Tuesday, September 8, 2009

Is the Gold Price Being Manipulated?

I doubt it.

However, Bob Murphy writes:
As I'm sure many of you know, there is a whole industry (e.g. here) out there on how The Man is keeping down gold prices in order to keep everybody fat and happy with hanging on to fiat money. This stuff is typical of conspiracy theories; some of it is plain common sense--like quoting Greenspan and Bernanke saying matter-of-factly that they and other central bankers discuss when to sell gold when its price gets too high--whereas other stuff seems to think that there is no true market in gold at all, and that every wiggle in the price reflects Bernanke's mood.

But today, the conspiracy theorists have a good case. Gold shot up this morning above $1,000, but now has fallen back down to $998.60 (as of this writing), making it up about 0.19% for the session. But here's the interesting thing: Silver is up 1.57%, oil is up 5.03%, natural gas is up 4.36%, the euro is up 1.36%, the USD buys 1.04% fewer yen, and the British pound is up 1.1%.

Isn't that a bit odd? Obviously, every market is unique, but in its capacity as an internationally traded and fungible commodity, you'd think gold would perform comparably to those other things mentioned. And yet its initial gains out of the chute have been beaten back by some sellers. I wonder who?

Give me a B...B! Give me an E...E! Give me an N...N!
Here are the problems I see with Murphy's argument.

His first point is that other commodities are up more than gold, today, but so what? I have never seen a day, ever, when all commodities were up by the exact same percentage. This is not an Olympic synchronized price climb event. In fact, pretty much on any day, gold may be up more than, say, oil, or vice versa, or one may be up and the other down. Indeed, one could make the case for today's price action that some commodity traders had sell orders in at $1,000 gold, and are now putting the money into other commodities.

I further note that Murphy is looking at gold today when the price crossed $1,000. Has he looked at any other days, ever, to see if gold did not trade a lower percentage gain then other commodities? There are good "technical" reasons why gold would bounce off a round number price. I discussed this in May:
I hasten to add that there is a lot of mumbo jumbo in the technical world and that the only technical analysis that should be used is that which is grounded on an analysis of human action.

Gold is currently trading just under $1,000 an ounce. Near round numbers, especially a number like 1,000, there is always a lot of technical resistance before a stock or commodity seems to be able to break to higher levels. This is because a lot of traders set their price targets at the round number, "Oh, I will sell my gold and take a profit at $1,000."
John Murphy, perhaps Bob Murphy's father, gets it. In his book, Technical Analysis of Financial Markets, John M writes:
There is a tendency for round numbers to stop advances or declines. Traders tend to think in terms of important round numbers 10, 25, 50, 75, 100 (and multiples of 1,000) as price objectives and act accordingly. These round numbers will, therefore act as important "psychological" resistance or support levels. A
trader can use this information to take profits as an important round number is
Interestingly, John M. illustrates this point using gold as an example:
The gold market is an excellent example of this phenomena. The 1982 Bear Market end was right at $300. The market then rallied to just above $500 in the first
quarter of 1983 before falling to $400. A gold rally in 1987 stopped at $500 again. From 1990 to 1997, gold failed each attempt to break through $400.The Dow Jones Industrial Average has shown a tendency to stall at multiples of 1,000
In short, there is no evidence from today's trading that any manipulation of the gold market is taking place.

Today's trading falls completely in the spectrum of the type of trading you would expect around $1,000 an ounce.


  1. Maybe this is where some of it comes from.


  2. Mr. Wenzel, How much time have you spent researching the issue of Gold market manipulation?

  3. John Murphy, perhaps Bob Murphy's father, gets it.

    It sounds like you are trying to be my father in this post.

  4. The brief advance above 1000 in gold priced in USD was not confirmed with strength in gold priced in other currencies. Gold peaked in the commodity currencies of AUD and CAD last Thursday and is nowhere near new highs in them. The USD weakness that Murphy notes (with respect to the JPY and GBP) was largely responsible for the move up in commodities. With no change in fundamentals in gold and a large technical resistance area (1000 that RW notes), the nonconfirmation in gold would be expected.

  5. English Bob wrote:

    "The brief advance above 1000 in gold priced in USD was not confirmed with strength in gold priced in other currencies. Gold peaked in the commodity currencies of AUD and CAD last Thursday and is nowhere near new highs in them."

    I don't see how this affects my suspicion. Since the dollar was getting whacked, and the dollar-price of every other major commodity was way up, I was wondering why the dollar-price of gold wasn't also up. Now you are pointing out that the price of gold in other currencies wasn't way up. Right, but that is perfectly consistent with what I'm saying. I didn't think a gold mine collapsed to push up the real price, I thought the dollar was falling sharply. So there would be no reason for gold price in other currencies to shoot up, in my explanation.

  6. There are pages and pages of detailed commentary on this topic, and frankly, I'm a little surprised that people still question whether or not Gold is manipulated.

    Do the research.

    BTW I believe most of these markets are also manipulated, not just Gold and Silver.

    It's all right in front of you, believe your "lying eyes".