Fool's Gold Report: Bullion Prices Retreat; Is the Fix In for Gold?

Precious-metals investors still talk about the efforts of the Hunt brothers to corner the silver market, with their multi-year accumulation of the metal leading to a spike from $11 per ounce to $50 per ounce in late 1979 and early 1980. Nearly 40 years later, though, news of possible price-fixing in the London gold market was met with little fanfare, as April gold futures fell $10 per ounce, to $1,321.60, while May silver dropped $0.11 per ounce, to $21.24. The resulting drops of about 0.5% in the SPDR Gold Shares (GLD 0.62%) and iShares Silver Trust (SLV 0.42%) reflect how little importance gold investors ascribed to the news, even as many believe that gold is poised on the brink for a new bull-market move higher. Mining stocks were also little changed, with the Market Vectors Gold Miners ETF (GDX 3.65%) down just 0.4%.

Source: Kitco. As of 5:30 p.m. EST.

Why no one seems to care about price-fixing
The price-fixing allegations came in the form of an academic research paper that looked at the way in which five key participants in the gold market agree to their London gold-fix price. With a history going back almost a century, the major trading banks in the market meet each afternoon to set prices for the day, with the process involving a somewhat informal attempt to find a market-clearing price at which supply and demand reach equilibrium. The paper noted that the process isn't regulated, but that the resulting price has a big impact on the overall gold market, with implications for everything from jewelry prices to central-bank transactions.

Image sources: Wikimedia Commons; Creative Commons/Armin Kubelbeck.

Yet, the speeds at which information dissemination occurs, combined with easily tradable gold investment vehicles like the SPDR Gold Shares, have made benchmarks like the London gold fix much less important, at least on the investing side. That doesn't diminish their importance for industry players with contracts tied to that benchmark rate, but it does explain why news of potential manipulation didn't create wholesale destruction in the gold market today.

Demand is back
Meanwhile, another positive sign for gold came from Barclays today, which said that ETFs and other publicly traded products will see their first monthly inflows this month since late 2012. The inflows are relatively modest, but even small amounts of money coming into the market represent an important milestone in gold's overall recovery. At the same time, Barclays sees platinum regaining an even larger premium over gold prices, especially if continuing platinum supply constraints related to labor unrest in South Africa stay in place for a while.

Gold's gain of about $60 per ounce during the past month has been impressive, but investors shouldn't get used to gains at that pace. Even if prices take a pause in the near future, gold could still continue to recover over the longer run if investors regain confidence in its prospects.