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Ronald Stoeferle

Ronald Stoeferle

Ronald is a metals analyst at Erste Group. Erste Group is the leading financial provider in the Eastern EU. More than 50,000 employees serve 17.4…

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Gold Report: Manipulation vs. Intervention

There is a thin line between intervention (normally by the government, government-related institutions, or more generally, politicians) and manipulation (negative connotation – as in “influence”). The (sometimes massive) interventions on the bond and currency (foreign exchange) markets are official and legitimised. The German minister of economic affairs, Rainer Brüderle, has recently confirmed that the Federal Reserve Bank intervenes on the foreign exchange market . He pointed out that it was normal and customary for the central banks to do so, as every central bank had a target band for the exchange rate of the own currency. It would therefore be naïve to think that this was not happening in the gold market.

“So far as manipulation was concerned, it appeared to have one of 3 objects: Making the public buy, sell or keep out. And I judged that the manipulators were endeavouring to do the opposite.” Richard D. Wyckoff

The gold sector is “blessed” with its daily dose of conspiracy theories. However, evidence has been found in the past years that clearly points to efforts to push the price of gold and silver down. It is obvious that a rising gold price signals a falling confidence in the financial and currency system. It is also logical to assume that neither the central banks nor the governments are thus interested in such a scenario. This means the motives for a lower gold price are clear and plausible.

The quotes of numerous well-respected protagonists are taking the same line:

“That’s why the possibility that gold would be sold caused the gold price to drop by $5. You don’t have to sell gold, you just have to breathe [that you may] one day”

„…Joint intervention in gold sales to prevent a steep rise in the price of gold, however, was not undertaken. That was a mistake”

“Nor can private counterparties restrict supplies of gold, another commodity whose derivatives are often traded over-the-counter, where central banks stand ready to lease gold in increasing quantities should the price rise.”

“If we are dealing with psychology, then the thermometers one uses to measure it have an effect. I was raising the question on the side with Governor Mullins of what would happen if the Treasury sold a little gold in this market. There’s an interesting question here because if the gold price broke in that context, the thermometer would not be just a measuring tool. It would basically affect the underlying psychology..“

The last statement is particularly remarkable because it likens the gold price to the thermometer of the financial system. The discrepancy between Greenspan’s line as scientist (compare “Gold and Economic Freedom”) and later as chairman of the central bank is enormous.

We can also substantiate the fact that the gold market is subject to interventions with numbers. The following chart shows the intraday fluctuations of gold in the past four years. The past approximately 1,000 trading days show a clear intraday pattern: while the gold price tends to rise in the early (Asian) trade, it falls dramatically after the first and second fixing in London (as New York starts to trade) and then slowly recovers throughout the rest of the day.

Average intraday pattern 2006-2010

Average Gold Price
Source: www.sharelynx.com

In April another piece was added to the big manipulation puzzle.  Andrew Maguire, a professional silver trader in London, explained the role of the large banks in interventions on the gold and silver market . On top of that, Maguire had warned the CFTC a few days in advance of manipulations in silver. The predicted price pattern came through 1:1. A few days later Maguire was severely injured in a mysterious car accident. According to the NY Post , an investigation into the manipulations on the silver market seems to be underway. Should the allegations be confirmed, a short squeeze would be the result.

That said, the primary trend in gold and silver is clearly headed upwards. According to the Dow Theory, the primary trend cannot be manipulated because the inherent market forces are too strong.

By. Ronald Stoeferle of Erste Group

Erste Group is the leading financial provider in the Eastern EU. More than 50,000 employees serve 17.4 million clients in 3,200 branches in 8 countries (Austria, Czech Republic, Slovakia, Romania, Hungary, Croatia, Serbia, Ukraine). As of 31 December 2010 Erste Group has reached EUR 205.9 billion in total assets, a net profit of EUR 1,015.4 million and cost-income-ratio of 48.9%.


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