To emphasize the point: If gold were suddenly to spike up to $5,000 an ounce, all sorts of troubling questions would emerge for people. Such as, is there something wrong with the dollar? Is the world falling apart? A rapid spike in the price of gold would certainly cause people to question the current state of the world of fiat money, and that is an unpardonable sin when your money is, at root, faith-based.
Instead of asking why do you think the price of gold is controlled? I ask, why do you think the price of gold is NOT controlled?
Managed Prices and Signals
Aside from my opinion that our faith-based fiat money system mandates the management of the price of gold as a matter of fiduciary responsibility for those in power, here are some other facts that we have in our possession:
- The quantity of money is managed
- The price of money is managed (via interest rates)
- Because interest rates are being managed (mangled?) to near zero, it means risk tolerances and preferences are being managed towards taking on higher risk
- The price of oil is openly managed, with strategic releases from time to time
- The price of food and energy are managed via subsidies, both direct and hidden
- Official statistics (e.g., GDP. inflation, employment) are heavily biased, massaged, and managed to tell a rosy story vs. a more realistic version, which means that perceptions are managed
Out of all these efforts, certainly the one with the most dramatic impact is the management of the price of money. That sets the stage for nearly every ill that follows, especially including the encouragement of taking on additional risk and the inevitable malinvestments that result.
Bernanke on the Fed’s Interest in Stocks
In a Wall Street Journal op-ed, Bernanke openly revealed something that was already obvious to many: The Fed has been very carefully following the equity markets because of the importance of rising stock prices in fostering consumer spending. That is, the stock market is a signaling device, and the Fed is, naturally, quite interested that it signal the correct things.
More bluntly, the Fed is interested in seeing the stock market go up instead of down.
Here’s Bernanke in an op-ed placed in the Washington Post back in 2010 discussing the effects of QE2:
This approach eased financial conditions in the past and, so far, looks to be effective again. Stock prices rose and long-term interest rates fell when investors began to anticipate the most recent action. Easier financial conditions will promote economic growth.
For example, lower mortgage rates will make housing more affordable and allow more homeowners to refinance. Lower corporate bond rates will encourage investment. And higher stock prices will boost consumer wealth and help increase confidence, which can also spur spending. Increased spending will lead to higher incomes and profits that, in a virtuous circle, will further support economic expansion.
Yes, Virginia, the Fed does watch stock prices closely. And it targets their efforts to assure that the “virtuous circle” is in play. No real surprise there.