You are here
Telegraph's Thomas Pascoe: Gold crash is more evidence of market rigging
By Thomas Pascoe
The Telegraph, London
Tuesday, April 16, 2013
http://blogs.telegraph.co.uk/finance/thomaspascoe/100024081/the-gold-pri...
The facts in the public domain do not justify the sharp fall in the gold price over the past two trading days.
At the time of writing, the price per 100 ounces is $1,363, down over $200 since Friday's open. The scale of the sell-off was the worst in 30 years, with the volatility index standing at the highest level in its history.
John Kemp at Reuters has calculated that based on a normal distribution, you would expect to see movements like Monday's only once in every 500 million trading days, or two million years. The news which would justify such a price swing is curiously absent -- in fact, my view is that the market ought to be bullish for gold. Something doesn't add up.
... Dispatch continues below ...
GoldMoney Reduces Storage and Exchange Fees
From April 1 GoldMoney will be reducing by a third its storage fees on gold stored at all VIA MAT vaults to just 0.12 percent per year and halving the cost of storing silver with VIA MAT Switzerland to bring it in line with GoldMoney's silver storage fees at other vault locations: 0.49 percent per year as the standard fee and 0.39 percent per year for more than 50,000 ounces of silver. In addition, GoldMoney's minimum storage fee will be reduced to only 0.001 grams per month for gold, platinum, and palladium, and 0.001 ounces per month for silver. In April GoldMoney also will be simplifying and reducing its metal-to-metal exchange fees. For the full details of these significant fee reductions, please visit:
http://www.goldmoney.com/lower-fees-overview?gmrefcode=gata
In any market, price is determined by the confluence of demand and supply. In many respects supply of gold is relatively fixed. We know the extent of discovered gold reserves and the rate of production. While Cyprus is being forced to dump "excess" gold in order to meet the ever escalating bank bail-out bill, its whole holdings are worth only $750 million, hardly enough to move one of the worlds deepest and most liquid markets to this degree.
In fact, most of the selling pressure has come from ETFs dumping holdings. A record $9.2 billion of net outflows from gold ETFs in the first three months of 2013 are indicative of a loss of faith on the part of investors, as well as of a structural change in a market which has been opened up to electronic trading by the invention of these instruments.
But why would investors wish to sell their gold holdings?
As an alternative store of value, it is easiest to think of demand for gold in terms of demand and supply of fiat money. When demand for fiat money falls or supply rises, people decide to hold less and move their cash into alternative stores (gold, silver and now Bitcoins being the most common). Likewise, when people are optimistic about the state of the economy, they demand more cash because they believe they will be able to invest it in dynamic assets like stocks which will generate better returns.
A surge in demand for money over gold (and hence a fall in the demand for/price of gold) can, therefore, be very broadly justified by either a contraction in the supply of money or a more general optimism about the economy. Are there grounds to believe either of these has happened?
Well, the world's stock of fiat money is not contracting. Quite the opposite, in fact. Japan has just launched stimulus on steroids which will see the developed world's most indebted economy create a proposed $1.4 trillion in Yen in a bid to break free from depression.
Nor is money creation in the West likely to subside. Earlier this month the Fed hinted it would continue buying bonds for the foreseeable future, while there is an expectation in London that Mark Carney's arrival at the Bank of England will see more activist monetary policy here too.
Likewise, the recent decision of the eurozone to confiscate money directly from Cypriot bank accounts clearly creates a template for other crisis-struck nations in Europe and beyond. There is now a major political risk factor in holding large cash deposits. In the meantime, US growth is slowing, Britain's is still anaemic and China's rate of expansion came in below market consensus for Q1. It isn't a booming real economy which is persuading people to cash in their chips.
So what is driving the gold dump if not changes in the macro-economy? I have written in the past that, in my view, the gold markets have been rigged. In this context, the sale of 500 tonnes of paper gold on Friday takes on a different hue. As John Mauldin, one of the most impressive macro analysts out there, wrote in his newsletter this morning:
"Five hundred tons of paper gold contracts were sold dumped into the market on Friday. That is a lot of gold. In short, some people sold gold like they had a gun to their heads, in such a quantity and with such ferocity that the likelihood of their being a for-profit seller is right up there with my chances of winning this week's Masters."
I agree. I have written in the past of the links between the British gold sale at the turn of the millennium and the need to prevent the insolvency of a trading house whose short position had left them unable to meet their commitments at expiry. With this in mind, Andrew Maguire's comments that a similar situation led to a concerted effort to drive down the gold price this time around are interesting, although unverifiable:
http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2013/4/15_Ma...
The gold market remains one of the most complex and opaque in the world. None of the publicly available data justifies the incredible price movements we have seen recently. It looks as though the market has been rigged again.
* * *
Support GATA by purchasing DVDs of our London conference in August 2011 or our Dawson City conference in August 2006:
http://www.goldrush21.com/order.html
Or by purchasing a colorful GATA T-shirt:
Or a colorful poster of GATA's full-page ad in The Wall Street Journal on January 31, 2009:
http://gata.org/node/wallstreetjournal
Help keep GATA going
GATA is a civil rights and educational organization based in the United States and tax-exempt under the U.S. Internal Revenue Code. Its e-mail dispatches are free, and you can subscribe at:
To contribute to GATA, please visit:
How to profit in the new year with silver --
and which stocks to buy now
Future Money Trends is offering a special 16-page silver report with our forecast for 2013 that includes profiles of nine companies and technical analysis of their stock performance. Six of the companies have market capitalizations of less than $800 million and one company has a market cap of only $30 million. The most exciting of these companies will begin production in a few weeks and has a market cap of just $150 million.
Half of all proceeds from the sale of this report will be donated to the Gold Anti-Trust Action Committee to support its efforts exposing manipulation and fraud in the gold and silver markets.
To learn about this report, please visit:
http://www.futuremoneytrends.com/index.php?option=com_content&id=376&tmp...
