To: RocketMan who wrote (30395 ) 5/1/2000 6:20:00 PM From: re3 Respond to
KAPLAN'S CORNER #2 (also asked by many readers over the past few weeks): QUESTION: How do you know that gold is not being manipulated to keep its price artificially low? ANSWER: There is enormous evidence that the gold price is not being manipulated. Firstly, manipulation almost always involves a small, tightly-knit group of people attempting to keep a particular commodity or financial instrument artificially inflated, so that a market corner can be established. It almost never benefits any group of investors to keep a physical commodity artificially deflated, since this requires organized short selling which can easily be undone rapidly by a well-timed short squeeze. More importantly, gold is far too liquid to be successfully manipulated for more than a few hours at a time. When it does occur, commodity manipulation almost always happens with thinly traded securities, so that market forces can be overcome by a concentrated, well-financed effort. For example, it would make more sense for a small Nasdaq stock to be artificially handled than S&P 500 futures, since there is too much money in large-cap shares, not to mention the futures themselves, to overwhelm any attempt to either inflate or depress these very liquid futures contracts. Similarly, the amount of gold traded just on the London cash market, not to mention the COMEX, is so enormous that even a well-concerted effort of brokerages and central banks could not hope to affect the price for more than a few hours on a light trading period such as a Friday afternoon before a holiday after Europe is finished for the week. Any intelligent group of manipulators would go after a commodity such as platinum instead. Additional evidence that gold is not being manipulated can be seen by examining historic levels of the S&P 500, the Nasdaq Composite, the U.S. dollar versus a basket of currencies, and gold. Given the huge rallies in traditional investments such as the S&P 500 and the Nasdaq, not to mention the strong and stable U.S. dollar, it is hardly surprising that gold is depressed in value. In fact, were gold as undervalued as the Nasdaq is currently overvalued, even after the Nasdaq's recent correction, it would be below $200 per ounce. If one examines the physical buying and selling patterns for gold over the past several years, one discovers that there is almost a perfect inverse relationship between purchasing demand and price, with a virtually continuous, roughly parabolic curve. What is happening is that a core group of investors around the world in aggregate creates a simultaneous equation of undervaluation whenever gold is depressed, incrementally and logarithmically scaling up their physical buying as the price drops. Plot a curve of the number of tonnes of gold purchased by India per quarter versus the gold price, for instance: the relationship is incontestable. It strains credibility to imagine that these billions of dollars in physical activity could be somehow overwhelmed by any group of investment capital, no matter how great. But the most convincing evidence that gold is not being manipulated is that it so slavishly respects support and resistance levels which date back months, and sometimes years. When a commodity is being manipulated, such charting points are entirely disregarded, which is one of the surest signs that manipulation is in fact taking place. The real proof of the pudding is in the eating: in other words, a creditable hypothesis should be able to predict the future. Therefore, watch what happens the next time the U.S. dollar makes a significant decline over a period of several weeks, especially versus the euro, the Australian dollar, and the Swiss franc. If it is true that gold is not being manipulated, then gold should rally roughly in inverse proportion to the dollar's decline. If gold is being manipulated, then gold will simply ignore the dollar's slide and remain persistently weak.
