The Gold Price Over Time

After last week's deliberate price manipulation effort, many are asking again if it will ever end? Will the bullion banks ever allow the gold price to rise? 

Let's start this week by directing you back to last week. If you've not yet read my summary of the events of December 3-4, please review it now.

•              https://www.sprottmoney.com/blog/bullion-bank-intervention

Yes, of course the bullion banks manage and manipulate the price of gold. They've done so for decades, and no amount of fines and/or prison sentences has stopped them. Anyone who claims otherwise is either disingenuous or naive. But though The Banks manage price to their benefit and profit, this does not mean that price cannot and will not rise over time. It is imperative that you understand this.

And why was it necessary for The Banks to inflict such an egregious and overt price management event last week? Well, think about it for a moment. On Friday, December 1, the gold price closed at a daily and weekly ALL-TIME high. This meant that every single short position ever initiated by a bullion bank was underwater and threatening increased losses if price moved sharply higher in the short term. As such, drastic measures were required, and drastic measures were what you witnessed.

Sentiment and momentum were crushed. The daily and weekly charts were painted with easily-observable bearish candles. And the floodgates of speculator liquidations were opened in the usual wash-and-rinse cycle. (Just wait until you see the next Commitment of Traders report on Friday!)

This whole thing has led some to again question why it's worth it to hold gold in the first place. Why invest in an asset class where nefarious entities maintain monopolistic control over the price? And I get it. I understand. But we all must keep a few things in mind.

Reasons to Own Physical Gold

First of all, gold is not an asset class. It's money. As such, it provides diversification against the relentless devaluation of existing fiat currencies. I hold physical gold as an "insurance policy" against the inevitable end of the current debt-based monetary system. I suspect that's the primary reason you own it too.

Second, the current digital derivative and fractional reserve pricing scheme will not persist indefinitely. After the collapse of The London Gold Pool in 1968 (which was nothing more than a previous attempt at gold price management), the current system of derivatives, forwards, unallocated accounts, and ETFs was created to provide alternatives to physical gold ownership. This system presents investments that are supposed to be considered "as good as gold" or "gold price exposure", and its very existence relies upon some amount of actual physical metal as collateral. When that collateral is drained, the system collapses. This is what ended The London Gold Pool, and this is what will eventually end the current pricing scheme too.

But perhaps more importantly is a fundamental misunderstanding of gold's price performance this century. Many of us focus upon the daily changes of the gold price in dollar terms, but when gold is priced in other fiat currencies and over a longer time period, the price gains are remarkable. Here, gold is doing what it's supposed to do; namely, protect the holder against fiat currency devaluation.

In U.S. dollar terms, the heavily-managed gold price is performing well in the longer term too. While it's easy to cherry pick dates to show gains or losses over time, if we go back to the turn of the century, the gold price is up about 7X, as you can see below.

And even within this current price management scheme, the gains have been pretty consistent across all major fiat currencies. The chart below from Ronni Stoeferle shows the annualized gains since the year 2000 for gold holders versus almost every fiat currency.

Some years are red, but most years are green. As you can see, even within the "managed retreat" strategy of the bullion banks, dollar-priced gold has annualized a 9.3% gain this century. Last week's deliberate manipulation allowed The Banks to regain some control, and it bought them some time, but even after the event, the spot price as I type is $1978 after finishing 2022 at $1824. With three weeks to go in 2023, that's a gain of $154 or about 8.4%. A little Santa Claus rally into year end and the gold price is going to finish 2023 right at its 21st century average.

Gold Price in 2024

Next year promises all sorts of volatility, and we'll be writing about price forecasts in the weeks ahead. However, simply another 9% gain in 2024 would put price near $2200, and that certainly seems reasonable as the current pricing scheme continues. Maybe we'll do better? Maybe we'll do worse? But either way, understand that the rallies and the smashes will continue for as long as the bullion banks remain in control of the pricing scheme.