Gold price manipulation gets a lot of play within the precious metals community, especially when prices are dropping. However, you really shouldn’t worry about it. Here’s why.
Bullion.Directory precious metals analysis 7 April, 2015
By Terry Kinder
Investor, Technical Analyst
Gold price manipulation is something, if you read enough precious metals articles, you’ll eventually run across. When the price is getting hammered you’ll hear about manipulation even more. However, long-term, gold price manipulation isn’t worth worrying about.
Don’t misunderstand, we aren’t saying that gold price manipulation doesn’t exist. Efforts to manipulate prices have been with us for many years. One of the most basic forms of manipulation was the ancient practice of coin clipping where governments debased their money by clipping a portion of each coin. Those clippings would then be melted down and made into new coins.
Manipulation works both ways – up and down. The Hunt brothers attempted to corner the silver market in the 1970’s and were at least partially responsible for driving the price to $50.00 per ounce.
The thing is, whether attempts are made to manipulate price up or down, they ultimately fail because of the cyclical nature of the universe.
There are natural laws that govern everything from the rotation of the planets, to sun cycles and prices. Over the long-term it is just as improbable than humans can influence temperatures in one direction (up or down) as it is that those same humans can move prices in just one direction.
That doesn’t mean that prices can’t be pushed either up or down over shorter periods of time.
The Hunt brothers attempt to corner the silver market is but one case where such an effort succeeded for a while. There are certainly efforts on the part of governments to manipulate everything from currency prices to gold prices. But, no government is big enough to manipulate any market forever.
Eventually a day of reckoning comes and prices break free from artificial constraints.
Some may still argue that governments and central banks are so powerful that they can manipulate the gold price without limit. If this is so, then why doesn’t government, or some other institution, simply set the prices for everything?
The answer is clear. Government doesn’t set all prices because it cannot in the long run. Government efforts to control prices – whether in Rome, the U.S. or Venezuela – always fail because they cannot create an artificial system that mimics the signaling mechanism of market prices.
So, either government can manipulate gold prices forever, in which case the price never goes up, or, there is some limit to how far gold price manipulation can go. Given the fact that virtually all the gold ever mined still exists today, gold price manipulation could last longer than that of other commodities.
Unlike other commodities or consumables that get used up quickly and are relatively inexpensive, gold is relatively expensive and primarily held and stored over long periods of time instead of being consumed. Since a significant portion of gold holders possess it as a hedge against currency devaluation, political instability, governmental incompetence in managing the economy, etc., it can be relatively difficult to coax more supply onto the market with higher prices. Some portion of all gold holders will either be unwilling to sell their gold or will only do so for a significantly higher price.
Given the large supply of above ground gold, it’s possible gold price manipulation could go on longer versus some other commodity that is consumed more regularly and rapidly. Despite that, gold price manipulation, or other price manipulation schemes, can only go on for so long due to the laws of nature that govern prices.
Eventually, all governments overreach their limits. When that day of reckoning comes, not only will their ability to manipulate the gold price be severely limited, but that will be exactly the time you will need the protection offered by gold the most.
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