Gold-price collapse hints at something murky in markets

Goldfinger is back in business with a masterplan to dominate the world economy by secretly manipulating the global gold and bullion markets.

Well, maybe it isn’t James Bond’s old adversary, but some suspect a similar game is afoot by market manipulators who they reckon caused the biggest fall in the gold price in 30 years. Prices of silver, oil and other commodities have slumped in sympathy since gold crashed six trading days ago.

Such speculation is inevitable as no-one can explain exactly why the gold price suddenly slumped . . . and what will happen next. This is causing deep stresses for goldminers and investors, not least in a major gold producer such as New Zealand, providing real benefits to the economy in terms of overseas earnings and employment.

Oceana Gold runs world-class mines in Otago and the West Coast that produce up to 300,000 ounces a year, and Newmont controls the productive Martha Mine in Waihi.

Since April 12 Oceana Gold has slipped from $3.10 to $2.09 on Thursday though it picked up to $2.20 on a slightly higher gold price on Friday. Newmont and other Australian miners such as Newcrest have also registered nasty falls.

The thousands of Kiwis who have been buying gold bars, coins and gold jewellery will also be substantially poorer than they were a week ago. They’ll be wondering at the advice they were given that gold was the ideal investment in uncertain economic times and ahead of the expected rises in inflation later this decade because of money printing by the US and Japan.

Mining companies are being especially hard hit because investors are concerned that they may become unprofitable as the gold price falls. A mine that was developed when gold was, say, US$1700 an ounce will now look a different proposition if extraction prices stay below US$1400 an ounce. Credit Suisse says that at the current gold price only two Australian stocks it researches, Perseus and Alacer Gold Corp, offer upside for buyers.

Some believe dark forces, possibly a New York hedge fund either in trouble or out to make a killing, has caused the slumping price which at US$1392 on Friday represented a 28 per cent fall since January.

Paul Craig Roberts, a former US assistant treasury secretary, backs this view. He says that the US Federal Reserve was involved in a “concerted effort” with market players to scare people away from gold and silver, drive down the price, and buy American dollars instead.

Thomas Pascoe, writing on economics for the London Daily Telegraph says the facts, as known, did not justify the fall, and he suspects “market rigging” in what he says is a complex, opaque market. “Gold prices are determined by demand and supply. The supply is relatively fixed, and the extent of gold reserves and production is known.”

However, some economists see the slumping gold and commodity prices as a sign that the efforts to heal the world economy have failed and serious trouble lies ahead. This, they say, may have catastrophic effects on share, property and financial markets which have soared to high levels in the past year or so.

While no-one can pin down an actual event that provoked the sudden price slump, gold analyst John Mauldin notes that 500 tonnes of paper gold futures contracts were suddenly dumped on the market on April 12. This suggested an effort was being made to drive down the gold price.

Gold index tracker funds have been big sellers of gold, with an unusually high US$9.2 billion worth sold between January and March. Some suspect they may have been forced sellers with investors demanding their money back, possibly to pursue better-performing assets, like shares. This selling pressure won’t have helped the gold price.

Other reasons suggested for the fall include a sale of Cyprus‘s gold holdings after the EU bailout, rumours that the Italian Central Bank was selling, while Asian bankers said it was linked to Japan‘s decision to print money. Inevitably there are those who see the fall as a buying opportunity. One New Zealand bullion firm predicted gold will soar to US$2740 an ounce later this year.

Gold experts interviewed by the BBC World Service say they are confounded by the fall because there has been no fall in demand for real gold from keen Asian buyers and for jewellery. The Times of India says demand is stronger than ever ahead of a big festival when people traditionally buy gold as gifts.


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