Gold Market Manipulation And The Federal Reserve

Assertions are made that the manipulation takes place in a shroud of secrecy; and the unexpected lower prices for gold, or prices that don’t meet wildly bullish expectations, are cited as evidence of conspiratorial activity.

The claim is made that the price of gold would be much higher if this manipulative trading activity were exposed, acknowledged, and prohibited. But…

ALL MARKETS ARE MANIPULATED

I don’t disagree that there are forces at work in the gold market that can be disruptive; and may even be described as manipulative. However, the same is true of all financial markets – stocks, bonds, commodities, etc.

It is worth pointing out that gold and silver bulls are one-sided in their arguments against manipulation and its presumed effect on prices.

When prices don’t meet expectations on the high side, or an  ‘unexpected’ drop in price occurs, finger-pointing at shadow figures is heightened.

Long-side investors in all assets, including precious metals, ‘benefited’ from the manipulative efforts of the Federal Reserve twelve years ago and again just recently.

The recent recovery in prices for stocks, bonds, oil,  gold, and silver has been almost unbelievable. It is literally jaw-dropping, but nobody is complaining. Nobody cries foul when markets are manipulated for the purpose of driving prices higher.

Only a couple of years ago, JP Morgan Chase’s accumulation of silver was assumed to be bullish for silver prices. On the other hand, they have also been subject to scrutiny about price manipulation. Would silver bulls care about price manipulation if prices went up?

ALL HAIL THE FED

When prices of most assets dropped sharply in 2008, the Federal Reserve stepped in with both guns blazing and pledged incalculable amounts of money and credit creation. Their efforts led eventually to significant increases in previously beaten down stocks and bonds. The benefits to gold were more immediate and more spectacular. Nobody complained.

At first, the Fed’s actions were expected to cause a surge in the effects (i.e., higher prices for most/all goods and services) of the inflation that had just been created. Some experts predicted “runaway” inflation.

The condition referred to as runaway inflation is a reflection of an accelerated drop in the purchasing power of the currency in use bordering on repudiation. In this case, negative sentiment for the US dollar increased and its weakness was reflected in higher prices for gold.

However, the expected huge increase in prices for most goods and services did not occur. With the realization that runaway inflation wasn’t on the front burner and that US dollar weakness had run its course – at least temporarily so – the gold price fell.

Gold had already increased four-fold between 2001 and 2008 when the credit collapse threatened the integrity of our financial system. Prices of financial assets, including gold, fell sharply.

During a period of approximately six months from spring to fall in 2008, the price of gold declined by more than thirty percent. After that, it was off to the races again.

For the next three years, the price of gold climbed one hundred seventy percent, reaching $1895 per ounce in August 2011. All assets benefited from the Fed’s hugely inflationary, gift-giving propensity, but none more so than gold.

Then, after the realization that 2 plus 2 does not equal 10, the gold price declined to more reasonable levels. This decline occurred against the backdrop of a continually strengthening US dollar.

Of course, after the gold price declined, claims about manipulation and price suppression began anew; and continue.

The recent year-long bounce in the gold price has again sparked dreams of wealth coming from expected higher gold prices. If someone accepts price suppression of gold as factual and evidential, then they must also recognize that no institution has done more to pave the road to higher gold prices than the Federal Reserve.

GOLD PRICE VS VALUE

However, the previous statement is by no means laudatory of the Fed.

The Federal Reserve has destroyed the US dollar over the past century by continually expanding the supply of money and credit. That debasement of the US dollar has led to a decline of more than ninety-eight percent in its purchasing power; and that decline in purchasing power is the reason for gold’s higher price over time from $20 per ounce to $1700 per ounce.

Some gold investors are way too price-conscious; nay, price-dependent is a more accurately descriptive term. They seem to be constantly in need of higher prices to justify their predictions for gold.

The purpose of the article is to point out how each time higher price expectations aren’t met, the price predictors trot out the price suppression argument. If they understood and accepted the argument for everything it implies, then they would already own physical gold and they wouldn’t have to defend their errant price predictions.

The case for gold is not about price. It is about value. Gold’s value is in its use as money and its value is constant and stable.

Gold is the original measure of value for all other goods and services. Gold’s price tells us nothing about gold. It tells us what has happened to the US dollar; nothing else.

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Kelsey Williams is the author of two books: INFLATION, WHAT IT IS, WHAT IT ISN’T, AND WHO’S RESPONSIBLE FOR IT and ALL HAIL THE FED!