At the heart of it, is fear. Gold is possibly the best fear gauge there is. When investors are scared over inflation, civil war, earthquakes, nuclear reactor meltdowns and debt defaults, they run to gold. Here are the top 5 reasons why gold is popping.
5. Price Manipulation
Price manipulation is the most controversial theory that has circulated among gold bugs for 20 years. Some argue that gold prices have been illegally suppressed over the last two decades by central banks and governments. The Gold Anti-Trust Action Committee, or GATA, is the biggest complainant. According to the World Gold Council, central banks reportedly hold 30,534.5 tons of gold, with the International Monetary Fund accounting for 2,814 tons. GATA argues that central banks actually have less than 15,000 tons of gold, and that the missing gold has been secretly sold or leased into the market to prevent gold prices from rising to their actual value, which should be between $3,000 to $5,000 an ounce.
"The reasoning for the suppression is governments/bankers [look at] gold to be a barometer of the health of economies and countries. These suppressors want to kill or at the very least, greatly slow the messenger," argues Peter Grandich, editor of Grandich Publications. The suppression theory means that global economies are in worse financial shape than investors think and that gold should be bought as the ultimate safe haven. The gold manipulation theory has been gaining traction of late after trader Brian Beatty filed lawsuits at the end of October against JPMorgan and HSBC for conspiring to "suppress and manipulate" silver prices on the Comex. A Chicago law firm, Cafferty Faucher, filed a lawsuit at the end of December against HSBC and JPMorgan accusing the two of using their positions as silver holders to purposefully suppress the silver price so they could profit from their short positions.
The Commodity Futures Trading Commission is now investigating the possibility of criminal activity in manipulating the silver futures market, particularly at JPMorgan. The belief is that as investors realize that the precious metals market is manipulated, gold and silver prices will rise exponentially, but until then prices will suffer. "Our complaint is that more often now they're doing it surreptitiously as a mechanism of supporting their currencies, supporting government bonds and suppressing interest rates," says Chris Powell, secretary and treasurer of GATA. The opposition, however, believes that claims of price suppression are completely unfounded. "If this is suppression," says Jon Nadler, senior analyst at Kitco.com. "I think it's completely ineffectual, and let me have more of it."
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