Why Gold is A Manipulator’s Nightmare

From 2003 to 2014, Deutsche Bank manipulated the daily price of gold. In the past, they set gold prices in conjunction with four other banks through phone calls, and they positioned themselves before releasing the prices to the public. Of course, this archaic means of price-setting was done away with, but this situation showed gold to be uniquely manipulable. This should raise some concern for anyone interested in buying gold. Throughout the 20th century, numerous central banks and supporters of fiat money found ways to suppress the price of gold and prop up their own currencies. While gold has been continually manipulated, several recent developments have made it much more resilient to control. Higher numbers of gold buyers have decreased the ability of any one buyer to manipulate the price. Deeply interconnected international trade networks have also made price distortion nearly impossible. Finally, real time granular data has made price manipulation activity much more difficult, though not impossible. While proponents of unstable money will keep trying to find a way to devalue gold, their task becomes continuously more difficult.

It might be extreme to attribute all of the increase in gold holding to the weakness of the dollar, but the weak dollar is the most fundamental driver of gold’s increase in use. There has been a huge surge in central banks holding gold, and doing so at great volume. The weakened dollar and the US’s step back from being the respected world leader it once was means that central banks are scrambling to fill the void with the one asset that best hedges against the dropping dollar. From knowledgeable finance professionals to freedom-oriented preppers, retail investment in gold has also increased throughout the world. All of these appetites for gold make it much more difficult to drop the price. A wider range of people are willing to view a lower price of gold as an opportunity rather than a sign to step away. While in the past gold was bought by a smaller subset of institutions and investors, there is now a broad coalition willing to buy gold even at all-time highs.

While international trade for all goods has become more fluid in the last 30 years, gold is extremely intertwined with international trade in a way that makes arbitrage and price changes far more difficult than in the past. Appetite for gold in so many places means that collusion is extremely unlikely. Warring and rival countries will never agree to lower the price of gold if they know that it benefits the other. Attempts to lower the price of gold will quickly be taken advantage of by one’s enemies. There are some things that are possible to manipulate, but gold’s international importance makes it robust to price fixing attempts. When Britain held an unrivaled place of international prominence, it was able to manipulate gold price relatively effectively, but with today’s world of numerous more equal powers vying to stand out, no one can simply choose to manipulate as was once possible. Any attempt at manipulation will instantly turn into the arbitrage of opportunists across the world. 

The fluid nature of modern financial data has made it much more difficult to manipulate the price of gold. Access to the price of gold in any country, along with real time price tracking means that unusual transactions or price jumps have a higher likelihood of being recognized. In the past, a country could sell off a lot of gold at one time without being noticed as quickly, because the data wasn’t aggregated as frequently. Price jumps that look unnatural are instantly flagged by numerous regulating bodies across the world. The Deutsche Bank scheme of the past would be found out almost instantly today. Unless an institution is able to mask their actions by using thousands of fake accounts with randomly generated buy and sell times and amounts, any extreme purchases will be noticeable. The open and instant nature of the modern information economy makes gold a much more homogenous good than it was when different transportation costs and regulations could justify more significant price differences. Taxation on gold varies vastly by country and region, but the price of gold itself remains constant. The internationalization of the gold market simply means that countries that tax gold at higher rates are even more directly harming their citizens than they were before. They are increasing costs in a market with slim margins, and undermining their countries’ ability to store wealth stablely. While fraud is still possible, the sort of price manipulation that would give a meaningful payout is extremely difficult. 

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