Resource World Magazine

o c t o b e r / n o v e m b e r 2 0 1 6 www.resourceworld.com 25 Speculations by Leonard Melman A nyone who has invested in precious metals or has been involved in pre- dicting metals prices as part of their analysis knows the difficulty of attempt- ing to project gold and silver price trends. Simply put, there are so many factors to con- sider if one is to be successful. For example, one must accurately pre- dict concepts such as the anticipated rate of inflation; global military and terrorist stability; money creation activities by the world's central banks; escalating levels of government debts and deficits; and also get a 'handle' on the world's economic expan- sion or contraction on the theory that rapid economic expansion usually leads to inflationary pressures and vice versa. In addition, there is one other activ- ity which the conscientious analyst must consider and that is possible artificial manip- ulation of those precious metals markets. The first and most obvious question would be: Why would investors, spe- cifically foreign governments, deliberately manipulate gold and silver prices in order to accumulate positions at advantageous prices? I would suggest the basic cause has to do with economic philosophy. Economists of the "Austrian School" strongly advocate limiting government expenditures and eliminating government deficit financing which leads to growing government operating deficits, increasing levels of debt and, ultimately, growing inter- ference in the free market by central banks such as America's Federal Reserve. They also usually advocate a currency backed by spe- cific holdings of gold and silver. Governments which generally agree with this thinking would therefore desire to protect themselves in times of rapid money creation – such as the present era – by increasing their gold holdings. Reports are widespread that China and Russia in particular fall into this category. There are two types of manipulation that are of significant concern. The first type would be manipulation of the very short- term commodity trading market to enable those desiring to accumulate gold to do so without causing an inordinate increase in their costs. One likely method would be to drop a sudden, concentrated selling order on the market to cause an immediate large drop in prices and then gradually feed mod- erate-sized buy orders into regular trading which would allow for accumulation, but without sending prices skyrocketing. During recent months we have seen sev- eral episodes of this nature, most notably a sudden selling of $1.5 billion worth of (US$) gold in just seconds on August 24 which caused an immediate plunge of about $13 in gold's price; an action which was fol- lowed by a gradual rally over the next two days which saw a recovery to the levels before the plunge. Another similar incident occurred on August 31 when the Zerohedge website reported that $4.7 billion worth of gold was dumped into the market, dropping the price by about $17 per ounce within 24 hours and which was followed by two days of gradual rallies which recovered virtually all the previous loss. The second type of manipulation we suggest would be an attempt to prevent a powerful and sustained upward trend in gold and silver to develop which would result in a major rally over time and which might result in truly substantial increases in price – a development which would be contrary to the desires of those planning to accumulate sizeable gold positions at reasonable prices. There is some trading evidence that this may be occurring. It is often important to compare mining share investments with quotes on the metals themselves since, under normal circum- stances, they would likely gain or lose at somewhat similar rates. However, the year 2016 has been an anomaly in this regard. When the price of gold began to rally in mid-January, the XAU Index, which measures performance in mining shares, virtually exploded upward, rising from a low of 38 to an August high of 114, a bot- tom to top gain of 200% which would suggest expectations of a truly historic rally in gold. However, after rising rapidly from near $1,050 in mid-January to a late April high just above $1,300, gold has moved mostly sideways for almost five months, still trading slightly above the $1,300 mark in mid-September as this is written. What I have noticed during those sev- eral months is that there have indeed been several sharp rallies during that period, but every such rally has been followed by sudden and sometimes unexpected selling waves, thereby suggesting manipulation to keep a trading 'lid' on gold prices. Obviously, since trading activities are normally kept secret, it is difficult to be certain, but these trading patterns certainly suggest some level of 'unnatural' trading. Clearly, both long-term investors and short term traders in precious metals and their associated share, option and com- modity vehicles should at least make themselves aware of the possibility of such manipulative actions and take protective measures when possible. n This material is taken from sources believed to be reliable and is provided for information only. Any investment decision should be made only after prior consultation with investment professionals. Leonard Melman is a financial and political writer who focuses on issues relating to the resource sector. Mr. Melman lives in Nanoose Bay, British Columbia, Canada and can be reached at lmelman@shaw.ca What is the truth behind gold trading manipulation?

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