Gold price manipulation proof, M3 update

Note: this article has been completely superceded by a revision that incorporates the addendum, etc.

By bart
January 22, 2007
Addendum June 3, 2007

There's really not much to say, since the raw charted data is so obvious, but there are some facts.

The gold trading record of the ECB, since 1999

The close-up gold trading record of the ECB

"So the question is, having very consciously and purposely tried to break the bubble and upset the markets in order to sort of break the cocoon of capital gains speculation, we are now in a position—having done that and in a sense succeeded perhaps more than we had intended—to try to restore some degree of confidence in the System."
-- Alan Greenspan, Chairman of the Federal Reserve.
Source: Federal Open Market Committee (FOMC) meeting minutes from March 22, 1994 (page 41)(note that the source is a large pdf file).

"Central banks stand ready to lease gold in increasing quantities should the price rise."
-- Alan Greenspan, testimony to Congress on July 24, 1998

Gold Market Lending, an excellent treatment of many issues in this area from Blanchard and Company, Inc.

Note for researchers and the curious:
The ECB data for gold and receivables purchases and sales is both here and is also linked in the first bullet above. It brings up a search page in the ECB's database. Just check/select the first option ( the key is "ILM.W.U2.C.A010.Z5.Z0Z" as of late January 2007), and then click the "show selected data" button just above it. That will bring up the actual weekly data going back to 1999, which is in millions of Euros.

The only adjustments we've made to that raw data is to convert the values into troy ounces using the Euro gold price on the week ending date, and then converting to metric tonnes using a factor of 32,151 troy ounces per metric tonne. There are undoubtedly some minor discrepancies due to the conversion process, but not enough to materially change the results.

Also, Empirically observed covariation is a necessary but not sufficient condition for causality.

Gold price manipulation proof, addendum

By bart
June 3, 2007

There has been a question raised by a number of readers about our calculation methodology, as specified above in the second paragraph under "Note for researchers and the curious:". Their point, and there's some evidence of it, is that the raw numbers are expressed in a gold price which is only adjusted roughly quarterly by the ECB, as opposed to weekly as we oroiginally calculated.

We have therefore added a light grey line to our two charts showing our best guess of the value of tonnes on hand every week, assuming that a fixed gold value was used. The quarterly dates chosen for that fixed gold value were the closest week ending dates to the 15th of January, April, July and October. (August 2007 - switched the gray and black lines to reflect that we were incorrect in our initial assumptions, and thanks again to alert and knowledgable readers who point out our inadvertent errors.)

M3 update

Just last week, we broke above a 12% annual rate of change which is the first time that has happened since May 2001. For what its worth, the official recession started in March 2001.