Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
US House Prices Trend Forecast 2024 to 2026 - 11th Oct 24
US Housing Market Analysis - Immigration Drives House Prices Higher - 30th Sep 24
Stock Market October Correction - 30th Sep 24
The Folly of Tariffs and Trade Wars - 30th Sep 24
Gold: 5 principles to help you stay ahead of price turns - 30th Sep 24
The Everything Rally will Spark multi year Bull Market - 30th Sep 24
US FIXED MORTGAGES LIMITING SUPPLY - 23rd Sep 24
US Housing Market Free Equity - 23rd Sep 24
US Rate Cut FOMO In Stock Market Correction Window - 22nd Sep 24
US State Demographics - 22nd Sep 24
Gold and Silver Shine as the Fed Cuts Rates: What’s Next? - 22nd Sep 24
Stock Market Sentiment Speaks:Nothing Can Topple This Market - 22nd Sep 24
US Population Growth Rate - 17th Sep 24
Are Stocks Overheating? - 17th Sep 24
Sentiment Speaks: Silver Is At A Major Turning Point - 17th Sep 24
If The Stock Market Turn Quickly, How Bad Can Things Get? - 17th Sep 24
IMMIGRATION DRIVES HOUSE PRICES HIGHER - 12th Sep 24
Global Debt Bubble - 12th Sep 24
Gold’s Outlook CPI Data - 12th Sep 24
RECESSION When Yield Curve Uninverts - 8th Sep 24
Sentiment Speaks: Silver Is Set Up To Shine - 8th Sep 24
Precious Metals Shine in August: Gold and Silver Surge Ahead - 8th Sep 24
Gold’s Demand Comeback - 8th Sep 24
Gold’s Quick Reversal and Copper’s Major Indications - 8th Sep 24
GLOBAL WARMING Housing Market Consequences Right Now - 6th Sep 24
Crude Oil’s Sign for Gold Investors - 6th Sep 24
Stocks Face Uncertainty Following Sell-Off- 6th Sep 24
GOLD WILL CONTINUE TO OUTPERFORM MINING SHARES - 6th Sep 24
AI Stocks Portfolio and Bitcoin September 2024 - 3rd Sep 24
2024 = 1984 - AI Equals Loss of Agency - 30th Aug 24
UBI - Universal Billionaire Income - 30th Aug 24
US COUNTING DOWN TO CRISIS, CATASTROPHE AND COLLAPSE - 30th Aug 24
GBP/USD Uptrend: What’s Next for the Pair? - 30th Aug 24
The Post-2020 History of the 10-2 US Treasury Yield Curve - 30th Aug 24
Stocks Likely to Extend Consolidation: Topping Pattern Forming? - 30th Aug 24
Why Stock-Market Success Is Usually Only Temporary - 30th Aug 24
The Consequences of AI - 24th Aug 24
Can Greedy Politicians Really Stop Price Inflation With a "Price Gouging" Ban? - 24th Aug 24
Why Alien Intelligence Cannot Predict the Future - 23rd Aug 24
Stock Market Surefire Way to Go Broke - 23rd Aug 24
RIP Google Search - 23rd Aug 24
What happened to the Fed’s Gold? - 23rd Aug 24
US Dollar Reserves Have Dropped By 14 Percent Since 2002 - 23rd Aug 24
Will Electric Vehicles Be the Killer App for Silver? - 23rd Aug 24
EUR/USD Update: Strong Uptrend and Key Levels to Watch - 23rd Aug 24
Gold Mid-Tier Mining Stocks Fundamentals - 23rd Aug 24
My GCSE Exam Results Day Shock! 2024 - 23rd Aug 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

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

© 2005-2022 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