Exposed: Missing gold and market manipulation

Six months ago I wrote that it had been a rough time for gold bulls. With prices reaching a 24-year peak at over US$540 an ounce, the recent surge in prices must have been music to the ears of those talking the metal up after over two decades of stagnation.

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By  Stephen Corley Published  June 25, 2006

|~||~||~|Six months ago I wrote that it had been a rough time for gold bulls. With prices reaching a 24-year peak at over US$540 an ounce, the recent surge in prices must have been music to the ears of those talking the metal up after over two decades of stagnation. This being gold, the acquisition and allure of which has driven people to the very edge of madness for centuries, its resurgence ushered in a variety of equally lunatic prophecies. The price increase was an omen of rampant inflation; the bond market would collapse; the dollar and the euro were both finished as currency blocs. Actually, none of the above looked likely. The dollar’s ubiquitously predicted demise, the clarion call for analysts everywhere, once again failed to materialise, even when gold’s spot price climbed a further US$200 and the bulls were screaming for US$1000. Well, I stand partially corrected on one of those. Inflation is rearing its head once more, although governments and Washington in particular are taking steps to suppress it, with corresponding effects on the dollar exchange rate. Overall though, the excitement fizzled out. It seems the metal’s enduring capacity to disappoint continues and its fundamentally unattractive issues have come into play once more. Gold’s appeal as an investment asset increases when central banks no longer provide for a positive inflation-adjusted return on short-term investments. Greenspan’s statement in 1967 said it all: “In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value. If there were, the government would have to make its holding illegal.” So can we all calm down now? UAE gold retailers should be breathing a collective sigh of relief after the events of the last five weeks. Alarmists who foresaw gold’s rise as a portent of doom in the financial markets are presumably a little more sanguine in their outlook and investors who thought they had missed the ride of the decade might think again. It depends on whether or not you believe the shocking evidence of manipulation in the gold market. If the metal’s astounding rise was almost unbelievable, then its meteoric turnaround, to levels that even have the technical traders guessing, leaves most commentators aghast. It was the central banks that were sitting on vaults of the stuff (US$105 billion in the US alone) that seemingly caused the frenzy in the first place. The bulls were awash with tales of central bank buying; hurried purchases that were going to propel the price to the stratosphere. Russian and Chinese buyers? Well, except for the rumours, we have little concrete evidence other than the odd spokesman stating that they plan to diversify their foreign exchange holdings away from the dollar. If so, and there really were buyers from US$500 all the way through US$700, why did they suddenly stop in mid May? Why aren’t they buying now when the fundamentals remain and the price is so much cheaper? Technically, we are in the sixth year of this secular gold and resource bull market, whereas the average lasts slightly over seventeen years. Presumably, there is a long way to go. At the time, I indicated that any such evidence was merely anecdotal and that if anything, the central banks planned to sell. As we are witnessing, they did just that. However, even those who are deaf to the siren call of the gold bulls find recent events to be suspiciously indicative of price rigging. Ironically, is it the IMF itself that instructed member central banks to deceive the world about their gold holdings in the first place? The Gold Anti-Trust Action group, which is leading the way in exposing the manipulation of the gold market, has been saying all along that the central banks do not have the gold they say they have; most likely less than half the gold listed in their reserves. The missing gold has been swapped or lent out and is not being properly accounted for as the new IMF study says it should be. Why? Because the missing gold has been used to suppress the gold price. But signs are appearing that even the might of the gold cartel may not be enough to contain the bulls. As news of price suppression gets out it’s likely there will be a new scramble for the metal. Given the very real likelihood of a financial tsunami in the next few months, I for one now believe gold will have its day. Stephen Corley is a business consultant with experience in fund and asset management. He can be contacted at corley@emirates.net.ae.||**||

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