With the $US Gold price on the slide again this week, and again for no "apparent" reason, the Gold websites and forums are again alive with talk and speculation about manipulation of the price. This, we contend, is belabouring the obvious.
The only monetary system in which there is no "manipulation" of the Gold price is a system in which there is no "Gold price" to manipulate. Under a genuine Gold standard, Gold IS the money. As such, it forms the "denominator" in ALL prices. The price of any economic good for sale on the market is expressed in terms of a certain amount (weight) of Gold. This can be ounces or fractions of ounces, grams or fractions of grams, grains or fractions of grains etc..
Under a genuine Gold standard monetary system, paper can certainly circulate, but it does so as a money SUBSTITUTE. Look at the first example on our History of (US) Paper Money page. That is a $US 50 Gold CERTIFICATE - issued before the US Federal Reserve existed. It is a US Treasury "receipt" for $US 50 in GOLD COIN which is "payable to the bearer on demand".
Before the advent of the Fed and the demise of the pure Gold standard in the US in 1913, nobody talked about "Gold prices". Nor did they talk about what Gold was "worth" in terms of US Dollars. A US Dollar was merely a name for a certain amount (1/20.67 troy ounce) of Gold. It was not an "elastic" currency. Its quantity was not susceptible to being increased to "meet the needs of business". Before the Fed, paper notes circulated side by side with Gold coin. The Gold coin was the money. The paper notes and the silver coin were the money substitutes.
Then the Fed came in and started to issue US Dollars. In lower denominations, these were no longer "Gold certificates", they were "Federal Reserve Bank notes" and NOT redeemable in Gold. Within twenty years, not only were US Dollars as issued by the Fed not redeemable in Gold (or anything else) but it had been made illegal for Americans to own Gold.
The concept of a "Gold price" set in US Dollar terms was born with the US Federal Reserve. It was cemented in place when Gold coin in circulation as money went out of circulation in the US in the early 1930s and when it became illegal for Americans to own Gold at all in April 1933. One of the main reasons why there was minimal furore in the US when President Nixon closed the Gold window in August 1971 was that Americans still were not allowed to own Gold.
But the fact remains that as soon as the US had a Central Bank in place, it became imperative for those in charge of the financial and banking system to manipulate Gold. They did that by introducing the concept of a Gold "price. They did it by gradually removing the redeemability of the circulating medium (the US Dollar) in Gold. They did it by banning Gold ownership and by arbitrarily changing the ratio between Gold and the US Dollar. And finally, they did it by cutting all ties between the US Dollar and Gold. This entire process took them fifty-eight years - from 1913 to 1971. And for forty-two years - from 1933 to 1975 - Gold was a dead letter for the American public because the ownership of same was illegal.
All of a sudden, in January 1975, Americans were once again allowed to own Gold. They couldn't use it as money as had their granparents though, they could only "buy" it with US Dollars. After being off the radar altogether for more than two generations, Gold was once again in place. And instantly, it had a "price", in US Dollar terms of course.
It is vital to understand that in ANY monetary system which does not use Gold as its money and paper as a money substitute freely redeemable in money (Gold), the manipulation of Gold is a constant. It is equally vital to understand that the only time that Gold has a "price" in terms of what is used as money is when Gold is NOT being used as money because it has been legally decreed that it cannot be used as money.
The US government and its mint fully understand Gresham's Law (bad money drives out good). That is why they stamp the "legal tender" value of their one ounce Gold Eagle Bullion coins as $US 50. It is perfectly legal to offer Gold Eagles in exchange for goods and services, just as legal as it is to offer US Dollars for same. But who is going to do it at an official "exchange ratio" of $US 50 an ounce when the actual Gold "price" is still in excess of $US 600 an ounce?
With the separation of Gold from what is used as money comes the concept of a Gold "price". Once that is established, the means by which to manipulate Gold come into the hands of those who separated it from what is used as money. Governments which repudiate Gold as money have no choice but to manipulate it. The question of whether they manipulate Gold or how much they are manipulating it at any given point in time are beside the point.
Yes, the methods by which this manipulation is carried out have become more sophisticated in recent years, as have the methods by which all sectors of the "market" and the economy are manipulated. This has been made possible by the gigantic improvements in high speed low cost computing power which have taken place over the past quarter century and especially over the past decade.
As long as the world operates under a fiat paper money "standard", Gold manipulation is going to be a constant. What is NOT going to be a constant is the success of that manipulation. We saw it slip between March and May this year when the Gold "price" soared from $US 500 to $US 700 plus. We have seen it retain traction since, with the Gold price now just above the middle of that range. Just because the monetary system as it presently stands is unsustainable does not mean that every conceivable effort will be made by those who control it to sustain it.
It's a fight to the finish and the stakes are getting higher by the day. While the Fed paused, the rest of the world has just gone on raising rates. US official debt "to the penny" hit $US 8.5 TRILLION on August 17. The US "war" in Iraq has now gone on longer than their involvement with the European phase of WWII. The fiasco in Lebanon has imploded the aura of the myth of Israeli military invincibility in the Middle East. The only thing holding the US Dollar upright is the size of the losses ALL Central Banks would take if it fell off a cliff.
Don't waste your time looking for "manipulation" of Gold. It is ever present. Nowadays, it is blatant and unceasing. It has been said that the manipulators don't care how obvious they are anymore. That is not the case. They have no choice but to keep the manipulation going and the only way they can keep it going "successfully" is to be ever more obvious about it. And the more obvious they get, the closer they come to losing control.