This article is in two parts. The first looks at the decades’ long manipulation of the gold price and the second looks at why this will end with gold returning to its monetary role at much higher prices.

When coming off the Gold Standard it was found that Britain could not cover its gold obligations, despite its own major source of new gold in South Africa. The paper it issued was far in excess of its gold’s ability to cover its promises. This was made so clear, simply by the amount of gold it held. Britain’s behavior in those days set the trend for subsequent monetary duplicity until now.

q       In 1933, with the horizon darkening as the prospects for another world war grew, the U.S. realized that the U.S. $ would not serve its role outside the U.S.A. Gold was the only accepted international currency available in wartime conditions, so the U.S. decided to fill its war chest with its own citizens’ gold. It passed a law requiring that they sell their gold at $20 an ounce, an act that was to result in the greatest manipulation of gold ever seen, because two years later they devalued the $ down to $35 per ounce of gold. These were the days when governments wanted gold to be a global currency.

q       But that was not all, they did not devalue the $ in terms of other currencies, allowing gold dealers to arbitrage between the States and the rest of the world by buying gold at the low prices in Europe and elsewhere, while prices remained at pre-devaluation prices, then selling that gold into the States at a 75% profit in the $. These $’ were then converted at the fixed exchange rates confirming the profits made. The overall effect was the States acquired over 26,000 tonnes of gold, a gold price manipulation of international proportions, but one aimed at giving real monetary power to the U.S. in the days of war.

q       In 1968 the $ was devalued again to take it to $42.35 an ounce in the hope of stemming the pressure against the $, which was being over issued and sent abroad [where it was described as Eurodollars]. But the Europeans didn’t buy this, at first, and used the “gold window” to get rid of these $’ selling it for U.S. gold. Again this was permitted by the U.S. in an attempt to restore credibility to the power of the U.S.$. But this failed and gold rose to $850 an ounce.

So right through until then, governments used gold to give credibility to paper currencies as gold gave them a ‘last resort’ payment means. But gold is a measurable item that cannot be subject to the abuse of governments when they over issue. The U.S. realized they did not want to be limited by gold and could not develop ways to use gold as a flexible backer of their currency. Gold kept highlighting the dropping value of the U.S.$ and the failings of the issuers and they didn’t like it. It was a precise mirror, showing up this behavior. So what could they do? With the growth of the world roaring away in the 60’s and 70’s and the ambitions of the U.S. at their height, gold had to be defeated, removed form its judgmental position, because the U.S. wanted to use their dominance of the political, financial and monetary global scene to their benefit. 

They were not prepared to see gold as a challenge to the growth of the $’ influence over the global economy. This growth was going to confirm U.S. global dominance. And gold got in the way. Gold had to be put in its place, but not sacrificed. After all, even today the U.S. has over 8,000 tonnes of gold in its vault, so we are told, certainly a strong statement of the belief in gold by the U.S. authorities. The States holds gold as insurance against bad times. They are not going to sell it.

The first step against gold [in the seventies] was to enhance the credibility of the $ in the face of its flooding over into the rest of the world. Brilliantly, it was made the only currency in which oil was paid for, so giving it the needed ingredients for an acceptable global reserve currency. After all who didn’t need oil? 

The second step was to manipulate the gold price downward so it lost its credibility as the money of last resort a place the $ wanted to take. The first steps were to sell it in such large quantities that its price fell dramatically and it became volatile. 

1)       First the U.S. held auctions of large quantities of gold, but the demand for this gold was overwhelming, so that didn’t work. Have no doubt in your minds that this was a blatant attempt to manipulate the gold price down. It was the first in a series of manipulative moves against gold. 

2)       The next step in the downward manipulation of the gold price was to make the I.M.F. sell other peoples’ gold in the same manner as the U.S. did, announcing the sales well in advance, to ensure the greatest downward pressure on the price. This again did not work very well because of overwhelming demand and those sales also stopped, without achieving this target. 

3)       This attack on gold was not convincing as the selling bodies retained the greater bulk of their gold, with no intention of selling it. 

4)       A new way was found to discredit gold by a rising number of Central Banks [supportive of the intentions of the $] fully aware of the importance of ensuring the paper currency world was not threatened by gold. This was to loan gold out to gold mining companies that needed to finance gold production. These gold loans allowed producers to sell this borrowed gold into the forward market at high prices at a time when the price of gold was falling and collecting the ‘contango’ – the higher price for gold as it also contained an interest payment. Then with these proceeds financing their mining operations they had few complaints. It accelerated the production of gold at a time when it should have been dropping in line with the falling price, while allowing mines to profit from past high prices. The volume of gold to reach the market rose dramatically as these moves did accelerate production. This was blatant interference and manipulation of the gold price and the market for gold and led to the price of gold dropping from its peak of $850 down to the low price of $276, at which price Britain sold its gold.

5)       Today we are in the eighth year of the Central Banks Gold Agreement in which they set the ‘ceiling’ of gold bullion sales. This is an attempt to manage the sales in a transparent manner. But it has turned from aggressive overhang of gold in the market place [with the persistent threat of government sales] to a tamed set of sales which are almost encouraging the gold price to rise, but without the volatile ‘spikes’ as seen in the past. But this is a form of manipulation that is waning. As such it almost encourages gold purchases, which are starting to be seen even amongst Central Banks.

The entire nearly 30 years has been a campaign of gold price manipulation to the downside. We have no hesitation in saying that the gold market has been subject to a decades’ long campaign not only to discredit it, but to manipulate it completely. But a change is coming.

© 2007 Julian D. W. Phillips
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