Timothy K. Fife : Investment markets update

By on April 3, 2015

Is Gold Price Manipulated?

 

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The answer is, yes it is, the question is how and why? Supply and Demand certainly control commodity prices but Gold holdings have such an International importance to a countries economic stability. Jim Rickards, a well known U.S. economist, gives an outstanding explanation of the dynamics of Gold ownership among the major players.

GDP, Gross Domestic Products, represents how big a Countries economy is all it’s goods and services.
USA has retaken number one spot with China second. US has 70% of its reserves in Gold (8000 tons) which is 2.7% of their total GDP. China’s official Gold reserve number is 0.7% to their GDP, disproportionate to such a large trading Country and dangerously makes their economy unstable. If you took the lid off Gold, China would be left in the dust.

Gold serves as Political chips and China has to be on the bus to play. So Global efforts have been to keep the lid on by manipulation for lower value. It serves such an obvious point – to buy China time to play catch-up as China is US’s largest trading partner and so important to world financial liquidity. The United States needs to keep China happy by allowing them to gain a hedge in increased Gold holdings. Also, China holds over a trillion dollars in US Currency and Bonds and US is reluctant to devalue their Dollar as it would impact China negatively. So, lot’s going on behind the scenes.

Russia’s Gold holdings is only 1/8 th of the United States. But their economy is also 1/8 th the size of the US. therefore their Gold quantities are considered healthy to their GDP. Europe is even higher at over 4%.

Gold is liquid but the Market is very thin at the moment. If Morgan Stanley does a huge order is has to be worked through different countries and Central Banks. It’s transacted through BIS, the Bank of International Settlements in Basal, Switzerland, who does get audited. The fly in the ointment is a possible collapse of worldwide liquidity where systems will not be able to get here from there. Now there would be a mad scramble to get as much Gold as possible as price escalates.

Currency price action from last week kept to the script as the US Dollar held its momentum strength as the Euro continued to falter. The Dollar Index hit the 100 – level, the first time since 2003 while the Euro sank another 3%. The Euro potentially faces a tough week ahead as four Central Banks have meetings, United States, Norway, Switzerland, and Bank of Japan. Undoubtedly, Janet Yellen on Wednesday will be the major event as Investors will be looking to see if she uses the word “Patience” in her speech or not, giving vital clues as to when an Interest rate hike may occur. Goldman Sachs sees EUR/USD parity by September. The CHF and GBP also showed their weak side as the New Zealand Dollar made some gains for the week. The pace of the British Pound losses over the last three weeks has been the biggest surprise to traders.

OIL suffered a 10% weekly plunge and closed at 44.99 as the market continues to fret over the excess supply levels.
Gold had a good day Friday but did finish the week behind 1% as the US Dollar was just too strong but did stay above 1150. Further weakness is being forecasted by many analysts.
United States Stock Markets were down for the week in a volatile see-saw battle while the strongest in Europe was the DAX with money is pouring in from around the Globe.

Monday March 16 has started the new trading week off with Oil in immediate action, dropping a quick dollar to be at 43.55 just as Saudia Oil advisors said price will sill soon stabilize with OPEC next major meeting in JUNE.
ECB’s Draghi takes centre stage as the only major event for the day. His statements coming after the European close.

 

Timothy K. Fife

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