Manipulation of Gold Prices

Gold market manipulation, also called gold price manipulation, can be defined broadly as a purposeful effort to control gold prices. Many gold investors believe that the gold market is systematically manipulated – but is it really? What evidence is there for such a belief?

I secretly found that I can manipulate the gold market!
How? Whatever I bought, it went red.

Price manipulation exists in financial markets as traders try to influence the markets (in this case, the gold market). It may be responsible for some short-term aberrations in asset prices, including the price of gold. However, there is another, more specific definition. According to the U.S. Securities and Exchange Commission, manipulation is intentional conduct designed to deceive investors by controlling or artificially affecting the market for a security. This includes rigging quotes, prices, or trades to create a false or deceptive picture of the demand for a security. A popular belief within the gold investing community is that gold prices are manipulated, generally downwards, in what is described as price suppression.

Are Gold Prices Manipulated?

Many gold investors believe that the gold market is systematically manipulated. There are many variations of this theory: some say that precious metals are under the thumb of central bankers, while others blame big banks and their use of derivatives (‘naked’ shorts) and high-frequency trading for the declines in the price of gold. There are also worries about the discrepancy between paper gold and physical gold, the fairness of London trading, declining inventories at Comex, and the leasing of gold by central banks. At first glance this theory makes sense, especially considering that the price of gold was fixed for decades by governments or suppressed under the London Gold Pool, while a few financial institutions have already been fined for influencing or manipulating gold prices.

But how are those institutions supposed to manipulate the price of gold?

Many people accuse bullion banks of naked short selling of gold in order to drive down the price. What is “naked gold short selling?” Let’s start with gold short selling, which is the sale of bullion that is not currently owned by the seller (usually borrowed) and the subsequent repurchase of the metal. The idea is to take advantage of the price decline, as it enables you to repurchase the yellow metal at a lower price.

We say that short selling is naked when gold short selling occurs without first borrowing it, or at least ensuring that the precious metal can be borrowed. So the short-seller can sometimes fail to deliver gold to the buyer. The impact of naked shorts is, thus, controversial. The popular story says that the Fed uses bullion banks as its agents to put on naked gold shorts on Comex in order to drive down the price of gold. It protects the U.S. dollar’s value and enables banks to repurchase gold at lower prices.

However, if short sellers on Comex were really as uncovered as it is claimed, there would be a huge “short squeeze” and the price of gold would rise. If a bank or a few banks were to be massively naked short selling gold and could not deliver the gold they’re supposed to deliver, the demand for gold would go up, which would push the price of gold (at least physical gold) way up. Therefore, any manipulation using naked shorts would be short-lived.

Alternatively, if banks had massive short positions in the gold market, they would have to buy large numbers of futures contracts to cover their position and buy the physical metal to deliver it or roll their positions, buying expiring contracts and selling the next one out. In all cases, the short-term impact of selling the futures contract would be reversed as banks would have to unwind their positions (investors should also not forget that for each seller of a futures contract, there must be a buyer). Thus, the practice of naked gold short selling, existing or not, cannot explain the long-term bear markets in gold. At best, it can explain only very short-term (a few days) price anomalies, such as the 2021 case of traders from Deutsche Bank and Merrill Lynch.

Goldman Sachs, JP Morgan Chase, and Gold

So if those big banks aren’t constantly manipulating the price of gold, then what is their role in the market? They are market makers.

Goldman Sachs was founded in New York in 1869 by Marcus Goldman (later, his son-in-law, Samuel Sachs, joined the company). It is one of the largest investment banks in the world. It’s well known for its political connections – its former executives often work in the government. For many people, Goldman Sachs is a villain, responsible for financial crises and the suppression of gold prices. Surely, the bank is large and powerful, so it may sometimes take advantage of its position, but the gold market is liquid to such a degree that nobody can exert permanent downward pressure on it. Actually, Goldman Sachs should sometimes intervene in the gold market - it is an LBMA market maker, after all!

JP Morgan is an investment bank headquartered in New York. It’s the largest bank in the United States and one of the biggest in the world. Together with Goldman Sachs, JP Morgan Chase is considered to be a ‘bad dude’, a kind of greedy manipulator. In particular, many gold analysts don’t like the bank, as it is accused of selling uncovered shorts on Comex. However, these analysts seem to not understand what bullion banks are. They don’t bet on price moves. Instead, they take the opposite side of the trade with speculators. As a reminder, JP Morgan is an LBMA market maker and it’s additionally responsible (with other banks) for clearing gold, so it must engage in the gold market. But it doesn’t mean that it’s able to permanently suppress gold prices.

Long-Term Cycles in the Gold Market

Indeed, academic research has not found any clear evidence of gold price suppression. Moreover, when we look at the long-term behavior of gold prices (see the chart below), we see clear cyclical patterns, not a permanent downward trend (or even a flat line).

Figure 1: Gold bull and bear markets (from April 1968 to January 2022, London PM Fix).

Therefore, from the long-term perspective, and especially looking at the 2000s, it is hard to understand the accusation of manipulation in the gold market. The cries of “suppression” are extremely selective. According to those who fervently believe in manipulation, when the price of gold is decreasing then this is the obvious effect of evil conspirators, however, when the price of gold is rising then there is no manipulation and the true market forces are at work. The influence on prices may be short-lived, as low prices cure low prices. The gold market is simply too big and too liquid for any person, central bank, or corporation to control. Therefore, any attempt to systematically suppress gold prices would be counterproductive, since the reduction in the price of gold would trigger a market reaction in the form of higher demand and upward pressure on the price.

Proponents of the gold price manipulation theory also claim that gold is real money. Therefore, without manipulation, gold would set the value of fiat currencies and the level of interest rates. But how? Banks’ funds and ordinary people can buy and sell physical gold right now, yet monetary policy and banks do not respond to the change in the demand and supply of gold, but rather the other way around. Usually, people increase their demand for gold in response to changes in monetary policy and the situation in the financial markets. If gold, without manipulation, would indicate the proper value of currencies and level of interest rates, then why, according to research, does the causation seem to be the other way around? Does the price of gold respond to changes in interest rates, the strength of the dollar, and faith in the stability of the financial system?


The bottom line is that, despite many variations of the theory of manipulation in the gold market, its supporters offer scant evidence. Just as with other asset classes, there are both bull markets (when the price of gold goes up), as well as bear markets (when the price goes down). Bear markets do not imply that there is a deliberate suppression of prices. They are normal market behaviors resulting from changes in the gold market’s fundamentals. Indeed, the fundamental factors, such as the U.S. dollar, real interest rates, or risk aversion, do a very good job of explaining the behavior of gold prices in the long term.