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The Chinese are buying gold but the price has dropped

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There have been rumors of China buying some 1,000 tons of gold this year and yet the price of gold has dropped considerably in the same period. This paradox suggests that there may be some factors in play which manipulate the price of gold and suppress it to a level where, yes, China might venture to buy some more gold.

The gold price suppression scheme practiced by bullion banks and commercial banks on behalf of central banks is largely responsible for this phenomenon. Governments and central banks are wary of the price of gold becoming too high for their own comfort. Gold is considered a threat to fiat currency which can be readily printed by central banks to manipulate the economy. Gold however cannot be printed and is rightfully considered money.

In order to suppress the price of gold, a large number of contracts are typically sold on the market during times when trading has ceased in one time zone and just starting in another. This massive short selling has the effect of depressing the price of gold as it triggers a host of stops on the way down, thus mushrooming into a steep drop.

That the actual price of physical gold may not have as adverse an impact as naked short selling on the market price of paper gold is a phenomenon by itself. The term backwardation describes the situation where the current price of gold is actually higher than the future price of gold at the next traded month. Owning physical gold is therefore safer in terms of it being a physical, tangible store of value, and hence the interest by the Chinese in acquiring as much physical gold as possible.

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