By Alasdair Macleod ReBlogged From Gold Money
Gold weakened during May by about $100…from a high point of $1300 to a low of $1200. For technical analysts this is entirely within the normal correction zone of a third to two-thirds of the previous rise, which would be 84 to 167 dollars.
So the price decline is technically reasonable…and therefore doesn’t in itself signify any underlying challenge to the merits of a long position in gold. However, when looking at short-term considerations, we should look at motivations as well. And those clearly are the profit to be made by banks dealing in the paper bullion market, which they can simply overwhelm by issuing short contracts out of thin air. This card has been played successfully yet again, with the bullion banks first creating and then destroying nearly 100,000 contracts, lifting the profits from hapless bulls in the COMEX market.
The banks get the money, the punters get the experience…and the evidence disappears. The futures market is demonstrably little more than a financial casino, where the house, comprising the establishment banks, always wins. Financial markets are not about free markets and purposeful pricing, which is why the vast majority of outsiders, including hedge funds, those Masters of the Universe of yore, usually lose. This leads us to an important conclusion: the fall in prices has less to do with a change in outlook for the gold price, and more with the way a casino-like exchange stays in business.