The highest inflation in 40 years, the most serious military conflict since World War II in Europe, the European and American economies have been weakened by the more than two-year covid pandemic and are on the verge of recession. Why hasn’t the price of gold shot up yet, despite the most favorable conditions for it in decades? The big banks held the financial system and pushed the prices of precious metals down in the short term.
This year has been a rollercoaster for precious metal prices. After the outbreak of the war in Ukraine, gold even briefly tested the historical highs of August 2020, only to then surrender part of its gains. Since March of this year, when gold reached a maximum price of around $2,070 per ounce, its level has undergone a significant correction to a price of around $1,700. Many were surprised by this development, especially as we face the biggest inflationary challenge since the late 1970s.
The price of gold cannot be cheated, but it can be influenced in the short term
Gold is a litmus test that shows how healthy the financial system is, how stable the economy is, and above all how healthy our existing money is or how much central banks are misusing it to create inflation. Gold cannot be cheated in the long term, but its price can be manipulated in the short term.
If we realize the function of this “litmus test” in the financial system, it is even understandable that the big systemic banks sometimes have to manipulate the price of gold so that it does not show that “the king is naked”. And this is exactly what we are witnessing this year.
High inflation makes it difficult for central banks, which would need to stimulate the economy in order to ensure further continuous growth of the economy and thereby help the sustainability of the debts of states, companies and citizens, but they cannot stimulate now, because they have started huge inflation with previous actions. And to make matters worse, they face challenges like the Green Deal and the energy crisis.
Gold would be twice as expensive on the free market
In this environment, the price of gold should literally shoot up. In a free, unmanipulated market, this would also happen. But the price of precious metals is formed in the paper market with contracts that are largely not backed by physical metal.
Thanks to this, the big systemic banks can increase the supply of paper gold and silver, thereby stopping its further growth. Or, if their supply gets really massive, they might even cause the price to drop temporarily. And this is exactly what has been happening in recent months.
Just for fun, the physical metals market exploded in 2022 and the demand for physical gold, but not the paper promises, is at an all-time high.
If the banks did not manipulate the price of gold and the price of gold would rise steadily along with the money supply, inflation, and risks, it would in real terms be double that, i.e. around $4,000.
There would be a sell off of stocks and money in the accounts
Investors and holders of money would begin to dump falling stocks, money in their accounts being wiped out by inflation, and flee to the safety of the yellow metal. This would weaken the financial system and disrupt its stability. It was clear to them that if they did not do this, the price of gold and silver would probably be many times higher now than at the end of 2021. The volume of sales was even so aggressive that it not only stopped the growth of the price, but even caused it to decrease. Of course, the banks made a ton of money on this downturn.
The manipulation ends, the banks will profit from the price increase
But everything indicates that this correction is already at its end. Further manipulation of the mine price would already be too costly and unnecessary for them. Moreover, these players can now profit from the future rising price of precious metals. The US dollar rose to 20-year highs in anticipation of rising rates. And a strong dollar usually means weaker gold and vice versa.
However, the US economy is entering a recession, and it is very likely that the US Fed will stop raising rates this fall to support the recessionary economy. This will weaken the dollar, which will push the price of precious metals up. The big banks will of course benefit from this development by buying gold and silver.
A recession in the economy is now almost impossible to avoid, and it is very likely that central banks will start stimulating again as soon as inflation subsides a bit. They will further debase already existing money.
Source: Golden Gate
Disclaimer: This article is only informative and does not serve as an investment recommendation according to Act No. 256/2004 Coll. about doing business on the capital market. In preparing this article, the author relied on publicly available sources. Neither Roklen Holding as nor Roklen360 as are responsible for any errors in the text or data.