Gold price fixing? Muldoon what do you make of this?

[ScottA]

Is massive short selling being used to hold down the price of gold?

Because of the decades-long interference with the gold market, we estimate that the free-market price of gold is multiples of the current price. Growing stress caused by burgeoning physical bullion demand is threatening to lead to a price explosion, which will restore to the market the balance that regulation has failed to maintain. In our view, the Comex paper market will become dysfunctional, with "force majeure" having to be declared as the concentrated shorts are unable to deliver on their obligations."

http://www.zerohedge.com/article/gata-claims-have-evidence-massive-physical-short-gold-and-silver-positions-can-not-be-covere

[peternap]

Sales talk!

[muldoon]

Scott,

GATA has been making these allegations for decades.  In some respect, they may be true.  I do not doubt that the large banks actively manipulate  markets for their own profit.  In fact, I think there is huge sums of proof that make it undeniable.  With that in mind, what does it mean?

The author makes the speculation that since they have huge sums of naked shorts without having physical to cover it, if push came to shove they would be unable to meet the obligations to deliver physical and the "real price" would skyrocket because there was not enough gold to meet the demand if they were forced to buy it.

First fallacy with that is that they do not "have" to delivery physical anymore. From the Chicago mercantile exchange:
http://www.cmegroup.com/clearing/trading-practices/efp-ebf-efr-trades.html

Generally acceptable related position instruments EFRPs include, but are not limited to, the following:

Metals Contracts: For metals contracts, the acceptable related position component for an EFP is limited to the specific underlying commodity ( e.g. Gold for Gold Futures); although the related position need not be deliverable grade of the particular commodity, there must be a reasonable level of correlation with the associated futures. The related position in an EFR or EOO may be a swap or OTC swap/option instrument. Exchange Traded Funds ("ETFs") are acceptable provided that the ETF mirrors the relevant Exchange metal product.

If they do not have the gold, they can give you shares of GLD.  They can manipulate the price of GLD with fraudulent shorting, and when you ask for gold, they can give you shares of GLD, that they can "theoretically" control the price of. 

I have stated many times on this forum that I do not like gold as an investment, and this is another reason to hilight the risks involved in futures and paper trading.  The only way to play gold is with physical (as in holding it in your hand, in your safe, or in your backyard) and it only pays off if we lose our entire currency or if we hit upon a hyperinflation scenario (wheres the lending that makes that happen tho, even if we had lending, how does it actually get into wages?  Is it even possible for americans to get paid tens of thousands of dollars a day when you look at china and India and the like who still will work for pennies?).  Anyway, even if such a scenario did play out, you may or may not be able to use that gold to preserve your wealth.  It could potentially be confiscated (as was done in the 30s) or it could be taxed at such a high rate that selling would be impossible (windfall tax sound like something congress would cook up?)

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But - to answer your question, I think the allegation is likely true.  But I dont think anything will be done about it, I dont necessarily think it portends to a higher gold price as the article predicts.  I think it's just business as usual.  If things were to get dicey, those same banks would be selling assets and the paper price of GLD would plummet.  If you tried to play the futures market to capitilize on the contango between GLD and physical, you leave yourself open to large counterparty risk of getting the same crappy GLD in return. 

[ScottA]

Thanks muldoon. That's kinda what I figured but I hadn't heard this one before. I'm looking for a way to save some cash for a rainy day that's not subject to the inflation tax.

[fishing_guy]