Investments  

Book review: The Gold Cartel

With the gold price closing 2013 with the first annual loss in 13 years, this book could not have been more timely. Since the introduction of the gold standard, gold has often been regarded by investors as a unique store of value and a protection against inflation and currency devaluation. However, the gold price has not always behaved as expected, feeding rumours of possible central banks’ interventions in the gold market.

Dimitri Speck addresses these issues by trying to identify and link anomalies in the intraday behaviour of the gold price traded in different markets with central bank and government gold trading activity. He believes there is a cartel in the gold market in which central banks and governments work closely to stop the gold price from rising beyond certain critical levels. He attempts to prove that gold market interventions have been a normal practice since 5 August 1993, when he identified the first anomaly in the gold price movement.

The large stock of gold compared to its annual production has, says Mr Speck, allowed financial institutions to influence the price of gold, as only a small amount of this stock would be necessary to satisfy annual demand. But why would central banks suppress the gold price? Mr Speck identifies a number of reasons, from supporting the dollar, to controlling inflation expectations and influencing market sentiment.

Article continues after advert

Mr Speck suggests proof of gold interventions and underlying motivations by “reading between the lines” of archived speeches of central bank and government officials. The US Federal Reserve, in Mr Speck’s view, may have played a central role in alleged gold interventions as he claims the US would be the country to benefit most from a weak gold price. But how were those interventions pursued in practice? Gold sales and lending are claimed to be the preferred methods central banks have used to suppress the gold price. But, does a gold cartel really exist?

The jury remains out, as Mr Speck does not provide sufficient evidence to prove that gold price movements have been driven by “secret” gold market interventions by central banks. While his book certainly offers food for thought, further evidence is necessary to convincingly prove the existence of a gold cartel. However, while awaiting official confirmation of such interventions, Mr Speck’s book does offer a good read for gold fans.

Reviewed by Simona Gambarini