Since the ancient times of the Byzantine Empire, gold was “the money”. The seed of this system was the great expansion of foreign trades and a need to define a standard for bartering with different cultures i.e. the barbarians. This continued to be the money system of the world till the inventing of paper money, which later replaced the gold standard in the 70s, and the new concept of gold reserve became dominant. Yet, gold remained an equivalent for money and a major asset of the world’s current monetary polices. These facts are well known by the world leaders and economists alike, even though the try to deny gold of its importance.
Reasons of Manipulating the Gold Market
Also, it is well known that the gold market depends on the supply of physical gold. There are three main sources of supplying physical gold in the market: gold mining, gold recycling and central banks sales. The supply chain of gold has been facing difficulties since 2005, as gold production began to widen the gap between the supply and demand. Even though central banks and gold recyclers tried to lessen this gap, they can’t continue forever. Gold mining companies aren’t trying to manipulate the gold prices, but mines are depleting and they are forced to work on lesser grades of gold ores or found new projects in less politically-stable countries. Either way, it’s not something that should drive gold prices lower. In order to cover-up for this shortage and keep gold prices as low as possible, governments and co-operations get their hands dirty and manipulate the markets.
It’s not the first time for the gold market to be cornered, which is the first step for manipulating a market. Cornering the market is to gain enough control, without having a complete monopoly. The most common way of achieving this goal is mass buying gold, either openly or subtly. The funny thing is that few of market cornering actions pay out.
Past Events the U.S. Manipulated the Gold Market
A well-known event, the Black Friday, in 1869 was a famous scandal where two speculators tried to manipulate gold prices by cornering the gold market in New York Gold Exchange. Similar to the atmosphere we have now, a great recession was in action and the U.S. was right out of a war. The two investors bought gold massively and didn’t sell it, which raise gold prices as the California Gold Rush was still fresh, and the general public became aware of the true value of gold. The U.S. government interfered by selling $4 million worth gold just to suppress gold prices. The president of the U.S. at that time, Ulysses S Grant, was suspected to have a part in this scandal, but with no clear-cut evidence accusing him with corruption.
Another example of the U.S. government interfering with the gold prices was in 1970s. After Vietnam, the inflation rate was souring, and the gold prices started to go banana. The U.S. government, in response to the sky-high prices of gold, canceled the Gold Standard Act and established the system they prepared in 1943 for a day like that, The Gold Reserve Act, which prohibits individuals from holding physical gold and gold certificates. This act slowed down gold prices and showed effect by the decrease in gold prices in the 1980s. It couldn’t stop gold prices from reaching its peak in 1980, selling some of the Federal Reserve and inflating oil prices hold the gold prices at bay for quite some time.
Now, the U.S. is at war against “terrorism”, and having great economic complications. Note that the effect of wars and recessions lasts of years, and economic miscalculation may take years to be discovered and appear on the surface. The U.S. is just protecting its currency system, and it has all the rights to do so. But is the right system to protect? Does the U.S. economy and decision makers are on the right track? They always advocate the “Free Market”, but they are not freeing it. Unless they explain why they are contradicting themselves, there is definitely something fishy is going on and we need to know it.