LAWRIE WILLIAMS: So who is really manipulating the gold price?
The pro-gold lobby has, for many years, been insistent that the gold price has been manipulated (suppressed) by global central banks via the bullion banks, which between them hold enormous short positions in precious metals. The banks do this, the theory goes, because gold is the true bell-wether for the global economy and central banks, and the politicians which control them despite, in some cases, supposed central bank independence, have a joint purpose in presenting the economy in as positive a light as possible.
Now Jim Rickards, who is not always right in his prognostications (he was predicting the total collapse of the pound sterling once Theresa May pulled the EU Article 50 trigger in March – it hasn’t) but has a strong following and a mostly decent track record, has come up with a variation on this which is worthy of considering at the very least.
Rickards says that it is ‘beyond doubt’ that the gold price is indeed being manipulated (suppressed). One only has to look at COMEX closing and opening prices to find incontrovertible evidence that this is the case. As Rickards notes in an article published on the Daily Reckoning website, and quoting an unnamed hedge fund statistician, if you buy after the COMEX close and sell immediately before the COMEX opening every day you will make risk-free profits – and statistically that’s impossible unless there’s manipulation occurring.
Now this is not a new theory, others have come up with similar conclusions, but Rickards’ assessment of who is primarily responsible for the manipulation differs from the mainstream. He puts it predominantly at China’s door rather than at that of Western (mostly) central banks, although they may also be involved.
His view is that China needs to build its gold reserves surreptitiously as it reckons that to have an effective seat at the global economic table a substantial gold holding is a vital aim, along with the Chinese currency’s inclusion in the SDR which was achieved in Q3/4 last year. China’s officially stated gold reserves are not yet sufficient to achieve the size it deems necessary and until they are it is in China’s interests not to see the gold price rise inordinately, which it might do if the nation were to go fully public with its gold buying programme. (It probably has an interest in not seeing the price fall too much either given its push to persuade its public to buy precious metals of the past few years and the ready availability of low mark-up gold jewellery and artefacts from jewellers and traders and coins, bars, wafers etc. from the banks).
Rickards goes on to note that once China’s perceived gold accumulation needs are met then the price cap could come off gold, thereby allowing it to reach its true level – which he reckons to be around $10,000. For gold holders this would be Nirvana, but to achieve this kind of level, which it may well do eventually, could yet take many years. At the moment China is not ‘officially’ buying gold, but it probably is and holds rather more than it is reporting to the IMF – perhaps as much as two to three times the 1,842.6 tonnes it reports. If it is buying in its home-produced gold - this is currently around 450 tonnes a year – it could still take several years for its holding to match the 8,133.5 tonnes reported by the USA, so don’t expect any rapid change in the gold pricing scenario in the immediate future. The gold price will, in all probability, continue to be suppressed (assuming that it is at present) – maybe allowed to increase slowly to try to fend off too much detailed investigation, but long term its future looks good, at least according to Rickards, as the world continues its upwards debt spiral. He puts no timescale on the eventual fallout, but does advise that one should get into gold now.