Is there a shadowy plot behind gold?

The idea of a central bank manipulating world markets packs an increasingly powerful emotional punch with voters

Image of Gillian Tett

Out there in the world today, a cabal of western central bankers is secretly determined to manipulate the world’s markets. They are doing this not via interest rates, but by rigging gold prices. More specifically, they have kept bullion prices artificially low in recent decades to ensure that our so-called fiat currency system – that is, money created by central banks – continues to work. For if the public ever knew the “real” price of gold, we would finally understand that our currencies, such as the dollar, are a sham … hence the need for that central bank plot.

Does this sound like the ranting of a Tea Party activist? A Hollywood screenplay? Or could there be a grain of truth in it? The question has been provoking hot debate among a small tribe of investors in America for many years, particularly those owning gold mining stocks. Right now it is also leaching into the more mainstream American political world.

As Republican candidates jostle ahead of the 2012 election, the question of whether America’s central bank has been debasing its currency – and how that is (or is not) linked to the value of gold – is cropping up with new force. Herman Cain, the former pizza executive who is now a popular Republican contender, hinted last month that he would like to return to a world where “a dollar is a dollar” and added that “yes, we do need a gold standard for that”. More recently, Newt Gingrich has voiced the same idea. Ron Paul, an outside Republican contender, has been lambasting the Federal Reserve for years over its easy money policies. He is now darkly warning of plots.

A group called American Principles in Action created a Gold Standard 2012 platform last year and is now fighting to make these issues an election issue next year. And on the extremes of the Republican party – and more libertarian circles of American life – a flock of theories about gold are now circling around, and taking root in the fertile soil of the internet.

I attended a dinner last week where Chris Powell, the treasurer of the Gold Anti-Trust Action Committee (Gata), was talking. Powell, an investigative journalist based in Connecticut, co-established Gata with a former commodities trader two decades ago, and he is convinced that the American government has long been manipulating gold prices as a matter of national policy. “Gold is a currency that competes with government currencies and has a powerful influence on interest rates and the value of government bonds,” Powell explains. “This … is why central banks have tried to control – usually suppress – the price of gold.”

This rigging continues even today, he adds. Never mind the fact that the gold price has soared by 22 per cent in a year: to Gata it remains far below the “proper” – non-manipulated – price. Thus, when the gold price tumbled last month, Powell blamed this on central banks, who “meant to knock down the gold price at a crucial moment”. (Check out www.gata.org for the arguments in full.)

Unsurprisingly, central bankers vehemently reject this plot idea. Indeed, when I pressed some of them on it, they laughed. “I never heard anything about any plots during my time at the Fed – we barely talked about gold at all,” splutters one former Fed vice-chairman, who points out that the Fed does not actually own any gold itself. Or as a European banker says: “How could we have secret deals for years, but nothing ever leaked?”

For my money, though, I think there are at least two reasons why it would be foolish simply to deride or ignore Gata. Firstly, some of its points have at least a grain of truth. Even if you find it hard to believe that central bankers would be dastardly enough to create a plot – or competent enough to do what Gata claims – the fact is that global commodity markets are pretty murky, central banks are often opaque and western rhetoric about “free” markets is often hypocritical. Those issues merit far more debate, not just among journalists, but central bankers too.

Secondly, even if western elites hate these gold conspiracy theories – in fact, especially if they do – they need to recognise that they tap into a deep cultural vein. Right now, many western voters are profoundly frightened about the economy. They are also confused by its unpredictable and mysterious nature. Consequently, the idea of a central bank “plot” packs an increasingly powerful emotional appeal, and voters are hungry for explanations and scapegoats. In that sense, the work of Gata might be seen as an echo of the cargo cults that anthropologists study in the Pacific islands: something that offers pattern and meaning amid terrifying disorder.

Whatever the “truth” behind these plot tales, the one thing that is clear is that these accusations are unlikely to disappear soon. Not, at least, while the world’s economy remains so unstable and terrifying for ordinary mortals. Or, possibly, until that gold price really soars.

gillian.tett@ft.com

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