Spot gold is up over $6 this morning, clawing back over half of Friday's gold raid. Silver is also recovering this morning, despite a stronger US dollar. Commodities, including precious metals, will have to contend with a strong dollar as monetary policies diverge between the Fed and the European Central Bank. Gold has shown several times that it can rise in tandem with the dollar, when fundamentals are right.
Another commodity that is thumbing its nose at a strong dollar today is oil. West Texas Intermediate contracts are up 1.7% in early trading, comfortably over the $42 mark.
Spot gold is now within shouting distance of first resistance at $1,065. Major support lies at the $1,051 mark, which was Friday's low. This is the last trading day of the month, which could bring out some short covering.
Analysts are noting that nothing in the market fundamentals explain Friday's selloff, leading to talk once again of gold manipulation. The combination of most traders taking Friday off for a long Thanksgiving holiday, and gold futures expiry day set up the perfect conditions for a take-down. The big players have gotten away with their manipulation for so long, that they don't even try to hide it.
A History of Gold Manipulation
Some of the largest players in the gold market make many of the same bets. When interests align in this way, attempts to "move the market" one way or the other snowballs. This assumes that there is no concerted effort to work together to manipulate gold. Once dismissed as conspiracy theory, criminal probes have since exposed collusion among big banks to manipulate LIBOR rates, emerging market currencies, and commodity prices. The investigations into currency manipulation uncovered clues that gold manipulation was also occurring. Many of the currency traders who were colluding in internet chatrooms also worked in gold trading.
This led to several class action lawsuits, mainly focused on the London gold "fix." This is where a benchmark price was set twice daily among a select group of "market makers." German authorities put so much heat on Deutsch Bank, that the megabank abruptly resigned from both the gold and silver price fix. Other "too big to fail" banks cut back their precious metals divisions.
What's Behind Gold Manipulation?
As to the question "why is there gold manipulation?," it's all about money. If someone can move the the gold market at will, it's easy to make money. They take a large profitable position that depends on the market moving in a certain direction in a certain magnitude. They then move the market to put their bets "in the money." This is done with futures contracts (paper gold) in situations where there is low liquidity. This can be a holiday in the US or China, or when they know that market will move in their desired direction. Once ordinary traders get the ball rolling in the direction they want, it's simple to keep it rolling through stop loss orders and create a snowball effect.
The opinions and forecasts herein are provided solely for informational purposes, and should not be used or construed as an offer, solicitation, or recommendation to buy or sell any product.