Gold price manipulation proof

By bart
July 25, 2008 (slightly revised from original January 2007 article)

7/22/2010 - Mea culpa and our sincere apologies, the ECB changed a valuation date & methodology and we missed it. Charts have been corrected - there was no change in ECB gold holdings.

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.

Lastly, we do not mean in any way to imply that the ECB will win on the longer term with its control or manipulation of gold. Central banks, etc. did not win during the last gold bull market in the 1970s. Our primary intention is to show that control or manipulation exists, and that it should be taken into account for both traders and investors.

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 July 2008), 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 quarter ending date (the ECB only revalues its gold quarterly), 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.

The R-squared correlation (Pearson) is .64.

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