Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
Gold, Silver and Copper - The 3 Metallic Amigos and Their Messages - 5th Dec 20
TESCO Christmas Decorations Festive Shop 2020 - How to Beat the Coronavirus Economic Depression - 5th Dec 20
Premium Bonds Good, Bad or Ugly Investment? Here's What Return (Prize Wins) to Expect - 5th Dec 20
How to accomplish a technical analysis with the Forex - 5th Dec 20
What is life insurance and what are the benefits of having it? - 5th Dec 20
Pre-COVID US Economy Wasn’t All That Great Either - 4th Dec 20
Bitcoin Breath Taking Surge - Crypto Trading Event - 4th Dec 20
Platinum Begins A New Rally – Gold & Silver Will Follow - 4th Dec 20
Don't Let the Silver (and Gold) Bull Shake You Off! - 4th Dec 20
Stronger Risk Appetite Sends Gold below $1,800 - 4th Dec 20
A new “miracle compound” is set to take over the biotech market - 4th Dec 20
Eiro-group Review –The power of trading education - 4th Dec 20
Early Investors set to win big as FDA fast-tracks this ancient medicine - 3rd Dec 20
New PC System Switch On, Where's Windows 10 Licence Key? Overclockers UK OEM Review (5) - 3rd Dec 20
Poundland Budget Christmas Decorations Shopping 2020 to Beat the Corona Economic Depression - 3rd Dec 20
What is the right type of insurance for you, and how do you find it? - 3rd Dec 20
What Are the 3 Stocks That Will Benefit from Covid-19? - 3rd Dec 20
Gold & the USDX: Correlations - 2nd Dec 20
How An Ancient Medicine Is Taking On The $16 Trillion Pharmaceutical Industry - 2nd Dec 20
Amazon Black Friday vs Prime Day vs Cyber Monday, Which are Real or Fake Sales - 1st Dec 20
The No.1 Biotech Stock for 2021 - 1st Dec 20
Stocks Bears Last Chance Before Market Rally To SPX 4200 In 2021 - 1st Dec 20
Globalists Poised for a “Great Reset” – Any Role for Gold? - 1st Dec 20
How to Get FREE REAL Christmas Tree 2020! Easy DIY Money Saving - 1st Dec 20
The Truth About “6G” - 30th Nov 20
Ancient Aztec Secret Could Lead To A $6.9 Billion Biotech Breakthrough - 30th Nov 20
AMD Ryzen Zen 3 NO UK MSRP Stock - 5600x, 5800x, 5900x 5950x Selling at DOUBLE FAKE MSRP Prices - 29th Nov 20
Stock Market Short-term Decision Time - 29th Nov 20
Look at These 2 Big Warning Signs for the U.S. Economy - 29th Nov 20
Dow Stock Market Short-term and Long-term Trend Analysis - 28th Nov 20
How To Spot The End Of An Excess Market Trend Phase – Part II - 28th Nov 20
BLOCKCHAIN INVESTMENT PRIMER - 28th Nov 20
The Gold Stocks Correction is Maturing - 28th Nov 20
Biden and Yellen Pushed Gold Price Down to $1,800 - 28th Nov 20
Sheffield Christmas Lights 2020 - Peace Gardens vs 2019 and 2018 - 28th Nov 20

Market Oracle FREE Newsletter

FIRST ACCESS to Nadeem Walayat’s Analysis and Trend Forecasts

How Central Bankers Control the Gold Price

Commodities / Gold & Silver Oct 01, 2007 - 01:15 PM GMT

By: Adrian_Ash

Commodities

"...What is it with leading commercial banks – first Credit Agricole...now Citigroup – and their accusations of wanton gold-price manipulation by central bankers...?"

"IT WAS SO embarrassing... "I mean, who in the hell ever let the guy publish that report? Credit Agricole was a laughing stock. Everyone in the gold industry was amazed. It was just ridiculous..."


The gold-market analyst I met for a beer one warm summer's evening in Soho, London earlier this year took himself very seriously. The infamous report from Chevreux – a division of Credit Agricole – on the other hand, made him wince.

The Remonetization of Gold by Paul Mylchreest put the reputation of France's largest bank right on the line – the very same line spun by the Gold Anti-Trust Action Committee ( GATA ) since 1999.

"Central banks have 10-15,000 tonnes of gold less than their officially reported reserves of 31,000" the Chevreux report announced. "This gold has been lent to bullion banks and their counterparties and has already been sold for jewelry, etc. Non-gold producers account for most [of the borrowing] and may be unable to cover shorts without causing a spike in the gold price."

In other words, "covert selling (via central bank lending) has artificially depressed the gold price for a decade [and a] strongly rising Gold Price could have severe consequences for US monetary policy and the US Dollar."

The conclusion? "Start hoarding," said Paul Mylchreet...a smart call. Because in finance, being right – even if for the wrong reasons – still pays off. His report for Credit Agricole's Chevreux division was published in January last year. Come May 2006, the Gold Price leapt to a 26-year high. It's since gone on to break those levels again, rising to its highest price since the all-time peaks seen at the start of 1980.

As for the world's central banks, they seem to done a pretty bad job of "covert selling" since the start of this decade. The Gold Price has now doubled for US investors and savers, and it's pretty much doubled for British and European gold owners, too. Japanese gold prices have more than tripled.

How come? Whatever the reality of active, covert manipulation, the world's central banks do indeed control the Gold Price , as former Federal Reserve governor Wayne Angell put it in 1993.

"The price of gold is pretty well determined by us...But the major impact on the price of gold is the opportunity cost of holding the US dollar...We can hold the price of gold very easily; all we have to do is to cause the opportunity cost in terms of interest rates and US Treasury bills to make it unprofitable to own gold."

Cutting interest rates below the rate of inflation between 2003 and 2005, the Greenspan Fed guaranteed a bull market in gold. Cutting rates again now in late 2007, even as oil and global crop prices move to new record highs, the Bernanke Fed seems bent on pushing Gold Prices higher, too.

Indeed, a new report from Citigroup – the United States' largest bank – agrees with Credit Agricole's conclusions. "Central banks have been forced to choose between global recession or sacrificing control of gold," say John Hill and Graham Wark at Citi, "and [they] have chosen the perceived lesser of two evils.

"We believe that the policy resolution to the credit crunch will take the form of a massive, extended 'Reflationary Rescue' in a new cycle of global credit creation and competitive currency devaluations. This could take gold to $1,000 an ounce, or higher."

More than that, the flood of central-bank gold sales earlier in 2007 was "clearly timed to cap the Gold Price ," they go on. But little good it did the central bankers' aim of capping gold if so. The price just moved above a 27-year high vs. the Dollar, and it's tracking new 16-month highs for European investors each day.

Why suppress gold? If gold goes higher, or so the thinking runs, then the world's confidence in the confidence-trick of paper money backed by government promises alone might just collapse. That was the threat in the late 1970s. Given last month's run on Northern Rock in the United Kingdom...and now the collapse of NetBank in the US...that might come to be seen as a possible threat again today.

Allegations that the world's major central banks actively work together to suppress the price of gold were only given credence in 2004 when Paul Volcker – chairman of the US Federal Reserve at gold's all-time top – said in his memoirs that "letting gold go to $850 per ounce was a mistake" during the last great bull market in gold bullion.

At one of the policy meetings led by Volcker in late 1979, his Federal Reserve committee noted the threat of "speculative activity" in the Gold Market . It was spilling over into other commodity prices. One official at the US Treasury called the gold rush "a symptom of growing concern about world-wide inflation."

"We had to deal with inflation," as Volcker said in a PBS interview of Sept. 2000. "There was a kind of great speculative pressure.

"It was the years when everybody wanted to buy collectibles from New York. The market was booming, and other markets of real things were booming – because people had got the feeling that things were inflating and there was no way you could stop it."

But besides waving a gun at anxious gold owners, there seemed only one other route to stopping speculators profiting from – or rather, defending themselves against – the demise of the Dollar.

Fix it up with higher interest rates. The Volcker Fed took US interest rates to 19%...and put the real cost of Dollars above 9% after adjusting for inflation. The Gold Price sank almost in half inside 12 months.

Because just like Wayne Angell says, the price of gold really is determined by central bankers. They hold it very easily...simply by causing the opportunity cost in terms of interest rates and US Treasury bills to make it unprofitable to own gold.

To do that, however, they have to raise interest rates dramatically above inflation. If you don't trust the Bernanke Fed to do that – not least after they cut 0.5% off the returns paid to Dollar savings in mid-Sept. – then you want to consider Buying Gold today.

By Adrian Ash
BullionVault.com

Gold price chart, no delay | Free Report: 5 Myths of the Gold Market
City correspondent for The Daily Reckoning in London and a regular contributor to MoneyWeek magazine, Adrian Ash is the editor of Gold News and head of research at www.BullionVault.com , giving you direct access to investment gold, vaulted in Zurich , on $3 spreads and 0.8% dealing fees.

(c) BullionVault 2007

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.

Adrian Ash Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules