Gold knocked down again…and again

Signs of gold market manipulation with strange sales patterns emerging have reappeared and gold’s hoped for post-northern summer recovery has been nipped in the bud yet again.

The strange dealing patterns which were adversely affecting the gold price earlier this year appear to have returned again following the end of the northern summer holiday season. We were looking for some direction to be forthcoming now the money people are back at their desks – and so far this activity appears to be negative.

Why do we think these are strange dealings? They revolve around the unloading of a lot of gold contracts in a very short space of time out of hours at a time of day that there is normally little or no activity in the markets, and no news story being released at the time which might have precipitated such a dramatic shift. This has happened for both of the past two days, and we can probably expect more of the same. This is manipulation pure and simple. It’s not a logical pattern for any dealer to follow to generate maximum value for their sales, although arguably those holding big short positions would find the moves more than satisfactory. However some of the ‘usual suspects’ reckoned by the gold bulls to have been responsible for similar movements in the past have turned long on the metal, so perhaps they are not guilty after all.

Some even reckon China may be behind the manipulations which seem to be taking place after close of Asian markets and just ahead of opening of European ones. With the kind of gold purchasing activity seen in that nation when the gold price dropped so sharply back in April, perhaps this could be seen as yet another way of moving physical gold from West to East as part of an ongoing pattern to corner the global supply of gold. Certainly Western gold inventories seem to be declining rapidly and no-one is really sure how much physical metal actually remains in central bank coffers given their rather opaque accounting mechanisms. Who knows?

But, what seems to be apparent is that the kind of seemingly illogical activity seen in the gold market is still continuing and unless there is a major change in purpose from those causing these strange price patterns, then gold – and the other precious metals which move on gold’s coat tails – will likely continue to remain depressed which is very disappointing news for the junior gold sector in particular, which continues to remain very depressed. Indeed so many companies are just hanging on by the skin of their teeth at the moment that they may not be able to survive for very much longer.

With some estimates suggesting that about half the world’s new mined gold production is unprofitable at or around $1300 an ounce, there will have to be some more attrition here unless there is a very rapid turnaround in the price. World gold output is likely to be at best flat this year – it may turn down a little – but not drastically as one of the effects of a low gold price is that those on the edge, which have the capability of doing so, will be mining higher grades to try and stay afloat. And high grading at the same mill throughput means higher output of physical metal, albeit at the expense of longer term mine life. This pattern will likely continue, accelerate even, should the gold price remain at or around current levels, or lower.

Long term, of course this will all turn around, but who knows what period of time will be involved before this happens? In the meantime be prepared for more of the same, and additional volatility around economic data and any U.S. Fed intimations of tapering or otherwise. Same old, same old.


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