Gold has always ignited passion – from the first cavemen who stumbled across the shiny metal, to gold bloggers hunched over computers.
It has become a symbol of love and the object of war.
So, it shouldn’t be surprising that gold conspiracy theories have made the rounds over the years. They range from secret government operatives conspiring to keep gold prices low to prevent their paper currencies from collapsing, to governments manipulating gold prices higher to fetch a better price when they sell their bullion reserves to meet debt obligations.
Those theories tend to heat up in times like these, when the gold market is volatile. Last September gold futures peaked at $1,771 after rocketing from $340 in only nine years.
What makes gold prices move is hard to figure out because gold does not trade on basic supply and demand fundamentals like oil or copper. The economy needs oil to power its machines and copper for its infrastructure, and producers then pull from the ground to meet that demand. Prices rise when the economy grows and demand is high.
Gold, on the other hand, has a few practical uses in electronic components but for the most part its value is determined by a belief that it will hold its value in extreme situations if the economy collapses or hyper inflates.
So, what do veteran gold traders think of the conspiracy theories?
“Nonsense” say Frank McGhee, head precious metals trader at Integrated Brokerage Services in Chicago. He’s been dealing in gold since 1976 and believes many of the conspiracy theories are self serving. “The conspiracy subscribers don’t understand how the market functions and look for a grand conspiracy when the market doesn’t act as they think it should”.
George Gero, precious metals strategist with RBC Capital Markets has been trading gold contracts on the floor of the Chicago and New York Mercantile Exchanges since 1974. “I have an open mind but have not seen any evidence of any conspiracy for gold” he says. To him gold derives its value from being easy to buy or sell, accepted around the world and a good barometer for the economy – and that’s more than you can say for paper money.
But not all traders brush off the gold conspiracy theories. NYMEX independent gold trader Eric Zuccarelli (“call me Zuke”) says the market, at the very least, is being manipulated indirectly by global central banks, which artificially stimulate the economy by increasing the money supply and keep interest rates near zero. “Its not such a stretch that central banks in the United States, Europe and Japan are all manipulating their interest rates and de-facto currencies in an effort to re-inflate the wealth effect and clamp down on the price of gold” he says. “That's fits nicely into the conspiracy bug's thinking.”
He takes that thinking even further adding that central bank policy can be seen as merely masking a global economy that is in deep trouble, and artificially fueling unstable stock markets with cheap money. “The ‘safe haven’ trade forces the money flows nicely down the cattle chute of slaughter, also known as equities” he says.
On a personal level he feels that the apocalyptic event gold bugs have been waiting for already happened in 2008 and the reasons to be in gold have come and gone. Inflation is near zero and equity markets are rising – at least until central banks begin withdrawing stimulus. “Will the other shoe drop when the central banks try to unwind? That's the big question for gold traders.”
The truth is out there.