Gold was down $25 Monday!
Another shocking day for gold. It now sits at a spitting distance from $1,250 per ounce. Meanwhile it seems like seashells and balloons for U.S. tech stocks, as the Nasdaq was up 52 points Monday.
If we are not careful, we could be lulled into believing this is the normal state of affairs and fall into the trap of misguided investments.
I have been advocating gold as an essential diversification of your investment strategies for a long time now. On days like this, I shake my head in disgust, as the world seems to be topsy turvy, upside down.
Gold should be heading up, not crashing and burning. While the headline cause given for Monday's decline in gold was that the Russia Ukraine tensions may be receding, I have always suspected that gold is an asset class that is significantly manipulated for deeper and ulterior motives. Now I have proof.
This case is published in great detail by zerohedge.com and describes exactly how gold can be manipulated.
Back in 2011, Daniel Plunkett, a Barclay's Bank trader, was in the midst of manipulating the prices of gold in order to earn a higher income and a bonus for himself and the bank while swindling a customer out of what would be legitimately his winnings betting on the price of gold.
The customer had entered into an option contract that was directly tied to the price of gold. The contract was to measure the price of gold using the London Gold Fix in the afternoon. The contract was to measure the price of gold on June 28, 2012, and then again on June 20, 2013. If the price of gold was above a certain amount, the customer would get paid nearly $4 million.
In order to increase his profit and bonus, Plunkett decided to not allow the market prices to determine the price of gold. On June 27, 2012, he sent a note to the key commodities traders in London letting them know that he had a big risk the next day and would prefer to see the price of gold fix below $1,558.96. He wanted a "mini puke" — a crash in prices so that he could benefit.
The trading community obliged and kept the prices hovering near the target. Gold fixing in the afternoon happens at 3:10 p.m. London time. At 3:06 p.m., Plunkett placed a sale order for as many as 60,000 oz of gold, turning the whole market to be a net seller, hence driving the prices down. At 3:07 he withdrew the sale order as the market turned down so that he would not have to face any losses. But as fate would have it, the market began surging at that time as the August trade orders started trading and prices of gold started rising above his target. At 3:09, he placed another sale order of 60,000 oz of gold, making the market negative again. At 3:10, the London Gold market fixed the price of gold at $1,558.50, below his target. He gained $1.75 million for his profit and Barclays gained $3.9 million it did not have to pay the customer.
Obviously the customer was very unhappy and insisted on an investigation. During the weeks after that, Plunkett denied any wrongdoing and omitted to mention the fact that he had negatively traded very large amounts of gold so that he could manage the price of gold in his favor. Eventually he was caught, but for a long time, he was able to control the global market of gold and tweak the prices as he felt necessary to personally profit.
He was able to do this with the large paper-based gold markets, where purchases and sales can be made without any physical deliveries. But by placing large buy or sell orders, the prices can be manipulated in whichever way needed.
This is one case where such manipulations have come to light. What about the hundreds of times when we do not know who is managing the markets for their own gains.
Over in India, the government has raised restrictions on the imports of gold. So like the Chinese and other Asians, Indians will be allowed to buy large quantities of gold again.
What do the Asian know that we don't?
Have you bought gold today?
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