What Drives the Price of Gold

Gold and the Monetary System

Price of Gold Portland


If I would know exactly what the price of gold will at any specific moment, I would be a multi-millionaire.  Maybe even a billionaire.  But I am not.  What I am is a student of gold.  That means that I learn every day.  This allows me trade profitably.  There is a lot to learn.  The on-going relationship between gold and men is so far over 3,000 years old.   In this article I will share with you one of the aspects of the gold business that drives the price of gold.

NOT a Simple Answer

I am in the business of buying and selling physical gold (and the other precious metals).  Because of this, with great fascination, I track the price of precious metals just about every hour that I am awake.  I don't just track the price of gold.  I also make every effort to know what actually really drives the price of gold.  One thing is for sure.  There are multiple matters that affect the price of gold.  Not just one. 

I can say this with absolute certainty:  The "price of gold" is highly affected by market forces.  In turn, the "market" itself is highly influenced by the decisions and actions of specific powerful individuals.  Things don't just happen.  They are made to happen.  Some of this things happen exactly as planned.  Others the exact opposite.  Others somewhere in between. 


The Root of the Matter:  Its About Trust

This is the situation with the gold price:  Multiple groups have multiple economic interests.   Some groups are much more powerful than others, but they are all constantly in a tug of war.  In modern society, the "Bankers" are by far the most powerful social group.  They control the monetary system.  The monetary system is what controls or economy and financial well being.  Currency, is just a manifestation of the monetary system.  So are interest rates and banks.  There are plenty of others. 

For the monetary system to be effective there needs to be trust.  In this context,  the most important trust needed is the feeling of certainty that the present currency will hold its value.  The more certain the population is about the currency in use to be exchangeable for  tangible physical items, the more stable is the currency, and therefore the monetary system the currency represents.   This is specially true of FIAT currencies.  FIAT currency is currency that is only value is because it is legal tender.  Other than that, it has no intrinsic value.  So as long as that currency is acceptable as exchange for physical items or services, it works.  The moment that ceases to happen, that currency becomes worthless.  History is full such instances.

Recent History Examples:

In the 1930 the German Mark collapsed.   There was such an inflation that its current value for exchange of good and services only lasted minutes. As a response, the Germans of that time converted any spare currency into Gold Wafers.  This wafers were thin sheets of 14K and 18K gold that could easily be hidden in clothing, luggage an anything that can be easily carried or worn daily.  Gold worked.  The Mark did not.

In the early 1970, the South Vietnamese Dong collapsed.  That is because the South Vietnamese government disappeared.  That was worse than the German hipper inflation.  Basically the currency became absolutely worthless.  Lots of people had to get out, and quick. Everyone that could exchanged whatever they could for 24K Gold Leaf.  Vietnamese gold leaf was super thin 24K gold sheet that were sown into shirt lapels and cuffs and any other garments, so as to be inconspicuous.  Those who had gold left.  Those who did not have gold had to stay.  Gold worked.  The Dong did not.

On the average, a currency type lasts between 20 years to 30 years.  That is not much.  In comparison, gold lasts forever!  In the medium to long term, what do you think will last longer.  Any currency or gold and silver?


The Multiple Incarnations of the US Dollar:

If you are reading this article, chances are you live in the United States of America, and the currency you use, is the U.S. Dollar.   Presently, this is one the world oldest,  and most trusted currency.  However, the "Dollar" of today is different than the "Dollar" of the past.  Below are the main previous incarnations of the US Dollar simplified to their most basic stages

FIAT U.S. Dollar:  Since 1971

  • Not backed by gold or any physical item.   It is a FIAT currency, meaning it is valuable because the government says so.  Dominated by the Federal Reserve Note.  No longer coexists with silver coinage.  This is known as the "Nixon Shock"

Gold Standard U.S. Dollar:  From 1944 to 1971

  • Backed by gold at the exchange of one ounce troy (1ozt)  of gold equal to $35.  Ceased to exist because the government created so much U.S. Dollar denominated currency that it was impossible to keep the $35 to 1ozt.  So Nixon got real and severed the now fictional equivalence.  Dominated by the Federal Reserve Note currency.  Coexists with silver coinage.


Transitional Bi-Metalic and Currency:  1913 to 1944

  • Silver and Gold (bi-metalic) coinage coexists with Federal Reserve Notes, Silver Certificates and Bank of Issue Notes (basically currency issued by private banks).   People were forced into trusting currency.  Silver dollars were progressively replaced by One Dollar Silver Certificates and then Federal Reserve Notes. 


Genuine Gold and Silver Exchange:  Prior to 1913

  • Genuine gold and silver exchange.  People used gold and silver coins.  Bank notes and US Government notes were not highly trusted and often highly discounted with respect to dollars.   People carried physical gold and silver.  


My Answer

The monetary system has an inherent interest in controlling the price of gold and silver.   That is because the moment people don't trust the currency of the present monetary system,  The monetary system is controlled by the most powerful bankers in the world.  They control the media, the governments and the politicians.  At their convenience and need, using the huge resources at their disposal, they stimulate the market for the result they desire.  This bankers don't control everything, but control enough to make sure things will go in the direction they prefer.  

One way to create more trust on the Euro and the Dollar, is to make the price of gold go down.    Then people don't flock to gold.   Other times the opposite is convenient to them.   So one of the main drivers of the gold price is the monetary system.   Now, if the monetary system collapses, then people will automatically transition to precious metals and tangible assets.   I just gave a few examples of this.


Bottom Line

The monetary system is one of the main drivers of the gold price