Gold traders' market manipulation concerns appear unfounded

Gold prices have been up and down lately, creating a roller-coaster ride for investors. Photo: public domain

WASHINGTON, November 5, 2013 — Gold prices have been up and down lately, which has created a roller-coaster ride for investors. Overall, it’s actually been a rough year for gold traders, following years of positive news about the commodity coinciding with substantial upside moves in its value.

Prior to the past year, gold had experienced quadruple growth against the US dollar. At one point in 2011, the closing high of spot gold touched a lofty $1900 per troy ounce. But the law of physics states that what goes up, must come down.

Gold began its journey back down in earnest as early as the spring of 2012, continuing throughout much of this year. A massive $25 single-day drop in early October 2013 led many gold investors to cry “conspiracy” because they feared a deliberate attempt was being made to manipulate the market. Perhaps adding to their fears was the fact that the sudden drop followed what the industry believed to be a single, substantial sell order.

In the weeks since that incident, however, gold has recovered somewhat, reaching a current valued above $1,300 an ounce. Overall, however, the metal has been struggling this year.

Gold dropped almost 20 percent in value in response to rumors that the Fed might begin reducing, or “tapering” its $85-billion-per-month bond purchasing program. This cutback, if and when it actually transpires, would lower the attractiveness of investing in gold, since many investors have purchased gold as a hedge against inflation. A Fed “taper” likely would increase interest rates, enhancing the value of the dollar and dampening interest in gold as an inflation hedge.

Gold’s drastic fall in value in early October preceded more recent good news for those who owned gold or gold ETFs. The price of the metal has experienced a roughly eight-percent increase in the past two weeks. Budget uncertainties in Washington, particularly around the time of the Federal government shutdown, have driven gold prices up, leading to optimism about the future of the commodity.


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Even with gold’s 20 percent drop this year, it’s still trading near its highest level ever. But analysts are closely watching how gold begins to trade after current options expire.

“If we get a close above $1,350 after options expire, we could see the market work higher,” precious metals strategist George Gero told Forbes.com. Until the end of the year, analysts expect a great deal of turmoil in the market as traders buy and sell in response to the uncertainty of the market.

Gold investment firms like Scottsdale Bullion & Coin and others have worked hard to help investors make the most of their market opportunities. During these tumultuous times, these firms have helped traders comprehend what the changes mean to them.

The economic nosedive of recent years has eaten away much of the trust many investors had in stock and bond markets, since many of them lost money in the investments they they had made years ago prior to the beginning of the Great Recesssion, or even further back during the 1999-2001 dot.com debacle.


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During tough economic times, gold has historically proven to be a good investment. But there are those who believe it’s not the best choice. In 2009, economist Martin Feldstein spoke out against the practice of purchasing gold in anticipation of its value increasing when the value of the dollar rises.

“The dollar price of gold does not increase with the US price level,” Feldstein writes. “And the value of gold does not increase in dollars to offset the fall of the dollar relative to the euro or the yen.”

Feldstein regards gold as a “purely speculative investment,” noting that in the next few years, traders could see its value drop or rise by hundreds or thousands of dollars per ounce.

But the good news is, the Dow and the S&P 500 have largely recovered during the uncertainty over gold’s future. The Dow in particular has had a great year, giving investors hope for a strengthening economy in general. As traders gain confidence in the stock market, gold might receive less attention from investors as they return their attention to other investments.

But for those who are gold enthusiasts, the commodity will always be the preferred option.


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Drew Hendricks

Drew Hendricks is a professional business and startup blogger that writes for a variety of sites including The Huffington Post, Forbes and Technorati.  Drew has worked at a variety of different startups as well as large advertising agencies.

 

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