That the gold market can be manipulated on Comex by big forward paper sales now seems to be obvious from the major dive suffered by gold last week, when the yellow metal initially fell over $60/ounce (oz) in a matter of minutes and then got pushed down further before making a relatively minor recovery. Talk about shades of the big end-of-April, early May silver selloffs last year, when silver was knocked even further in percentage terms, initially by a huge out-of-market-hours sale, widely believed to be a concerted move by big short sellers seeing the need to drive prices down to cover huge potential losses.
What is particularly worrying for the markets, though, is the massive effect this has had on sentiment for gold investors. Some comments see the big gold sale as a move to drive weak holders out of the market so the big boys can maintain control. A cynic would see this as yet another way big money tries to manipulate markets to make huge returns at the expense of the small investor. Money is just used with little more purpose than just to make more money—no real productive use of it here.
Bill Bonner, writing recently in the Daily Reckoning, had this to say about the whole system—democracy and capitalism as practiced in the USA—and in many other parts of the world too: "Democracy, as practiced by the U.S. and other developed countries, is a fraud. It is just a way for the insiders to scam money and power from the outsiders, by pretending that the voters are in charge. . .American democracy, circa 2012, has no more in common with real democracy than American capitalism has in common with real capitalism. Both are degenerate. . .corrupt. . .and geriatric."
Strong words—but how true! The machinations in the commodity exchanges are just a small example of how the rich get richer. The man (or woman) in the street just can't play this game. True, it is possible to pick up crumbs by reading the trends right: Maybe investing in the general stock market, which has been artificially boosted by the huge flows of money entering circulation, inasmuch as the bankers pass it on—due to quantitative easing programs from acquiescent governments and central banks.
For the prospective individual investor in silver, last year's machinated dive in the market set sentiment back for nearly a year before the metal started to recover—and now it's been knocked heavily again by the gold plunge—although still remains well above its low points of last year. Similarly, putative gold investors seeing how much the yellow metal fell in such a short space of time are more and more likely to think twice before putting their money into it, however much the gold pundits call the fall a buying opportunity.
We could yet see further falls in gold—as we did in silver after its initial dive last year—as safe haven sentiment wanes again. After all, in a safe haven investment one doesn't want to see volatility of this type. One is just looking for a gradual appreciation to mitigate the ravages of ever upwards inflation.
As many gold commentators have been pointing out, gold's fundamentals remain pretty much unchanged. A couple of months' better employment figures in the U.S. shouldn't change things much. There's still a huge number of people unemployed and much of the government hype on these matter is just that—hype—to make people feel better and spend more money to try to help stimulate the economy.
What may be a worry, though, for the gold investor in the short term is the impact such falls may have on the burgeoning growth in precious metals purchases by the people in countries like China and India—the big gold-buying sectors in the past couple of years whose purchases have underpinned precious metals prices. There is a strong possibility that those looking at buying gold and silver right now may well hold off until they have a better idea of where prices are likely to move in the short term. As I write, gold has slipped below the key $1,700/ounce (oz) level, and silver fell back to $34/oz (although both remain substantially higher than they were at end-December—for the moment at least.)
There are some observers of the market (and I'm ignoring the gold-is-in-a-bubble merchants who have been wrong continually for the past decade) who say that gold could well fall back to $1,500/oz, with at least a likely corresponding fall, or worse, in silver (although gold's bull market would remain intact even at these levels). Such corrections are seen as normal in a bull run by those who understand these things! So, although the setback may provide a buying opportunity even now, one shouldn't be surprised to see initial losses: Savvy investors like Marc Faber—quoted in these pages—say you should only hold gold long term—maybe buy monthly and ignore the short-term ups and downs. Ultimately, they say, you will remain ahead of the game as global currencies continue to crumble in the light of a virtually insuperable global economic malaise, which will be with us for many years yet.
Lawrence Williams, Mineweb