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Does Gold’s Price Matter to the Central Banks? No.

Written by Gary North on August 27, 2013

I have been writing about gold ever since my 1965 booklet, Inflation: The Economics of Addiction. That’s a long time.

In 1970, you could buy British gold sovereigns for $10. These were quarter-ounce gold coins.

In 2001, you could buy gold bullion for under $260.

Gold has skyrocketed. Does anyone in Washington care? No. Do central bankers care? If they do, it’s not reflected in what they are doing. China’s central bank buys gold. The West’s central banks do not.

No school of economic opinion cares about gold except for the tiny Austrian School. No textbook has promoted gold as a monetary reserve in 40 years.

Where do gold bugs think the Powers That Be “got religion” on gold? Where do they think the bankers were taught to worry about this?

Central bankers like things to be stable. They don’t like surprises. They presumably don’t like a rapidly rising gold price, because they might be forced to admit that they have lent out their nations’ gold reserves to bullion banks. But is this really a threat? The Federal Reserve has not allowed a gold audit in 60 years. Congress will not mandate one.

The public does not care. The economists do not care. Wall Street does not care.

Gold could go to $4,000 an ounce, but why would this threaten the present fiat money system? It’s a fiat money system. Gold went from $257 to $1,900, and nothing happened to the world of fiat money finance. Why would $4,000 make a difference to the superclass? Or $6,000?

Why would this mark a collapse of anything?

This system is rigged. When Nixon killed the last traces of the long-phony gold exchange standard in August 1971, the world of international finance shrugged it off in hours. “So what? Ho hum.” Nothing happened.

The system is rigged. It has been rigged ever since 1914 in Europe, and ever since 1933 in the USA. The last major restraint came off gold ownership in 1974, when Americans finally got back the right to buy gold. It promptly fell from $200 an ounce to about $100.

When I hear the word “collapse,” I reach for my squirt gun.

Economic erosion, yes. Monetary depreciation, yes. Recession? Yes. Collapse? Because of the price of gold as a trigger? I don’t see why. Not so far.

Gold’s price tells gold bugs the system is rigged. But we believe that without a rising price of gold. For most gold bugs, a falling price of gold testifies to the rigging. They blame the decline on manipulation.

The system is rigged irrespective of the price of gold. The price of gold is not proof of the rigging. The existence of central banks is all the evidence anyone should need. Sadly, it isn’t.

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6 thoughts on “Does Gold’s Price Matter to the Central Banks? No.

  1. fiat faith says:

    the price of gold is evidence of the rigging, if the people were not fooled by the fiat scam, gold price would be much higher, the dollars value much lower. gold price is determined by supply and demand, which is fueled by belief and faith.

  2. Gold has become a commodity like oil or pig bellies. It is no longer the basis of any monetary system, therefore it is irrelevant to the economic pressures that affect money. Silver also, for that matter. The base for monetary systems is the strength and stability of the governments that issue them. And therein lies our present problem. In my opinion, America is becoming weak and less stable than we have been used to. The next presidential election is the most important that we have faced since WWII. See my blog at http://cranky-conservative.blogspot.com

  3. Rabelrouser says:

    Mr. Owen,
    Kudos on your article, sum's up everything that the article you replied to outlines.
    The only thing missing, that no one has yet to say: "The king has no clothes"
    And that didnt work out so well either.

  4. I agree in the sense that gold follows the price of oil rather the dollar hence whenever there's uncertainty about oil gold rises but when the uncertainty disappears so too does the price of gold fall. After all, old is the backbone of the modern economy.

  5. the real backing for any economy is what is produced by it and whether these products are in demand. if a country produces a lot of smoked salmon and people go out of their way to get it, then that country needs no gold.

  6. another comment: from my reading of history it seems that gold was used to finance wars. Soldiers would fight for whatever country would pay them in gold or silver coins. The others could care less for gold or silver.