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Is It Possible to Manipulate Gold Prices?

With the perceived reliability of traditional retirement plans decreasing over the years, many people are turning to a gold IRA as an alternative. But you should know some things about the gold market – namely, how it can be manipulated – before you get too deep into gold investment.

Manipulation exists in numerous financial markets as experts and traders attempt to influence the markets to their benefit. This results in short-term aberrations in asset pricing, including the price of gold. However, a better, more specific definition gets at how gold prices get manipulated.

According to the US Securities and Exchange Commission, manipulation is intentional conduct designed to mislead investors by controlling or artificially affecting the market for a security. Traders do this by rigging quotes, prices, or trades to generate a deceptive idea for a security demand.

A popular belief in the gold trading community is that gold prices are manipulated in a downward trend, otherwise known as price suppression. This article will go over how gold manipulation is possible, how it occurs, and what you can do to protect your assets. We’ll even cover some of the things naysayers say when refuting claims that banks control gold in any meaningful way.

Table of Contents

Are Gold Prices Manipulated?

In short, yes, they are. Leading gold investors hold the belief that the market is getting systematically manipulated. Some believe gold prices fall to the whim of central bankers, while others blame big banks and the way they use derivatives and high-frequency trading to lower the price of gold.

Western governments in particular – such as the US Treasury and its Exchange Stabilization Fund, the US Federal Reserve, allied governments, and central banks – manipulate gold daily, sometimes each hour, to control and essentially artificially lower gold’s value.

Why Have Western Central Banks Rigged the Gold Market?

Gold is a powerful and widely recognized international currency. For that reason, if it were allowed to function on the free market, it could determine the power of other currencies, the number of interest rates, and even the value of government bonds.

Typically, in free markets, without gold prices manipulated by investors, the currency’s performance tends to trend oppositely to government bonds and cash. This is due to people’s using gold as an alternative money source or a protection against the fluctuations of their government’s currency. People buy gold IRAs as a fail-safe, not because they expect it to increase with their dollar’s value.

For that reason, gold typically increases in price when a government’s currency decreases. This is primarily true in countries whose governments don’t produce much gold. Central banks, therefore, manipulate gold to defend their bonds and other assets against internal competition.

Unfortunately, the strategies these Western banks employ to devalue gold affect much more than just gold. Even if under the guise of good intentions, these decisions can affect markets, ravaging some and generally annihilating commodity-producing countries. The term “financial repression” is widely used to encapsulate the destruction that occurs when banks manipulate gold prices.

Plenty of government records and academic literature back up these claims. One only has to take a brief look at history to see how gold fluctuates and how it coincides with the performances of Western markets in particular.

How Do Gold Prices Get Manipulated?

man thinking if gold prices can be manipulated

Traditionally, bankers manipulated gold overtly, unloading it at critical moments. Eventually, this process went from semi-regularly to an everyday occurrence. When the US, United Kingdom, and seven other European countries did this in 1960, historians referred to it as the London Gold Pool.

After the gold pool crashed around 1968, the US and other countries began manipulating gold more covertly. To this day, experts consider gold manipulation strategies to be one of the most enormous ongoing crimes in financial history, especially when considering how lucrative they are for Western countries and disproportionately devastating to others.

To surreptitiously devalue gold, bankers rely on leasing. In this process, they trade derivatives, options contracts, and futures and employ high-frequency trading. They do this through investment banks, disguising their ongoings from the public. When they buy and sell gold outright, it’s more subdued and therefore has little effect on markets.

Naked Gold Short Selling and Bullion Banks

Gold prices get manipulated by bankers through short selling. This happens when an investor sells gold they do not currently own. Typically, they’ll borrow the gold for the transaction.

We call short-selling naked when borrowing does not occur before the transaction. Therefore, naked short sellers cannot consistently deliver the gold to their buyers. For this reason, short selling has a controversial connotation.

Many believe that federal banks utilize bullion banks to use naked shorts to manipulate gold prices, driving them down. As we covered recently, banks get incentivized to do this by driving their nations’ currencies.

Evidence of Gold Price Getting Manipulated

The four former chairmen of the Federal Reserve have all gone on record acknowledging how banks manipulate gold in declassified documents. In a testimony to Congress in 1998, Chairman Alan Greenspan admitted that banks release gold in response to rising prices. He said that this was not to earn some money but to suppress gold’s value.

The Gold Anti Trust Action Committee (GATA) learned in 2012 that, in 1999, Western central banks concealed various gold swaps, loans, and transactions to intervene in gold and currency markets selectively.

The US dollar stands to gain a lot by gold’s manipulation, and bankers work tirelessly to keep their control of gold consistent.

Many Factors at Play

Central banks utilize many strategies to manipulate gold prices with their reserves, sometimes altering markets in ways they didn’t intend. Central banks are less likely to attempt standard market manipulation, as these furtive movements on the side influence the market well enough, especially for its more discreet nature.

Unfortunately, there’s little a small investor like you or I can do conclusively to accuse and enact action upon banks and prominent players manipulating gold prices. Instead, we can look to the long term: how is the gold market negatively affected?

Investing with a long-term mindset allows you to move past the small, intentionally created fluctuations in the gold market. The Federal Reserve and other large institutions will always possess a large amount of gold to stabilize market expectations. This gives large and small investors opportunities, keeping the gold market thriving.

How Does Gold Price Manipulation Affect Gold’s Value?

As you might have surmised, gold is significantly undervalued in today’s economy. Still, others argue that we should be less myopic. This day-to-day trading accumulates to affect markets and long-term prices.

Still, this defense doesn’t leave us in a great place. Gold price manipulation still negatively affects specific markets and the value of gold itself. Likewise, investors don’t have the decades necessary to smooth prices or enforce a more straightforward, accountable, and honest financial system.

A Contrary Opinion: Long-Term Cycles in the Gold Market

a gold technical chart going sideways

Some other experts will argue there’s no academic evidence to suggest gold selling. Part of this is due to the long-term behavior of gold prices and their cyclical nature. Western bankers have become so good at deceptively trading derivatives that gold appears stable in the long term.

Likewise, skeptics would point to selective accusations of suppression. People will tend to accuse banks of collusion when gold prices sink, but when they rise, they attribute it to the market working as intended.

Arguably, the gold market that spans globally is too large and diverse to be influenced by the actions of a few bankers. If gold were to decrease in value rapidly, even casual traders would respond by buying copious amounts, driving demand and leading to higher prices once more.

Normal market behavior affecting the US dollar, interest rates, and risk-aversion can account for a lot of gold’s fluctuation throughout history. Largely, this opinion revolves around the idea that you cannot track gold’s manipulation in the long-term in any meaningful way.

Conclusions – What Gold Price Manipulation Means For You

Overall, gold price manipulation is a controversial topic. We see naturally-occurring bull and bear markets for gold, but bear markets do not always indicate foul play. But with history as our guide, governments have openly manipulated gold prices in the past, and there’s evidence to suggest they’re just doing it in more hidden ways now.

Regardless of how banks utilize their ability to leverage gold prices internationally, gold still sits as one of the best long-term investment solutions. For profile diversity alone, this tangible asset can give you accountable wealth that you can repurpose in later parts of your life. We encourage you to read more about gold price manipulation, as there’s plenty of literature on the matter.

If you want to learn more about gold and how to invest, check out some of the guides on our site. If you’re committed to the idea of trading gold or investing in a gold IRA, contact us today using the form on our site to find a gold IRA partner. We’ll offer an initial consultation to get you up to speed on our process and see how we can help you grow your assets.

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