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Australasian Investment Review notes gold market manipulation

Section: Daily Dispatches

Big Move Coming in Gold Price?

From the Australasian Investment Review
via Yahoo News
Thursday, October 18, 2007

For many investors, the gold market is an esoteric one, to put it mildly.

At the heart of this mysteriousness is the claim made by many that central banks actively manipulate the gold price to mask the deteriorating value of their fiat currencies.

Of course, manipulation of any market cannot work indefinitely. Witness the ongoing gold bull market that began in 2001. Reported attempts to cap its rise have been futile over the long run. But attempts to influence short-term price movements are certainly achievable. And close watchers of the gold futures market are suggesting that a big move in the gold price is approaching.

Large commercial banks (rumoured to be acting at the behest of central banks) have built up an extremely large "short" position in the gold futures market, which means they are betting (hoping?) on a big fall in price. This position has been building since August and is offset by a large "long' position taken by other types of investors, such as traders, hedge funds, etc.

When the large commercial banks have taken big short positions in the past, the price of gold has usually fallen heavily. This is usually because they have deeper pockets than their "opponents."

However, this time the gold price has held firm, meaning the commercials are losing their bet and losing money.

The commercials will either increase their short position to exert more downward pressure on the gold price, resulting in a big fall, or cover their losing position and buy back the gold, sending the price rocketing.

Whatever the outcome, pressure seems to be building for a big move shortly in the gold price. Gold has already spurted higher to a series of 28-year highs but it seems the pressure hasn't gone away. Gold futures are trading around $US766 an ounce and its all-time peak back in 1980 was US$850 an ounce.

Gold is the odd commodity out at the moment, with all major metals and many softs (such as wheat) reaching all-time highs in the past 18 months.

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