Is Someone Manipulating the Price of Gold?

To hear some investors tell it, “manipulation in the gold market” is a scandal on the scale of Bernard Madoff’s Ponzi scheme, perhaps even greater.

Bankers and exchange officials insist, just as vigorously, that that is nonsense. The accusations “lack credible evidence or even a sensible theory,” the managing director of the CME Group, Thomas LaSala, recently told a hearing of the Commodity Futures Trading Commission, which regulates positions in precious metals.

A leading advocate of the manipulation charges, the chairman of the Gold Anti-Trust Action Committee, William J. Murphy III, was buoyed over the weekend by a New York Post dispatch reporting on a London-based trader who has reportedly claimed that London-based JPMorgan Chase traders bragged to him about how they make money by manipulating the metals markets. A JPMorgan spokesman told the Post that no one at the company was familiar with the trader, Andrew Maguire, who does not work for JPMorgan Chase.

“I’m having fun today,” Mr. Murphy told me the day the Post article appeared, calling the article “the first mainstream story that gives it a fair shot in 11 years,” and a welcome change from “people calling us tin-foil-hat nuts.”

The fact that people are starting to pay attention is a sign of the increased popularity that investing, or speculating, in gold has attracted amid the initial uncertainty of the economic crisis and the predictions of inflation that have accompanied increased federal spending and low interest rates.

The hedge fund manger famous for making billions by betting against sub-prime mortgages, John Paulson, has reportedly put $250 million of his own money into a fund dedicated to investing in gold. Another prominent hedge fund manager, George Soros, reportedly recently increased his fund’s holdings of an exchange-traded fund that owns gold, to $663 million worth, while, somewhat confusingly, Mr. Soros was also saying publicly that “the ultimate asset bubble is gold.”