Impassible is dangerously similar to
impossible.
Allow me a moment to spin a web of intrigue. Imagine you are one of the BIGGEST players in gold, and you've sold paper gold to levels beyond what a private tunnel to Fort Knox could cover. You and a bunch of other big players been doing this for years.
Lately, too many people have woken up to the fact that there are a lot more paper contracts than there are bars to back those up. Some of the investors have begun losing confidence in those contracts and are trying to collect the metal. You only have a fraction of the metal needed, and if too many people do this, the whole house of cards that you and your associates built over the last 10-20 years will come tumbling down.
By working together, your group held the psychological resistance line of 2000. The bull market kissed $1920 and then fell back. Then things got stuck in a range. Some well timed buys and sells reduced your exposure a little, but not enough. The demand for physical metal in exchange for paper contracts still has your whole cartel hanging on the edge of oblivion.
A few months ago, an agreement was reached to sell paper contracts for more than the world's annual production of gold in just a couple of days. This worked well. Shock and awe ruled the market at prices plunged. Your total liabilities decreased significantly. There are still problems - both paper and physical gold buyers took advantage of the reduced prices and you are still over exposed and over leveraged on shorts. Worse, price isn't too far above production costs.
What to do?
How about this - let the free market reign for a few more weeks or months, then do another fire sale. This time, your goal is to break the psychological support at the $1k mark. If you can do this, panic will rule the marketplace. Holders of paper and physical gold will try to dump it as fast as they can. As the price of gold falls below the price of production, the stocks in many of the biggest gold producers will plummet too.
You and your cartel then swoop in. You can snatch up piles of long contracts, paper gold contracts, and even physical gold at prices only dreamed of by a crazy Pharaoh. Even better, you can buy a lot of shares in the world's biggest gold producing companies at a fraction of what they are worth.
Now comes the true fun. You've finally undone your leverages exposure to price increases. Your cartel has acquired a lot of physical metal as well as paper contracts from other players who didn't want to be part of your operation. You have significant stock holdings (in some cases, controlling interest) in most if the biggest producers in the world.
Now, at last, any motive you had for artificially holding down prices is over. Instead, your cartel puts all remaining assets into a buying spree while spreading rumors about how many mines are about to permanently close. You could even try to expose some non-member of the cartel that's over-leveraged itself on paper contracts to further accelerate the price increase of physical metal. Panic buying spreads like wildfire. The $2000 psychological resistance is a shrinking dot in your rear view mirror as record highs are set ever week.
Maybe I'm wrong. Maybe there is no cartel. Maybe no one's manipulating prices. Maybe every contract out there is backed by physical gold. Then again, maybe not.
