Is the price of Gold manipulated?

By Marius-Cristian Frunza
Weekly Briefs

A massive stock market crash is coming! It will be several times worse than the 2008 credit crisis and 1929 Great Crash. We had repeatedly heard these predictions since the beginning of the pandemic in March 2020. The hyper-exponential increase of the monetary mass fueled the fears of an unprecedented economic disaster. Gold is perceived as a safe-haven investment, but the ounce price did not explode, as expected. Is the price of gold manipulated?

Most financial gurus became ad-hoc prepping experts, recommending investing in safe-haven assets. A safe-haven asset is an investment vehicle that keeps its value during periods of economic and financial downturns. Gold has been perceived since ancient times as a safe investment. When the United States terminated the convertibility of the US dollar in gold, certain types of investors became reluctant to fiat currency. The inflation triggered by the massive money printing amid the pandemic increased the level of scepticism in the leading currency.  While gold prices experienced an initial rally during the first months of the pandemic, the ounce’s value stalled since December 2020.  Moreover, a small price contraction was observed during the summer amid high inflation figures. Thus, the hypothesis that Wall Street and central banks manipulated the gold prices started to get more followers.

It would not be the first time leading banks are fixing the prices of precious metals. For example, in early 2010, major banks incurred penalties for manipulating the fixing price of gold and silver.

According to sceptics, gold prices are intentionally kept to lower levels to avoid a potential panic amongst investors. As a result, the demand for physical gold follows a positive trend but with little impact on market prices.  

On the one hand, the inflationary narrative does not explain the direction of gold prices. On the other hand, we should note that efficient markets anticipate the changes in the underlying macroeconomic conditions. Gold prices increased nine times since 2000 and doubled since Lehman’s default, an event that marked the debut of the so-called quantitative easing strategy. Most likely, the value of the yellow metal is already reflecting the increase in the monetary mass, thereby explaining its low sensibility to the current inflationary environment.
So, what will happen next with gold?

It all depends on the nature of the current inflation. If the inflation is indeed transitory, Gold may well remain in its current range. Otherwise, gold prices will rise under a long-term inflation scenario when central banks lose control over the monetary dynamic.

A gold standard is the ideal monetary system for those who create wealth through ingenuity, entrepreneurship, and hard work. Gold standards are disfavored by those who do not create wealth but instead seek to extract wealth from others through inflation, inside information, and market manipulation. James Rickards, American lawyer, economist, investment banker

Market overview

The leading averages, including the Dow Jones, ended the week into positive territory following the Bureau of Economic Analysis’ second estimate on second-quarter GDP growth, which confirmed that the US economy grew by 6.6%, up from 6.3% in the previous quarter. In addition, Federal Reserve Chairman Jerome Powell made the big announcement about the end of quantitative easing. During a speech, Powell informed that the central bank is ready to reduce its monetary stimulus and taper its 120 billion USD in monthly bond purchases this year.

Bitcoin conceded ground amid technical sales, ending the week below 49,000 USD.

Focus:

Palantir

Palantir Technologies, the software company that specialised in big data analytics, became the first big tech joining the preppers’ camp.  Like many tech giants, the Denver-based firm sits on 2.3 billion USD in cash reserves and looks for solutions to use them wisely. However, Palantir thinks the proper usage for all its money is to prepare for a black swan event by stockpiling gold. Palantir’s most recent securities filing published last week disclosed that they spent 51 million USD on physical gold. The 100-ounce gold bars purchased by the tech giant will be harboured in a secure location in the northeastern part of the United States. In addition, Palantir was one of the first early adopters of crypto payments. Palantir’s stock has had a stable trajectory since its public listing in 2020.

Focus:

Goldman Sachs

Some companies thrive in any situation, and Goldman is one of those investment firms masters of their destiny. Goldman’s stock price has gained more than 50% since the beginning of the year.  Wall Street’s leader published its financial statement for the second quarter of the current financial year, showing revenues and profits surpassing analysts’ consensus.  Goldman reported a total turnover of 15.4 billion USD,  representing a 16% increase compared to the same period of the previous year. Both investment banking and asset management activities outperformed, delivering strong growth of 36% and 144%, respectively.

Moreover, Goldman does not believe in remote work and asked all employees and clients to get the jab before stepping into the office.

Market outlook

The Dow Jones Index moved into the green over the last week, climbing above 35,400 amid the Fed’s announcement concerning the slowdown of quantitative easing.  However, it should be proven that such a measure could change the perspective of non-transitory inflation. In addition, the new wave of Delta-variant related infections is putting investors in a risky spot.

After a bumpy trajectory and several technical corrections, Bitcoin’s price soared above 49,000, showing resilience and keeping its traction gained in August.

If Fed’s announced bond taper is confirmed, the gold ounce could climb a high as 2000 USD.

General Disclaimer

The information and data published in this research were prepared by the market research department of Darqube Ltd. Publications and reports of our research department are provided for information purposes only. Market data and figures are indicative and Darqube Ltd does not trade any financial instrument or offer investment recommendations and decision of any type. The information and analysis contained in this report has been prepared from sources that our research department believes to be objective, transparent and robust.