Lear Capital on Central Bank Gold Manipulation
Are Central Banks manipulating the gold price?One of our readers commented that Central Banks do so on a regular basis.And my opinion? . . . I hope so!!
On September 27, 2009, the Washington Agreement was extended for an additional five year period.This agreement regulates the amount of gold a central bank can sell in a given year, with now an aggregate limit of 2000 tonnes per year.This represents a 100 tonne per year reduction in the previous limit of 500 tonnes for any one bank.I found an excellent Mineweb article discussing details of the agreement for those interested.
One reason for the agreement was to limit volatility, or if you prefer, manipulation.The first agreement was announced September 26, 1999.Since that time, save for a period just after year 2000 once Y2K concerns were quelled, gold has done nothing but climb.Some may say the agreement worked. But did it?
It was not until 2009 that central banks reportedly became net buyers of gold, the first time since 1987.Early in the decade gold prices dipped to the $250 per ounce range in a short post Y2K selloff.From that point on, Gold has been a consistent winner, rising an average of 17% per year prior to 2009 and then at an annual rate of 25% during the 2009 calendar year.So far this year gold is pacing a 15% annual rise.
While anything can happen between now and the end of the year, if gold prices are showing us anything, it is consistency.Since 1999, cetral banks have been both sellers and buyers, yet the price continues a consistent rise.If the banks were trying to position themselves to be able to sell into strength, if it ain't broke, don't fix it.They were having their way as net sellers - why change the strategy and become net buyers?
I, for one, believe this paradigm shift came with the sudden realization that, despite a prolonged period of central bank sales, gold was rising.Oooops!Now we want our gold back.
During this period at least, I find it hard to believe there was a lot of manipulation going on.The more they sold the higher gold went.And when the shift came to becoming net buyers, news seems to come reluctantly or at least shrouded in rhetoric that suggests little to no interest in gold accumulation.
Case in point - China!While they would have us believe their interest in gold is passing, at best, they are out buying mines, concentrates and encouraging citizens to own more gold with every paycheck.Maybe that's the plan.Maybe some day they announce they are now buyers but are really setting themselves up as sellers.Whenever that day may come, it seems well off in the distance at this time.
To whatever extent some may refer to this all as manipulation.I say, keep it up.However, I think today's greatest manipulator is the general state of the world economy.Rising debts, weaker currencies and the threat of deflation followed by inflation are all contributing to rising global gold demand.
So much is still to be played out, yet gold prices continue to march higher.Some say we have been and are still going through a period of deflation.And gold? -- Higher!Most agree that a weaker dollar drives the gold price higher.I agree!But, in the last 12 months the Euro has fallen some 15% against the dollar and gold? --up 29% in the same period.
Most believe, inflation is ahead and then what?Will inflation and gold once again enter the picture hand in hand?Will the dollar turn back to a period of weakness once the Fed figures more ways to stimulate the economy?Answer these question for yourself and you likely come up with the reason central bank gold demand is on the rise along with demand from countries, insitutions and individuals alike.
Whatever has happened before and believe what you like, but these are manipulators of the gold market.Stay tuned.Visit us online for the latest on gold.
While gold prices in 1999 got a slight boost due to Y2K concerns, prices had languished for some 19 years as the Reagan era began, housing recovered from high interest rates and the tech bubble expanded.Gold, it seemed, was an after thought, at best.