by Dan Popescu, Gold Broker:
We can’t speak about the manipulation of the gold price today without understanding the derivatives market. Right after the crash of 2000 in the stock market I became alarmed by the exponential increase of derivative products but especially by the complexity of those products. I am sure that if I asked one of those financial engineers who has designed those products to explain their functioning and consequences in a bear market or, better yet, in a crash, he would be incapable. We are familiar with derivatives in real life through cars. When we speak of the speed of a car we talk of a first derivative, while acceleration, an increase of the speed, is a second derivative. But in finance we have gone well belong that to third, fourth and even higher derivatives. Those products have never been tested in the real world and especially in adverse conditions as a major crash. I concluded then that the next financial crisis will have derivatives at its core. The 2008 crisis confirmed it to some extent. The next crisis will be much worse and it will also have derivatives at its core. In the gold market derivatives are presently dictating to the physical market what the price should be whereas by definition, as derivatives, they should be derived from prices set in the physical market.
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