techniques. In one of these techniques, calledgold carry, gold is borrowed
(on paper and not physically) from the central banks (of mostly third-world
countries) at a low interest rate and is used to flood the market to keep the
price down or short gold and make money both ways.
Major players have included hedge funds and central banks of major
industrial countries and some oil-producing countries, in addition to invest-
ment banks and other private banks. As the chart shows, gold prices stayed
at $35 per ounce before August 15, 1971 when the official convertibility of
gold into dollars was in force. Exhibits 5.19 through 5.22 also indicate that
gold is currently overpriced in terms of coal, oil, rice, and wheat.
Gold Price Fixing
The world center of gold trading is London at the London Bullion Market,
operated by the London Bullion Market Association (LBMA).
The practice of fixing gold prices began in 1919. It continued until
1939, when the London gold market was closed as a result of World War II.
The market was reopened in 1954. When the central bank gold pool began
officially in 1961, the Bank of England (as agent of the pool) maintained an
open phone line with N. M. Rothschild during the morning fixing (there was
EXHIBIT 5.18 Gold prices, 1968–2008.
Money and Its Creation 125