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How the Fed is Suppressing the Gold Price

When the news of the Cyprus bail-in was the headline of every paper, did you wonder why the gold price dropped? Here we had the best reason to make safe-haven purchases, and the gold price rounds out the first quarter with a near 5 percent loss. What was going on?

The answer is that a banking crisis that involves stealing from deposit holders, a foundering euro, and increased physical demand aren’t the only factors having a say in the price of an ounce of gold. They’re actually playing minor roles. Instead, the pricing of gold is more affected by futures and forward markets, than it is by physical demand, due to the rationale that it is spurred by the urge to protect finances and not speculation.

The Real Invisible Hand

The real reason that the gold price is so low is because the Federal Reserve and other central banks want it that way. They are actively suppressing the yellow metal’s prices in order to keep interest rates down. They want stock market morale up and the gold price down. If investors lose faith in the almighty dollar, the market – the entire global economy that relies on the greenback – is in trouble.

The Fed manipulates the price of gold via the Exchange Stabilization Fund, an emergency relief fund design to stabilize the value of the dollar. By organizing “gold swaps” with other countries that it loans money to, the ESF can suppress the gold price and keep the dollar afloat a little while longer.

In a recent study by analysts at Sprott Assessment Management, Eric Sprott and Shree Kargutkar analyzed U.S. trade data since 1991 and found that U.S. exports of gold exceeded total U.S. production and recycling by more than 4,500 tons. How is this possible? The only reasonable explanation is that the excess came from the U.S. central bank making transactions that affected the gold price. Research into the gold holdings of the Bank of England reveals similar manipulative behavior.

Such action by central banks only serves to delay the inevitable. The Fed is trying to keep the dollar running on fumes for as long as possible, and suppressing the gold price is a very effective way to do that. This is actually a benefit for those who want to invest in gold bars and coins now, as the price is very low, and all but guaranteed to rise in the future.

Alasdair McLeod, a former stockbroker who demystifies such questionable central bank activities at FinanceAndEconomics.org, said, “For those that recognize that central banks have dug themselves into a hole from which there is no escape for the banking system, governments and ultimately paper currencies, there is an irrefutable logic in possessing physical gold and silver.”

Heeding the Logic

What is important to note is that the Fed can’t keep the gold price this low forever. Sooner or later, the house of cards that it has constructed will collapse, and those who shrewdly invested in gold when prices were low be okay when that happens. More than okay, in fact, as they will stand to profit substantially when the gold price rises.

If you are ready to heed the sound logic for owning physical gold and silver, Gold Coin can help you start investing. Our keen understanding of the gold market and how to invest in gold coins has kept our A+ rating with the Better Business Bureau intact for over twenty years. To start making financially sound gold and silver investments today, give us a call at 1-800-425-5672 and request a copy of our 2013 Gold Investment Guide, or email us and one of our analysts will get back to you as soon as possible.

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