Friday, May 22, 2009

Is Gold manipulated?

Let's ask some former central bankers themselves:

Alan Greenspan, at a testimonial at a 1998 House Banking Committee hearing:

Nor can private counterparties restrict supplies of gold, another commodity whose derivatives are often traded over-the-counter, where central banks stand ready to lease gold in increasing quantities should the price rise.

From the Complaint in Howe v. Bank for International Settlements, et al., United States District Court for Massachusetts, No. CV-00-12485-RCL ( The reaction of the Fed and other central banks to the sharp rally in gold prices triggered by announcement of the so-called "Washington Agreement on Gold" in September 1999, as described by Edward A. J. George, Governor of the Bank of England and a director of the BIS, to Nicholas J. Morrell, then Chief Executive of Lonmin Plc, a principal shareholder in Ashanti Goldfields Ltd. (paragraph 55):

We looked into the abyss if the gold price rose further . A further rise would have taken down one or several trading houses, which might have taken down all the rest in their wake. Therefore at any price, at any cost, the central banks had to quell the gold price, manage it. It was very difficult to get the gold price under control but we have now succeeded. The U.S. Fed was very active in getting the gold price down. So was the U.K.

From Chairman Greenspan's letter to Senator Joseph I. Lieberman, Connecticut, dated January 19, 2000, elaborating upon the foregoing testimony:

This observation simply describes the limited capacity of private parties to influence the gold market by restricting the supply of gold, given the observed willingness of some foreign central banks -- not the Federal Reserve -- to lease gold in response to price increases.

Paul Volcker on the 1970's gold bull market:

Joint intervention in gold sales to prevent a steep rise in the price of gold, however, was not undertaken. That was a mistake.

Here's a quote from the economist John Maynard Kaynes (even though I don't agree with Keynesian economics, I agree with this quote):

Markets can be irrational longer than you can remain solvent.

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