In light of the Print-o-palooza event taking place in Washington these days, I am giving serious consideration to buying gold as a hedge against inflation. However, one thing that I’ve heard that concerns me is that the central bank may be manipulating the price of gold; keeping it down to make the dollar look stronger than it really is.
http://gata.org/
Now, I’m not completely convinced that this is anything but a run of the mill conspiracy theory, but there are those who know better than I, and I am asking them to chime in, one way or another, on this issue. Is this central bank manipulation of gold something to take seriously?
The Rev
Central banks DO have gold reserves and they DO occassionally sell them and lease them out. That said, there is no proof or evidence that they have been purposefully suppressing the price of gold. Gold is a volatile commodity and right now our economy is very volatile and unpredictable. It is not surprising that one month gold is raging towards higher highs while the next month, gold has lost some $200 per ounce. That is simply the nature of a very volatile speculator-driven commodity like gold in an extremely unpredictable economy.
Central banks can’t have that big of an impact on the price of gold. Usually they get JPMorgan or someone to sell a bunch of gold contracts and knock the price of gold on the COMEX down, but then gold bounces back in a few hours or days. Central banks or gold cartels more or less make weak gold investors loose faith in gold as a stable asset.
I think it’s a good thing for gold’s price to get artifically knocked down. It gives us a chance to buy cheap.
The G20 meeting announced that IMF may sell 403 tons of gold (12.9 Million ounces). This is one reason people are falsely selling their gold now. IMF gold will likely be bought up by other central banks, like China, and won’t even reach the open market. Also, the London metal market trades on the order of 18 Million ounces a day in Gold. Therefore, the open market could easily absorb any gold sales proposed by IMF. As for other central banks selling gold, they don’t typically sell all that much at one time. When they do - it quickly gets absorbed. Their actions are mainly to put volatility in the price to scare investors away.
Central banks trying to manipulate the price of gold is futile. Even the London gold pool of western central banks in the 1960’s failed to regulate it at $35/oz.