Gold Market Under Heavy Manipulation Especially Before Option Expiry

Over the last several months we at the Firecracker Report have been noticing a sudden and sharp drop in physical gold prices on the days of large U.S. Treasury auctions. Further more these drops are particularly pronounced on the days when the Treasury auction week coincides with gold options/futures expiration (towards the end of each month). John Embry of Sprott Asset Management recently published a fascinating report, that encapsulates this trend that we have been observing all along:

In Mid-October gold surged to new all time highs approaching US$1070 an ounce despite a massive buildup in short positions by the commercials (bullion banks, etc.) on the Comex and widespread mainstream commentary that it was overpriced and in a bubble phase. Nothing could be further from the truth but the failing currency markets require the dissemination of considerable disinformation on gold to keep the public in line.

In the face of another option expiry, gold was then subjected to its usual vertiginous drop with the price being driven down nearly $30 an ounce in less than 24 hours early in the last week of October. Ostensibly this was caused by dollar strength, but the true explanation was another bear raid related to option expiry and the approach of yet another massive U.S. Treasury auction.

I believe that it is absolutely essential that investors realize that the U.S. government is becoming even more panic stricken as its financial condition deteriorates. Its fear of a failed auction is now so ingrained that it feels the need to aggressively groom markets to create the impression that all is well in the debt world. Ergo the U.S. dollar is forcibly propped up, and stocks and commodities and precious metals are taken down with the express purpose of getting a solid bid in the bond market on the eve of auctions. As preposterous as this sounds unfortunately it is reality.

What I find particularly objectionable is the blatant manipulation of gold prices prior to option expiry. Legitimate call option holders are essentially being defrauded by big banks as gold prices are intentionally driven down [via leveraged futures] to ensure that the options expire out of the money.

Now all this could be disregarded as pure fiction had we not witnessed a similar manipulation saga in another commodity - oil. Last year oil prices rallied to historic highs of ~$150/barrel and the whole time the CFTC denied the presence of any market manipulation. It is only 1 year later, after oil prices collapsed and the public as a result lost interest in the crisis, that the CFTC has begun to admit to futures markets being used to manipulate oil prices. In fact the CFTC has now done a complete 180 on their earlier position of (no market manipulation via oil futures) and are now talking about placing substantial restrictions on futures market trading in oil.

In conclusion, we would like to highlight to our readers that although market manipulation in gold prices is a big risk that gold investors are exposed to, in the long run, no amount of manipulation will be able to suppress the true upward trend. So we recommend using these "corrections" to your advantage and add to ones physical gold position.