33 Pages Posted: 17 Sep 2013 Last revised: 10 Nov 2016
Date Written: November 8, 2016
Central banks hold gold reserves that are designed to build confidence in fiat currency. This confidence is undermined if the price of gold falls significantly or rises significantly. Central banks thus have an incentive to manage the price of gold. Such management is evident in fixed gold prices in the early 20th century, in Central Bank Gold Agreements more recently, in an asymmetric price impact of monthly central bank gold reserve changes on gold price changes, in central bank gold lending and the gold carry trade. The asymmetric price impact is consistent with the ability of central banks to control falling gold prices but the inability to control rising gold prices due to the limited gold reserves. The analysis emphasizes the power of market forces relative to central banks and the need for central bank coordination.
Keywords: gold, manipulation, central banks, gold lending, gold carry trade
JEL Classification: E30, E40, E50, F33, G14
Suggested Citation: Suggested Citation
By Cullen Roche