Why gold price is not at $6k already and why it was 'managed' by the government - Luke Gromen
Gold is a political metal, and competes with U.S. treasuries, said Luke Gromen, president of Forest for the Trees, and because of this, government authorities have historically been trying to “manage the price.”
“It’s a political metal because it competes with the U.S. Treasury bond as a primary reserve asset and so to the extent that gold does well, historically that is a threat to the U.S. government being able to finance its deficits painlessly. So, there has been a need to manage the gold price and that’s not conspiracy theory,” Gromen said. “You can read any number of central bankers at the Bank of England, Greenspan at the Fed, the U.S. State Department wires and cables from the 1970s, they are stating that to be a fact that the gold price needs to be managed.”
Gold has the potential to reach $6,000 an ounce but is being held back, Gromen said.
“Gold collateralization of U.S. foreign obligations went from 20% in 1989 to 4%, 3% at the lows in 2003,” Gromen said.
Should it return to the same 20% level, gold should be trading at $6,000 an ounce, he noted.
“Most people that buy gold don’t end up buying physical gold, they end up buying a claim on gold,” Gromen said. “So if people want to buy gold, there’s one of two things that can happen, either the amount of paper, leverage effectively, on each physical ounce can expand in which case the price won’t rise or the amount of physical can rise in which case the price will rise. What we have seen, institutionally, systemically for the last 30 plus years has generally been expansion of the paper leverage instead of expansion in the price of gold.”