Gold on sale, says the rational investor

Frank Holmes - U.S. Global Investors

Gold often attracts conspiracy theories when it falls so abruptly, especially on Mondays. Interestingly, in a recent article on Zero Hedge, ABC Bullion out of Sydney, Australia, details some of the speculation behind the precious metal’s beatdown, which I’ve also discussed in my blog.

Price manipulation, or a “bear raid,” could be a factor. Last week, gold prices experienced a mini “flash crash”—the first one in 18 months—after five tonnes of the metal appeared on the Shanghai market. Whether front-running or fat fingers are to blame, the sell order for what many are calling a bear raid was initially thought to have originated in China, but we now believe it came from New York City.

Did investors anticipate China’s negative flash purchasing managers’ index (PMI) last week? China is the largest consumer of gold, and the PMI is a useful leading indicator of commodities demand as well as job growth.

What about the Greek crisis? This type of debt fear crisis often has the effect of boosting the price of gold, but we didn’t see that happen. Did European central banks sell gold down to dampen the psychological impact of the event? Understating the seriousness of the debt crisis may have prevented investors from seeking gold as protection.