Gold and silver market: Can the Values of Gold and Silver Be Manipulated?

ANIP consultant

To answer this question, I'll focus the discussion more on gold. Gold price manipulation is defined as any intentional effort to control the prices of this most precious metal. This supposedly happens in major financial markets when gold traders intentionally attempt to influence gold prices via certain financial instruments, particularly derivatives. These traders may have been able to successfully cause short-term deviations from the real values of gold, but over the long term, it doesn't appear to be so.

The United States Securities and Exchange Commission (SEC) defines manipulation in greater detail as any intentional act whose purpose is to trick investors by artificially affecting or controlling the market for a specific asset and includes activities like quote rigging, and voluminous trades or transactions that are meant to paint a deceptive impression of demand for a particular asset and sway market prices in their (traders') favor. And when speaking of gold price manipulation, there's one particular type of manipulation that is believed to be prevalent and that is price suppression, i.e., manipulating gold prices downward.

A really good question to ask then is this. Are the prices of gold - and consequently silver - manipulated? If you ask enough gold traders or investors, they'll tell you that it can be. Even more, they'll probably tell you that they are being systematically manipulated right this very moment. Are they right?

There are several iterations of this belief. One is that central bankers control the prices of precious metals. Another iteration of this belief is that greedy private commercial bankers are the ones manipulating gold prices downward through derivative instruments (short-selling and futures contracts) and high-volume trades meant to paint a scenario of low and decreasing demand for gold and silver. When you look at theories like these, they seem plausible at first glance because of instances where gold prices were controlled in the past, such as when certain governments fixed the prices of gold for decades or when the London Gold Pool suppressed its prices.

Add to the fact that very rarely do financial institutions get penalized for gold price manipulation and you have a very prevalent belief that indeed, gold and silver prices can be manipulated. But if you look at the long-term price histories of gold and silver, it becomes exceedingly clear that the answer to our question is no, prices of these precious metals can't be manipulated.

Check out academic papers on the subject and you'll find that no compelling evidence for the case of price suppression or manipulation exists. You'll find very clear cyclical patterns if you check out the long-term price charts of these two precious metals.

From a long-term view, particularly of the 2000s, you'll probably start to wonder how the heck people believed that price suppression for these two precious metals existed. And when you think about crying wolf, you may start to wonder why manipulation is selective, i.e., manipulation is responsible when prices go down and when prices are going up, it's the market

that's pushing it up. And while we can't disprove the belief that the world's biggest players attempt to manipulate prices, their effects - if any - are very short-lived because it's practically impossible to suppress the true market price of gold in the market.

Those who want to suppress the price of gold and silver over the long haul simply don't have enough financial resources to do so. And any attempts to do so will only backfire soon because any significant drops in the prices of gold and silver will only increase demand for it and consequently, lead to an increase in their prices.

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