Will We Finally See the Beginning of Gold and Silver Price Discovery?
We're not Ready to Call that this is the End of Manipulation, but it's Definitely Harder to Rig than it once was.
Silver is at $31.46 up almost 2%
Gold is over $2,400 up almost 2%
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We could be Witnessing the Undoing of Silver and Gold Price Manipulation
The manipulation of gold and silver prices has been a contentious issue in financial markets for decades.
For years, Western central banks and large financial institutions were accused of artificially suppressing precious metal prices through various means. However, recent developments suggest that this era of manipulation may be coming to an end, with China emerging as a new dominant force in the gold market.
The history of gold price manipulation dates back to at least 1961 with the formation of the London Gold Pool.
This consortium of central banks worked to keep gold prices artificially low by selling gold whenever the price rose above $35 per ounce. After the collapse of the Bretton Woods system in 1971, manipulation efforts continued through other means.One key tactic employed was heavy short-selling in the futures markets. By selling large numbers of gold futures contracts, banks could create artificial downward pressure on prices. The use of leverage in futures markets allowed manipulators to sell contracts representing far more gold than actually existed in exchange vaults.
Another technique was "spoofing" - placing large sell orders with no intention of executing them, simply to create the appearance of selling pressure. This would often trigger algorithmic trading systems and cause other traders to sell, driving prices lower.
For many years, these tactics were largely successful in suppressing gold prices. However, several factors have recently combined to undermine the ability of Western institutions to manipulate the market:
Increased regulatory scrutiny and enforcement. Banks have faced large fines and even criminal charges for market manipulation. In 2020, JP Morgan paid a $920 million fine for rigging precious metals markets.
Growing awareness of manipulation. BRICS ++ is aware of Western Price manipulation and this is why they are fiercely accumulating Gold and Silver. By sticking it to Western Bankers (who trade one year of mining activity in a single trading session) BRICS++ is winning via Economic Warfare.
Surging demand from China and other nations. China, Russia, India and other countries have been aggressively increasing their gold reserves in recent years. This sustained buying pressure has overwhelmed attempts to suppress prices.
Macroeconomic factors driving gold higher. Inflation concerns, geopolitical tensions, and other factors have created strong fundamental support for gold prices.
The clearest evidence of waning manipulation comes from recent price action. During the Chinese New Year holiday in February 2024, when Chinese traders were absent from the market, gold prices fell sharply. However, they quickly rebounded when Chinese markets reopened. A similar pattern occurred during China's Labor Day holiday in early May. This suggests Western institutions can only meaningfully impact prices when China is out of the market.
China has emerged as the new dominant force in gold.
The country now consumes approximately half of global gold production. Its financial clout, combined with that of allies like Russia and India, has effectively neutered Western manipulation efforts. As one Chinese newspaper put it, "China's increased gold reserves will thus act as a model and lead other countries toward reserving more gold."
Interestingly, even Western central banks have become net buyers of gold in recent years as they seek to build reserves. This puts them at odds with any lingering attempts to suppress prices.
For gold investors, the end of price manipulation is a significant development. It suggests that gold prices may now more accurately reflect true supply and demand fundamentals. The sharp rise in gold prices since 2020, with gold recently surpassing $2,400 per ounce, may be evidence of this new reality.
However, it's important to note that short-term volatility and price swings can still occur. While large-scale, sustained manipulation appears to be ending, market participants should remain vigilant for attempts to influence prices around key technical levels or during periods of lower liquidity.
The shift in gold market dynamics also has broader implications for the global financial system. As more countries increase their gold reserves, it could challenge the U.S. dollar's role as the dominant reserve currency. The internationalization of China's renminbi may be another consequence of these changes in the gold market.
In conclusion, while gold price manipulation was a reality for many years, the balance of power in the precious metals market has shifted.
China's emergence as a gold superpower, combined with regulatory crackdowns and strong fundamental demand, has largely brought an end to the era of Western-dominated price suppression. For investors and market participants, this new landscape presents both opportunities and challenges as gold prices potentially become more reflective of true market forces.