Dominic Frisby: Is the gold price really being manipulated?

By Dominic Frisby
MoneyWeek.com, London
Wednesday, February 6, 2008

http://www.moneyweek.com/file/41862/is-the-gold-price-really-being-manip...

Most hardcore gold bugs will tell you the gold price is manipulated -- or that the authorities at least attempt to manipulate it.

Our Glorious Leader, Gordon Brown's gold sale was, apparently, all part of a scheme to suppress the price -- otherwise he would not have sold it when he did and in the way he did, would he?

Of course, it doesn’t occur to them that this might just have been down to plain old incompetence. Judging by other government fiascos like the tax credits system and the Northern Rock debacle, the incompetence argument certainly carries a lot of weight.

But let's not dismiss the conspiracy theories too hastily. ...

Is the gold price being manipulated?

I can categorically state, with 100% confidence, I don't know. But far greater minds that mine have studied the matter for many years and in great detail. People like GoldMoney founder James Turk, Gold Anti-Trust Action Committee (GATA) chairman Bill Murphy, and fellow GATA member Chris Powell.

They are convinced it is at least "managed." And to be honest, when you follow their research and reasoning, the case is extremely compelling. (There's far too much to go into detail here, but it's well worth visiting www.GATA.org to learn more).

On the other hand, the strongest case I have been able to find against the existence of gold-price fixing isn't exactly watertight. It boils down to dismissing the whole thing as "just a conspiracy theory" and arguing that the perpetrators of the conspiracy are cranks, crackpots, and Cassandras. (Cassandra, in case you're not up-to-the-minute on your Greek mythology, was a princess who was given the ability to see the future, but was also cursed so that no one would believe her predictions. So deriding someone as a Cassandra is actually admitting that he's right).

Even so, I have some sympathy with this view. I belong to the school of thought which says, "Never ascribe to malice that which can be explained as incompetence," as my comments on Gordon Brown might suggest.

However, I do not believe that men as intelligent as James Turk, who I have interviewed many times on my radio show, would devote a lifetime's research, study, and endeavour, let alone face so much criticism, to prove something, if there wasn't more than a grain of truth to it.

So, to conclude, I think there's something to it.

...The gold conspiracy hits the mainstream

And here's an interesting thing. Last Thursday GATA spent a quarter of a million dollars buying a full-page ad in the Wall Street Journal, which you can read here --

http://www.gata.org/node/wallstreetjournal

-- entitled, "Anybody Seen Our Gold?"

In the ad, they declare that US gold reserves have not been audited for over 50 years and they call for the US government, via the Freedom Of Information Act, to come clean about how much gold it really has.

The first thing to note about this is how expensive advertising space is in The Wall Street Journal. The second is that it put gold in the mainstream news, if only for a day. The third is that the following day, after rallying to an all-time high during London trading, the gold price was absolutely hammered down in a big way.

A coincidence? Maybe.

A rising gold price says to the world that "something is rotten in the state of Denmark." People buy gold when they’re scared that the financial system isn't working correctly, and there’s plenty of evidence of that. We know the banking world is trying to conceal the rot. They surely wouldn't have wanted the gold price rising to record highs just as the mainstream press was talking about that frighteningly expensive ad in The Wall Street Journal.

Where next for gold, though?

Short-term traders, a re-test of $850 an ounce is more than possible -- as is a breakout to new highs. Without wishing to state the obvious, it's a gamble. A friend of mine made a small fortune shorting this market on Friday. Me? I thought he was barmy. Short this market? You're better off picking a fight with David Haye.

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