markets and there is nothing unusual about this in and of itself. In most cases it is perfectly legal and can even be spotted by the skilled tape reader or chart analyst. So how does this apply to what is going on right now in the gold market? It is rather obvious (and no secret) that there are international money interests who have high stakes in the gold market and who have a vested interest in controlling gold's rate of ascent. We have written the better part of the last four years on Gold-Eagle how insiders have been accumulating large stakes in gold and gold stocks for several years and are just as desirous of realizing a large profit on these interests as the average gold investor is. These strong-handed insiders just as much want to see the price of gold soar to $800 and above as you or I. And soar it will in time. But time is required to undertake market campaigns of such magnitude. Time is always an essential ingredient in watching a bull market unfold. "Pullbacks" and "corrections," even steep ones, are quite the norm in an embryonic bull market such as the one we are watching unfold in gold.

If the big-money traders and major financial interests sold all their stake at once it would cause a parabolic blow-off in the market and would immediately reverse and collapse of its own weight before achieving its maximum upside potential. This is because the trading public, which is a crucial ingredient in any long-term bull market, would be so saturated with supply they wouldn't have anywhere to go with it and prices would sag under the excessive weight of supply. This is why major bull markets proceed with fits and starts and leave many inexperienced and impatient traders and investors in the lurch due to their lack of foresight. The present gold market is a prime example. Gold finally breaks above a critical benchmark resistance ($300-$310) and even makes it above $320, yet it stalls and pulls back a few dollars and the Internet is suddenly rife with rumors of "manipulation!" and "conspiracy!" Quite the contrary, this is a normal occurrence and if you will go back and check the price history of any long-term bull market for virtually any stock or commodity (including gold) you will see much the same patterns repeating on a regular basis.

There is nothing unprecedented about what is happening to the gold price right now. Nothing that has not happened before and nothing so unusual that it screams for our attention. It is simply a case of the insiders finding a level where supply and demand are mostly in balance and a time when the market needs resting after a heated run to the upside. Markets, like high-performance engines, need to cool down and rest at some point before acceleration can continue.

The action of the market correcting and pulling back is usually preceded by a flood of news articles in the popular press expressing bullish optimism or even euphoria over the market's performance. This is actually one critical component of the manipulation campaign by the insiders since they must sometimes plant news stories and pay media outfits to publicize a market at critical times in order to create more liquidity and bullish (or bearish) fervor among the trading public so that they can unload their shares at certain points. This time was no different for the gold market as the financial press was positively brimming with new-found enthusiasm over gold and goldshares. This was a clue that a market correction was near. When gold has "corrected" enough to where the market makers feel gold has sufficiently "cooled down" and they can begin putting up prices again through their trading efforts, they will. Undoubtedly, it will be accompanied by heavy bearish sentiment in the financial press and among "weak-handed" gold traders. Always be watchful of the message of the market as it always has an important story to tell.