Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
Investing in Crypto Currencies With Both Eyes WIDE OPEN! - 25th Oct 21
Is Bitcoin a Better Inflation Hedge Than Gold? - 25th Oct 21
S&P 500 Stirs the Gold Pot - 25th Oct 21
Stock Market Against Bond Market Odds - 25th Oct 21
Inflation Consequences for the Stock Market, FED Balance Sheet - 24th Oct 21
To Be or Not to Be: How the Evergrande Crisis Can Affect Gold Price - 24th Oct 21
During a Market Mania, "no prudent professional is perceived to add value" - 24th Oct 21
Stock Market S&P500 Rallies Above $4400 – May Attempt To Advance To $4750~$4800 - 24th Oct 21
Inflation and the Crazy Crypto Markets - 23rd Oct 21
Easy PC Upgrades with Motherboard Combos - Overclockers UK Unboxing - MB, Memory and Ryzen 5600x CPU - 23rd Oct 21
Gold Mining Stocks Q3 2021 - 23rd Oct 21
Gold calmly continues cobbling its Handle, Miners lay in wait - 23rd Oct 21
US Economy Has Been in an Economic Depression Since 2008 - 22nd Oct 21
Extreme Ratios Point to Gold and Silver Price Readjustments - 22nd Oct 21
Bitcoin $100K or Ethereum $10K—which happens first? - 22nd Oct 21
This Isn’t Sci-Fi: How AI Is About To Disrupt This $11 Trillion Industry - 22nd Oct 21
Ravencoin RVN About to EXPLODE to NEW HIGHS! Last Chance to Buy Before it goes to the MOON! - 21st Oct 21
Stock Market Animal Spirits Returning - 21st Oct 21
Inflation Advances, and So Does Gold — Except That It Doesn’t - 21st Oct 21
Why A.I. Is About To Trigger The Next Great Medical Breakthrough - 21st Oct 21
Gold Price Slowly Going Nowhere - 20th Oct 21
Shocking Numbers Show Government Crowding Out Real Economy - 20th Oct 21
Crude Oil Is in the Fast Lane, But Where Is It Going? - 20th Oct 21
3 Tech Stocks That Could Change The World - 20th Oct 21
Best AI Tech Stocks ETF and Investment Trusts - 19th Oct 21
Gold Mining Stocks: Will Investors Dump the Laggards? - 19th Oct 21
The Most Exciting Medical Breakthrough Of The Decade? - 19th Oct 21
Prices Rising as New Dangers Point to Hard Assets - 19th Oct 21
It’s not just Copper; GYX indicated cyclical the whole time - 19th Oct 21
Chinese Tech Stocks CCP Paranoia, VIES - Variable Interest Entities - 19th Oct 21
Inflation Peaked Again, Right? - 19th Oct 21
Gold Stocks Bouncing Hard - 19th Oct 21
Stock Market New Intermediate Bottom Forming? - 19th Oct 21
Beware, Gold Bulls — That’s the Beginning of the End - 18th Oct 21
Gold Price Flag Suggests A Big Rally May Start Soon - 18th Oct 21
Inflation Or Deflation – End Result Is Still Depression - 18th Oct 21
A.I. Breakthrough Could Disrupt the $11 Trillion Medical Sector - 18th Oct 21
US Economy and Stock Market Addicted to Deficit Spending - 17th Oct 21
The Gold Price And Inflation - 17th Oct 21
Went Long the Crude Oil? Beware of the Headwinds Ahead… - 17th Oct 21
Watch These Next-gen Cloud Computing Stocks - 17th Oct 21
Overclockers UK Custom Built PC 1 YEAR Use Review Verdict - Does it Still Work? - 16th Oct 21
Altonville Mine Tours Maze at Alton Towers Scarefest 2021 - 16th Oct 21
How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
The Only way to Crush Inflation (not stocks) - 14th Oct 21
Why "Losses Are the Norm" in the Stock Market - 14th Oct 21
Sub Species Castle Maze at Alton Towers Scarefest 2021 - 14th Oct 21
Which Wallet is Best for Storing NFTs? - 14th Oct 21
Ailing UK Pound Has Global Effects - 14th Oct 21
How to Get 6 Years Life Out of Your Overclocked PC System, Optimum GPU, CPU and MB Performance - 13th Oct 21
The Demand Shock of 2022 - 12th Oct 21
4 Reasons Why NFTs Could Be The Future - 12th Oct 21
Crimex Silver: Murder Most Foul - 12th Oct 21
Bitcoin Rockets In Preparation For Liftoff To $100,000 - 12th Oct 21
INTEL Tech Stock to the MOON! INTC 2000 vs 2021 Market Bubble WARNING - 11th Oct 21
AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
Stock Market Wall of Worry Meets NFPs - 11th Oct 21
Stock Market Intermediate Correction Continues - 11th Oct 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Gold Markets Are Not Efficient, Don't Reflect Fundamentals and Understate Gold's Market Value

Commodities / Gold and Silver 2013 Sep 27, 2013 - 08:11 PM GMT

By: Julian_DW_Phillips


This is a series on how and why the gold markets fail to reflect the true balance of demand and supply in gold and silver prices. Many investors expect and believe that the gold price is an accurate reflection of demand and supply, but it isn't.

In a perfect market the exact weight of demand and supply on a daily basis would be reflected in the daily prices. In both gold and silver markets this is just not true. Many of these factors are common to all markets, but in the gold market the different factors on a broad front are wider and more complex than most. The extent of market liquidity is a key factor in the efficiency of markets so we need to know just how responsive to prices is the liquidity of the gold market.

It's naïve to expect markets to be perfect in a very imperfect world and where large investors have a disproportionate power to influence precious metal prices - aided by the different structures of different global markets and their relationships to each other -- so the most important point for both traders and investors is that they realize this and adjust their trading and investment with these factors in mind. Of course, the real skill is being able to synthesize these factors into an understanding of where gold and silver prices will go and when.

But this subject has major relevance today. We know that global demand for gold is as strong as ever right now, if not stronger, so why isn't this being reflected in the gold price?

  • Will the demand eventually find its way into the open global market and impact the gold price? Or has it been knocked away from doing so?

  • Why does New York have such an impact on precious metal prices when, particularly in the case of gold it is a minor player in terms of demand and supply [7% of global annual demand]?

  • With China and India the main physical gold buyers, why isn't the market in one of those countries and dominating it when combined they account for around 70% of global demand?

  • How easy is it for prices to be managed and manipulated?

We hear much talk about market manipulation by various institutional bodies, but have you thought just how the different gold markets can do this by their structure and through the institutions that provide market liquidity?


As we start this series, it's good to have an analogy on which to hang the picture so we have a clear picture at the end of the series. An analogy that best portrays the interaction of different market influences in the gold and silver market is the seashore. There are three influences: the current, tide and waves. The current is the most dominant influence as it dominates the other two influences.

But the tides are the most dominant noticeable influence to us. They dominate the wave action completely. But in the increasingly short-term world of financial markets, it's the moment to moment wave action that absorbs the media and unfortunately the traders and often investors. This wave action can be gently and placid on wind free days, but can be whipped up into a raging surf with its furious mist just as easily. But the surf and wind has barely any influence on the actions of the sea, even though they rivet our attention.

Here again we would be naïve to believe that the sea-shore of financial markets would be allowed to act and react smoothly to the underlying influences.

In a commodity market, the bulk of the product is negotiated between user and supplier by an ongoing contract for a specific amount. Anything above or below that amount is supplied to or bought from the open market or exchange. But surprisingly enough, it is the marginal amount bought and sold and the price at which this is done that determines the price that the bulk of demand and supply is priced at.

In the gold market, we will look at the most efficient part of the market where 90% of physical gold is traded, the London Gold Fix.

The Gold Fix

One market where there is close communication between the various professionals is the London gold Fix. Think of a pyramid shape with the 5 gold bullion banks in London (see at the top. These communicate on a twice daily basis at 10.30 in London's morning and at 3.00 p.m. there to set the gold price at which all gold deals dealt there are priced. Each of these banks has its own clients who are buying and selling and many of these have internal clients buying and selling within their own walls. Each professional 'nets' out the supply and demand before he takes his 'net' position up the pyramid to the higher level until the overall, net position of his bullion bank in the structure is netted out and used as a basis for determining the Fix. If the price they are considering changes their net position and raises the demand or supply, he has another price is looked at. Once the five banks are in agreement over a particular price, then the price is set for all deals being transacted at that particular fix.

In this way demand and supply as reflected in the banking system is smoothed out. But there are so many other factors that influence the gold market that detract from an accurate picture. It's these that we will examine. You will then see just how easily gold prices can be deflected from giving and accurate balance of demand and supply. In some cases, such 'deflections' are outright price manipulations without the manipulators buying and selling physical gold. We have seen this year, in April alone, cases where buying and selling of gold has been engineered by banks and their largest clients, and very successfully so. But we will also look at other ways this can be done. It can even be done with the banks absent from the picture.

We conclude this first part by emphasizing that if the gold market were truly efficient the gold price would be much higher and with far less volatility.

Hold your gold in such a way that governments and banks can't seize it! Enquire @

Gold Forecaster regularly covers all fundamental and Technical aspects of the gold price in the weekly newsletter. To subscribe, please visit

By Julian D. W. Phillips
Gold-Authentic Money

Copyright 2012 Authentic Money. All Rights Reserved.
Julian Phillips - was receiving his qualifications to join the London Stock Exchange. He was already deeply immersed in the currency turmoil engulfing world in 1970 and the Institutional Gold Markets, and writing for magazines such as "Accountancy" and the "International Currency Review" He still writes for the ICR.

What is Gold-Authentic Money all about ? Our business is GOLD! Whether it be trends, charts, reports or other factors that have bearing on the price of gold, our aim is to enable you to understand and profit from the Gold Market.

Disclaimer - This document is not and should not be construed as an offer to sell or the solicitation of an offer to purchase or subscribe for any investment. Gold-Authentic Money / Julian D. W. Phillips, have based this document on information obtained from sources it believes to be reliable but which it has not independently verified; Gold-Authentic Money / Julian D. W. Phillips make no guarantee, representation or warranty and accepts no responsibility or liability as to its accuracy or completeness. Expressions of opinion are those of Gold-Authentic Money / Julian D. W. Phillips only and are subject to change without notice.

Julian DW Phillips Archive

© 2005-2019 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

Post Comment

Only logged in users are allowed to post comments. Register/ Log in