Is Gold Really Manipulated? Or, Are You Being Manipulated?

The most common complaint I now hear as to why many are fearful of investing in precious metals is that they feel they have been “manipulated to go down.”  While many investors have been scared into believing this perspective by many market pundits as the metals have dropped, I am hoping that investors would maintain an open mind about the true nature of “manipulation” in this market and what really is being manipulated.

Back in March of 2014, a commenter on Kitco posted this regarding the accuracy of my metals market analysis:

It appears that AVI GILBURT receives insider information that accurately predicts metals prices. It also appears that he then uses this knowledge to fabricate an aura of "Truth" around his fundamental analysis, as to why metals are trending the way they are.

His analysis always arrives at the conclusion that central banker coordinated price manipulation is impossible, despite that the central banks are the world's largest holders of metals and that they coordinate their activities via the BIS.  It appears that GILBURT is a paid-for change agent. Use him to predict metals prices, but ignore his analysis, which exists to brainwash you.

Effectively, what this commenter is saying, which has been reiterated by so many, is that there is no way that I could have been as accurate as I have been in my metals analysis other than by having received inside information from the “manipulators” of the market. Effectively, this type of comment and perspective is pervasive through the metals world.

But, one has to question the underlying theory behind this perspective.  First, I am going to start by saying that there may be “some” degree of manipulation that we see in all markets, but by no means does it affect a market to the extent that so many claim.  In fact, a long-time colleague, James Kostohryz, wrote an excellent article last year on the extent of price manipulation by Barclays (and others in the industry), so I really do not have to reinvent the wheel from that perspective.  Ultimately, he showed that if there is any manipulation at all, it has no effect on the larger price direction of the metals trend.

http://seekingalpha.com/article/2256213-gold-manipulation-what-investors-should-do-now

The biggest problem that people like the commenter above have is that they militantly believe the metals are so manipulated that it is impossible for the "average investor" to make money. They believe that bankers are sitting in their lofty towers trying to figure out how to steal their last penny in their metals investments.

But, the core issue is that they so firmly believe in their heart of hearts that the metals should be much higher right now, and the only way possible for this not to be the case is that they must be manipulated. I mean, have you ever seen any other market in which the participants have been so unwilling to accept they were wrong about the market’s direction?

Let’s think about this in another way.  For those of you who have been in this market for more than 4 years, you clearly remember the exuberant feelings of the summer of 2011,as gold was skyrocketing towards the $2,000 mark.  The champagne was flowing, as the gold bulls were toasting each other’s brilliance and counting their profits.  Finally, they were vindicated.  Finally, they were proving to the world how right they were, as they reiterated their mantra of “buy, buy, buy,” even at the highs.  These bulls only believed that the metals were going in one direction, and that was up.  There was no stopping them now.  And, does anyone remember any mention of the word “manipulation” at that time?

But, in September of 2011, gold did something completely inconceivable to them.  It did something that was simply not possible.  Gold topped that month, and began to go down.   At first, these gold bulls simply looked at it as a small pause in the market, but that it would certainly exceed the $2000 level soon enough.  And, as the metals continued lower, disbelief began to set in, and then anger, which ultimately led to the “blame game.”

You see, these investors and analysts know for a fact that they are smarter than the market, and are even smarter than price.  So, in their perspective, it is not possible for metals to decline if it were allowed to be “free.”  Rather, someone must be manipulating it to go down.  In fact, gold is the only market I know of where a common belief is held that it is not supposed to be a two way market, since it must only go in one direction.  I am sorry, but that is an absurd way to look at any market.  Markets naturally enter phases of progression and regression, and that is just the way all markets work. To believe otherwise is simply foolish.  And, as Dr. John Bridges noted in 1587 “a foole and his money is soon parted.”

Along those lines, it is my firm belief that the “manipulation” theories have been propagated by analysts who have been on the wrong side of the metals market for the last 3 years.  Think about it.  Did any of them claim the market was manipulated when it went to $1,900?  No. They were all too intoxicated with euphoric expectations of imminently eclipsing the $2,000 mark that they failed to see the impending top.  They continually reiterated the same fundamental drivel, which is the exact same fundamental drivel which is paraded before you today, as to why the metals should be going only higher.

So, rather than admit they were wrong, or worse, that their methods in the metals market failed miserably, they claim the market is “manipulated.” Well, it sure has made many of their followers feel “smarter” about holding on to their metals positions without hedges for the last 3 years of significant drawdown.  I mean, they “know” they are right and the market is wrong, but it is someone else’s fault that they lost money.  Yea . . . and the dog ate my homework.

Folks, if you want to think you are right, and that it is someone else’s fault that you lost money, that is your prerogative.  I would much rather be making money on the correct side of the market while everyone tells me that my methods are wrong.  I don’t want to be that 80 year old person we all know that was talked out of buying that building for $10 back in the 40’s (which is now worth $10,000,000), yet still blaming those that talked him out of the purchase.

Do you want to be that person?  I would rather be honest about the market and my perspective when it comes to investing.

So, let’s talk some honesty.  Do you know of any market on the face of this earth that only goes up? Don’t all major markets move up and then correct before continuing to move in the prior direction? Yet, these “manipulation theorists” want you to buy into a few facts to which they point to claim that a standard correction is due to “manipulation.” Rather, the more reasonable and less paranoid perspective is that corrections are simply the part of the natural course of financial markets.

Now, I will admit that there could be certain attempts at moving the smaller markets at smaller degrees by some dominant players in those markets.  However, I do not believe it is anywhere near the extent to which these “manipulation theorists” would have you believe, and certainly not to the extent which would cause silver to lose 70% of its value from its 2011 highs.  Rather, I simply think they have been using it as a cloud of smoke to obfuscate how badly they have fared in this market the last 3 years. 

It also leaves me wondering one thing: If these “manipulation theorists” believe that someone is trying to manipulate them out of their money, why do they bother engaging in this market? If you knew a store was cheating or overcharging, would you ever go back to that store? Oh, yes, “eventually” the store will stop cheating, as they put it.   Yea, right.  What they can’t say is that eventually this correction which they did not foresee will end, and then they can claim there are smart again . . . at least until they fail to see the next correction.

I will leave you with one question you should ponder:  Have metals or investors been manipulated more over the last 4 years?

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