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Evidence for Price Manipulation

Critics of the idea of price manipulation might scoff and ask, if gold is manipulated, as you say, then how do you account for the 590% price increase over the past 11 years?
The idea here is that if gold were manipulated or controlled, there's no way it would have 'been allowed" to increase by that much.

In the above chart, we can see that gold has been in a remarkably steady run for the past three years. It is almost as if a ruler has been drawn under the price of gold, which has rarely deviated by much from that trajectory.
Certainly some might argue that this is an extremely poor piece of data in support of the idea that the price of gold has been manipulated, unless we want to argue that it has been manipulated upwards to rise nice and steadily (like air being slowly pumped into a balloon).
A fair point, perhaps, yet it is one that not only completely falls apart, but bolsters the case for price suppression when we examine the price action of gold in the daily vs. the overnight markets.
Note in this next chart that if one simply bought gold and held it only during the open and close of the US daily fix, one would have lost 70% of one’s money during the same period of time that gold rose in price by more than 500%.

As the chart above shows, the performance is dismal. For example, take a hypothetical gold investment fund starting with $100m in 2001, use it to buy gold only at the US AM fix and sell at the US PM fix until the present, and it would now be left with just $31 million, almost a 70% loss in just under ten years. Over the same time period, gold prices have risen over 590%.
Here we might ask a simple question: How is it possible that an asset that rose across all world markets by more than 500% fell during active trading in the most important market of them all (by volume) by 70%?
Trading is a zero-sum game, and for every winner there is a loser. Who was it that lost so much money in the daily markets fighting a tide that lifted the golden boat by more than 500%? How can there be such an uninterrupted series of losses for gold during this period?
There's a trading maxim that goes like this: Once a trend is established, other traders will identify that trend and either ride it or step out of the way. That is, sooner or later the trend stops, because too many people have caught onto it and its profitability gets traded down to zero. Yet selling gold into the daily market has been a sure-fire winner for over an entire decade.
For gold to have fallen so much during the daily market, yet be up overall, simply means that gold must be up strongly in the overnight markets. Indeed, this is the case.
We can easily see the startling difference in the chart below. It compares the results of a simple 'buy and hold' investment in gold over the past ten years vs. a more active (and clever) strategy that both shorts gold during the daily hours and then buys gold long for the overnight session:

(Source) 

This strategy captures both the daily losses and nightly gains into a single, combined monster gain that has returned over 5,000% over the past decade with very few drawdowns, handily beating the price of gold itself by a factor of ten.
Again, how is it possible for a single strategy to be such a reliable winner without being competed away to zero? A very simple explanation is that an entity that does not care about potential losses simply and reliably sells gold into the daily markets.
After a while, the self-reinforcing aspect of this behavior might entice other market participants to join along and sell into the daily markets. However, even if that were the case, in order to be neutral (as all trading eventually has to be) these positions would eventually have to be bought back. And given the fact that gold has risen by more than 500% over this timeframe, there would be no safe time to do this outside of the daily session.
So the question persists: Who has been selling into this market, and how large are their positions? Put more bluntly, how much gold is actually left in Fort Knox? Alternatively, just what exactly is contained within the $180 billion “other assets” line on the Fed balance sheet? Deeply underwater gold futures positions, perhaps?


Jamil Bin Mohamad
PG 009748
tel: 0124588405