Central Banks Manipulating & Suppressing Gold Prices

Central Banks Manipulating & Suppressing Gold Prices – Industry Expert To RT

The comments below are an edited and abridged synopsis of an article by Ronan Manly

Central banks have a history of manipulating the gold price. Gold is an inflation barometer and an indicator of the strength of fiat currencies, and it influences interest rates and bond prices. Central banks hold large quantities of gold as a store of value and as financial insurance, because they understand its value and power within the international monetary system. The Bank for InternationalSettlements (BIS) frequently manipulates the gold price, and guides gold price suppression plans.

The most influential changes in the gold market were the introduction of unallocated accounts and fractionally backed gold holdings in the London gold market from the 1980s onwards, and the introduction of gold futures trading in the US in January 1975. This channels gold demand away from physical and into paper.

In unallocated gold trading, trades are cash-settled and there is rarely any physical delivery; thus unallocated bullion does not drive demand for physical gold. Trading positions are claims against bullion banks, which do not hold enough gold to back up the claims. In January 1975, gold futures were launched in the US to create an alternative to the physical market that would siphon off demand for gold. They are fractionally backed and mostly cash-settled, and their trading volumes are multiples of delivery volumes. This undermines the demand for physical gold, and allows the gold price to be formed in synthetic gold trading venues.

The gold lending market is another area in which central banks have the ability to cap the gold price. By supplying gold through loans and swaps, central banks disrupt the existing supply/demand balance, and this has a depressing effect on the gold price.

Central banks also sell gold covertly. The effect of these sales usually has a negative impact on the gold price, and is another tactic that central banks use to keep pressure on the price. 

Former Federal Reserve Chairman Alan Greenspan testified before Congress that “central banks stand ready to lease gold in increasing quantities should the price rise.”If central banks outlawed fractional gold trading, gold market participants would panic and unwind their paper positions, causing a disconnect between paper gold and physical gold markets.