At this point, the gold price is driven almost entirely by the COMEX futures price although who's driving the price flips back and forth between COMEX and the LBMA "fix". See http://www.kitco.com/ind/Skoyles/2013-0 ... rrors.htmlflagator wrote: What does the forum think about gold price discovery? Do you guys believe that in general gold price reflects true supply and demand out there? If so why, and if not, why not?
The COMEX price has virtually nothing to do with "true supply and demand" but is rather a function of how many speculators are willing to bet long vs. how many are willing to bet short. Or, more precisely, the total amount of money speculators are willing to bet long vs. the total amount of money speculators are willing to bet short.
A significant portion of the short bet (which depresses the price) is from less than a handful of traders, widely suspected to be mostly JP Morgan (who is a bullion bank and involved in one way or another in essentially all of the gold ETFs). Why they would, in their own account (as opposed to their customers' accounts), have a very large short position on gold is kind of a mystery. If their short position is as large as widely believed, they can effectively dictate the price (reducing their short position makes the price go up, increasing it makes the price go down). The Hunt brothers attempted to corner the silver market in the late 70s from the long side and were ultimately banned from the market. However, they never controlled as much of the silver market (from the long side) as JP Morgan is alleged to control of the gold market (from the short side).
Does the price of gold reflect true supply and demand? Hell no.