A major driving force behind gold and silver’s multi-year rally is the printing of money by central banks around the world.
Since 2008, literally trillions of new dollars (currency) have been created in the hopes of resuscitating the besieged stock and housing markets.
This inflation has placed upward pressure on gold and silver.
In 2008 for example, gold was around $850 per ounce. Currently, it’s hovering around $1600.
Every so often though–despite the fundamental effects of currency devaluation–gold bullion, silver coins and other precious metal prices are driven downward. Just this week, both gold and silver saw steep declines to below $1600 and $30 per ounce, respectively.
A number of analysts interpret this to be the end of a bull market in metals. And some investors think they’ve missed the boat.
Other Factors at Play
According to a recent report we caught on Resource Investor, nearly all downward pressure comes from concentrated short sellers, purposefully destabilizing the market to force metals down.
This leads market-watchers to believe gold and silver prices are being manipulated by the largest commercial and central banks.
For example, when spot gold-and-silver prices drop sharply, COMEX contracts for the metal are traded at a remarkably high volume.
And this defies conventional wisdom.
Sell-Off of Paper Contracts Doesn’t Involve Physical Metal
When we see red arrows on our screen, naturally we think it’s the asset itself declining in value.
Yet nothing could be further from the truth.
Scare Tactics?
Many contend that huge sell-offs of paper contracts by the largest banks serve as a scare tactic, driving the metals market into a selling frenzy
Indeed, essentially all of the sharp drops in bullion prices in the last few years have been preceded by a massive sell-off of paper contracts by a small number of firms.
Market Manipulation and Central Banks
Looking at the report got us thinking, especially about market manipulation and how it relates to gold and silver.
Research from Dimitri Speck sheds some light on the other source of manipulation: central banks.
Speck uses intraday charts from the last two decades to make his point, illustrating how he thinks central banks began systematically influencing the price of gold in 1993.
Of course, central banks have a vested interest in making sure gold prices don’t rise too quickly, because if they do, confidence in currency plummets. Considering the fragility of the dollar, any spook could very well start a chain reaction.
Speck also contends that the futures market (contracts) began impacting gold and silver prices in 2001. Since then, price shocks have increased in both number and intensity.
Yet despite price shocks, both gold and silver have remained remarkably strong.
A Bright Future for Gold
Even though the events of earlier this week seem troubling on the surface, the fundamentals that drove gold and silver to this point remain. Over a relatively short period of time, prices do recover, claiming new highs.
Price dips often represent excellent buying opportunities for consumers. Many investors believe it’s advantageous to rush in when it appears everyone else is rushing out.
It may just be a golden opportunity.
What do you think?
Are gold and silver prices being manipulated?
Let us know in the comments section below, or drop us a line on Facebook or Twitter today.
