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Central Banks and Gold

33 Pages Posted: 17 Sep 2013 Last revised: 10 Nov 2016

Dirk G. Baur

University of Western Australia - Business School; Financial Research Network (FIRN)

Date Written: November 8, 2016

Abstract

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

Baur, Dirk G., Central Banks and Gold (November 8, 2016). FIRN Research Paper. Available at SSRN: https://ssrn.com/abstract=2326606 or http://dx.doi.org/10.2139/ssrn.2326606

Dirk G. Baur (Contact Author)

University of Western Australia - Business School ( email )

School of Business
35 Stirling Highway
Crawley, Western Australia 6009
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

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