I am becoming a gold bug. While conspiracy theorists have been telling us, wrongly, for years that the price of gold is being manipulated, that doesn't mean that there is no current fix going on now to shove down yellow metal price down. In fact, an unexpected player in the precious metal market almost certainly intervened to cut the gold price back at 9:30 pm EST on Sunday night right before the market opened in what was Monday morning in Shanghai.
By what market experts are calling “a bear raid”, in a 4-minute period more than 21,000 future contracts for gold were dumped, covering 5 tonnes of gold bearing a nominal valuation of $1.7 bn. Who could have had that much gold to sell in the first place?
The answer is China, a gold-mining country. Market experts are convinced the seller was the People's Republic of China, its central bank. Within minutes the sell-off spread to the just-opened Chinese exchanges which also trade gold, and then to Asia markets. And when other markets opened, stop-loss positions led to further selling in Europe and America. Later Monday gold prices recovered somewhat after the Comex woke up.
Here is why China wanted gold prices to fall. The country's rulers are battling to boost the stock markets a month after they fell into the red (in Chinese, called the green, because red is a lucky color.) By eliminating an alternative to stock investing, the regime was triggering more share buying in the Shanghai and Shenzhen struggling stock markets.
This week, China's Securities Regulatory Commission reiterated that it will continue to support share prices via boosts in market liquidity, bans on short-selling, delaying IPOs, and other measures. Curiously, it is investigating alleged investor pools which violated market rules by pushing share prices down. It is not, however, investigating maneuvers to push share prices up, also in violation of market rules.
Chinese investors traditionally have a taste for bullion. About 25 years ago I visited Hong Kong (then a Crown colony) at Chinese New Year. A shop window held a statue of the Buddha, about 18 inches high, made of solid gold, which was being raffled off. There was a line around the block to buy raffle tickets. To discourage its superstitious citizens from switching away from underperforming shares and phantom real estate placements, I think Beijing deliberately undermined the gold price Sunday night by triggering a flash crash. It did something similar in January in the copper market, also during Sunday Asian market hours.
