Gold Manipulation and Long-Term Expectations

I have seen a lot of stories, mostly by gold bugs, who blame the recent fall in the gold price on manipulation.  Usually it refers to manipulation by either the big financial institutions, or the Federal Reserve itself.

I understand why gold advocates want to call foul and blame the whole thing on manipulation.  Perhaps they are right to a certain degree and that there are people in the establishment trying to bring down, or at least hold down, the price of gold.

But we also have to realize that just because you are an advocate of having some gold holdings and gold investments, it doesn't mean we have to make excuses or find someone to blame whenever the price doesn't move in our favor.  The gold price went up from under $300 per ounce to over $1,900 per ounce in a 12 year period.  It shouldn't be that big of a surprise that it went back to just under $1,400.  Almost nothing goes straight up.  It is often two steps forward and one step back.  Sometimes you take more than one step back.  This can play out over years.

Even if there is manipulation in the gold market, then people should see that as a wonderful buying opportunity.  If the price is being artificially suppressed, then that means it is a good time to buy.  You will make money just by having market forces correct the artificial price.

If the price of gold is being manipulated by some big players, including the Fed, then this is limited.  You can only short a market so much for so long.  Eventually, buyers of physical gold will win out.  If there is strong enough demand for physical gold, then the paper market will have to reflect this at some point.

So, with a long-term view of this, I would not worry about the drop in the gold price and I would not worry about possible manipulation.  I would concentrate on the fact that the U.S. government's debt and spending is huge, that the Fed is creating $85 billion per month in new money, and that real interest rates (interest rates minus inflation) are negative.

I do not need to make excuses when the price of gold goes down.  I don't recommend it for short-term trading in most cases.  If you have a longer-term view of things, then you should not worry about the price of gold dropping in terms of U.S. dollars.  If you are light on gold holdings for your investments, then you should take it as another opportunity to buy more.