Gold Market Manipulation
Back in the late 1990s when I first began learning about gold, I found some conspiracy theorists who argued that the "true" price of gold should be much higher, and would be so if not for the actions of central bankers around the world. Some of these people were simply wackjobs; others dressed up in suits and testified before Congress about their theories. Since I believe that a conspiracy of any more than three people is doomed to failure, I assumed these nuts were just part of the package that comes with believing anything out of fashion. See also: libertarianism.
I also know that manipulating any liquid market is near impossible, and poses significant risks to the would be manipulator. If I tried to keep the DJIA low by selling, I would be the one that lost money when prices went up. Even if I had a billion dollars, there's simply no way I could control the DJIA. Heck, even a trillion wouldn't be enough. Trying to manipulate the market is a set up for severe long term losses.
Since then, I've seen more and more respectable people claiming that there is indeed manipulation in the gold market. It seems to be a given among people familiar with the market. The theoretical reasons why this is even possible have to do with the fact that the gold market is not transparent. Only in 1997 did the world find out the size of the gold market:
Deals involving about 30 million troy ounces, or 930 tonnes, of gold valued at more than $10 billion are cleared every working day in London, the international settlement centre for gold bullion.
This is the first authoritative indication of the size of the global gold market, and was revealed yesterday by the London Bullion Market Association.
With the blessing of the Bank of England, the association overturned years of tradition and secrecy to provide statistics illustrating the size and depth of the London market.
The volume of gold cleared every day in London represented nearly twice the production from South African mines in a year, Mr. Alan Baker, chairman of the association, pointed out.
That much gold was trading hands without the exchange rates being made public. That certainly suggests that the overt market could indeed be massaged a bit by the opaque market players.
Recently, an article was published on Zero Hedge detailing evidence of attempts at price manipulation. Essentially, there is a massive difference in the behavior of the price of gold between day and night. A liquid, free market should ideally trade the same general way at all times. But according to the data, one of the best performing investment strategies over the last decade would have been to short the intraday market and go long overnight. It would have returned a 20-bagger over the last decade, more than the just a shade under 4-bagger earned by being long gold all the time. That certainly sounds fishy to me. I could hypothesize various explanations for this phenomenon, but none of them would hold a candle to the most obvious: someone is trying to manipulate the market and keep the price of gold down.
If this indeed is the case, then the manipulation is simply gunpowder for an eventual future explosion in price.