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Throughout history, there have been a constant flow of
schemes to try to manipulate the gold price and gold itself in terms of paper
money. These have come from governments, institutions as well as from
individuals. The aim has always been to either establish the value of
currencies or enhance that value in terms of gold. The first key to this is
to ensure that the gold price is made in the paper currency and not the price
of the paper currency in gold.
 At school you probably read
the book called the Alchemist, where villains tried to invent formulae where
they could transform lead to gold. While what they managed to do was a good
confidence trick, they could not replicate gold. Today the process continues,
but now the boldness of government has gone as far as to say that paper money
is better than gold in terms of its value. But gold is gold and for the prudent
and those wanting to preserve their wealth over the long term, nothing can
replace it.
Experiments using fiat currencies have been carried out
since the days of distant Chinese dynasties in attempts to emulate or replace
the real money of gold. The reason is simple and explained in a quote I
borrow from Mr. Popescu, ��Aristotle, the Greek
philosopher, student of Plato and teacher of Alexander the Great, was
mentioning fiat money 2,400 years ago when he said, ��In effect, there is nothing inherently wrong with fiat money,
provided we get perfect authority and godlike intelligence for kings.�� But we can��t, which is why in history,
there has never been a ��money�� that can retain its value or replace gold as real money, in all
seasons weathered by economies.
It is because we don��t have
perfect authority and governments do not have godlike intelligence that
central banks need to attempt to manipulate the gold price in attempts to
build and hold confidence in fiat currencies. Why do governments keep coming
back to these different types of money? They have a need to govern/control
all types of money, their economy and their people. Without control over
money the majority of a government��s power
dissipates. That��s man��s
history and his future, in this world.
That��s why governments find
themselves in opposition to real money, such as gold and silver, which
essentially restrict and, in the end, governs governments when extreme times
hit. This will happen in the near future once the monetary system fragments
and when it does, governments will turn back to gold and later silver and try
to hold as much as they can. But this does not mean they will move away from
fiat money, no, they will use precious metals to add credibility to
the rising quantity of paper money.
Please note we did not say backed by, or issued against
it. Within the need for government issued money to retain credibility the
concept of reformation of government issued money is unacceptable, because
that in itself would be read as an admission of failure and give rise to
falling confidence in it, an unacceptable option for governments. The level
of control over an economy must be maintained at all costs. Precious metals
will be used to reinforce that control. As always, this will be done in the interests
of the nation and its citizens.
Likewise, when governments manipulate the gold price, it
is with the intention of enhancing the acceptance of fiat money and our
dependence upon it as both a measure of value and a means of exchange.
Often legislation and taxation are used to enhance its
use and restrict the use of alternatives, either foreign money or precious
metals. Manipulation has also been used by governments acting in concert such
as after the ��closing of the gold window�� by President Nixon in 1971.
Let��s now look at the various
examples of manipulation of the gold price through history.
Gold��s Confiscation and
subsequent dollar devaluation:
FDR Issues Executive Order 6102 Banning
Gold Ownership
 In 1933 the most complete form
of manipulation was enacted by the U.S. when it confiscated citizen��s gold allowing them only to retain $100 worth of gold, at the
time this was five ounces of gold.
This brought the gold market to a halt with dealers
[except where these coins were defined as rare coins] closing down, storage
systems handing over client��s gold to the Fed and
the gold market going into hibernation in the U.S. for the next 41 years. Two
years later the U.S. government devalued the dollar to $35 to one ounce of
gold.While the reasons appeared plausible [to boost U.S. money supply and
protect the banking system, in the nation��s and its
citizen��s interests, was what the public was told �� listen to the actual speech hyperlinked above].
Many believe that today there are better ways of
achieving the same objective without gold confiscation, so why could it
happen again?
The world has become inter-dependent with the U.S. dollar
which is the center of the global monetary system at the moment and from
which nearly all other currencies stem. But the emerging nations, while
feeding off the developed world��s economies are
building a large degree of economic and monetary self-sufficiency. Recently
they agreed to set up an institution replicating the I.M.F. for the emerging
world. Its headquarters will be in Shanghai. Their path to an international
currency that will be an alternative to the dollar is well under way.
China is at the forefront of this as its economy is
expected to become the largest in the world by the end of this year or next.
It will bring its own currency forward as a global reserve currency, breaking
away from the dollar in the process.Without the U.S. dollar��s hegemony, the dollar cannot stand as the only measure of value
and as the sole global reserve currency. With this in mind the demand for
gold by central banks will rise to reinforce confidence in all currencies.
And with the supply of gold at 3,050 tonnes of newly
mined gold and ��scrap��
sales, at best, at 1,200 tonnes, the gold market will not be able to supply
the world��s needs for monetary purposes, in the
event it is needed to reinforce confidence in local currencies. Hence gold
confiscation, for completely different reasons than in 1933 is, in our
opinion, a distinct probability. With potential Yuan convertibility coming at
the earliest in late 2015 we are very close to that event.
After the confiscation of gold in 1933 followed by the
devaluation of the dollar by 75% in 1935, the bulk of the developed world��s gold moved across to the U.S. The devaluation of the dollar was
not reflected in foreign exchange markets in 1935, so gold continued to be
sold at $20 an ounce in countries outside the U.S. while the U.S. was paying
$35. This is why the U.S. amassed over 26,000 tonnes of gold before the
Second World War. We see this as part of the strategic alliance that matured
in the Allies coming together in that war. The control of gold had to be out
of the reach of the war in Europe. This price manipulation ensured that this
happened.
After the war and a period of recovery we saw the next
blatant exercise in price manipulation of gold:
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