Skip to main content
economy lab

As price of gold falls, conspiracy theories rise upOSMAN ORSAL/Reuters

Pity the poor gold bugs. After a terrific decade-long run up the mountain, their favourite metal has slid into a deep crevasse, all while they wait patiently for their most fervently held beliefs to come true.

Sadly, the U.S. dollar is showing no signs of collapsing, the euro is still with us and deflation remains a bigger concern than inflation in most key economies, despite the most aggressive global monetary easing in history. Not even heightened geopolitical risks thanks, to the Kim family kleptocracy, could prevent a dramatic decline that culminated Monday in the biggest one-day fall for gold in 30 years.

And when it comes to falling gold prices, conspiracy theories can't be far behind. The current list includes Cyprus's plan to sell off some $500-million worth of gold from its reserves – the largest bullion sale in the euro zone in four years – to meet its soaring obligations, which would quickly be followed by similar gold sales from much bigger stashes held by Italy, Portugal and other deficit-ridden members of the euro zone.

The latest theory involves a plot by the Federal Reserve and other central banks (usually at the heart of most gold conspiracies) and the big investment banks to cause panic-selling and get the general public out of the market.

"This is an orchestration. It's been going on now from the beginning of April," one-time assistant U.S. treasury secretary Paul Craig Roberts told King World News, under the headline: Fed Orchestrated Smash on Gold.

"Brokerage houses told their individual clients the word was out that hedge funds and institutional investors were going to be dumping gold and that they should get out in advance. Then, a couple of days ago, Goldman Sachs announced there would be further departures from gold. So what they are trying to do is scare the individual investor out of bullion. Clearly there is something desperate going on."

Mr. Roberts then attempts to shed some light on the Fed's dark motives for such intervention. "The exchange value of the dollar is [being] threatened, and if that collapses the Fed loses control over interest rates. Then the bond market blows up, the stock market blows up, and the banks that are too big to fail, fail. So it's an act of desperation, because they've got to establish in people's minds that the dollar is the only safe place, it is the only safe haven, not gold, not silver, and not other currencies."

So there you have it. There's nothing fundamentally wrong with gold's fundamentals, and there's usually a secret plot behind every sharp decline. Rarely do we hear of a conspiracy at work when prices go in the other direction.

With or without a conspiratorial backdrop, there is little relief in sight anywhere for the doomsday purveyors. That doesn't mean gold will continue its current nosedive. Bargain-hunters and short-covering speculators may well halt the slide, at least temporarily. And something unexpected could always pop up somewhere to drive prices back up.

Down the road, the bullish story will resurface as fiscal problems mount and inflation eventually returns to centre stage. But in the meantime, the gold bugs will be muttering about conspiracies and touting the buying opportunities for those with a long view of the metal.

Follow Brian Milner on Twitter: @bmilnerglobeOpens in a new window

Report an error

Editorial code of conduct

Tickers mentioned in this story

Interact with The Globe